Q1 2020 Earnings Call

[music].

Greetings and welcome to salaries first quarter 2020 earnings call.

[music] they question answer session.

The formal presentation.

If anyone should require operators system started conference. Please press star zero on your telephone sheet.

As a reminder, this conference is being recorded.

It's now my pleasure Chimps is your host Ericsson.

Understood Okay.

Thank you you may begin.

Thank you and welcome to Sirens first quarter 2020 financial results conference call, it's called being broadcast like it to be accessed on Investor Relations section of the firing website before we begin. Please let me remind you that during the course of this conference call Sars management may make forward looking statements.

These forward looking statements are based on current expectations that are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations.

These risks are outlined in the risk factor section of our SEC filings, including our annual report on form 10-K filed on March 32020.

Any forward looking statements should be considered in light of these risk factors.

Please also note that the safe Harbor any outlook, we presented as of today admitted.

Undertake any obligation to revise any forward looking statements in the future.

Also during the course of this conference call you made that non-GAAP measures when talking about the company performance reconciliations to the most directly comparable GAAP financial measures are provided in the tables in the earnings press release issued today and available on the Investor Relations section number website. These financial measures included.

It doesn't that circuit it should be considered in addition to not instead of GAAP measures.

On the call today, we have right Jackson, Chief Executive Officer, Mike Maestro Chief Financial Officer.

I'll now hand, the call Liberty Brett.

Thanks, Eric I'd like to thank everyone for making time to join our call today.

Clearly the first quarter was a challenging time for organizations globally due to the cobot 19, pandemic and the chaos and disruption caused.

Like most businesses. So I run took the appropriate steps in March to protect our team by adopting a work from home posture prohibiting travel and ensuring that we could maintain a high level of operational readiness to support our customers without disruption.

I'm proud of our team for quickly adapting to a new style of work, while dealing with the effects and constraints of the pandemic.

Iran has teams spread across six countries. So we are used to working virtually but I've been very impressed with the level of productivity. The team has displayed while working from home that productivity allowed us to stay focused on executing our new strategy.

Despite the external challenges our team achieved our Q1 operational milestones, including exceeding our bookings plan and ensuring a strong contract renewals right in the quarter.

As previously reported we took actions early in the year prior to the Cobot 19 crisis to reduce expenses and we're fortunate to raise capital in March. These two actions put cyren in a much stronger position and give us much more flexibility to operate for the crisis.

Well, we hope that the worst of the crisis is over and conditions will improve the fact is no one knows when economies and business is what we turn to something close to normal. So we intend to continue closely monitoring our business and making whatever adjustments are necessary to ensure that cyren is able to support our customers and make.

Progress to build shareholder value.

Based on our experience to date, we firmly believe that cyber security remains an important priority among customers and prospects in our target markets. In fact, the threat landscape is more active than ever given the remote working environment are now standard.

Email based threats, including phishing attacks that exploit the cobot 19 crisis are clearly on the rise and various cyber security industry analysts have reminded us that the majority of cyber attacks start with email.

Given this we remain bullish on our strategy and our current and planned cloud based solutions to protect customers from a variety of threats from E mail and from the web.

In past calls I've outlined our new strategy in our key growth initiatives. One of these initiatives is to provide enterprises with an email security solution that addresses the escalating evasive fishing problem. After several months of working very closely with a number of early adopters, we launched Cyren inbox security for.

Microsoft 365 on April 27.

Simon Inbox security is a cloud service that fully integrates with Microsoft 365, and user Onboarding is accomplished in a few clicks. It provides an additional layer of security and more effective protection against evasive fishing and business email compromise than legacy secure email gateways it.

<unk> continuous monitoring of in boxes with automated threat detection, driven by sirens Globalview threat intelligence as well as automated response and remediation saving IP and security teams time and effort.

In addition to our automated fishing detection, we have provided a mechanism to engage users by enabling them. The easily report suspicious emails, which reinforces security awareness. We are proud of our product team for delivering a unique product to the market on time and we appreciate our early adopter customers, who help guide our effort.

Yes.

We believe that Simon Inbox security addresses a pervasive problem, representing a large market opportunity and we look forward to this new revenue stream.

Many of our early adopter customers immediately started seeing value from sovereign Inbox security. One. Recent example is a mid sized company with approximately a thousand users. Despite having an email security solution already in place from another vendor they were infected by ransomware, which penetrated several Microsoft 365, mailboxes and now.

Were infected several computer systems.

So I read in box security immediately detected other compromised accounts and remediated numerous infected mailboxes setting their IP organization. Many man hours of work the cleaning infections. The customer subsequently rolled out our product to all of its employees and shortly thereafter signed a three year contract just days after product general avail.

Stability.

There are currently over 200 million, Microsoft 365, Mailboxes in service and we believe there are many that are experiencing similar challenges with fishing, we invite all Microsoft 365 users to try Simon Inbox security for themselves and added a free trial offer on the sovereign homepage.

While the Big news, it's been the release of our new anti phishing product. Our team continues to execute on our other growth initiatives, which relate to leveraging our core threat intelligence services.

We aim to grow our already strong position in the OEM market, where our threat detection services and threat intelligence data both powered by our global view security cloud are used by leading email providers inside <unk> cyber security vendors, we're working hard to enhance our product offerings and aggressively building pipeline to drive new customer acquisition.

In addition to expanding our OEM market position our product team is executing our road map with deliverables to enable us to expand our threat intelligence services into the much larger enterprise market.

We look forward to sharing further progress during our next call I'll now turn the call over to Mike who will go through the first quarter financials.

Thank you Brett and good morning, everyone I'm pleased to present, our first quarter 2020 financial result for more detailed results. Please refer to the earnings press release that was issued earlier today is posted on the Investor Relations section of our website and our quarterly filings on form 10-Q.

Please note that we present, our financials under U.S. GAAP accounting standards, including non operating expenses and then I will discuss certain financial metrics on a non-GAAP or adjusted basis, which excludes those non operating items. Please refer to the table in today's earnings release for a reconciliation of our GAAP to non-GAAP result.

GAAP revenue for the first quarter of 2020 was $9.6 million, a decrease of $6000 compared to $9.7 million reported during the first quarter 2019.

On a constant currency basis, Q1 revenue increased approximately $78000 year over year and revenue was also up $120000 over last quarter.

GAAP gross margin for the first quarter were 63% compared to 59% during the Q1 2019.

On a non-GAAP basis gross margins remained constant at 68% compared to the first quarter 2019.

First quarter GAAP net loss was $2.8 million, a decrease of 40% compared to the 4.6 million dollar net loss reported during the first quarter 2019.

On a per share basis GAAP net loss was five cents per basic and diluted share compared to eight cents per share during the first quarter 2019.

GAAP operating expenses for the quarter totaled $8.6 million down from $10.5 million during Q1 19.

The decrease in operating expenses is mainly due to a reduction in GAAP R&D expense, which decreased from 43% of revenue during Q1, 19% to 35% of revenue in Q1 2020.

The decrease in GAAP R&D expense during the quarter can be attributed to higher R&D capitalization of technology related to our new product development efforts around Iranian box security and enterprise threat intelligence offerings.

On a non-GAAP basis R&D expense also decreased from $4.9 million to $4.5 million. During Q1 2019 in Q1 2020.

Sales and marketing expense for the quarter were $3 million compared to $3.9 million. During the first quarter of 19, representing a decline from 40% of revenue to 31% of revenue.

Yep.

Yeah, sorry, GNS expense for the quarter with $2.2 million or 23% of revenue compared to $2.4 million or 25% of revenue during the first quarter of 19 as Brad mentioned earlier in the year, we have taken steps to reduce expenses in the business and as a result total reported head count in the company at the end of Q.

One was 234 employees compared to 272 at the end of Q1 19.

These initiatives also had a positive impact on our non-GAAP result on a non-GAAP basis sirens first quarter 2020, net loss with $2.8 million or lots of five cents per basic and diluted share down from a non-GAAP net loss of $4.4 million, an eight cents per share during the first quarter 2019.

Sirens non-GAAP net loss excludes the number of noncash items, including the effect of stock based compensation amortization of intangible assets and capitalization of technology.

Please refer to the table in our press release for more details on America reconciliation of GAAP to non-GAAP results.

During the quarter Weve experienced operating cash usage of $4.4 million compared to operating cash usage of $1.3 million during the first quarter 2019.

The reason for the higher cash usage for the quarter with that we received a multimillion dollar three year prepayment during the first quarter 2019, which distorts the comparison to a year ago overall, our cash balance increased from $11.6 million at the end of the fourth quarter to $15.1 million at the end of.

The first quarter.

This includes proceeds from a convertible debenture offering that closed in the third week of March which was discussed on our last earnings call. As a result of the debenture offering and the previous 2018 convertible note. We now have approximately $19.4 million in data on the balance sheet.

During the quarter, we renewed too large and longstanding threat intelligence customers can multiyear multimillion dollar renewal.

The customers used a combination of sirens email security engine malware detection engine and fishing detection services.

Both had been customers for more than 12 years. So these contract renewals ensure that they were main customers for over 15 years, a testament sticky nature assignments products.

Brett mentioned some of the challenges related to the ongoing covert 19 crisis and related economic uncertainty, we will continue to manage our financial resources diligently I believe that we continue to continue to operate the business through the ongoing crisis.

We believe that the security services, we offer our mission critical and at this early stage. We don't believe it will have a material impact on contract renewals or new business, specifically related to covert 19.

Our current sales efforts are primarily focused on large enterprise and technology vendors, many of whom are less susceptible to financial impact from the economic slowdown.

I'll now ask the operator to open up the lines for QNX.

Thank you we will now be conducting a question and answer session.

If you like to ask a question you May press star one on your telephone keypad.

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Our first question comes on the line, Okay got it with Craig Hallum. Please proceed with your question.

Great. Thanks for taking my questions.

Executing in a tough environment guys.

So.

I guess, just maybe Brett could could you give a little bit of an update on the Microsoft.

Ladies and ship and progress there and kind of what what you've seen in terms of penetration into that that partner channel.

Oh, Yeah, that's a that's a pretty broad question.

So let me just ask US clarify a clarifying question penetration into the broad channel can you be more specific on that.

Yes, so what what what have you seen in terms of uptake.

Your products in the Microsoft Office, 365 base and for your ATP product.

Got it so the let's let's start with the the first piece.

So cyren Inbox security is our new anti phishing product that targets fishing in the Microsoft for 65 environment as we talked about.

We literally just launched a product. So we don't have any data for you yet on channel uptake.

We expect to see signs of uptake over the next 90 days.

It is important to note that just after launch we Didnt signed a distribution agreement with Arrow.

A large distributor and does that agreement covers distribution of our product a in EMEA, we expect to work with arrow in other geographies as well arrow has great reach into.

The partner ecosystem, especially the Microsoft partner ecosystem.

So we think this is an example of some of the initiatives that we will undertake over the next 90 days to launch see I guess I read in Bucks security into the channel, which will enable us to scale revenues more quickly overtime.

On the other pulp point on ATP nothing has changed with respect to Microsoft defender ATP as we have previously reported we've had conversations with Microsoft for a number of months about.

Integrating our web filtering into ATP, Microsoft has yet to make a decision on when or how they will go to market and that's that's really all I know at this point.

I certainly suspect that the cobot 19 crisis has delayed things even further.

So we'll continue to monitor the situation and continued to have conversations with Microsoft as they make their go to market decisions.

Got it I appreciate the color. There then maybe a follow up for me just on on the new Inbox security product.

Brett can you just talk about <unk>.

Go to market changes, you've made and kind of the addressable market or at least maybe not addressable market, but near term market opportunity from a direct standpoint for that product.

So I will it's I think it's worth mentioning the addressable market share because we spent a lot of time, a going through a Tam analysis a early in the project.

Subs and that we think this is a billion dollar plus market opportunity.

Total addressable market.

As I mentioned in my previous comments.

There are more than 200 million Microsoft 365.

Mailboxes in production they dominate the enterprise male space.

So that's the opportunity we're talking about.

We have a dedicated enterprise go to market team.

As opposed to our OEM go to marketing.

We have been building pipeline pre selling if you will cyren inbox security for several months prior to the ER launch on April 27.

So we have a fairly healthy initial pipeline already in place that our teams are focused on converting and early days, but we're optimistic you may recall from past calls we have had.

Experience with a number of early adopter customers over the last several months. So we've got a good idea of the kind of value the product can provide customers.

And so we expect to be successful converting a this initial pipeline that we've built now going going further with the product in the market. We have ramped up our demand generation efforts and we are now moving from pre selling to selling the product.

And as I mentioned with the Arrow example, we will start building indirect channel to complement our direct selling efforts.

Okay I appreciate the color thanks, guys.

Thank you Jay.

As a reminder, star one to ask a question.

There are no further questions. Thank you I'd like to end the call back to management for closing remarks.

Thank you all for joining us on the call today, we look forward to keeping you updated on sirens progress over the coming quarters have a good day.

Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.