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Cyan Inc (CYNI)

Q2 2013 Earnings Call

August 06, 2013 05:00 pm ET


Bonnie McBride - Vice President, Investor Relations

Mark Floyd - Chairman and CEO

Mike Hatfield - President, Director

Mike Zellner - Chief Financial Officer, Vice President


Simona Jankowski - Goldman Sachs

Rod Hall - JPMorgan

George Notter - Jefferies & Company

Brent Bracelin - Pacific Crest Securities

Brian Freckmann - LS Capital



Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Cyan Q2 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions)

I would now like to turn the conference over to Bonnie McBride, Vice President of Investor Relations. Please go ahead.

Bonnie McBride

Thank you and thank you, everyone for joining us today for Cyan Second Quarter 2013 Earnings Call. By now you should have received the copy of yesterday's earnings release. If you have not, please visit our website at (Inaudible) contact information if you should need following this call.

Joining us today from management are Mark Floyd, our Chief Executive Officer, Mike Zellner, Cyan's Chief Financial Officer and Mike Hatfield, Company's President and Founder.

During the course of today's conference call, we will forward-looking statements regarding a number of (Inaudible). These include forecast of future financial results and business performance, the market and prospective customers for the company's product, product plans and capital expenditures, trends affecting gross margins, operating expenses and operating [results] for future periods and other matters.

Forward-looking statements include those and which use the terms belief, anticipate, expect and target. These statements are just predictions and actual results or events may differ materially. We refer you to the documents the company files from time-to-time with the SEC. These documents contain important factors that could cause actual results to differ materially from those contained in our forward-looking statements.

Please also note that we will be discussing certain non-GAAP financial results. Our GAAP results and recompilations of non-GAAP to the most comparable GAAP measures can be found in our earnings release and in the IR section of our website.

Before we begin, I would also want to let you that the information we are providing represents our views of the matters discussed as of today August 5, 2013, except to the extent that we have a legal duty to update, we do not expect to our closure even if circumstances change.

I would now turn the call over to you, Mark.

Mark Floyd

Thank you, Bonnie and thank you to everyone participating today in Cyan's first earnings call as a public company, we appreciate having the opportunity to speak directly to all of you, share our perspective on the business and update you on how we are progressing in the market.

Hopefully you will come away from today’s call with a clear sense of our growth strategy and investment we are making to create value over the long-term. This afternoon, we are pleased to report record revenue of $31.7 million for second quarter, reflecting a 37% increase over the second quarter 2012 and a 20% growth over the first quarter of this year.

While Windstream continue to be a very good customer of us, revenue from our other customers grew sequentially 43% and 95% year-over-year. We also achieve improvements in gross margin of 43.5% which is continuing the trend for the long-term financial objectives and importantly demonstrate the leverage of our financial model.

For those you that are new to the Cyan's story, let me give you a brief overview of what we are doing and why it's important. Cyan's goal is to establish our position as a leading provider of open carrier grade networking solutions. This strategy addresses the fundamental shift that is now occurring and how end customers access and use data.

We all understand how the data center was virtualized and how these virtualized compute and cloud resources has created an on-demand world, but there is a problem. There is still one major components of our communications infrastructure that's monolithic and static and that's the network.

Cyan is taking a leadership role in network virtualization, so these networks can be dynamic and the software [controlled] the cloud and data center resources to which they are connected. This approach is often called software defined networking or SDN. And it represents a huge opportunity for Cyan. So, why is Cyan important? Today, service providers are under immense bandwidth pressure and their existing business models are becoming unsustainable. To obtain greater efficiencies from new and existing infrastructure and develop and quickly deploy value-added and revenue-generating services, service providers are starting to look at software from hardware and moving towards network virtualization.

SDN is the key to this transition. SDN delivers the orchestration, virtualization and control of the service providers required to improve network scale and elasticity. This technology reduces operating costs and accelerates time-to-market for new services. SDN also enables providers to virtualize capacity and network functions in order to quickly and effectively tailor services for customers.

Finally by shifting controlled software off to the hardware SDN significantly reduces the cost of hardware, which reduces the CapEx for network operators and significantly improves new business models. We are seeing operators across the globe start to embrace SDN with engagements to ranging from initial investigation and visibility testing to active deployment.

There is a second fundamental transformation occurring in networks today driven by the increasing deterministic traffic patterns within the core. Areas to design their networks to handle many to many connections flowing through the core are now seeing traffic patterns that for the most part flow between just a few large data centers and content hubs.

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