Skellig Capital Begs Concurrent Computer To Buy Back Shares

Concurrent Computer NASDAQ: CCUR) shares are under-priced and Skellig Capital and Robert M. Neal, head of Skellig, want to remedy that. Together, the man and the fund hold 5.86% of Concurrent’s 9,247,000 shares outstanding.

Skellig wants Concurrent to buy back shares since nothing else has worked to improve shareholder value. Skellig Capital is wrong. Concurrent’s shares are up 120% over a two year period compared to 90% for the NASDAQ. That takes the teeth out of the Skellig argument.

The Neal letter is worth reading, in part because the argument is absurd.

Skellig Capital Management LLC

117 East 55th Str

New York, NY 10022

February 22, 2011

Concurrent Computer Inc.

The Board of Directors

Mr. Steve Nussrallah, Chairman

Mr. Dan Mondor, Chief Executive Officer

4375 River Green Parkway

Suite 100

Duluth, GA 30096

Dear Concurrent Board Members:

Skellig Capital Management LLC is the second largest shareholder of Concurrent Computer Inc. (“Concurrent” or the “Company”), with current ownership of 541,500 shares of common stock, or approximately 5.9% of the shares outstanding. We have previously attempted to engage with management and the Board of Directors (the “Board”) regarding our views on the Company and opportunities to greatly improve value for shareholders. As you know, on July 28, 2010 we sent a letter (the “July 28 Letter”) recommending that the Board use a portion of the Company’s excess cash to implement a share buyback program. Since the July 28 Letter we have spent a great deal of time reviewing Concurrent’s capital structure and its business prospects. Our further analysis confirms our recommendation made seven months ago, namely that the best option to produce a significant long-term return on investment for Concurrent’s shareholders is for the Company to repurchase shares of its own stock via a tender offer. We are not advocating anything aggressive, complicated or rash. We simply are urging that logic prevail in the execution of your fiduciary duties to act in the best interests of shareholders, the true owners of the Company.

Concurrent management has continued to execute their business plan, bringing innovative and exciting new products to market well ahead of competitors, winning new customers, and generating substantial excess free cash flow. The Company’s accomplishments in these areas have been stellar and we applaud management. Nevertheless, the market valuation of Concurrent fails to reflect this substantial progress. Concurrent remains valued at approximately the sum of the cash on its balance sheet ($32 million), plus the amount paid to acquire Everstream ($15 million), the predecessor technology to the Company’s fast-growing Media Data & Advertising Solutions (“MDAS”) product line. There is almost no implied value for the rest of Concurrent’s business lines and no recognition in the market for Concurrent’s growth prospects, which we believe should be apparent to all.

Market Cap  (2/18 close)	Net Cash	MDAS  (at cost)	Implied Value of  VOD & Real Time
$55MM	$32MM	$15MM	$8MM

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Solid Operating Performance

Concurrent’s operational accomplishments have been superb. It is evident that the business has the potential to grow quickly and profitably over the next several years. Specifically, Concurrent has announced several promising new customer engagements, which expand the Company’s market opportunity both in geography and customer base. These include a video-on-demand (“VOD”) contract with Jiangsu, the largest cable operator in China, an over-the-top engagement with a tier one telecom carrier in Latin America, and a second multi-year MDAS contract. Unfortunately, these accomplishments have been completely overlooked by Wall Street. The perception on Wall Street remains that Concurrent is a company that lacks scale and serves an end market with no growth prospects. However, the progress achieved by these new customer engagements — particularly the “over-the-top” and MDAS engagements — demonstrates the dramatic improvement in growth potential for Concurrent from refreshed products and an expanded addressable market opportunity. The shift to network DVR and a cloud-based architecture that extends on-demand viewing to three screens with real time data analysis represents a large product cycle which we believe Concurrent is well positioned to capture.

Clearly, there is a wide disconnect between recent operating developments and Wall Street’s perceptions. In fact, Concurrent trades at a vast discount to its closest publicly traded peers, despite facing the same industry risks, per the following table.

Company	Concurrent	SeaChange  International	Arris Group	Harmonic
Market Cap*	$55MM	$303MM	$1,714MM	$1,071MM
Net Cash &  Investments	$32MM	$75MM	$453MM	$120MM
Enterprise  Value	$23MM	$228MM	$1,261MM	$950MM
Estimated  Revenue**	$73MM	$226MM	$1,158MM	$568MM
EV / Revenue	0.3x	1.0x	1 1x	1.7x

*   All prices are as of market close on February 18, 2011

**Estimated Revenue: consensus estimates for the next four quarters

Given that Concurrent is overcapitalized, the Board is in a fantastic position to take advantage of this mispricing for the benefit of shareholders and the Company by immediately buying back shares. The buyback would be immediately accretive in earnings per share, significantly strengthen the Company’s return on equity, and should be very positive for your long-term shareholders. Common stocks come in and out of favor quickly and in unpredictable patterns; do not assume this opportunity will persist indefinitely. We are committed investors with a long time horizon, and have demonstrated our own conviction by increasing our share position by 20% over the last three and one half months. Our strong preference is for Concurrent to utilize its excess cash balances to reduce share count, thereby allocating a greater percentage of increasing future cash flows to committed long-term shareholders. This can be accomplished in a very conservative fashion whereby the Company does not take on any debt and in fact replaces the cash used to purchase the shares through internally generated funds in as little as 12 to 24 months.

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Notably, since the July 28 Letter, Concurrent has continued to generate free cash flow. While some of the increase in cash is the result of improved working capital controls and a shift to less working capital intensive software and service-based solutions, the Company has also generated positive EBITDA. As a result, the net cash on Concurrent’s balance sheet has increased from $28 million to $32.1 million over three reported periods during that time, inclusive of the cash costs of acquiring Tellytopia, Inc. Using only the increase in net cash since the July 28 Letter and assuming an average purchase price of $6.00 per share (a 10.5% premium to the average trading price of Concurrent shares over the time period), the Company could have already retired 680,000 shares, or approximately 7.4% of shares outstanding over the past seven months.

Rationale for a Share Buyback

In the July 28 Letter we explained why repurchasing shares is the optimal means for Concurrent to return capital to shareholders. Simply put, at this time we believe there is no better investment available to the Company than repurchasing shares, and that the time to repurchase them is now..

We believe management and the Board have mistakenly been hesitant to repurchase shares primarily due to two reasons: 1) concern over liquidity in the stock, and 2) the desire to build a robust cash balance to prove “staying power” to large customers. We would like to address each of these concerns in this letter, and reiterate the overwhelming case to repurchase shares.

Share Liquidity. Concurrent is already a micro cap stock. With just over 9 million shares outstanding, the common stock is illiquid and would be even with two or three times the number of shares outstanding. Shareholders of Concurrent at this time are comfortable holding illiquid stock, and would likely vastly prefer the benefits of an efficient return of capital that increases their ownership of growing future cash flows to the miniscule rates of return that result from a ballooning cash balance spread over a constant share count.

Staying Power. We accept managements judgment that, for competitive reasons, Concurrent should maintain a healthy balance sheet and manage operations to generate healthy free cash flow. Having customers who believe in your long term viability is good business. However, Concurrent has $32 million of net cash, which represents 60% of its market capitalization and approximately 50 cents of net cash per dollar of revenue generated over the last year. This is the very definition of overkill. Concurrent could easily utilize 30% of its cash balance to repurchase 15% of its shares (see scenario A on page four) and still demonstrate undeniable staying power to its customers. Moreover, repurchasing shares is more than just a rational return of capital to the Company’s true owners, its shareholders — it is also an effective means of demonstrating confidence to all of the Company’s stakeholders.

Finally, while the acquisition of Tellytopia appears to make sense strategically, we would like to reiterate our view that it would be a mistake to deploy a large portion of cash to make an acquisition. Large acquisitions are fraught with business risk and introduce an unnecessary distraction from achieving the Company’s goals. Moreover, given Concurrent’s depressed market valuation and strong growth prospects, management and the Board have a compelling opportunity to repurchase the Company’s own shares. A buyback is in the best interests of the Company’s shareholders.

Specific Share Buyback Proposals

Our preferred method for executing a share buyback is to initiate a tender offer, given the low liquidity in the shares.. Outlined below are two conservative share repurchase scenarios which could

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dramatically improve the Company’s capital structure and returns for Concurrent shareholders. Either scenario can be executed with little distraction for Concurrent’s ongoing business operations. These scenarios are summarized below, and meet four important criteria:

	1)	Concurrent stock can be acquired at an attractive price;
	2)	Concurrent retains ample cash reserves after the share buyback to continue to invest in its business and support marketing;

	3)	The amount of cash required to fund the buyback should be replaced by internally generated cash flows within a short period of time;
	4)	Concurrent’s increasing free cash flows accrue to the benefit of committed long-term shareholders.

While we have a preference for our proposals, any scenario under which Concurrent begins to repurchase shares at current prices is preferable to the alternative of hoarding cash, or eventually repurchasing shares at higher prices.

Scenario A. Our preferred scenario is for Concurrent to immediately utilize 30% of the cash on its balance sheet to fund a tender for 15% of shares outstanding for $6.90 per share (a 15% premium to the closing price on February 18, 2011). We believe that the Company would have little trouble buying in 15% of its shares outstanding at this price. After a successful completion of this offer, Concurrent would still have $22.5 million of net cash on its balance sheet (approximately 40% of its current market capitalization) to provide security to customers and flexibility to purchase more shares with future cash flows. We estimate that this scenario would be 17% accretive to free cash flow per share in the fiscal year ending June 30, 2012.

Scenario B. Concurrent could also choose to undertake a more conservative buyback utilizing 15% of the cash on its balance sheet to fund a tender for 8% of shares outstanding for $6.60 per share (a 10% premium to the closing price on February 18, 2011). After a successful completion of this offer, Concurrent would still have $27.3 million of net cash on its balance sheet (approximately 50% of its current market capitalization) to provide security to customers and flexibility to purchase more shares with future cash flows. We estimate that this scenario would be 8% accretive to free cash flow per share in fiscal 2012.

The chosen per share tender prices are based on our estimates of the price required to attract enough sellers out of Concurrent’s present base of shareholders. If feasible and realistic, we clearly support scenarios in which more shares can be repurchased at a lower price per share.

Buyback  Scenario	Ca sh  Commitment	Assumed  Tender Price	% of Shares  Outstanding	Net Cash  Remaining	Estimated  Accretion
A	$9.6 million	$6.90	15%	$22.5 million	17%
B	$4.8 million	$6.60	8%	$27.3 million	8%

The results from each scenario are derived from our own earnings model for Concurrent, which we would be happy to share with management and the Board in detail.

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Summary

We urge Concurrent management and Board to utilize a conservative share buyback to repurchase a substantial amount of Concurrent common shares. This may not be the most interesting, exciting or intellectually challenging course of action, but it is certainly the smartest and best for your shareholders. As our analysis above amply demonstrates, the actual price you pay to repurchase shares is immaterial over the long term. The important thing is to put your massive excess cash balance to an obviously better use now.

As stated is the July 28 Letter: “Concurrent runs the risk of losing control of its business as the result of being acquired with its own cash at an unfavorable price. At present, a strategic or financial buyer could fund an acquisition of Concurrent with a modest premium to its current market valuation, using Concurrent’s own cash as funding, and take control of the company before the full value of MDAS can be realized for current shareholders.” We will amend this prior statement to note you run the risk of losing Concurrent before any added value from MDAS can be realized for Concurrent shareholders.

This letter discusses our concerns with you in what we hope will be viewed as a constructive manner. We stand ready to meet with the Board to discuss in further detail our views on ways to enhance shareholder value. We must of course reserve the right, should the Board’s inaction persist, to take all necessary steps required to align the interests of the Company with its shareholders, including making shareholder proposals or nominating directors who are committed to taking the necessary steps to ensure that shareholder value is maximized.

The time for contemplation on this matter is long over. Your collective inaction with regard to addressing Concurrent’s obvious excess cash balance runs the risk of destroying long-term value for shareholders. Now is the time to act for the benefit and protection of the shareholders you represent.

Douglas A. McIntyre