Aware Inc (AWRE) 2009 Q1 法說會逐字稿

Thank you for standing by. Good day, everyone, and welcome to the Aware Inc. 2008 conference call. Today's call is being recorded. At this time, I would like to turn things over to Mr. Rick Moberg, Chief Financial Officer for opening remarks. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to Aware's first quarter 2009 earnings conference call. I'm Rick Moberg, the company's CFO and I'm with Michael Tzannes, our CEO. Thank you for joining us today. First, I will review financial results for the quarter and then Michael will will talk about the business, and then we'll take questions. A recording of this call will be available on our website at aware.com after the call is completed. First I would like to point out that various remarks we may make about future expectations, plans and prospects for the company and the DSL and biometrics markets constitute forward-looking statements for the purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in the section titled Factors That May Affect Future Results in our annual report on Form 10-K for the year ended December 31, 2008. This Form 10-K is on file with the SEC. Now I will discuss financial results for the quarter.

Revenue for the quarter decreased 22% to $4.6 million from $5.9 million in the first quarter of 2008. On a GAAP basis, our net loss was $2.1 million or $0.09 per share. This compares to a loss of $1.3 million or $0.05 per share in the first quarter of last year. We also report net income and EPS on a non-GAAP basis. Our non-GAAP results exclude stock-based compensation expenses. These expenses were $391,000 this quarter. Excluding these charges, the non-GAAP net loss was $1.7 million or $0.07 per share. A reconciliation of GAAP to non-GAAP results has been included in today's earnings release.

Product revenue was $2.8 million for the quarter compared to $2.2 million last quarter and $3.9 million in the first quarter of 2008. The sequential increase in product revenue was due to higher sales of DSL test and diagnostics hardware and biometric software. Contract revenue which includes patent, license and engineering service fees was $1.3 million for the quarter compared to $9.3 million last quarter and $1.5 million in the first quarter of 2008. The sequential decrease in contract revenue was primarily the result of an $8.5 million contract we closed in Q4 '08 involving the sale of patents. The year-over-year decrease in contract revenue was primarily the result of lower revenue from biometrics technology contracts. Royalty revenue was $476,000 this quarter compared to $527,000 last quarter and $431,000 in the first quarter of 2008. Royalties were down about $51,000 sequentially due to lower DSL chip set sales reported to us on by our customers. On a year-over-year basis, royalties were up $46,000.

First quarter was $6.8 million versus $7.3 million last quarter and $7.5 million in the first quarter of 2008. The sequential spending decrease was mostly due to lower sales commissions on lower revenue and lower legal fees related to patent filings and expenses. The year-over-year spending decrease was mostly due to lower hardware cogs on lower hardware sales, lower cost of contract revenue costs on lower biometrics contract revenue and lower engineering expenses due to attrition. Our reported product gross margins were 82% this quarter compared to 72% last quarter and 79% in the first quarter of 2008. The higher margin this quarter is primarily due to higher hardware margins and more software revenue and product sales. Interest income for the quarter was $125,000, which was lower than last quarter in the year ago quarter. The decrease was primarily due to lower money market interest rates. At March 31, cash was $42.5 million, which was down $3 million from $45.5 million at the end of 2008. Receivables were $3.4 million, which equates to DSOs of 69 days, and inventory was $1.6 million, which was down $100,000 from last quarter. Also as of March 31, we had no debt and there were 23.3 million shares outstanding. At the end of the first quarter, we had 124 full-time employees, 88 of whom were engineers. And this completes the financial commentary. I would now like to turn the call back over to Michael.

Thank you, Rick. During the first quarter, we launched a dutch auction self-tender offer to repurchase up to 3.5 million of our shares which we indeed did at $2.50. This resulted in a share count reduction of 15% and is part of our strategy to increase shareholder value. We are also seeking shareholder approval to launch an option exchange program for rank and file employees. Under this program, the company would exchange underwater options for a smaller number of unrestricted shares. This would reduce the stock option overhang and reduce future potential shareholder dilution. It would also improve the retention profile of our employee stock-based compensation program since underwater options would be exchanged. These activities, coupled with our focus on growing profitable businesses are key elements in our strategy for building shareholder value.

Turning now to our product lines, I will start with an update in our licensing activities. Our existing customers Infineon and Ecanos remain heavily committed to the DSL market. Infineon recently announced the introduction of a family of new CPE DSL chip sets that support all IP networks as well as enhanced features such as erasure decoding and retransmission for IPTV applications. This product family is known as Xway and is being well-received in the market. Our long-standing relationship with Infineon remains healthy, and we are optimistic about our ability to grow DSL market share.

We are tracking the emergence of a new application for DSL called semtocells. We believe that this application may have a positive impact on the DSL landscape. Semtocells utilize a mini cell tower to improve cell phone coverage in the home. By handing off cellular calls to femtocells, network costs are reduced and congestion on large macro towers is relieved, thus improving the overall performance of wireless networks. Femtocell traffic relies on a broadband connection to back all the cellular data to and from the home. According to industry sources, over 80% of the femtocells deployed over the next several years will rely on DSL as their broadband connection. The convergence of DSL and wireless applications in femtocells has the potential to create new market and technology opportunities for DSL. We are seeing an increased interest in DSL technology as a result of femtocell applications, but the overall interest in DSL from new participants continues to be weak. We will continue to assess the strategic and financial potential of our licensing capabilities while remaining mindful of the burn rate currently associated with this business. Our primary focus for new licensing revenue growth is in technology for home networking solutions. We're actively involved in the G.HN standard for home networking and intend to participate in in exciting market.

Turning now to the DSL test market. Based upon our vast experience with DSL technology and networks, we have established a presence in the DSL test and diagnostics market with software and hardware solutions which show promise. The DSL test market has global reach and is being propelled by two related developments. First, infrastructure upgrades that lead to higher speed DSL have been deployed over sufficient time such that the majority of these networks use ADSL 2 Plus or VDSL 2, the two standards which provide sophisticated test functionality. Second, with ADSL 2 Plus and VDSL 2 now commonplace in DSL networks, phone companies are able to offer entertainment services, including IPTV. Meeting end user expectations for TV quality requires more effective diagnostic and test capabilities. As a result, testing of the DSL network is becoming more important than ever. We supply hardware products with functionality ranging from ADSL, VDSL modem emulation to highly sophisticated single and dual ended testing of DSL lines.

Today, we have design wins at phone companies through multiple OEM relationships in North America, Europe, and Asia. As phone companies deliver higher value services and increase average revenue per user, we believe they will spend more on test solutions. A cornerstone of our value proposition is compatibility across all DSL technologies, including prestandard VDSL, and this is made possible by our access to the DSL silicon technology and software. We've continued to develop relationships with OEMs and local partners with our DSL soft test solutions. The soft test market is still at an early stage, but the economic advantages that this approach provides make it compelling. Phone companies around the world are showing clear interest in soft test solutions. We are involved in several trials at phone companies with our line diagnostics platform and are participating in commercial deployments of test heads and hand helds through our OEM partners. We are optimistic about our tested diagnostic prospects for 2009.

In biometrics, we've continued to improve our stature as a supplier of software products and and professional services. By offering a combination of products and services, we can readily address more of our customers' needs. We continue to see evidence of the value of this combination in our interactions with our customers. Our software products address many functions that are required in biometric enrollment systems especially those used for background checks, secure credentials and border control applications. Our customer base consists of system integrators an OEMs with global exposure. We also sell our products directly to federal agencies. We see the biometrics market as a significant growth opportunity for us.

We have expanded our product footprint and our sales force. While revenues in this past several quarters were lower than previous quarters, we believe this is more a result of the global economic slowdown and don't believe this is part of a long-term trend. We see significant market interests in our imaging and DSL products, but we continue to experience limited sales visibility. Because of this, we are unable at this point to provide revenue guidance for the year. We intend to revisit this topic in the future when our revenue visibility improves. The weak market conditions presented us with an opportunity to launch a successful tender offer for our shares at an attractive price. We will continue to consider other compelling strategic uses of our cash reserves in the future. Our goal is to emerge from the current environment stronger by delivering leading edge innovative solutions through a large customer base into the biometrics and broadband markets. And with that, please, operator, open up the lines for questions.

Certainly. Thank you very much. (Operator instructions). We will pause for a moment. (Operator instructions). As there are no questions, I would like to turn it back to Michael Tzannes for closing remarks or comments.

Thank you. I just want to remind everyone that our annual meeting of stockholders is on May 20 at the DoubleTree hotel Boston in Bedford, Massachusetts. Thank you very much. We'll talk to you next quarter. Bye-bye.

And that does conclude today's conference. We do thank you for your participation, and ask that you enjoy the remainder of your day.