CAMP4 Therapeutics Corp (CAMP) 2004 Q2 法說會逐字稿

Good afternoon, my name is Brenda and I will be your conference facilitator today. At this time I would like to welcome everyone to the second quarter fiscal year 2004 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. (OPERATOR INSTRUCTIONS) Mr. Vitelle, you may begin your conference.

Thank you. This is Rick Vitelle. We're going to begin the conference by going over the Safe Harbor statement. Our conference call and question-and-answer session may contain forward-looking statements regarding the company's future financial performance, customer relationships, initiatives to develop innovative wireless access products, the market potential of new products and other topics, all of which are inherently subject to risks and uncertainties that could cause actual results to differ materially from expectations. Words such as may, will, expects, intends, plans, believes, seeks, could, estimate, and variations of these words and similar expressions are intended to identify forward-looking statements. Factors that could cause California Amplifier's future results to differ materially from current expectations include changes in product demand and market growth rates, the effect of competition, pricing pressures, supplier constraints, manufacturing yields, and the viability and market acceptance of new products and technologies.

Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. Furthermore, the company undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. More information about California Amplifier's risk factors is available in the company's annual report on form 10-K and in other filings made from time to time with the Securities and Exchange Commission. I'd now like to turn it over to Fred Sturm, the company's President and CEO.

Thank you for joining us on this conference call where we will provide you a brief overview of our fiscal 2004 second-quarter financial results, as well as a business segment status report. I'm pleased to report that California Amplifier returned to profitability in our second quarter, representing the 17th time in the last 19 quarters the company has reported an operating profit. Our return to profitability was substantially driven by a recovery in our satellite business segment in the latter part of the second quarter as our customers worked down an earlier over inventory position. Also contributing to the recovery were the impact of promotional programs and seasonally higher demand moving into the holiday season. We anticipate this overall demand improvement to continue during our third quarter and are ramping up production capability and working closely with our suppliers to meet the latest challenges as cost effectively as possible.

The company's revenue for the second quarter of $24.2 million was higher by $5.6 million or 30 percent than our first quarter. As indicated earlier, a majority of the revenue occurred during the last half of the quarter as we responded to the dramatic shift in business climate at our fee customers. Overall gross margins of 13 percent represent a 6 point improvement over the immediately preceding quarter. Despite this improvement, margins in the latest quarter were negatively impacted by material expediting costs, lower fixed overhead absorption during the first half of the quarter, and production ramp up inefficiencies in the second half of the quarter. We expect our material procurement costs to continue to be abnormally high in the third quarter as we expedite materials through the supply chain.

Net income for the second quarter was $300,000 or 3 cents per diluted share. Again, a significant improvement and a rebound from our first quarter performance. In reviewing our balance sheet, you will find we strengthened our cash position to $23 million and reduced inventories in the second quarter by $2.4 million to $11.7 million. The inventory level reflects an annualize turnover rate of eight times returning to our previous strong level of performance. Receivables of $12.9 million are up $6.2 million from the prior quarter due to the higher sales volume in the latter half of the quarter. The average collection period is 37 days, again an excellent level of performance. I believe our ability to manage working capital continued to be at world-class levels particularly given the demand volatility during the last two quarters.

In our satellite business revenue of $22 million for the quarter represents an increase of $5.4 million or 33 percent from the immediately preceding quarter, although it was down $2.6 million from the same quarter last year. As previously stated, product demand was substantially below normal levels during the first half of the quarter but demand rebounded significantly beginning mid-July. Recent announcements of improved subscriber gains by certain satellite television providers is particularly reassuring as it indicates that our key customers continue to gain share at the expense of cable television. In responding to the rapid demand upswing of our key customers we have taken action to quickly re-established high-volume production capability and to expedite procurement of materials, which we expect will have a dampening effect on margins during the third quarter. We are taking these actions to protect our hard earned market share and we believe this is an important strategic move in what is clearly a dynamic and competitive marketplace.

In our wireless access business, revenue of $2.2 million was up slightly from the immediately preceding quarter and down $711,000 from the same quarter in the prior year. The development of Echo, our PCS repeater product is progressing well, a small number of preproduction units have already been supplied to a major wireless service provider for testing and evaluation purposes. We are also in discussion with other perspective customers who have expressed an interest in the potential of our economical integrated repeater design to improve in building wireless coverage and increase subscriber satisfaction. As we meet significant milestones in terms of customer acceptance and our market validation, we will provide appropriate updates on our progress.

In addition to our develop efforts for the 802.11 enterprise access point net market, our fixed broadband MMDS modem technology, we continue to evaluate other potentially attractive market segments in areas of interest in the wireless industry, which may provide opportunities to grow our business either organically or through potential acquisitions. Looking forward, based on our current visibility we estimate the third quarter sales in the range of $30 to $36 million and earnings in the range of 7 cents to 12 cents per diluted share. The range of expectations reflects the fact that results for the third quarter will depend to a large degree on the Company's ability to economically procure materials in sufficient quantities to fulfill existing orders. Thank you for listening, and now Rick Vitelle and I will take your questions.

(OPERATOR INSTRUCTIONS) Matt Robison with Ferris, Baker Watts.

I'm kind of speechless on the quarter, I guess never dull moment, Fred. I've got a few questions. I guess first of all, you're talking a revenue level for the current quarter that is in record territory. What should we be thinking in terms of wireless access contribution in that number?

You're talking about the third quarter? It's going to probably be roughly the same as it was in this current quarter. We don't see a substantial improvement in our wireless side of the business until next year.

Okay. Now there was at one time earlier this fiscal year, late fiscal year there was a thinking that there would be an ASP ticker in your revenue stream on the satellite side with the more complex units. Is that what we're seeing now or can you talk about mix a little bit?

The mix is actually very difficult to manage in terms of -- we had some much higher ASP products which actually have come -- the volume of those has come down, but we've had some other shifts upward from lower ASP to I would call it midrange. So the product mix has changed significantly over the last 12 months such that there's probably a negligible change on overall ASPs.

Okay.

I don't know if that's too convoluted, but we had some -- just as a background, we had some products that we were shipping a significant quantity of that had probably 5X, our lowest ASP. And those, the volume and demand for that type of product has diminished over the last 12 months substantially. However, we have seen a significant increase on the low-end but not enough to offset the reduction of the more valuable product.

And is there a midrange category, too? (multiple speakers) become what (multiple speakers)

You're heading towards a common ASP or a range of ASPs sort of in the middle of those two.

But they're more complex now, okay. And do you have -- I guess in the past year you've had another meaningful (technical difficulty) develop, is that true?

Yes, I would say our competition currently is sharp and Wistron NeWeb, which is a spin out of Acer. So they've gained a lot of traction -- Wistron NeWeb has gained a lot of traction in the last year. Most of it at the expense of other competitors. And so certainly your comment is correct.

Is the gross margin level -- with this kind of volume you're talking about -- could we see that in the midteens?

We would like to see -- we're trying to get back into the -- get to 20 percent, so that won't happen in the third quarter. But certainly that's our target to get back to 20 percent.

Is -- what do you think the customer inventory levels are like?

Third quarter's will be -- known programs for our customers in terms of they're going to be putting in some inventory towards the end of the year for some plans they have next year. So some of the increase -- we typically have more of a sawtooth year to year sales progression where our fourth quarters are low -- our third quarters are highest, fourth quarter's the lowest, second-quarter to third quarter sort of grows again. And so I would see, right now if we followed a typical pattern for our company, I would see our fourth quarter being down from our third quarter partly just seasonally but partly also potentially just due to -- there's some inventory build, a minor amount of inventory build in the third quarter number.

So it might look more like what you just reported in the fourth quarter?

Certainly the expectation is all things being equal would be lower on a relative basis.

Now you guys are moving down the street or have moved. Is that going to impact your ramp? Or is it all gone -- ?

We're consolidating as the Qs have stated, maybe even the K, in the past we're consolidating at three facilities here in Camarillo totaling about 100,000 sq. ft., fairly inefficient in terms of product movement and people movement. And we're moving into space about 5 to 6 miles away, consolidating into 100,000 sq. ft., roughly what we have today. We don't see that happening until either late December taking advantage of the typical holidays, or January/February timeframe. We have through February to make that traditions, so we're going to make an orderly transition.

So that's not a factor in this?

No.

So the trial activity with the various (indiscernible) operators is with an eye towards beginning to take product in the February quarter?

You put words into my mouth, you said 'trial'. Certainly they're evaluating, whether or not there is a trial or not we can't talk to that. But certainly our expectation is if the customers see the potential which they currently view and their marketing review of the product determines that it's a project worth pushing for, we would see that in our -- we believe in our first quarter, beginning in our first quarter -- fiscal quarter.

What's the next milestone on the 802.11 stuff?

I think it's -- at this point it's getting a product that is in a size that's marketable to the enterprise market that's cost-effective. You can't get $13,000 access point. It's got to be a $1,200 or $1,500 access point in terms of what we can provide. And so I think I gave some guidance to that in the last conference call in terms of that's an early -- either late fiscal year this year or early fiscal year next year type of product development.

And one more, and then I'll give somebody else a chance. There is some indications of the old fixed wireless broadband industry coming back a bit, particularly with some of these new licenses over in China and some things going on south of the border. Do you have any indication that the volumes there could begin to register with you guys materially in the foreseeable future?

At this point we don't see it.

Okay, thanks.

Your next question comes from Dave Kang with Roth Capital.

Nice quarter. A couple of questions. First of all, what is your headcount, and what was the delta for the quarter? And second question is, regarding the strategic alliance between satellite DBS players and telco carriers, did that provide some kind of boost in the second half of the quarter? Thank you.

Yes, Dave, just give you (indiscernible) reference, including -- I believe this includes our temporary employees -- at the end of last quarter we had roughly 310 employees, including everybody (indiscernible) and all of that. At the end of the second quarter we had about 550 employees, including temporary. And I think at this point today we have almost 600.

What was the next question, Dave?

In terms of the sort of joint marketing efforts, Dave, I don't believe that that has had any significant role to play in the volume increase.

Okay, and a couple of housekeeping items. Can I get CAPEX and then depreciation and amortization numbers?

Current quarter or year-to-date?

Current quarter is fine.

CAPEX 600,000, depreciation and amortization, 740,000 roughly.

Okay, thank you.

Okay, Dave, just out of that interest our operating cash flow -- our operating cash flow was positive $2.6 million.

Christopher Higgins with Oppenheimer & Co.

Great quarter you had. I just have three simple questions. Pick and choose what you want to answer. Cablevision offering, they set up a satellite a few months ago, and now they're offering 22 high-definition channels. That to me smells like a lot of business. Comcast looks like they're getting into the space. What's your marketing strategy, or are you prepared to technologically and otherwise hit that market? The second question would be regarding this repeater, the possibilities for the repeater revenues over the next 12 months, just the possibility not necessarily nailing it down? The last thing of course is more of the long distance stuff with WiMAX which is of course something we're all looking at to the future. If you could kind of comment on the WiMAX in terms of you say that not till next year, obviously it's all based on the telcos, if they decide to give the thumbs up and as I see it DSL prices and cable prices are falling like rocks, and they're obviously anticipating competition in that space. So I'm sorry for all the --.

The WiMAX? What are you referring to specifically?

I use the word WiMAX, it's generic -- the 802.16 (multiple speakers).

The new standard which --.

So the first question about the cablevision and (multiple speakers).

Yes, let me answer the cablevision. Our understanding -- we're obviously working with some of their installers and distributors, and our understanding is at the current time they'll utilize product which we currently manufacture. It's a matter of -- essentially the other competitive issues that you have with -- do you have the right price, do you have the right quality, do you have the right logistics for them. So to the extent that they are able to roll out, we would hope to have the same kind of marketshare that we enjoy in the rest of the business. That should answer that question.

In terms of giving you some volumes on a repeater, certainly our expectation and our investment -- we would like to see hundreds of thousands of units a year of this type of product. Otherwise, it's -- with the amount of money we're putting into it's probably not the right avenue. But certainly there's no guarantees. And so while we've had expressions of interest and people talking with large numbers, the proof is in the pudding and the product has to deliver the customer satisfaction required to improve the churn at a cost-effective level. There's got to be a business case for it. We're out of the days where people just deployed equipment because it was a great idea even though there was no business model to support it. So the key for us is to make sure that our product is providing the business model solution to eliminate churn or reduce churn -- really is in support of the fact that the numbers -- cell phone numbers are going to become portable at the end of this year, and that's a big concern to the wireless carriers. In terms of WiMAX, at this point we're not doing anything there. And so I'm not sure how to answer your question.

The question real simple is, I guess in the forward-looking events it all depends on what they decided, of course. My question to you is, being that you guys in the last 20 some odd years have been very good at mass producing low-cost products, but you do shift your product focus every five or ten years. And if this is to be, so to speak, then are you guys in a position or will you be in a position to kind of just hire a bunch of engineers and get to work building out this product if it's indeed what the --.

I guess first you have to finalize a standard. And to be honest with you, I'm not as familiar -- that's further down the road than I'm dealing with today.

But you have the Viper for instance which is I guess an agnostic bandwidth or whatever and it actually operates on different levels, is that correct?

Within the MMDS spectrum, yes.

I think more I guess to your question is, the bigger issue is as cable prices, cable modem prices and DSL prices are reduced, how effective are some of these alternative solutions going to be particularly in the U.S.?

(indiscernible) the truck rolls.

You're not going to have to do truck rolls. We have the Navini type of product. But clearly it comes back to business model. I think -- the international markets I think offer much higher prospects because the infrastructure for high-speed Internet access is -- particularly in South America --.

In low (indiscernible) density regions.

So I think what you'll find is the international market will pick up much faster than the U.S. market with respect to the MMDS, which we've seen already in terms of just the continual delays by Sprint and others in terms of launching the service. It's just every week they're lowering cable and DSL prices in the U.S., and at some point you have to question what the business model actually is with the fixed broadband approach to it.

(multiple speakers) other areas basically in South America and other areas, you would be more I guess ready to actually work alongside a Navini or somebody else?

We think that the international market has higher prospects in the medium-term. In the long-term we think that the other 802.11 spectrums offer some long-term prospects.

Thank you.

(OPERATOR INSTRUCTIONS) Matt Robison.

This is kind of small numbers, but on your wireless side, can you say what percentage of it is for wireless cable?

Wireless cable being?

In our wireless business we actually have a series of products, some for the encrypted product as well as just the dam converters. Is that the part you're talking about?

Yes.

I would say a majority of that is -- more than 80 percent of it probably is for the what I call legacy business. But we still have -- we are shipping product at 3.5 and at 2.5G to 7 and for the Internet access, principally for international locations. But the volume is not significant.

Okay, thanks.

Kevin Dede (ph) with Marimon (ph) & Co.

You resurfaced.

You know, I pop up once in awhile to antagonize you here and there.

Get some air and then go back down.

Then I dive, exactly. Inversely correlated with market. So I was wondering, I know Matt sort or tried to touch on this, but I was wondering if you were going to break out the mix in your satellite product, quad, dual (technical difficulty).

Not at this point. That's a lot of -- that's a lot of competitive -- sensitive competitive information that we're not I guess prepared to do at this point.

I read you. All right. So inventories are down, but what's sort of left there -- sequentially? So you dropped by 2 million in inventories.

Certainly we're projecting an increase in revenue, so the supply chains are strained, so there's a pressure downward on inventory, but the volumes are going to go up so there's a pressure upward on inventory. So, we're going to try to maintain our world-class level of performance in terms of inventory, trying to keep it at the roughly eight to ten turns. No guarantees.

I understand. No guarantees on any of this. Are you guys going to show at AEA this year?

Yes. I'm not sure we're going to show, but we will give a presentation.

That'll be good. That's all we'll look for. Thanks.

At this time there are no further questions. Gentlemen, are there any closing remarks?

On behalf of Rick and myself I'd like to thank you for participating in this conference call and look forward to speaking with you on the next conference call in December. Thank you.

This concludes today's second-quarter fiscal year 2004 financial results conference call. You may now disconnect.