CAMP4 Therapeutics Corp (CAMP) 2004 Q3 法說會逐字稿

At this time I would like to welcome everyone to the California Amplifier third-quarter 2004 earnings results conference call. (OPERATOR INSTRUCTIONS). I would now like to turn the call over to Mr. Rick Vitelle, Chief Financial Officer of California Amplifier. Sir, you may begin.

Thank you. We'll start the conference call with 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, estimates, 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; the viability and market acceptance of new products and technologies; and the integration of the business of Vytek Corporation, an acquisition announced earlier today, with California Amplifier. 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 other filings made from time to time with the Securities and Exchange Commission. At this time, I will turn it over to Fred Sturm, the Company's President and CEO.

Thank you Rick, and thank you for joining us on this conference call, where will provide you a brief overview of our fiscal 2004 third-quarter financial results, as well as a business segment status report.

I'm pleased to report that California Amplifier achieved a record level of quarterly revenue during the third quarter, which was substantially higher than the previous quarter revenue record set two years ago. The attainment of this record sales performance is a significant milestone of our company that was made possible by the joint effort of our employees and supply chain partners.

The Company's revenue for the third quarter of 44.2 million was $20 million higher than the immediately preceding quarter and $20.3 million higher than the same quarter last year, representing increases of over 80 percent on both a sequential quarter basis and a prior year basis. Overall gross margins of 15 percent represent a 2 point improvement over the immediately preceding quarter. Despite the improvement, margins were negatively impacted by material (indiscernible) costs and lower efficiencies as we dramatically increased our output levels. We expect our material procurement costs to return to more normal levels during our fourth quarter; however, it is possible that we may incur additional inefficiencies due to shortages of key materials. These shortages are affecting our industry as a whole and we are currently taking measures which we expect will result in an improved supply situation beginning in our fiscal 2005 first quarter.

Net income for the third-quarter was $3.5 million, or 22 cents a diluted share. This was again a significant improvement over the immediately preceding quarter and the same quarter of last year; up $3.1 million and $2.5 million, respectively. This significant improvement is due in part to higher pre-tax profits of $3.8 million in the latest quarter and a more favorable effective tax rate, due to the reduction in our deferred tax asset valuation allowance.

In reviewing the balance sheet, you will find we have strengthened our cash position to $25.3 million, up over $2 million from the prior quarter. Inventories increased 2.2 million from the prior quarter to $13.9 million in support of our higher sales level. Inventory turnover performance continues to be excellent at 11 times. Accounts receivable up $17.4 million, or up $4.5 million from the prior quarter due to increased sales. The average collection period is 31 days, again, representing excellent performance. Given the recent sizable increase in demand in our (indiscernible) performance, I believe our working capital management continues at (indiscernible) levels.

In our satellite business, revenue of $42.6 million in the third-quarter represents an increase of $20.6 million, or 93 percent, from the immediately preceding quarter, and 108 percent from the same quarter last year. This sales increase is due in part to a seasonably higher period of demand, the migration of our customers to higher value-added products, and to a small inventory build at one of our key customers in support of a future promotion. We continue to be encouraged by our satellite television providers' continued gains in market share at the expense of the cable operators. As our customers' product demands evolve to more complex and sophisticated solutions, we are positioning ourselves and our company to continue to support their ongoing requirements.

In our wireless access business, revenue of $1.6 million was down $500,000 from the immediately preceding quarter. The development of Ecco, our PCS repeater product, is progressing well and customer evaluations are underway at a major system operator. We anticipate that we will receive meaningful feedback on our product's performance during our fourth quarter. Additionally, dialogue regarding this product continues with other carriers; interest in our PCS repeater technology is increased as a result of a number of portability -- (indiscernible) number portability has recently been mandated by the FCC. As we make further material progress in this market segment, we will keep you updated.

With regard to our 802.11 development activities, we've been diligently working to accelerate time to market for our initial RASTER enhanced access point product. We currently expect to enter field testing and customer evaluation with this product in our second fiscal quarter ending August 2004, focusing on the large and medium-size enterprise segment. We will keep you, again, appraised of our progress.

Based on our current visibility, we estimate fourth-quarter sales in the range of 42 to $48 million and earnings in the range of 18 to 24 cents per diluted share. The range of expectations reflects the fact that the results for the fourth quarter will depend to a large degree on the Company's ability to economically procure materials in sufficient quantities to fulfill orders.

Now, with regard to the Vytek acquisition. As announced earlier today, California Amplifier has entered into a definitive agreement to acquire Vytek Corporation, a privately held engineering services and products company engaged in both wireless and wire technologies. Vytek has approximately 280 employees and 10 offices nationwide. Vytek, which had revenues of approximately $38 million in an unaudited 11 month period through November 2003, has a diversified customer base, including a number of Fortune 1000 companies in the consumer electronics, health-care, retailing and distribution industries.

Vytek's business also includes communications applications for governmental public safety agencies. This business combination will bring together Vytek's professional engineering services organization, software design and product development expertise, with California Amplifier's RF engineering expertise and high-volume manufacturing capability. In addition, it will expand and diversify California Amplifier's customer base beyond satellite television and telecommunication service providers.

This acquisition will also position California Amplifier to provide a comprehensive range of wireless access products and mobile solutions and reach our potential as a leading company in this space. By combining the resources of the two companies, Cal Amp will become the scale player in this rapidly growing technology segment.

Vytek's customer base includes leading companies in technology and telecommunications such as HP, Verizon, Lexmark, Nokia, Toshiba, and many other household names. They bring in strong competencies in mobile device development, enterprise messaging, wireless applications, self-service platforms and mobile workforce solutions. The potential synergies with our existing RF technologies and manufacturing capabilities are multiple, and we have identified a number of opportunities to deliver greater value to our shared customer set. California Amplifier's goal is to also accelerate the rollout of our upcoming new products, the Echo repeater and RASTER (indiscernible) point platform, and to leverage Vytek's customer base and professional services team, including the Company's technology integration and marketing specialists, to drive new product development.

California Amplifier recognized in order to capitalize on the market opportunities in wireless solutions, the Company needed not just great technology but strong capabilities in the enterprise architecture, systems integration and technical support. This acquisition brings all of these things together. Vytek and Cal Amp will be positioned as a total solutions provider for wireless access and mobile computing solutions to our customers.

The purchase price consists of 8.2 million shares of California Amplifier stock. The transaction is subject to customary closing conditions, including regulatory and stockholder approvals, and is expected to be completed during the first calendar quarter of 2004. It could be slightly longer than that depending on the regulatory and stockholder approvals. Additional details regarding the transaction and the financial information for Vytek will be included in filings to be made with the SEC in the near future.

Thank you for listening. Now Rick Vitelle and I will take your questions

(OPERATOR INSTRUCTIONS). Matt Robinson.

Congratulations on all accounts.

It's a team effort here, and I will accept that on behalf of all of our employees.

First of all on the guidance, it sounds like there is no Vytek in your guidance?

That's correct.

Talking about Vytek a little bit -- going to their Web site I see they made an acquisition in April, so that 11 months number -- that would not include a full 11 months of this telecom piece. Is there a number we can think of that's more of a trailing 12 month for the Company as it stands today?

Trailing 12 months, I don't have that. But I can tell you that this Delcom (ph) piece for the first three months that are not -- is not in there, is roughly several million dollars.

Roughly several -- so we can think in terms of maybe mid-40s type of number for the 11 months?

Rather than get into all those levels of detail (multiple speakers) a lot of filings that we're going to have to do that will flesh all of that out for you.

So we should think of this as two times revenue that you are paying?

Maybe slightly less.

Okay. And you mentioned small inventory build? I am hearing that there is a product cycle coming to make down converters that can put multiple sets and TVRs on the same wire maybe coming in the springtime? Is that what that inventory build is, or is that --?

It's unrelated. This is towards promotion that one of our customers has, and I mentioned it in the last conference call, I believe. And it's a few million dollars worth of product. Some of that is actually continuing through our fourth-quarter.

So this is a pretty tremendous number you're looking at for, typically, a seasonally much-lowered quarter. Is it just much more aggressive marketing and sort of surprise acceptance by the consumer? How would you characterize, or maybe view, the sustainability of this kind of demand?

I think in terms of looking at (indiscernible), our ASPs are -- in the higher value-added products are becoming more popular. Our customers are gaining market share and increasing their promotions to gain market share from the cable companies. I think it's a combination of those two events, as well as a minor amount, as I mentioned, of inventory build.

Back to Vytek, can you talk a little bit, give us some sort of basics on margins and profitability and just (multiple speakers) --?

I'm going to give you (indiscernible) 60,000 foot stuff, because again, I'm going to --

I understand.

We've got a huge amount of reporting that will come out. But the margins are, I would say, north of 35 percent, to be safe. The gross margins -- we have mentioned in the press release, I believe, that we anticipate being accretive not in the coming year but in the following year (indiscernible) we would anticipate some onetime write-offs associated with some in-process R&D and some other matters, and some amortization of goodwill items -- or intangible assets, excuse me. (indiscernible) get corrected here. So, that is why we are pushing that out into FY 2006, I believe.

So this could possibly be breakeven, or (indiscernible) without the non-GAAP (multiple speakers)

(multiple speakers) tremendous job -- the team at Vytek has done a tremendous job of putting that company in a position to not only grow but generate profits fairly quickly.

So it's profitable now?

It is profitable on an EBITDA basis.

(multiple speakers)

-- are unaudited numbers remember.

If you ex out the amortization and all the acquisition related stuff, is it -- are we still looking at '06, or is it -- well, obviously, it would be sooner.

I would think it would be sooner if you take out some of those things, yes.

(OPERATOR INSTRUCTIONS). Dave Kang.

More on the Vytek acquisition. Can you talk about their customer concentration? Do they have any cash or debt? And can you talk about their revenue trend? You know, what was their calendar '02 revenue, and do you have any estimate for calendar '04 revenue projections? That would be good, thank you.

Let me try to address some of those (indiscernible). We are not making revenue projections at this point, Dave, and a lot of the revenue information that you're going to want to see is going to come out in the SEC filings. In terms of customer concentration, they are a fairly well diverse customer base. They have several different product lines that they operate under, with different services or products as part of that. So I think what you will find when all that becomes disclosed -- this is a significant opportunity for us to again diversify our customer base, not only with -- just for the diversity's sake, but they're the kinds of customers that we believe that the combination of our Company's skills in RF and high-volume manufacturing and there's in architecture and development and design of software and embedded systems, the combination of that is going to provide opportunities, particularly with some of the Fortune 100 companies or Fortune 1000 companies that they have as customers. So it's a fairly well diversified customer base. In terms of cash, they do have some cash on their balance sheet, I would say a modest amount. And accordingly, they have a modest amount of debt.

Just more on the synergy question. Can you give us an example -- for example, RASTER; how will Vytek's core competency -- (indiscernible) on your RASTER strategy?

Just an example on RASTER, we actually, separately from the acquisition activities, had made a business arrangement with Vytek with respect to some development on the 8002.11 chip sign with one of their technology partners, Otheros (ph). And we were working with Vytek to implement the Otheros design into our RASTER product. So that's one side of it. (indiscernible) have good design capabilities at the chip level in integrating it into a module, but they also have customers that we believe that when we have the RASTER product that we'll be able to take our product into those enterprise customers and find additional revenue opportunities.

Just try to gauge -- regarding your third-quarter results, how much of it was due to increasing ASP versus an increase on unit shipments? Can you give us some quantitative information on that?

I don't think we're prepared on this conference call to go through that. I think some of that will be available in the filing of the Q's.

But can I ask -- at least both the shipments, as well as ASP, was up?

ASP -- when you talk about ASPs, we're shipping a significant more volume of our higher value-added products. So the product mix has shifted that way.

Just lastly, any damages from yesterday's quake?

Oh no, other than a little nausea.

Matt Robinson.

Speaking of things moving around, can you talk about how you have managed this move -- I guess you're moving to the next town over -- and how that (multiple speakers)?

We have angry movers staring at us through the glass in our office here. We're pretty much right in the middle of moving. I would say there's a few offices left to move, (indiscernible) as you can understand, we weren't prepared to move yet. So it's so far so good.

So you're going to -- basically you're done with that. How much --?

We're not done. (multiple speakers)

It's not going to go into next calendar year, so --

No, no, no.

How many weeks did that take and what was the nature of disruption that occurred as a result?

In terms of disruption, there will be a week to two weeks depending on what part of the organization. In some cases, the manufacturing will be disrupted for a week; in some cases it will be disrupted for two weeks.

But this is happening over the holiday period when --

Normally, we would have had some days off.

We anticipated this, obviously.

So this is going to be more than offset by your greater access to material and less expediting in the quarter?

Yes.

Paul Millard (ph).

Yes, I may have missed this, but can you talk a little bit about the timeframe, if any, on the Ecco product?

Where are you from, Paul?

Merrill Lynch.

Okay. The timing on the Ecco product is, I believe I said we expect customer feedback on their evaluations in our fourth quarter. It is something that -- essentially, our customer needs to go through and make sure that one of two things is happening, if not both -- is one that our product, in fact, we can demonstrate that it increases the amount of minutes usage -- that's one; as well as reduces churn. And so they are measuring the ability of our product to meet those requirements.

Again, that's the end of the fourth quarter --?

Actually that's our current belief, yes.

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

I would like to thank everybody for joining us on this conference call, and wish everybody a safe and happy new year. We will be talking to you in the coming months. Thank you.

At this time I would like to thank everyone for participating in this afternoon's conference call. If you have joined us via telephone, you may now disconnect.