CAMP4 Therapeutics Corp (CAMP) 2004 Q4 法說會逐字稿

Good afternoon, my name is and I will be your conference facilitator today. At this time, I would like to welcome everyone to the California Amplifier fourth quarter full year 2004 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. At this time, I would now like to turn the call over to Mr. Ric Vittlle, Chief Financial Officer. Please go ahead sir.

Good afternoon everyone. I will start by reviewing our Safe-Harbor language statement. Our conference call and Q&A session may contain forward-looking statements regarding the company's future financial performance, customer relationships, initiatives to develop innovative loyal taxes products, market-controlled good new products and other topics, all which are inherently subject to risks and uncertainties that could cause actual results to differ materially from expectations. Words such as may, will, expect, intense, plans, beliefs, seeks, could, estimates, and variations of the these words in similar expressions are intended to identify forward-looking statements, that could cause the company's future results to differ materially from current expectations that include changes in product demand and market growth rates, the effective completion, pricing pressures, supplier constraints, manufacturing yields, the viability and market acceptance of new products and technologies and the ability to successfully integrate the Vytek acquisition. 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 factor 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. Now I will turn it over to Fred Sturm, the company's President and CEO.

Thank you Ric and thank you for joining us on this conference call. We will provide you a brief overview of our fiscal 2004, and fourth quarter and full year financial results as well as a business status support followed by a questions and answer session. The financial overview. Fourth quarter revenue of $41.6m represented a 60% increase over the same period in the prior year. But fiscal 2004 as a whole achieved a record revenue of $128.6m, which represents the year over year growth of 29%. And I am pleased with the progress in growing our top line. Net income for the fourth quarter of $3m or $0.18 per diluted share was higher by $2m and $0.12 a share than the same period of last fiscal year. Net income for fiscal 2004 of $5.7m or $0.37 per diluted share versus $554,000 and $0.02 per share, higher than the previous financial year. Given the difficult start to fiscal 2004, I am particularly pleased that we've completed our fourth consecutive profitable year. In reviewing the balance sheet, you will see our cash balance as $22.9m, $1m increase in the same period last year. Total debt was paid down by $4.3m during fiscal 2004 reducing our outstanding borrowings at year-end to $11.3m. The account receivables of $18.6m or 40 days outstanding continually well managed related to industry norms. Inventories increased $6.4m from the previous quarter to $20.3m at year-end, which reflects any inventory turns of six times. This increase in inventory during the fourth quarter is due to improved availability of electronic components and a build up of finished good stock, which had been depleted due to the shortages in the third quarter. Give our supply lead times, I consider the inventory turnover rate to be in an acceptable level. And another important balance sheet change during the course of the past year has been nearly $5m reduction in net property plant and equipment during the year. This reflects our move to more variable manufacturing cost model. We believe that we have a strong long balance sheet, as we move into fiscal 2005.

Now for a business report. In our satellite business revenue of $40m in the fourth quarter represent a 15.9 or 66% improvement over the same quarter last year, but was down $2.6m from immediately preceding quarter primarily due to seasonality. Our satellite sales represented 96% of the overall company revenue. As mentioned on our conference call last quarter, our customers within the process of building up its inventory stock of a particular product during our third and fourth quarters. This customer's inventory build is now is now complete, which we will expect to have a dampening effect on our revenue in the near-term future if that customer fulfills its requirements for this product from its on-hand inventory. The situation has been reflected in our guidance for Q1.

We had experienced these types of short-term demand swings in the past and we've been able to work closely with our customers and manage our way through them. In fiscal 2004, that was a prime example of this. We started very slowly in the first quarter, and an annual run rate revenue of $74m. We then rapidly ramped manufacturing activity in the second and third quarters to meet rebounding customer demand. And recent annual revenue run rate of $174m during the last six months of the year. Demand for satellite products has been driven by net subscriber ads and upgrades to be installed basis as well as satellite service providers incorporating fixed amounts of programming and new functions in order to remain competitive . We are well advanced in developing our next generation customer premise equipment, which enhances the digital video recording deployment and we expect to bring this product to market by mid summer. There is some current information. We would expect to have sequentially improved second and third quarter revenue due to a combination of seasonality and new products.

Of some concern to us is the recent rapid increase in the cost of raw steel during the past several months. Our outdoor satellite reception systems, which include both LNBF and reflector dish are impacted by these cost increases. These increases are expected to last throughout the year from a calendar standpoint. We have taken measures both with our supply base and our customers and are closely managing and monitoring the situation in order to minimize any negative impact this cost increase has on our competitiveness in the marketplace and our business in general.

On the product development front, our Wi-Fi enterprise access point development is progressing with units now undergoing performance verification both internally as well as with selective potential customers. We expect that upon conclusion of this test, we'll be in a position to start beta testing in the May-June time frame of this year. As previously stated, this product is targeted of a medium-to-large enterprise networks, which can reap the benefits that we believe our product offers in terms of throughput range and security. We will continue to keep you apprised as we make progress in this area.

As previously announced, we completed the acquisition of Vytek Corporation on April 12th. As a part of the acquisition, we have aligned our merged businesses into two divisions, our Products Division and a Solutions Division. The Products Division is lead by Pat Hutchins, previously Vice President of Operations of CalAmp and Solutions Division by Tracey Trent, previously Chief Operating Office of Vytek. The Solution Division will be responsible for bring our Wi-Fi access point to market, as we seek to leverage Vytek's existing customer base and technology partner relationships in the enterprise market. This is just one of the projects in which we are endeavoring to re-write the potential of our bundled solution's business model, which is designed to capture the revenue stream from the conception of product development stage through the product life cycle management phase. Other areas that we believe significant potential for collaborative product development include home media, smart vending, key asset solutions, public safety, and specialized mobile computing devices.

While it has only been two weeks since we completed the acquisition, we are moving forward in refining our product development early now. The process of integrating our businesses of CalAmp and Vytek is underway, I anticipate that we will be providing further details in terms of progress and opportunities in our next conference call.

Now looking forward. Based on our current visibility, we estimate first quarter sales in the range of $43m to $50m, an increase of at least 138% over the same period in the prior year. We expect earning in the range of $0.06 to $0.10 per diluted share as compared to a loss in Q1 of the prior year. Included in this EPS guidance is a one-time write-off of in-process R&D of approximately $500,000 related to purchase price accounting as previously disclosed and an increase in the number of outstanding shares as a result of the acquisition. Additionally, our effective tax rate is estimated to be approximately 38% in 2005 versus fiscal year 2004's effective tax rate of less than 1%. The range of our guidance amounts reflects the fact that results for the first quarter will depend largely and to a degree on the company's ability to economically procure materials and also recognizes that we are in the early stages of the merger/integration process.

In summary, we California Amplifier has headed in the right direction. We have started successful in achieving significant growth in our core satellite business in the fiscal year 2004.

Despite ongoing merger pressures we achieved our fourth consecutive year profitability. Our business model is more flexible allowing us to adapt more readily to a changing market condition and opportunity. We are building a platform that will take our company to new markets and support improved margins and revenue diversification in the future. The acquisition of Vytek significantly strengthens our engineering marketing capabilities and brings us into a number of new exciting customers and technologies. Our focus in fiscal 2005 will be in re-writing synergies to drive growth and profitability with the combined company, and we look forward to talk about our progress in more detail on future calls. Before we begin the Q&A session, I would like to provide perspective and clarity on our Q1 earnings guidance. To do this I am going to recap the financials for the fourth quarter of fiscal 2004 using three factors, one of which is non-recurring than are anticipated to be present in the fiscal 2005 first quarter. I would allude to fiscal 2004 fourth quarter pre-tax income of $2,938,000 at a starting point. First I deduct $500,000 for the non-recurring write-off of in-process R&D associated with the Vytek acquisition, which gets us to $2438,000. Second, I apply the estimated 2005 effective tax rate of 38%, which yields income after tax of $1,512,000. Finally I divide that amount by our estimated first quarter weighted average diluted shares outstanding of $20.7m shares, which reflects the shares issued in the Vytek acquisition being outstanding for a little over half the quarter. This process yields us diluted earnings of $0.73 per share. Remember that I used the actual pre-tax income in the quarter just ended as my starting point. It should be noted that the $0.73, the results from this computational exercise is below the mid-point of our first quarter guidance range of $0.06 to $0.10 per share. The key point of all of this is that as our first quarter guidance simply reflects the non-recurring R&D write-off, the higher effective tax rate and the greater number of shares outstanding, not a fundamental shift in our business or operating performance of the company. Hopefully, this has been helpful in understanding why there is such large variation between FY 2004, Q4 and FY 2005, Q1 guidance. Thank you for listening and I am Rick Vittle. I am joined by Tracy Trent as well. We will take your questions ( Indiscernible)?

At this time I would like to remind everyone in order to ask a question please press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Thank you, your first question comes from Matt Robison of Ferris Baker Watts.

Hi. Good afternoon. Fred, the call dropped for a little bit there. I might have missed a few things but -- so I apologize if I am asking the question you have already addressed. But I got a couple of questions. Let's start with the inventory. You mentioned that it grew $6.4m and largely finished goods. Given that the bill that your customers might catch upon -- how do you feel about having the finished goods? Are those largely for another customer and is this -- normally I don't see you guys get involved with inventory bills like that? How should we look at this, is this all going to ship in the first quarter and you know --

But I think would take some time to work it's way down. It might take three to six months to work its way to a normal level. You know, one the things that happens as we change our manufacturing models that are more variable is that we will experience a little longer pipeline. And so our manufacturing inventories are actually going increase from our historical rates I think. You know we had an excellent period last period. But it was really driven primarily by shortages rather than having the appropriate amount of inventory in each location. But you know at this point we don't see a list with that inventory.

But did you feel like your shelter was not quite where you thought it would be and is that part of the builder?

Part of the builders on that particular product would be that the shelter isn't what we thought it would be plus we had it pipelined, you know we couldn't slow down.

And what about you're other customers? Do you have a similar kind of a -- stock situation with them?

No. That's -- in this part there is one particular product that is applicable to which is a fairly expensive product. It is one of our higher value added product and so it has a little higher impact.

In your guidance for the first quarter -- how should we look at that being legacy business versus Vytek.

I think it would be appropriate in the circumstance that, if you took a Vytek run rate and we are going to have roughly Vytek for half of the period. So if Vytek's run rate was near the $13m to $14m range, if we took roughly half of that you wouldn't be -- that probably would be a rational person's approach to try to come up with what kind of revenues comes from Vytek.

So you didn't --

We are not counting on - and we've never said that that the Vytek acquisition, we've never said that it will be accretive in the first year and certainly it wouldn't be accretive in the first seven weeks.

Well the -- so we could see -- we could look at that fourth quarter, Vytek that we saw last month and view that as a level that can grow from rather than a spike in fourth quarter seasonality?

I think that I've answered your question earlier.

And can you talk about a little bit on the wireless access business, a traditional CalAmp wireless access business and is that going to be from a reporting standpoint rolled in with Vytek for the May quarter? And then maybe comment on what Vytek has been able to achieve in recent weeks and if there's been any synergies developed yet?

Okay, we have five questions.

I'll leave out the four after you get one of these.

Okay. In terms of the reporting units, it's likely that the reporting units are going to be, the products division, which will include the like what I call legacy wireless and there will be the solutions division. And so, the legacy, I think I gave an indication, I mean, the legacy business is very small right now. It's roughly 4% or 5% of overall company revenue, which when at all you can get smaller than that is the Vytek revenue comes on stream. So fundamentally it's not a key part of our business. Currently, we do have product developments underway with respect to that but to change that situation, that clearly we are not going to continue reporting on something that's less than $2m in revenue per quarter. In terms of things that have changed in the last three weeks that would be synergies, I'm not sure we are prepared to talk about those at this point. I mean, there's not been -- not a whole lot of things do change until we predefine.

Well, I thought I would give you a chance to talk about some of the things you talked about in March. I mean that -- perhaps there's other folks that are on this call --

What we can do is, let me turn it over, I'm going to turn it over to Tracey , who can talk about some of the applications that we are looking at and maybe give you a brief glimpse. You may have missed it also, the Vytek organization is actually taking over responsibility for the RASTER program or Wi-fi development and which we call RASTER in general. And so, maybe he can give you some perspective on that as well.

Great.

To point the big things, Matt are, I think in the Shareholder Conference Call that we did a few weeks back, we were talking about the fact that there were, about three to four of production opportunities that had come up based upon some existing Vytek customers. And what I can tell you is in all those cases the customers have received the merger very favorably. One of those opportunities is actually in the contracting process right now and I would anticipate that that is going to get signed. It was an opportunity we were pretty bullish on to start off with, deploy the big thing there is that the production will in fact end up being done here in Ventura with support from the engineering team down at Santiago. So that's a real positive thing. And we've got two other customers that we are working with pretty diligently. One is the customer that's in the in-flight media distribution business. I think that's a pretty positive opportunity as well as we are waiting to hear back on a customer in the intelligent vending space. It's a relatively small production opportunity this year but has significant volume potential downline and the potential to take it to other customers. So, we are in the early going, here the customer response has been very favorable. The other thing that I guess is pleasing to see is with bringing the RASTER development efforts together with the engineering team, we've been able to quickly get that in front of some enterprise customers to try and get some feedback. Based upon that we're working directly with a silicon provider.

Thanks Tracey. On format?

Indeed.

Thank you.

Thank you. Your next question comes from David Kang of Roth Capital.

Thank you. Couple of questions first, this is an explanation, can you explain - I guess you had a little bit of tax benefit instead of tax provision, I was just wondering if you can provide explanation for that. And secondly regarding the cost of steel I was wondering if you can quantify the impact on your gross margin going forward. Thank You.

Let me take the last one, Dave. This is Fred. Last year - last fiscal year, we bought about $6m worth of steel believe it or not from electronics company. And our cost of steel has almost roughly doubled in the last several months. Now some of that we had dialed in some cost reductions that we had just concluded late in fiscal year and we're also looking at our customers in terms of what absorptions they can take in terms of drop in the cost increase. And so in Q1 there is not a significant adjustment relative to these cost increases, but certainly will be monitoring the situation to determine how long we can maintain that competitive posture. And in terms of the tax rate I will turn it over to Rick.

Well, as has been indicated for the past couple of years we've been reducing our deferred tax asset valuation allowance and the small tax benefit you see in the fourth quarter is the inter play of the providing taxes on the tax flow income that we generated reducing the valuation allowance further. At the end of the fourth quarter, the valuation allowance stands at about $630,000.

Okay. And lastly I'm sure - perhaps you have gone over this in the past, but can you go over when and how Vytek will get to profitability going forward? Thank you.

Okay. This is Fred. Vytek in its last several months of operating was in fact profitable, though in terms of their last fiscal year. So I think the key for Vytek is to continue the growth of the business and that's what the opportunity is for both shareholders that were involved. In terms of just making it profitable, it is not a case of making profitable or was profitable, it is just taking advantage now of the combining strengths and significantly growing the topline which we assume, you know given our history, if we can go to the topline we deliver it on the bottom. Is that response okay, David?

Yes. Perhaps - can you go over their model, I guess somewhat I have is the -- their gross margin is around 35% and I thought their OPEX was kind of comparable, so what would be the target model going forward?

Okay. If you go with the presentation I guess about a month or so ago, you know, we are talking out their operating expenses in a significant amount and I think it is roughly on a run rate basis, when all the changes have taken full effect obviously there is about a $1.9 on the of expenses that will be taken out of sort of their run rate of their business. That should be implemented in the next three to six months fully. And so, I think that's the kind of numbers we are looking at. I think there is a follow on, little over a $1m in the following year, additional.

Thank you.

Again if you are to ask a question please press star then the number one on your telephone keypad. Please hold for your next question. At this time there are no further questions. Gentlemen do you have any closure remarks?

No. Hopefully this conference has clarified any uncertainties with respect to our going forward EPS. I'd like to thank you for your patience, cooperation, and support and we will be talking with you soon with the Q1 results. Thank you very much.

Thank you. This concludes today's conference call and you may now disconnect.

No. Hopefully that clarifies -- this conference call has clarified any uncertainties with respect to our going forward EPS. I would like to thank you for your patience, cooperation, and support and we will be talking with you soon with the first quarter results. Thank you very much.

Thank you. This concludes today's conference call. You may now disconnect.