奇異 (GE) 2006 Q1 法說會逐字稿

Now we can begin today's conference.

Good afternoon, thank you for standing by. (OPERATOR INSTRUCTIONS).

Today's conference is being recorded.

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I would now like to turn the call over to today's host, Ms. Jennifer Wade.

Ma'am, you may begin.

Good afternoon and welcome to the SBS Technologies fiscal 2006 first quarter earnings conference call.

I'm Jennifer Wade, Vice President Investor Relations.

Joining me are Clarence Peckham, Chief Executive Officer, and Jim Dixon, Chief Financial Officer.

As is our custom, today's call is being broadcast live over the Internet and recorded for both web and telephonic access.

The earnings press release was issued at approximately 4 PM Eastern Time, and is available on the major news wire services and is posted in the investor relations section of our website, www.SBS.com.

Remarks made during this conference call about future expectations, trends, plans, forecasts and performance for SBS and its markets are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements reflect our current beliefs, estimates and expectations that involve a number of risks and uncertainties.

Listeners are cautioned that these forward-looking statements may differ materially from actual future events or performance, and are advised not to place undue reliance upon any forward-looking statements which speak only as of the day of this call.

Factors that could affect results are outlined in today's press release, and a more thorough listing of risk factors is discussed in our annual report on Form 10-K for the year ended June 30, 2005 filed with the Securities and Exchange Commission on September 12, 2005.

Now I am pleased to turn the call over to Jim.

Thank you Jennifer, and good afternoon everyone.

The financial results for the quarter ended September 30, 2005 were below our original expectations.

At the beginning of the quarter, we believed that sales would be between 35 million and 37 million.

On September 27, 2005 we lowered our guidance for the quarter due to a combination of supplier problems and customer delays that unfortunately were not resolved in time to allow the affected shipments to occur before the end of the quarter.

The impact of these events lowered our sales and earnings for the quarter to below our breakeven point.

Although our financial results for the quarter were disappointing, our total bookings for the quarter were 40.1 million, an excellent start to the fiscal year.

Due to the solid bookings, assembled backlog as of September 30, 2005 increased to 50.2 million compared to 44.4 million at the end of the preceding quarter, to 46.9 million at the end of the first quarter of the prior fiscal year.

Our book-to-bill ratio for the quarter was 1.17 to 1.

Sales for the first quarter were 34.4 million, a decrease of 1.5% compared to 34.9 million in sales for last year's first quarter.

On a sequential basis total Company sales decreased 9.5% compared to the 38 million in sales for the quarter ended June 30, 2005.

By segment, sales for the first quarter by the Americas group were 22.2 million, a decrease of 5.2%.

And sales by the Europe group were 12.2 million, an increase of 6.2%.

Both compare to the first quarter of the previous fiscal year.

On a sequential basis, sales by the Americas group decreased 3.7%.

Sales by the Europe group decreased 18.5%.

Both compare to the quarter ended June 30, 2005.

Changes in currency exchange rates had a minimal impact on the sales comparisons to the first quarter of the prior fiscal year, and the preceding quarter.

By end market for the quarter ended September 30, 2005, sales to government customers were 14.7 million, a decrease of 4%.

Sales to communications customers were 10.7 million, an increase of 14.7%.

And sales to commercial customers were 9 million, a decrease of 12.5%.

All compare to the first quarter of the prior fiscal year.

On a sequential basis, sales to government customers decreased 10.3%, and sales to communications customers decreased 9.4%.

And sales to commercial customers decreased 8.4%.

All compare to the quarter ended June 30, 2005.

For the quarter ended September 30, 2005, as a percentage of total sales, sales to one communications customer, Ericsson, represented 17%.

And sales to one commercial customer up, Applied Materials, represented 7%.

No other customer represented more than 5% of sales.

We incurred a net loss for the quarter ended September 30, 2005 of $430,000 compared to a profit of 1.2 million for the same period of the prior fiscal year, and 767,000 for the preceding quarter.

Net loss per common share assuming dilution for the quarter ended September 30, 2005 was $0.03 compared to net income per share of $0.08 reported for the first quarter of the prior fiscal year, and net income per share of $0.05 for the previous quarter.

Our loss incurred for the quarter was primarily the result of lower than anticipated sales due to a combination of supplier problems and customer delays affecting shipments for the quarter.

For the quarter, our effective tax rate was 35%.

Currently we expect a similar rate for the entire fiscal year.

Total diluted outstanding shares for the quarter were 15.6 million compared to 15.7 million for last year's first quarter.

Gross profit for the quarter as a percentage of sales was 41.9% compared to 44.4% for the first quarter of the prior fiscal year, and 44.2% for the preceding quarter.

Compared to the quarter ended September 30, 2004, and the preceding quarter, an increased proportion of sales of lower margin products and competitive pricing lowered gross profit as a percentage of sales.

Consistent with our Form 10-K for the year ended June 30, 2005, we have included the amortization of intangible assets associated with completed technology and license agreements for the separate component of cost of sales.

Selling, general and administrative expense for the quarter was 8.7 million, compared to 8 million for the first quarter of the prior fiscal year and 9.7 million for the preceding quarter.

Included in the previous quarter's SG&A expense were employee separation costs, costs associated with moving to new facilities in Albuquerque, New Mexico, and Mansfield, Massachusetts, and costs associated with our Sarbanes-Oxley Section 404 implementation.

The majority of these costs do not repeat.

This effect, plus additional cost control initiatives, lowered this expense.

Looking forward, based on our sales projections for the year, we expect the expense level in current (ph) (technical difficulty) quarter to remain relatively constant. (technical difficulty) SG&A as a percentage of sales decreased to 25.2% from 25.5%.

Research and development expense for the quarter was 6.7 million compared to 5.5 million for the first quarter of last year, and 6.7 million for the preceding quarter.

Looking forward, as with SG&A, we expect the current quarter's expense level incurred to remain relatively constant.

This level of R&D expense is in line with our current development plans.

Due to lower sales compared to the previous quarter, R&D expense as a percentage of sales for the quarter increased to 19.5% compared to 17.8% for the preceding quarter.

Now turning to the balance sheet.

Our total cash balance at the end of the quarter was 55.9 million, compared to 55.2 million at the end of the prior fiscal year.

For the quarter, operating cash flow was approximately 1.4 million and will remain debt free.

Compared to the previous quarter, our outstanding accounts receivable balance was relatively unchanged at 27.4 million.

Days outstanding increased to 60 days compared to 53 days for the prior quarter, as certain payments anticipated to be received prior to the end of the quarter were not received until October.

Due to the lower than planned shipments for the quarter, our inventory balance increased approximately $560,000 compared to the previous quarter.

Capital expenditures for the quarter were approximately 680,000, in line with our current year capital expenditure planned.

In summary, although our first quarter results were not as strong as originally forecasted due to supplier problems and customer delays, we are pleased with our strong bookings and increased backlog.

We continue to manage our balance sheet and believe we're properly positioned for growth.

I will now turn the call over to Clarence.

The September quarter was an excellent bookings quarter with orders at $40.1 million, increasing our backlog to $50.2 million.

We had strong bookings in both our government market and in Europe.

Even though August is the traditional (technical difficulty) of the European Union.

It was encouraging to not only have bookings for new design wins but also to see follow-on orders through existing design wins.

Our new product releases in the September quarter were focused on improving our single board computer product line and our graphics product line.

We released a total of four new products.

Two of the products were 3U CompactPCI single board computers.

One was a PCI mezzanine card, or PMC card, Intel-based single board computer, and one was high-performance graphics PMC card.

The single board computers were developed to support market demand for more performance in both Intel and PowerPC architectures.

Our customers are continuing to develop applications that require more performance in smaller form factors.

An example is the new CV1 PowerPC 3U CompactPCI card, which is being used in multiple military programs to upgrade flight computers.

The graphics board is used primarily in military applications.

This board will be used in the cockpit display upgrade for the B-52 bomber, one of this quarter's government design wins.

During the quarter we achieved 11 design wins.

In the government and commercial markets, each reported design win represents an initial purchase order of a minimum of $100,000 and is forecasted to produce a minimum of $500,000 in annual sales when (ph) in production.

Recognizing the different characteristics of the communications market, beginning this quarter we have lowered the minimum purchase order value for design wins in the communications market to $10,000.

Although the $500,000 minimum anticipated production rate remains unchanged.

Based on quoting activity for design win opportunities, we believe the production potential is large.

But initial orders are in low value prototype quantities.

The new threshold is more representative of customers' future order patterns in the communications market.

By market, seven design wins were for the government market.

Two were for the commercial market and two were for the communications market.

All seven government design wins were for systems.

They are an F-16 fire control computer, vehicle management computers for the new Fire Scout Unmanned Aerial Vehicle, a flight computer for a new Unmanned Aerial Vehicle, a mission computer for an upgrade to an E2C airborne Early Warning and Control aircraft, a cockpit display upgrade for the B-52 bomber, a control computer for the expeditionary fighting vehicle, and a system for a NASA application.

These are representative of the types of funded, high-value programs that combine a wide variety of SBS products into sophisticated systems.

In the commercial market, one of the design wins was to provide a single board computer and input/output card used to provide video surveillance for public transportation facilities such as subway and train stations.

The second commercial design win was an I/O card for an in-flight entertainment system for commercial aircraft.

In-flight entertainment is a growing market as commercial airlines compete for passengers.

Our commercial market focuses on projects such as these that offer high-volume potential and utilize the broad SBS product line.

In the communications market, one design win was with a telecommunications equipment manufacturer for a T1 E1 I/O card and a communications controller for small and medium-sized businesses providing voice, data and fax capability.

The second design win was with Ericsson for a single board computer for a multisource access node program.

Now turning to our markets.

In the communications market, we are continuing to see strong interest in increased proposal activity for our new family of AdvancedMC products.

In addition, we placed products for evaluation and test, (technical difficulty) (indiscernible) equipment manufacturers, research and (technical difficulty).

We believe the market opportunities that progress in this plan for the remainder of fiscal year 2006 targeted to capture new design wins and low rate initial production.

And significant production to follow in fiscal year 2007.

I was particularly pleased with the results of our business development activities in the government market.

This quarter we had seven excellent design wins with strong bookings for follow on production for several pre-existing design wins.

Increased production orders in the government market is one of the key indicators for our anticipated second half growth.

In the commercial market, we are continuing to pursue opportunities for semiconductor manufacturing equipment, image processing and medical electronics applications.

These are segments of the market that require high-performance solutions which are a good fit for our product portfolio.

As discussed in previous press releases, based on our forecasts we expect that a significant amount of our revenue growth in fiscal year 2006 will occur in the second half of the fiscal year.

This is due to two primary factors.

First, we expect revenues from AdvancedMC products to begin low rate initial production during the latter part of the year.

Second, based on customers forecasts, orders for military systems will increase as we progress through the fiscal year.

Based on our backlog and our customers' forecasts, we expect sales for the second quarter fiscal year 2006 ended December 31, 2005 to be between $37 million and $39 million.

This forecast reflects a government (ph) customer push out of approximately $4 million due to technical issues not involved in our product.

This order originally scheduled to ship in the second quarter is now scheduled to ship in the second half of the fiscal year.

For the fiscal year ended June 30, 2006, we continue to expect sales to be between $165 million and $175 million.

In summary, this past quarter was marked by lower-than-expected revenue and earnings results, but strong bookings performance.

Our business experienced short-term fluctuations due to supplier problems and customer delays, but we believe our fiscal year goals are still achievable.

We continue to look at and improve our operating costs, but we will not deviate from our strategic plan.

We've successfully executed our strategy, which we believe will deliver growth in sales and earnings over the next several years.

At this point, with the help of Ed, I would like to open the call for questions.

(OPERATOR INSTRUCTIONS) Brian White, Kaufman Brothers.

Good afternoon.

Could you talk a little bit about this ramp in the second half of the year?

What percent of that ramp will come from the communications part of it and what percent from the government market?

Basically, we expect a significant portion of it to come from the government side.

We expect the communications side, as I mentioned, to be kind of a lower ramp in the second half of the year as some of the design wins start taking units early -- alpha and beta units.

So if I had to state a number, I would probably say 70% of it would come out of government and 30% out of the communications side.

Looking at this quarter, just walk us through what happens in areas like telecom.

I thought telecom had actually -- was expected to be fairly healthy in the September quarter.

It looks like it was down 9% sequentially, commercial market down 8%.

Government we knew was going to be soft.

Maybe talk about the commercial and telecom markets, what happened in the quarter.

Mainly in the communications side of the business, we still had a good performance from Ericsson, still a strong customer.

Basically that was the majority of our telecom sales for the quarter, as most of the other design wins really have not kicked in.

As I mentioned, we're still doing proposals to get new design wins for the AMC product.

On the commercial side, we had expected Applied Materials to be a little bit slower this quarter than normal.

They did come through about what we expected, and the rest of our commercial business has been relatively slow.

If you look at Ericsson's numbers, though, they were down something like 15% sequentially.

That's true, but we had a fairly major issue with the August timeframe with Ericsson.

As you know, they basically disappeared for the month.

We were kind of expecting that to happen.

The closed September with good, strong performance.

Applied Materials looks like it was up 6% sequentially.

So that business is getting better, or would you say it's still relatively muted?

I think we would say it's still relatively uncertain at this point as to whether it's going on its way up or down.

I think it's going to take another quarter to figure that out.

Certainly anticipating their earnings call next month.

Finally on pricing, I thought you said something -- pricing pressure in the quarter.

Did you say that?

And in what markets are you seeing it?

Basically we see the pricing pressure to show up more in the communication side than any of our other markets, and also somewhat in the commercial side.

The government is still holding up well in pricing.

Do you ever compete against Advantech out of Taiwan?

Not very often.

Their products tend to be at the lower ASP than ours.

Smaller systems.

Rob Stone, SG Cowen.

I wanted to follow up on the pricing commentary as well.

If you could mention where you think the pressure is coming from within the comms market with respect to specific competitors that you see there.

I think it's most of the competitors.

I think it is being driven by the customers, and they see the whole concept of using open standards in the communications area as being an opportunity to get better pricing because they're not dealing with proprietary systems.

And so I think all of the competitors are trying to be aggressive in pricing of these new design wins.

So if it's mostly about better pricing on new wins, that's translating into price pressure in the quarter that just ended as well?

Yes, that's correct.

A question for Jim.

Based on your anticipated mix of margins and your commentary about expenses, can you say roughly what is your breakeven level on revenues?

Obviously it depends on what our gross margin is.

With gross margins in the -- let's say low 40% range, between (technical difficulty) 44%, right now our gross margin is somewhere around $34.5, $35 million for (multiple speakers) quarter.

For the breakeven.

Okay.

Finally, it sounds like you're counting on a lot in the second half of the year from the government space.

Could you comment on what kind of sense you're getting from your customers relative to pressure in this year's budget cycle, deficit reduction efforts, Katrina, etc.?

Do you see risk to the anticipated volume per quarter (technical difficulty) timing with any of your programs vis-a-vis the budget?

At this point we have not.

We have several design wins that are in the final qualification stage, so I think all of them are on funded programs.

That's why we feel encouraged about the second half of the year.

But we haven't seen any funding shifts in the type of programs we are on.

And remember, we focus mainly on upgrade programs.

Those tend to be the least expensive of the government programs.

So in terms of -- you have a couple of push outs now related to government programs.

One was the supplier problem I guess related to your product, and you said you said for the December quarter there is another timing issue that's unrelated to your product.

Are there still, then, hurdles with respect to other aspects of the technology to be delivered that could cause similar problems in the back half of your fiscal year?

We don't believe so.

They do tend to crop up now and then and this most recent one was a design win we won last December.

And it was a very aggressive program, and they'd run into some software issues that's caused them to delay on their first production.

But I think there's always a risk we may see some of that.

But right now, we're pretty confident that we're pretty much on track with our existing customer base.

(OPERATOR INSTRUCTIONS).

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Thank you for participating on our call today, we appreciate your continued support.

We anticipate reporting the results of our second quarter ending December 31, 2005 on Tuesday, January 17, 2006.

Thank you, and good afternoon.

Thank you for attending today's teleconference.

This concludes today's call.

You may disconnect your line at this time, and have a good day.