Harmonic Inc (HLIT) 2008 Q1 法說會逐字稿

Welcome to the Scopus Networks 2008 first quarter earning results conference call. All parties will be in a listen-only mode. (OPERATOR INSTRUCTIONS). As a reminder this conference is being recorded May 5, 2008.

I would now like to turn the call over to Mr. Kenny gReen of GK Investor Relations. Kenny?

Good afternoon to everyone. I would like to welcome you to Scopus Video Networks' first quarter 2008 earnings conference call. Earlier today Scopus received an earnings press release outlining its financial results for the first quarter of 2008. If you have not yet received a copy, please access the news section of the company's Web site at www.scopus.net.

On the call today, we have Dr. Yaron Simler, Scopus' Chief Executive Officer, and Mr. Moshe Eisenberg, Scopus' Chief Financial Officer. Yaron will open by giving an overview of the quarter, followed by Moshe who will summarize the results. Following this, we will open the question and answer session. I would like to remind everyone that this call contains forward-looking statements and the company's actual results could differ materially from these forward-looking statements.

Please refer to the company's Safe Harbor statements in the press release issued today, which also covers the contents of this conference call. Now I would like to hand the call over to Yaron. Yaron, please.

Thank you, Kenny. Welcome to all of you and thank you for joining us today. In the first quarter of 2008, we continued the very solid progress we made throughout the last year. We recorded revenue of $16.4 million, which represents an increase of 34% over the first quarter of 2007. Despite the fact that the first quarter is seasonally our weakest, our revenue will almost equal to that of the previous quarter. The gross margins were also at the higher end of the normal range and our OpEx level remains flat over last quarter which enabled to us improve the bottom line. We continue to increase our cash position, but most significantly, we are able to report a positive operating income in the quarter, and also reached a break even level also on a GAAP basis.

With strong bookings throughout the quarter, we ended the quarter with a healthy backlog, and we started the second quarter with strong order generation. At the same time, we continued to see many new opportunities in our markets, which we are actively pursuing in all of our geographies. The continued sales focus in our system offering has improved the traction in our markets for our newly released products in our systems. This, coupled with solid execution across the board, have been instrumental in enabling us to maintain our positive momentum.

I'd like to talk a little bit about some of our marketing and sales activity in the quarter. Earlier this month we attended the 2008 NAV show in Las Vegas, presenting a number of our new products, the NAV show represented an excellent opportunity to present our technological edge and best of breed solution to the industry. We showcased many of our new technology and products which included for example the H264 high-definition encoder for contribution applications, and our new encoder for mobile applications. We also showcased our new versatile and profitable H processing platform, the IRP, which will be released later this year, will be host many new applications including H264 and MPEG-2 decoding.

During the quarter, we saw strong performance across all our geographies. In Europe, for instance, we won a tender with FN Cable Holdings, a ten European multi-service operated management group which will deploy our head end solution for the digital upgrade of it's [5-minute] Hungary and European Bulgaria subsidiaries. As we mentioned in the past, digital video penetration is fast growing in Central and Eastern Europe markets and this we insert as a great reference model for many cable operators in these regions that are in process of digitizing the network. The U.S. market was also very strong for us this quarter, particularly because our penetration of Piccolo is progressing well. We see Piccolo maintaining its momentum in the coming quarters, but we also look forward to capitalizing on some of the new business opportunities that are driven by the February 2009 analog shut down when the U.S. makes a complete switch over to digital only transmission. As you probably heard, on April 18, OptiBase submitted a request that we change the article of association to have the entire board reelected every year and also change the composition of our Board of Directors. Our board will release its response to OptiBase's request in the next few days and until then we cannot provide any more details.

In summary, our first quarter results are a fantastic start to 2008. The team at Scopus is working hard to enhance our competitive position, continuously bringing leading products and solutions to the markets that we are active in. We intend to continue to leverage on the current market trends to further grow revenue while solidifying our position as a one stop digital video solution provider. As I look back to what we were able to achieve in the past 12 months, it is clear that the market is responding positively to our efforts. Looking forward, we fully intend to continue and even exceed this trend. Now I would like to turn this call over to our CFO, Moshe Eisenberg, who will discuss our financial performance in the quarter.

Thank you, Yaron. As you have mentioned, revenues for the first quarter reached $16.4 million, less than a 1% decrease from the $16.5 million reported in the previous quarter. And a 34% increase from the first quarter of 2007. This is a very good sign for us, given the fact that the first quarter is slow normally a weak quarter. The break out of revenue by region in the first quarter was 52% in EMEA, 20% in Asia and Pacific Rim, and 28% in North and Latin America. Gross margin for the quarter was 49%. Expenses related to share-based compensation or FAS 123 R., totaled $311,000 in the quarter.

In order to better understand the performance of our business as compared to prior quarters, we would provide the rest of our financial results on a pro forma basis, which will exclude the expenses relating to the share-based compensation. You can find our full GAAP results in the press release issued earlier today. We recorded a pro forma operating profit in the quarter of $97,000, compared with a loss of $287,000 last quarter, and a loss of $1.1 million in the first quarter of 2007. Pro forma net profit in the quarter was $310,000, or $0.02 per share, compared with a pro forma net profit of $187,000, or $0.01 per share in the prior quarter, and pro forma net loss of $730,000, or $0.05 per share in the first quarter of 2007. Leveraged number of diluted shares used to calculate the pro forma EPS in the quarter was 15.7 million. Although we do have hedging arrangements to limit our exposure to exchange rate fluctuations, the global weakening of the dollar, our reporting currency had an adverse effect on our results, as the majority of our expenses are denominated in she shekels. Therefore, I'm especially pleased with our results since despite these factors, we reached the break even level also on a GAAP basis.

During the quarter we improved our cash position. We generated a positive operating cash flow of $897,000. We ended the quarter with $35.8 million of cash and short term investments, compared with $35.5 million at the end of last quarter. I would now like to provide you with our guidance for the coming quarter. Based on our current backlog, we expect that revenue in second quarter of 2008 will be in the range of 17 to $17.3 million, representing over 25% growth year on year. In the coming quarter, we expect to slightly increase our operating expense level, mainly in order to take advantage of a number of immediate opportunities in the market.

With that, we would like to open the call up for questions.

Thank you, sir. (OPERATOR INSTRUCTIONS). The first question is from Jason Ader from Thomas Weisel Partners.

Good afternoon, guys, how are you doing? For the quarter and just the outlook and the guidance, would you give us some color what's going on in the different regions for Scopus right now? Where do you feel the strongest momentum? Where do you feel the least competition, or the least price pressure and things like that?

Okay. All right. You asked several questions. First I want to say that in general we basically are very happy all across the regions. I can't point out one region which is doing much better, as a matter of fact all the regions are doing well, which is great. As far as competition, there's not really anything different than, I think as far as what I can see is that we see the usual suspects in these markets. In some markets we see, in the U.S. market we see the usual, in Asia we see -- in fact we see the same players everywhere. I think what I would like to say is that I believe that we are able to win some new business due to our better competitive positioning with our system, Which is also a part of what you see as reflected in our sales. Does that answer your question, Jason?

Yes, that's good. It sounds like you're feeling pretty good across the board. You obviously have better visibility than I would imagine. When you talk about backlog, Moshe, this above normal backlog for the company relative to where you've been over the last year or so?

Yes, absolutely. We have a very healthy backlog at this point in time.

Okay. Do you think this is a function of your performance, do you think it's a function of the market accelerating for your technology or do you think that you're just executing better?

Well, look, I think it's a combination of both. The point is the market could be accelerating and we are not going to be executing better than, we are certainly not going to grow, we would stay flat. I think it's a combination.

Okay. Thank you.

Thank you, Jason.

The next question is from Greg Mesniaeff of Needham and Company. Please go ahead.

Thank you. My question has to do with the U.S. market. You mentioned that Piccolo is maintaining its momentum in the U.S. market and I was wondering if you could give us a little more perspective on that. I know you had some trial activity with Comcast, and then obviously sales activity at MediaCom. And I'm wondering if what has changed there, if anything?

Okay. Actually, when I mentioned Piccolo, this is our hidden in a box, where we sell pretty much as operators are switching from analog to digital, we sell them a complete solution, which includes encoders, decoders, et cetera. So I think when we talked about the Comcast perhaps you meant either the UIV or the IVG product. Piccolo is our total solution, right? And by the way, MediaCom, we continued to well over there. As far as the Piccolo, just to color on that, Piccolo is a solution that is targeted towards the smaller cable operators that are increasing their their digital channel in preparation for analog shut down in 2009 but also in general, as a general competitive move against the -- of course the satellite guys but now these telcos are coming into their turf, and also customer demand, and that's a solution that we sell to a lot of these guys and the reason they buy it and the reason the traction is because again, it's a solution of what we can offer and one of the few if not the only one under one roof that brings in the whole thing in one rack, all Scopus equipment, all under one single network management, et cetera, and that's what I meant by the traction of the solution in the market.

Okay. So but as far as the MediaCom relationship, that's, that continues to progress well and I assume there's follow on orders there?

Sure.

Thank you.

Sure.

Next question, Yair Reiner, of Oppenheimer.

Hello and congratulations on strong results. Moshe, did you give guidance for gross margins for quarter?

I did not provide specific guidance but I can definitely assure that gross margin will be in our normal level.

Was book-to-bill above one in the quarter?

Yes, it was above one in the quarter.

One other question on the U.S. conversion to digital. With many of the smaller rural customers you have especially for Piccolo, how far do you think that conversion process has gone on, and are we mostly done or is there potential for there to be a bit of a rush to the finish line here over the next ten months or so?

I think that this is going to go, this whole transition is going to go throughout 2009. I think the analog shut down is happening is actually on the broadcaster side, not on the cable guy side. The cable guy side will actually have to carry some of the broadcaster side on their plant and broadcaster will send it in high-definition, they will send it to their subscribers perhaps on standard definition. What I see is that the smaller operators, those who have not switch to digital will continue doing so, and as I said partly motivated by the analog shut down but also, as Verizon, for instance, is going to encroach on their turf, they are going to be forced to do that. In addition I suspect, that those who bought the first phase of Piccolo from us will expand and add more channels and that's sort of the carry on business and that's why I mentioned, I don't see that business is over in 2008, it will carry over to 2009 for sure.

Got it. When you look forward to the next year, obviously you are getting some FX tailwinds in Europe or at least breaking even there. As some of your exposure to the U.S. expands, is there anything you can do to kind of limit the impact of FX, especially giving the strength now of the shekel.

When you mentioned our exposure to what, I'm sorry.

I'm sorry, due to the shekel. And I guess, some of your competitors in the same situation, and if so, is there opportunity here to maybe start moving prices up?

Well, first of all, yes, and in fact I think every company, I would say every company in Israel who is selling out in the same position, but not just in Israel, just all across the board and Moshe, would you like to add anything on this?

We do have, obviously we do have an exposure, we are trying to limit exposure by hedging but obviously there is a negating impact on the results.

Thank you.

(OPERATOR INSTRUCTIONS). There are no further questions at this time. Before I ask Dr. Yaron Simler to go ahead with his closing statements , a replay of this call will be available on the web site, www.scopus.net, in three hours. Dr. Simler, would you like to make a concluding statement?

I would like to thank everyone for participating in this call and we look forward to having you join us in our next quarter call. Thank you and good bye.

Thank you. This concludes the Scopus Video Networks first quarter 2007 results conference call. Thank you for your participation. You may go ahead and disconnect.