Harmonic Inc (HLIT) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Scopus Video Networks's third-quarter 2008 results conference call. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded November 10, 2008.

I would like to hand the call over to Mr. Ehud Helft of Investor Relations. Mr. Helft, please go ahead.

I would like to welcome you to Scopus Video Networks' third-quarter 2008 earnings conference call. Earlier today, Scopus released its earnings press release outlining its financial results for the quarter. If you have not yet received a copy, access the news section in the company's web site at www.scopus.net. On the call today, we have Dr. Yaron Simler, Chief Executive Officer, and Mr. Moshe Eisenberg, Chief Financial Officer. We will open by Yaron giving our review of the quarter followed by Moshe who will summarize the results. Following this, we will open the question-and-answer section.

Before we start, 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 content of this conference call. And now I would like to hand over the call to Yaron. Yaron, please.

Thank you. Welcome to all of you and thank you for joining us today. I am very pleased with the results of our third quarter. The results were a continuation of our strong growth in sales and profits that were driven by the solid business execution that we have shown throughout this and last year. Our third-quarter revenue reached a record of $19.9 million, representing a 31% growth over the same quarter of last year. In addition, we increased our profitability, reaching a record net income for the quarter of $0.9 million on a pro forma basis. We again saw solid bookings throughout the third quarter and ended the quarter with a good backlog and started the fourth quarter with a strong order funnel. We achieved these results against the backdrop of global economic slowdown which became very apparent during the quarter. While we are cautious and do not believe we are immune, I believe the diversity in our customer base and geographic footprint has allowed us to weather the storm to date. In addition, in recessionary environments, it is well documented that with less disposal income, people tend to go out less and watch more television, so the nonadvertising parts and the broadcast industry may be less affected.

The changes in the global economic environment have affected some of our strategic decisions and as such, has affected our deal to take over the assets of Optibase. In light of the current environment, we have re-examined our original assumption of which the deal was based. Upon due consideration by our Board of Directors and in consultation with our advisors, the Company has decided to terminate negotiations with Optibase. We will continue to look for opportunities in the market with the well capitalized balance sheet for our position to take advantages and opportunity as they arise. In the beginning of September, we introduced a new integrated receiver processor platform at the IBC show in Amsterdam, our most important show of the year. This multi-format platform is the next generation of our integrated receiver decoder technology that brings together an array of advance processing capabilities and provides a complete reception solution for content contribution and distribution over IPSI or satellite infrastructure, the IBC's for us this year was very successful. It was also a strong showcase of our improved technical ability in terms of products and solutions. The response we saw, as well as the very high level of customer interactions affirmed our position in the market as another reason for optimism in our prospect in the near future.

In general, all of our various geographical markets were active during the quarter. The Americas were particularly strong, providing us with 34% of our revenue driven by new and existing customers. Our book industry region continue to pass through respected level of last year and our testimony to the hard work that has been invested to grow our market share and revenue stream from this territory. We believe that the diversity of our customer base, both in terms of application and geography as an important asset that should help us mitigate some of the potential effect of the market crisis.

In summary, a solid execution brought another quarter of success. Our third quarter continues our run of strongly improving revenue and business fundamental, but most importantly demonstrating the inherent leverage in our business model leading to a very strong growth in profits. Looking forward, we will continue to work hard and use our position to enhance our competitive stance, especially given the competitive opportunity in the current economic environment. At the same time, we remain cautiously optimistic, and as our recent performance and execution demonstrate, we continue to gain traction and perform well despite the markets. With that, I would like to turn the call over to our CFO, Moshe Eisenberg, who will discuss our financial performance in the quarter. Moshe?

Thank you, Yaron. As Yaron mentioned, revenues for the third quarter reached $19.9 million, a 4% sequential increase from the $9.1 million reported in the previous quarter and a 31% increase over last year. The breakdown of revenue by region in the third quarter was 43% in EMEA, 23% in Asia and Pacific ring and 34% in North America and Latin America. Gross margin for the quarter was higher than usual at 51%, mainly due to the product mix sold in the quarter. Expenses relating to share-based compensation totaled $351,000 in the quarter.

In order to better understand the performance of our business as compared to prior quarters, we will provide the rest of our financial results on a pro forma basis, which we will exclude the expense 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 for the quarter of $0.7 million, compared to the $0.4 million last quarter and a loss of 0.2 million in the third quarter of 2007. Pro forma net profit in the quarter was $0.9 million or $0.06 per share compared with the pro forma net profit of $0.5 million or $0.03 per share in the prior quarter and pro forma net profit of $0.4 million or profit of $0.003 per share in the third quarter of 2007. The average number of diluted shares used to calculate the pro forma EPS in the quarter was 14.4 million. In order to support the higher sales volume we are seeing, we have decided to increase the inventory levels. As a result, our cash balance came down by $1.4 million in the quarter, and we ended the quarter with $34.6 million in net cash or $2.40 per basic share. DSOs for the quarter were 64 days, which is around the same level as in the prior quarter of 67 days.

I would now like to provide you with our guidance for the coming quarter. Based on our current backlog and given the increased caution due to the global economic downturn, we expect the revenue in the fourth quarter of 2008 will be around the same level as in the third quarter, representing over 20% gross year on year. We expect gross margin to remain in our normal range while operating expenses should show a slight decline from third-quarter levels. As a result, we expect to show a sequential improvement in our net income. With that, we would like to open the call up for questions.

Operator?

Thank you. (OPERATOR INSTRUCTIONS). Please stand by as we poll for your questions. The first question is from Greg Mesniaeff of Needham & Company. Please go ahead, sir.

Yes, thank you. I was hoping you guys could expand a little on the potential Q1 opportunity for the demise of the analog tier, the broadcast tier.

Hi, Greg.

Hi.

Okay, right. Good question. I guess what you are talking about is the February 17 analog shutdown.

Yes, that is exactly right.

As you know we announced a product to provide a solution to the cable operators in the cable show in -- in Philadelphia in June. We received the order and we start shipping. We believe this business continues also into 2009, and there's obviously -- with some of the operators that receive some reprieve from the government to transition later, we expect that business will continue even deeper into 2009 rather than just the first quarter.

And just a quick follow-up to that. Do you see this as an opportunity to maybe break out of this tier 2 focus into the tier 1?

First of all, we are looking that the opportunity of breaking through all tiers, not just the tier 1. We do sell to tier one today actually. We sell to the large operators and small operators. In fact the difference in what we sell to the different tier, rather -- we sell to the higher tiers. The tier one we sell products into the lower tiers we sell systems. This being a product we are talking about. We believe it can sell to pretty much everybody. But to follow up on your question. The answer is, yes, this -- for customers who have not yet bought Scopus yet, and maybe there is -- they only started the digital transition, these customers.

Thank you.

(OPERATOR INSTRUCTIONS). The next question is from Scott Saerly of Esquire Technology. Please go ahead, sir.

Good morning, good afternoon. Just a quick follow-up in terms of the inventory increase. It was substantial in the quarter. You indicated that was -- it sounds like an anticipation of future volumes. Can you give us a little bit of an idea on that front? And also can you talk a little bit about the currency impact. It sounds like your OpEx will come down as a benefit of that. Will you detail that a little bit more. Is that specifically it? Are you tightening up costs in other areas?

Hi, Scott. This is Moshe speaking. First as it relates to the inventory levels. The IRP -- had an opportunity also represent a reason for the increase in the inventory levels. We built inventory to support the shipment of the fourth quarter and the first quarter of 2009. In addition, we -- we slightly increased the shelf inventory to have better flexibility and to support the increased volume in our business. With respect to the operating expenses, some are more just seasonality. Some trade shows and PR activities being done mainly in the second and the third quarter for Scopus, and fourth quarter is relatively low. Also, we have devoted quite significant amount of effort, developing the -- the IRP application, that also increases the R&D expenses during the second and the third quarter. We expect both of these items to come down in the fourth quarter. Which should help us come a little bit more profitable during this quarter.

I am sorry. What did you say about gross margins for the December quarter? You said I think in the normal range. Is that --

The normal range which -- sorry. You want to finish the question.

Oh, no -- yes. So the normal range if you can remind us what the normal range is.

47% to 49%.

Okay. And Yaron, if you can provide a little more granularity where you are seeing pockets of strength and weakness geographically and with the product portfolio as well. Just provide us with a little bit of color. There is obviously a lot of macro concern that is out there, but to maybe give us some deeper insight into what you are seeing.

Sure. As you said, I think to me right now from where -- where we stand today looking at the visibility of the market, our cautiousness come from -- I am telling you mostly I see what is happening around in the markets in terms of general reading the newspaper rather than what we see on the ground. Having said that, we are looking at this. We are taking in terms of our view of the world. Obviously very conservative.

As far as the color that you asked for, as I have outlined before and I think we have seen it all throughout 2008, the activities for us, our growth this year -- in fact last year as well, came not from one particular region but rather all regions. I will attribute this from what I mentioned before the diversity of our customer base and the application that we sell to. We -- we particularly see strong activity and we have seen it this year as I just mentioned of course in the US, but we see it in India. It is in countries in Asia that have been growing rapidly, and it's driven, by the way by government. It is not driven by -- government has changed and mandated transition to digital and that of course will continue regardless of whatever economic situation. They have a date that they have to meet. And so they will continue spending. And in addition, another continent has been sort of growing for us is in Africa. This continent has been doing what other, maybe US have already been doing. This country is only beginning the many new projects that we are winning in Africa, and we expect that to also -- to continue into 2009. As you recall, these countries -- a lot of countries in Africa have quite a bit of cash that came from -- you know from oil. And they are going to spend this cash on building infrastructure.

Okay. Hey, last item in terms of the termination of the Optibase transaction. Are there any deal break-up fees that you guys will be required to pay?

No.

Great, thank you.

Thank you.

There are no further questions at this time. Before I ask Dr. Simler to go ahead with his closing statements, I would like to remind participants that a replay will be available in three hours on the Company's web site, www.Scopus.net. Dr. Simler, would you like to make your concluding statement?

Sure. Thank you very much for participating in this call. We look forward to having you joining us on the next quarter call. Thank you and goodbye.

Thank you. This concludes the Scopus Video Networks third-quarter 2008 results conference call. Thank you for your participation. You may go ahead and disconnect.