摩托羅拉 (MSI) 2002 Q3 法說會逐字稿

Good afternoon ladies and gentlemen.

My name is Paul, and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Tut Systems Third Quarter Earnings Conference Call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer period.

If you would like to ask a question during this time, simply press "*" then the number "1" on your telephone keypad.

If you would like to withdraw your question, press "*" then the number "2" on your telephone keypad.

Thank you.

I would now like to turn the conference over to Miss Amanda Pires.

Please go ahead madam.

Thank you.

Good afternoon everyone, and thank you for joining Tut Systems conference call to discuss third quarter results.

A copy of today's third quarter press release is available through PR Newswire and at tutsystems.com.

We'll be following our usual format of giving you an operational overview and then opening up the call to any questions you may have.

With us today from the management, we have Sal D'Auria, President, CEO and Chairman.

Before I turn the call over to Sal, I'd like to remind you that during the course of this conference call and question and answer period, Sal will make forward looking statements including, without limitation, statements about the company's business, products and financial results.

These forward-looking statements are subject to many risks and uncertainties that may cause actual events and results to differ materially, including, among other things, the market and demand for the company's products.

These risks and uncertainties are discussed in detail in the documents that the company files from time to time with the Security and Exchange Commission, including, for example, the company's annual report on form 10K for the year ended December 31, 2001, filed on March 29, 2002.

Also the company's management will not be reviewing financial models after the call.

And finally, to adhere to the SEC's guidance on fair and open disclosure, we have made this conference call publicly available via this conference call and a live and on demand webcast available at tutsytems.com.

Now, I'd like to turn the call over to Sal.

Thank you Amanda, and thank you for coming in from maternity leave just to introduce this call.

Well, welcome to the Third Quarter 2002 Conference Call.

As you've seen from our press release today, we have a number of pieces of important news about the immediate and the future opportunities for Tut.

While the telecom industry as a whole has not yet seen a return to growth, Tut has taken some strategic steps that are driving a turnaround for Tut's business.

These steps include a new product, IntelliHUB that will deliver a breakthrough approach to service delivery for the existing and future broadband infrastructures; also, the very key strategic acquisition of Videotele.com or VTC from Tektronix.

This brings many important things for the future of Tut including two new product lines, new channels to customers, a world-class team of people, and a Tektronix heritage for great technology.

These all points were strategic turning points for Tut that begins with growth in Q4 and supports an exciting business plan for 2003 that I believe will be a cash flow positive by the end of 2003.

Lets begin by looking at the results of Q302.

Revenue for the quarter was approximately $2 million representing a 49-percent decrease in Q301 revenues of $4 million and a 19-percent decrease from Q202 revenues of $2.5 million.

Geographic revenue breakdown was 37 percent from international customers and 63 percent from US customers.

Excluding $0.2 million in cash proceeds from the sales of component parts related to prior purchase commitments, our gross margin was 29 percent.

Q302 operating expenses excluding restructuring charges of $0.9 million and non-cash acquisition costs of $0.3 million, were approximately $5.6 million.

This is a $1.6 million or 22-percent decrease from Q202 operating expenses of $7.2 million, which excludes non-cash acquisition costs of $0.3 million.

It was a $1.8 million or 24-percent decrease in operating expenses from a comparative basis from Q301 operating expenses of $7.4 million which excludes non-cash impairment of intangibles of $29.9 million, amortization of intangibles of $2.6 million and non-cash compensation expenses of $0.1 million.

Net loss for the quarter was $5.9 million or $0.36 cents loss per share, basic and diluted, compared with a net loss of $49.8 million or $3.05 loss per share, basic and diluted for the same quarter, last year.

In Q3, we continued to manage our cash very, very closely.

Tut had cash and cash equivalents totaling $32.6 million at September 30, 2002 compared with $37.1 million at June 30, 2002.

This represents a cash burn of $4.5 million during the quarter compared to a cash burn of $5.6 million for Q202.

Currently, we have approximately $7.7 million of accounts payable and accrued liabilities, a decrease of $3.4 million or 31 percent compared with December 31, 2001.

DSOs for the quarter were 45 days.

We believe that our cash balances will remain strong and will be sufficient to satisfy our cash requirements for at least the next 12 months.

Talking about our business, we continue to make progress and see movements with the sales cycle with our MTU business or multi-tenant business.

We have seen a 50 percent quarter to quarter increase in activity related to RFPs and bids, for hotels as PBX and IT system integrators currently serving the whole hotel industry look to expand their offerings with high speed Internet access.

In the US, we are seeing interest from a major ILEX and a major MSO in the hospitality market.

Going to Europe we continue to work with Siemens in Spain on major hotel opportunities.

Our IntelliPOP 5000 is now installed in over 50 German railway stations and we expect the deployment schedule to accelerate in the later part of the 2002 and the early part of 2003.

Target potential over next 3 years has increased from the hundreds to over a thousand.

On the public carrier market side, we continue to work closely with the FS-VDSL members to understand the sales cycle and rollout timings and their new video service and Triple Play initiatives.

In these challenging economic times, many carriers are reevaluating timing of future infrastructure investments relative to their existing large investments in ADSL DSLAMs.

Telcos are looking for cost effective ways to leverage these existing ADSL networks.

Next generation compression technologies has demonstrated at the most recent FS-VDSL meeting in September, right here in Pleasanton, California on making ADSL access networks a viable transport for video.

However, existing deployed DSLAMs lack some of the key functionality required to deliver the full range of digital home entertainment services and increase the revenue streams.

We believe that these carriers will benefit from a purpose built solution that provides video switching and channel change functions cost effectively and in way that seamlessly interfaces with today's access networks.

We believe that we are meeting this need directly with our new IntelliHUB 8200, which is based on the architecture of our IntelliPOP 8000 product family.

IntelliHUB 8200 is a high capacity video switch in data aggregation platform, which interfaces today's existing broadband access networks to provide integrated multicast and fast channel changing functions.

Without IntelliHUB, carriers are forced to use general purpose routers and SMS systems to perform the required multicasting and channel changing functions.

These routers are two to three times as expensive as Tut's purpose filled IntelliHUB.

The IntelliHUB has applicability in both head-end environments and in central offices and is a powerful platform for enabling video deployments over today's existing broadband access networks such as DSLAMs, DLCs, and even PON.

The IntelliHUB product has been presented six PTTs and received very positive feedback.

We expect to announce trials of this product to commence in the Q103 timeframe.

As we complete the integration with VideoTele.com or VTC, our product roadmap will crystallize, and I will -- I look forward to getting back to you with further product and market announcements over the current coming months.

Let's talk about this very, very important acquisition.

I am tremendously pleased to announce our intent to acquire VideoTele.

VideoTele has a rich technology history and a base under Tektronix having delivered the first broadcast quality video over fiber in the 1980 Olympics in Lake Placid.

And they've been delivering distance learning and video trunking equipment across the country in excess of 1000 sites just across the US.

VideoTele was spun off as a wholly owned subsidiary of Tektronix in February of 2000.

Today VideoTele has over 20 patents in the area of video compression and processing as an active participant in ongoing video standards such as MPEG 4.

For fiscal year ended May 31, 2002, VideoTele has un-audited revenues of approximately $24.7 million, and for the fiscal quarter ended August 31, 2002, un-audited revenues of approximately $4.9 million.

With this acquisition, Tut is immediately expanding its revenue opportunities across two major new markets.

Also, we're seeing immediate access to new distribution channels around the world including sales presence in China and a strong presence with the independent telephone companies, the IOCs.

We're expanding our market focus now to include digital headend and video trunking in our product portfolio.

Let's talk about the two product lines that VideoTele has today.

The Astria product, [inaudible].

VideoTele's Astria platform for video -- Digital Video Headends is a natural fit with our just announced IntelliHUB, which is designed to distribute video content over existing xDSL systems or DSLAMs.

Together, these two product platforms deliver a breakthrough in the economic equation for delivering digital video services over existing access networks.

It's important to note that VideoTele is the industry leader with the independent telephone companies for commercial digital headend deployment.

Combined Video Tele and Tuts have sold systems for lab or field evaluations for several ILEX and PTTs, and we're jointly bidding for major PTT deployment as we speak.

The other product line is the video trunking product line.

VideoTele's M2 video trunking product line is also a very, very important part of this success equation.

Video trunking means applications that include video surveillance, distance learning and specialized video conferencing.

We believe that this is going to be a growth market as there is renewed focus on security related applications around the world today.

We expect that many of Tut's customers and distributors of our private network products will find opportunities with these new product lines.

From a people standpoint with these transactions, we will add approximately 60 employees for the Tut family.

We'll add a facility in Portland, Oregon;

Chicago, Illinois and a sales office in Beijing, China, and we'll combine our United Kingdom resources in our Oxford, England facility.

Let's talk about the terms of the acquisition.

Tektronix will receive 19.9 percent of Tut Systems common stock and a five-year note as total consideration for VideoTele.

The value of the notes will be the difference between the final transaction value and the value of the common stock.

The value of the common stock considerations will be determined by computing the average closing price of Tut Systems stock from October 28, 2002 through November 29, 2002.

Total transaction value is estimated to be approximately $7 million.

This merger, which is approved by both the boards of Tektronix and Tut Systems, is expected to close by November 29, 2002.

Let me turn to our forward-looking guidance.

Remember that the forward-looking statements that I am about to make are subject to many risks and uncertainties as described at the beginning of this call.

Our guidance assumes that the VideoTele transaction closes on the schedule discussed earlier.

Together we see expended revenue opportunities across our existing customer base and a greater opportunity to win current bids.

We estimated Q4 revenues to be in the range of $2 million to $3 million.

We also anticipate significant operational efficiencies.

We estimate operating gross margins will be in the low to mid teens, and we estimate that the operating expenses excluding restructuring charges and certain non-cash acquisition cost for the quarter will be approximately $6.5 million to $7.5 million.

The weighted average shares are estimated to be approximately $18.2 million shares post transaction.

That concludes the financial comments and guidance.

As a reminder, we will not be reviewing or commenting on financial models or providing additional details to our expectations after this call, except for an update subsequent to the closing of the VTC acquisition.

We also wish to remind you that our financial results may vary materially from our guidance due to factors that are unforeseen or whose results unpredictable at this time.

Now, I'd like to make a few comments, going forward, on a post-transaction basis.

Expect to see immediate increases to our revenue profile.

Also, expect to see new product and customer announcements in the coming months.

You should expect to see a product road map that clearly demonstrates technological leadership in a video systems and next-generation service integration area.

And you should also expect to see that there'll be a keen focus on operational efficiencies and integration that a drive the business plan that we expect to turn cash flow positive before the end of 2003.

This is clearly a major turning point for Tut and our business.

We welcome the VideoTele people to the Tut family.

We're very excited about quickly integrating the teams over the remainder of 2002, and we're very much looking forward to being well positioned for market leadership and growth in 2003.

So, with that, I'd like to open up the call for questions.

At this time, I would like to remind all participants, in order to ask a question, press "*" then the number "1" on your telephone keypad.

Again, that's "*" and the number "1" on your telephone keypad.

One moment, please, for your first respond.

Your first question is from Mr. Bill Morrison (ph) with Ryan Beck.

Hi, Sal.

Hi, Bill.

You're -- basically, you're going to double the size of the company with, you know, in headcount.

What type of opportunities are you looking at here in over the next, you know, two or three quarters that could significantly bump up the revenues?

You know, aside from what is -- you know, it is - it has happened already with VideoTele - do you expect to see any significant ramp in the next, you know, two or three quarters?

So Bill as I mentioned, we're going to give you specific guidance once the deal closes.

And as you might imagine with, you know, the way that the quarters work and all of these things that, you know, we're, you know, anxious to close the deal and to give you again more precise guidance.

We do see a lot of synergies.

We're finding ourselves at the same customers, with the Astria headend products and the Tut's IntelliHUB product.

But also -- and I really want to draw your attention to an important part of this equation, which is the M2 video trunking line.

I think that there are -- there is a great opportunity in that product line.

They've been selling products in that area for many, many years, and we think that that is -- and with the again increased emphasis on security around the world, we think that there's a good revenue component from that product line.

Overall, we think there are tremendous synergies.

We look forward to getting into some of these new markets and these new channels.

And I think that, you know, both sales teams are going to be very, very busy.

Okay.

I mean you must already have won some deals in order to affect a transaction at this time.

Well, we are very confident that this is a good match.

And it's the customers that have helped us understand that.

Okay.

Also, and you mentioned, you know, the German Railway system, you said it would start to ramp here in Q4?

Yes.

We've -- you know, once they got back from summer vacation we started to see a pickup.

And we believe it's accelerating, and that's going very well.

We indicated that there are something in excess of 50 stations today that will ramp through the end of this year and through next year.

And earlier, we thought that there were hundreds of opportunities, we now think there may be, based on their comments to us, over a thousand of these opportunities.

Yes, but rolling out slower than you had initially...

No.

While I would say that we're now seeing acceleration of that, and you know, I'm pleased with what we're seeing.

Okay, good luck.

I am glad they are back from vacation.

Thank you Sal.

Thanks Bill.

Again, ladies and gentlemen if you do have a question, press "*"then the number "1" on your telephone keypad.

Your next question is from Mr. Peter Conrad with Kopp Investment Advisors.

Sal, can you hear me.

Yes Peter.

A couple of questions on VTC.

Can you give any indication or magnitude as to the split of their revenues across their principle two product lines?

I would say that, you know, very generally speaking that they've been -- they're, you know, equally important product lines.

Okay.

And can you hold up any quantifiable numbers in terms of size of the addressable market for those products or some comparable or competitive products that are out there right now to give me a little better understanding of where they sit?

Sure, if you -- over time, we'll be providing you with more information as we fine tune the integration of these things and give our guidance on where we're focusing our time.

But if you look at the digital headend market that's there, they are the leaders in the independent telephone area.

There are more independent operators that are using their headends today.

And as you know, there are, you know, lots of operators across the country.

The same is or similar is true for the PTTs, in that there are many of those across Europe.

But when you look at the opportunities, these are clearly -- and we'll do a better job overtime of explaining how we look at each of these different markets and how we're investing in these markets.

But they are, you know, a multiple hundred million dollar opportunity markets, both of them.

And I can't stress enough that the -- you know, in these times, while we see a general downturn in the telco -- classic telco space, I think that we're going to see increased spending in the security space, which is a nice compliment to the product line and shares a tremendous amount of technological synergy.

With that sized market, who are the major players beyond VTC?

If you look at the headend market, there are companies like Harmonic and Tandberg that have activities in the digital headend area.

And the -- I would say that the video trunking area is a much more diverse market with lots of smaller players, and that's part of the reason I see initiating opportunity there.

Okay.

And in conjunction with your 8200, is that combined solution solely focused on copper DSL opportunities or is it applicable in over -- I guess also PON, that is it applicable to maybe cable?

Yes, so the -- I think you're on to the right ph understanding of this.

The -- first of all, the IntelliHUB is a -- it's a pure optical product.

There's optics coming in and optics going out.

It can feed an optical network, it can feed a copper network, it can feed a coax network if that's the -- that's a case.

We've really focused on providing the intelligence and not the access network.

We basically handoff a pipe -- an optical pipe to the -- we hope are many partners on the access site, whether there is someone like an AFC making DLCs or an Alcatel doing DSLAMs or multitude of others; and we think that there are opportunities in all of those areas.

I should also point out that the -- in the headFend, the -- at the head-end site, the -- you know, the Astria and IntelliHUB -- they literally plug right into each other.

They are adjacent products, and it's a great testament to the fundamental product synergy that we have here.

Okay.

And I've just a couple of other quick questions.

You -- they have had some decline, as has most everyone, recently in their revenue run rate.

Does it appear to be a little more steady state at this point at the $4.9 million level?

So -- as you might imagine -- it's a good question - first of all, I don't think that they've been hurt as much as many companies that are out there.

Number two is one of the reasons that -- we are looking to, you know, give you further guidance -- is that as we understand the profile, as we close this transaction and understand the timing of that transaction, and as we talk to the customers, we'll have a much better set of guidance to give to you on that.

We don't think that these are declining businesses.

We think, in fact, they're businesses that have some good opportunities; and I think that we can, in a sense, catalyze both of our businesses by coming together.

It sounds like it'd be fair to suggest that your guidance for Q4 of $2 million to $3 million depends very little on what they're -- what they should be doing?

We are being, you know, very conservative and cautious, not knowing exactly the date that this deal will close and the revenue profile of the rest of the year.

But we will know that shortly; and when we do, we're -- we'll be excited to share with you what we think would be, you know, some attractive synergies.

Thank you.

Thank you, Peter.

There are no further questions at this time.

Mr. D'Auria, do you have any further comments.

No, I just like to thank you everyone for joining the call.

We very much look forward to the remainder of this year and next year and again thanks Amanda for coming to the conference call and introducing everybody.

Thank you.

Thank you, ladies and gentlemen for participating in today's conference.

This concludes today's call.

You may now disconnect.