摩托羅拉 (MSI) 2004 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Quarter 2, 2004 Copper Mountain Networks earnings conference call.

My name is Carlo and I will be your conference coordinator.

At this time all participants are in a listen-only mode.

Toward the end you will have an opportunity to ask a question, at which time participants may press Star, 1, on their telephone to ask a question.

At this time I will turn the conference over to your host, Mr. Michael Staiger, Executive Vice President and Chief Financial Officer.

Please proceed, sir.

Thank you.

Good afternoon.

This is Mike Staiger.

Thanks for joining us for the Copper Mountain Network's 3rd quarter, 2004, conference call.

With us today is Rick Gilbert, Chairman and Chief Executive Officer, and Tony Ramos, Vice President of Finance.

This conference call is being broadcast live and will be recorded and archived on the Investor's section of our website until results for the current fiscal quarter are released.

If have you not yet obtained a copy of today's press release, it may be accessed from our website.

Before I turn the call over to Rick, we want to remind that you portions of this conference call contain forward-looking statements regarding future events, based on current expectations and are subject to risks and uncertainties such as estimates or projections of Copper Mountain's unproven operating plan and future financial performance and statements regarding customer acceptance of Copper Mountain's products.

Copper Mountain wishes to caution you that there are a number of factors that could cause actual results to differ materially from the results indicated by such statements.

These factors include but are not limited to the risks that are highlighted in today's press release and periodic reports filed with the Securities and Exchange Commission

Prospective investors are cautioned not to place undue reliance on such forward-looking statements.

Further, Copper Mountain expressly disclaims any obligation to update or revise any forward-looking statements contained herein to reflect future events or developments after the date hereof.

We refer to you the documents Copper Mountain files from time to time with the Securities and Exchange Commission, specifically the section title "risk factors" in our annual report on form 10-K for the year-ended December 31st, 2003 and other reports and filings made and to be made with the Securities and Exchange Commission, including but not limited to our quarterly reports on form 10-Q.

Now I would like introduce Rick Gilbert, Chairman and CEO of Copper Mountain Networks.

Good afternoon and welcome to the Copper Mountain Network's earnings conference call for the third quarter of our fiscal year, 2004.

As outlined in today's press release, our third quarter net revenue was $1.8 million, compared with $2.1 million last quarter.

Our GAAP net loss for the quarter was 51 cents per share, compared with a net loss of 88 cents per share in the previous quarter.

Our Q3 cash burn was $4.9 million.

This number is directly comparable with a cash burn of $5.9 million last quarter, which, as you may recall, excluded the net proceeds from the private placement in May of 2004.

At the end of the third quarter, cash and short-term investments totalled $17.1 million.

Mike will provide additional financial details and guidance later on during this call.

At this point, I'd like to review some of our recent accomplishments.

During the third quarter, we announced the commercial deployment of VantEdge by three additional independent operating companies: Planters' Telephone Cooperative, Roberts County Telephone Cooperative, and Hayneville Telephone Company.

We also announced that MPower Communications, a leading CLEC and a long-time Copper Mountain customer, has expanded its deployment of VantEdge products used as high-performance, broad-band aggregation hubs.

At this point, we've announced 17 IOC and CLEC customers for the VantEdge platform.

On the research and development front, we announced important enhancements to the VantEdge platform, designed to support a wide range of Ethernet and fiber based network architectures.

The new features include a high performance, IP-forwarding engine and a dual OC-12/STM-4 line card.

In support of our Asian sales efforts, we announced that VantEdge has received final type approval from China's Ministry of Information Industry.

Completion of this rigorous testing is an important milestone in our efforts to enter the China market.

We also announced that NTT-ME, a subsidiary of Nippon Telegraph and Telephone, has signed a distribution agreement to sell VantEdge in Japan.

Finally, in response to the cancellation of a large carrier broadband upgrade project and potential delays in decisions from several other large carriers, we announced that we have retained an investment banking firm to explore strategic options.

In summary, our third quarter financial results were consistent with guidance and Copper Mountain continues to focus its resources on the development and sales of the VantEdge product line.

At this point I'll turn the call over to Mike Staiger, our Chief Financial Officer, for further comments on our results and current financial outlook.

Thanks, Rick

I'll begin by summarizing our financial results for the third quarter of 2004 and then I'll discuss guidance for Q4.

Net revenue for the 3rd quarter was $1.8 million, compared to $2.1 million in Q2 of 2004.

Gross margin for the quarter was 16%, compared to 43 % in the prior quarter.

This decrease in gross margin was due primarily to a charge taken in Q3 to reserve for excess inventory.

Without this charge, our Q3 gross margin would have been 67%.

In the coming quarters, we expect our gross margins to continue to fluctuate.

During the quarter, three customers individually accounted for 10% or more of our revenue.

MPower for 28%, Florida Digital for 24%, and LDMI for 10%.

We continue to expect sales to individual customers to fluctuate in any given quarter due to the inconsistency of our customers' ordering patterns.

Q3 net loss was $3.6 million or 51 cents per diluted share, compared to a Q2 net loss of $5.7 million or 88 cents per share.

Included in the Q3 net loss is a noncash stock-based compensation credit of $1.6 million, a credit of $0.6 million related to the reversal of certain accrued compensation and an inventory obsolescence charge of $0.9 million.

Included in the Q2 net loss is a noncash stock-based compensation charge of $0.9 million, which was partially offset by a gain of $0.3 million, primarily related to the collection of past-due rents.

Turning to operating expenses, our spending on research an development for the quarter was $3.3 million, flat compared to Q2.

Sales and marketing expense for the quarter was $1.0 million, compared to $1.3 million in Q2.

General and administrative expense was $1.2 million, compared to $1.5 million in Q2.

Total Q3 operating expense was $3.9 million versus $6.7 million in Q2.

We finished the third quarter with 104 employees.

Turning to the balance sheet, Q3 cash burn was $4.9 million.

This compares to a cash burn of $5.9 million last quarter, which excluded the net proceeds from the May 2004 private placement.

We ended the quarter with a balance of $17.1 million in cash and short-term investments.

Net accounts receivable was $1.0 million at the end of Q3, and DSO was 49 days.

Inventory was $1.8 million net of reserves at the end of the quarter.

Now I'd like discuss our performance relative to the Q3 guidance we provided in our last conference call as well as our guidance for Q4 of 2004.

First, we indicated that Q3 revenue would be flat to down relative to our $2.1 million Q2 revenue.

Our Q3 revenue of $1.8 million was consistent with that guidance.

Regarding Q4 revenue guidance, given our lack of visibility, we believe it is prudent to continue to guide conservatively and with this in mind, our guidance is for Q4 revenue to be flat to down from the Q3 level.

Regarding cash burn, in our guidance last quarter, we indicated that our Q3 cash burn would fall in the range of 6 to $7 million.

Our Q3 cash burn of $4.9 million was approximately $1.1 million below the low end of the guidance range.

Looking forward, given our lack of revenue visibility, our guidance is again for Q4 cash burn of 6 to $7 million.

Next, we have an update regarding the final State Securities litigation matter pending against the company.

On August 26th, 2004, the Delaware Chancellery Court granted plaintiff's voluntary dismissal of a derivative lawsuit connected with the events alleged in the previously dismissed Federal Securities litigation.

With this action, we are pleased to report that we have obtained dismissal of all Federal and State Securities litigation previously brought against the company.

Finally, as Rick mentioned earlier, during the quarter we announced that we have retained an investment banking firm to explore strategic options, including a possible sale of the company.

While some of you may have questions regarding this matter, on advice of our legal counsel, we are unable to provide any information about the process we have undertaken or the status of discussions, nor will we be able to answer any questions pertaining to these activities.

This concludes our prepared remarks about our Q3, 2004 results and our guidance for Q4 of 2004.

I'd like it remind all listeners that any statements we make regarding guidance on future events or financial estimates are forward-looking statements and our ability to meet these -- those estimates is subject to risks described during this call and in our public filings.

At this point I'll turn the call back over to Rick.

Thanks, Mike.

Now, Mike and I will be happy to answer questions.

I would like to remind the listeners that we will be unable to answer any questions about the activities pertaining to the strategic alternatives

Carlo, would you like to open it up for questions, please.

Yes sir, thank you.

Ladies and gentlemen, at this time press Star, 1 on your touch-tone telephone if would you like to ask a question.

If you would like to remove your registration, then press star, 2.

Again, Star, 1 for any questions at this time.

One moment, please.

Are we still on?

Sir, our first question is from the line of Reg McCain with W.R. Hambrecht.

Yes, hi, it's Reg King from W.R. Hambrecht.

Just wondering if you can give us any more detail on the large carrier order which was cancelled during the quarter?

Is there anything more that you guys can tell us about it, some details or an update on what's going on with that order or what's going on with alternatives that the carrier may have chose to take in its place?

Yes, first, Reg, I think you said order.

I mean, it was a project.

A project, I'm sorry.

All right.

So there was no cancelation of an order, which I think is an important factor.

The second thing is that we are still under nondisclosure on that activity.

And in fact, most of the large carrier activities that we're -- that we've been working on and given that -- I mean, unfortunately I'm unable to go into any further details relative to that particular project.

Okay.

Great.

Well, can you talk a little bit about your pipeline that you're seeing with the IOC and CLEC customers right now?

You've -- I think you said on the call, you have 17 customers from that market.

Can you give us an update on what you are seeing there?

Yeah, actually, the IOC and CLEC market has been interesting for us.

Obviously, with 17 announcements of wins in a market where we have a very small sales force, frankly, focused on it, most of our salespeople have been been focused on the larger opportunities.

We're encourage by the fact that we've been able to continuously nail down IOC account wins.

Now, having said that, as certainly we've discussed openly before, most IOCs don't need a lot of systems to support their broadband users.

At least systems that are as capable as VantEdge with the high performance controller, VantEdge can handle 64,000 users and that's lot of users for an IOC.

So it's good to win them.

We think we formed a great foundation of reference accounts, which we think are valuable and we are going to continue focusing in that area while remaining primarily focused on the larger opportunities.

And, Rick, can you talk a little bit about where you think your -- your greatest potential is for a large opportunity at this point?

Is it -- I would suspect that it's one of your international Asian opportunities, but can you give me an update on that?

Well, we've -- we see -- to be quite frank, we see a large scale opportunities in all Geographic areas, to tell you the truth.

This is obviously an important building block of the large carrier networks.

As you know, I think we've all seen a shift in architectures toward -- toward the video-based Ethernet and fiber-based architectures, but the need for the kind of features that the VantEdge platform has is pretty clear in all of these networks.

And so -- and so I think that there's a continued need for the future set and in -- if anything, the kinds of services that are being considered drive that set of functions toward the edge of the network, which of course has always been our design point.

The part that's harder to predict is the time frame for decisions, you know, as they go through architectural changes.

You know, as we said in this call, you know, we continue to expect possible delays in various large carrier decision processes and that's why we started the search for strategic alternatives.

Okay.

Thanks, Rick.

I'll step out of line.

Once again, ladies and gentlemen, Star, 1 at this time for any questions.

We have a question from the line of Paul Johnson with Nicusa Capital

Thank you, Rick and Mike.

Hi, Paul.

Mike, I guess mostly for you, I just want to run through, what would be the fully diluted number of shares now outstand ing?

You know, off the top of my head, I don't have that.

We're going to be filing our Q shortly and that number will be disclosed in the Q but that's still going back and forth between the lawyers and the accountants at this point so I don't have that final number for you.

But it will be in the 10-Q, which again, we expect to file shortly.

I like the fact that the lawyers have an opinion on how many shares are outstanding.

Mike, can we make sure.

I just got the bag-- MPower was 28%, Florida --

The breakdown was MPower was 28%, Florida Digital was 24%, and LDMI was 10%.

I'm sorry, 10%.

I wrote down --

10% for LDMI.

Perfect.

I are wrote down the wrong number.

Can you walk through, one more time, the noncash charges in the quarter?

Sure.

The -- the Q3 net loss included a noncash, stock-based compensation credit of $1.6 million.

Another credit of $0.6 million related to the reversal of certain accrued compensation, and an inventory obsolescence charge of $0.9 million.

Separating those out, where would we see -- where's the compensation credit?

The two credits the -- the noncash stock-based compensation credit and the credit related to the reversal of the accrued compensation will both hit OPEX.

The inventory obsolescence charge of course will hit COGS.

Cost of goods sold.

This may be obvious from the charge itself, but the inventory charge for obsolescence, can you just walk through -- if that was there, you just had too much inventory given the current run rate?

Given the current run rate and given events of the quarter, it was management's determination that we had -- you know, excess and/or obsolete inventory and -- in the amount of approximately $900,000, and we chose to take a charge for that.

Fair enough.

If I look at the operating expenses in the quarter, Rick, you've made it very clear that you're running this thing as lean as you can, so the lower operating -- I haven't done the math but it looks like the lower operating expenses can all be accounted for by the credits?

Well, it -- it can to some extent.

If I mean, if you look if he credits, I think the credits total about $2.2 million and if you're comparing it to last last quarter, it would be important to look at what the charges were last quarter as well.

I think that probably a better way to look at it is that from one quarter to the next, the three major components of OPEX were either flat or down a bit from the previous quarter.

What was the stock-based compensation in Q2?

In Q2 I believe that charge -- let me just look that up.

That charge $0.9 million, so around 900,000.

And that was a charge or credit?

That was a charge.

Okay.

Then in the Q2 results, that was offset by a gain of $0.3 million that was related to -- primarily related to collection of past-due rents from a former sublease tenant.

The one-sixth credit in the current quarter you're reporting, is a one-time?

Well, what that is is -- that's a deferred stock compensation charge.

The way that works is the decrease from last quarter's charge to this quarter's credit was primarily the result of the remeasurement of the deferred stock compensation.

Pool, essentially.

Yeah, related to unexercised options that were repriced in 2002.

That remeasurement, part of that have remeasurement formula takes into account the movement of the stock price and, generally speaking, when the stock price trends upward, it results in a charge and when it trends downward it can result in a credit.

Okay.

Perfect.

Finally, I think, if I'm looking at my notes, for the December quarter, you had said just to be conservative, you would talk about a cash burn of 6 to 7 million.

That's obviously, you're trying to be ultra-conservative, I assume.

But other than kind of the operating expenses, any other cash, other than the P&L chart?

Any other cash burns for the quarter that we should be aware of, sort of non-P&L cash burn?

For Q4?

Yeah.

We're not providing any guidance -- there's nothing we're guiding on for this time for cash items in Q4.

I'm confused by the answer.

I guess I'm not asking for a guidance.

Is there things we should be aware of that are not on the P&L that could affect cash in the quarter?

I wasn't --

No.

I'm sorry, I'm not looking for guidance on that number.

Paul, the answer is no.

So the P&L, it's just operating in the company that is the cash burn?

Correct.

All right.

I believe that's it.

Okay.

Thank you.

Thank you.

Thanks, Paul.

As a final reminder, ladies and gentlemen, Star, 1 for any questions at this time. .

Is that it, Carlo?

Gentlemen, we have no further questions at this time.

If I could turn it back over to you for any closing remarks.

Thank you, everyone for joining us and we look forward to reporting our Q4 results in the next call.

Thank you very much.

Bye.

Ladies' gentlemen, we thank you for your participation in today's conference.

This concludes your presentation and you may now disconnect.