MACOM Technology Solutions Holdings Inc (MTSI) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for your patience. You joined Mindspeed Technology's Fiscal Third Quarter 2013 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time.

(Operator Instructions)

As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Vice President of Corporate Development and Investor Relations, Mr. Keven Trosian. Sir, you may begin.

Thank you, and good afternoon to all of you who have joined us for today's conference call to discuss Mindspeed's Fiscal Third Quarter of 2013 Financial Results. Our press release issued this afternoon detailing these results may be accessed in the investor section of our website at www.mindspeed.com.

Today, our CEO, Raouf Halim, will describe some key milestones for the business, and the strategic focus of the Company going forward. Following Mr. Halim, Stephen Ananias, our CFO, will review fiscal third quarter 2013 financial results, and provide financial guidance for our fiscal fourth quarter of 2013.

Before we begin, I want to remind you that our comments today will include forward-looking statements within the meaning of Federal Securities laws.

Forward-looking statements include, among others, statements regarding our expectations, goals or intentions, including, but not limited to, our current assessment of the demand environment and trends in our target markets, including the anticipated environment and trends in fiscal 2013, our assessment of growth opportunities in the specific product markets in which we compete, and our current expectations for fiscal fourth quarter net product revenue, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP other income and expense, and the provision for income tax and weighted average diluted shares outstanding.

These forward-looking statements are based on management's current expectations, estimates, forecasts and projections, and are subject to risks and uncertainties that could cause actual results and events to differ materially from those stated in the forward-looking statements.

Our businesses is, and any financial projections provided today, are subject to numerous risks and uncertainties, including fluctuations in our operating results, and the potential for future operating losses, our ability to generate revenue from design wins, loss of, or diminished demand from one or more key customers or distributors, our ability to successfully develop and introduce new products, pricing pressures, whether we continue to sustain losses and consume cash in our operations, customer and employee uncertainty arising from our previously announced engagement of Morgan Stanley & Company, LLC to review our strategic alternatives, and the potential for intellectual property and other litigation.

Additional risks and uncertainties that could cause our actual results to differ from those set forth in any forward-looking statements are discussed in more detail under the caption Risk Factors in our annual report on Form 10-K for the fiscal year ended September 28, 2012, and our quarterly report on Form 10-Q for the fiscal second quarter of 2013. They will also be included in our soon-to-be-filed quarterly report on Form 10-Q for the fiscal third quarter of 2013 and in our future filings with the SEC.

Forward-looking statements made during this call are made only as of the date hereof and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

During our call today, we will be making reference to non-GAAP financial measures, which exclude good will and asset impairment charges as well as stock-based compensation expense and related payroll costs, restructuring charges, acquisition-related costs, amortization of acquired intangible assets, other income from the PicoChip settlement agreement, and non-cash expense on convertible senior notes, among other items.

For a reconciliation of non-GAAP to GAAP financial measures, please refer to the investors section of our website at www.mindspeed.com, and our earnings press release, and our Form 8-K furnished to the SEC today. We do not provide a reconciliation of the forward-looking non-GAAP measures to GAAP measures, because of our inability to project restructuring charges, employee separation costs, and stock-based compensation-related expenses.

With that, I will now turn the call over to Raouf Halim, our Chief Executive Officer. Raouf.

Thank you, Kevin, and good afternoon everyone. Thank you for joining our call today. First, I'm sure many of you would like to know where we are regarding the evaluation of our strategic alternatives. As you may remember, we announced the hiring of Morgan Stanley on April 30 to assist in our evaluation.

The management and the board are fully engaged in the process. We are committed to this process, and will update investors when we are in a position to report something further. This is all we will say about the process today.

Turning to our operational performance for our fiscal third quarter, I'm pleased to report that we exceeded the forecast we provided on our last earnings call. Providing a quick overview of Q3, product revenue was $35.6 million with a 62% gross margin, exceeding our expectations, and resulting in a non-GAAP operating profit of approximately $644,000 versus a $541,000 non-GAAP operating loss the prior quarter.

Revenue for all three businesses was approximately in line with last quarter. Diving into more detail, I will now provide an overview of the performance of our three businesses during the third quarter.

HPA accounted for 43% of our revenue in Q3, approximately flat with the prior quarter. Within the video segment, we are winning designs with our new 3G and 6G SDI components with customers quickly ramping to production, emphasizing the pull for higher performance for HD and UHD solutions.

Our share gains in the video market are enabled by our state-of-the-art crosspoint switches and SDI components. We expect the 4K ultra-high definition TVs, to drive an infrastructure upgrade cycle which supports this new viewing experience. Mindspeed is leading the interface in switching upgrade for this inflection point, by offering highly-integrated low power 4K SDI and crosspoint silicon.

Another factor driving our success in HPA is our broad portfolio of PMDs targeting FTTX infrastructure. Although later than expected, the new China fiber-to-the-home tenders have now been awarded, and we expect shipments to start ramping this quarter. We believe this will lead to a stronger calendar second half in China, and a pickup in revenue for our next-generation PMD devices, targeting both ONUs and OLTs for GPON and GEPON.

Lastly, the HPA team is making significant strides with its high-speed portfolio targeting the enterprise space with continued design wins at Tier 1 OEMs. Mindspeed's portfolio of crosspoint switches reduces latency, while our CDRs and PMDs are enabling higher port densities by offering the industry's lowest power consumption.

Moving on to our to communications processors, CPU revenue represented 50% of our Q3 revenues and reached nearly $18 million in our fiscal third quarter, up 3% sequentially. We continue to focus on increasing market share in our core service provider provision broadband home router or BHR market.

Mindspeed recently secured 2 BHR wins with leading North American and European service providers. At the same time, we recorded a follow-up diversification design win with our Tier 1 storage customer for Consumer NAS or CNAS with the original win beginning shipments in this current fourth fiscal quarter.

We are gaining incremental traction at additional storage and machine-to-machine suppliers. We expect our share in Japan to grow meaningfully in the fiber-to-the-home markets from our already large two-thirds share today. We are also seeing continued demand for our voice-over-IP products, as carriers transition to voice-over-LTE or VoLTE, and also, we expand our IP PBX platform, solidified with a new design win last quarter at a top 3 IP-PBX market share leader.

And finally, let me update you on our wireless infrastructure business, which accounted for $2.6 million, or 7% of Q3 revenues in line with our forecast. As we look forward, we are seeing strength in this business with our backlog coverage at this time above where we were last quarter. That said, our general expectations with this market have not shifted from the update we provided last quarter. Carriers worldwide remained committed to small cell deployments, and we expect that this market will ramp meaningfully.

However, we expect the 4G LTE small cell market to be lumpy as new deployments later on. Continued advanced features and real carrier deployments of our small cell solutions are positioning us well for continued deployments in Korea, and the follow-on deployments in Japan and the US.

Our hardened carrier grade software, and our design knowledge from real world small cell deployments, are further putting us ahead of our competitors, and maintaining, or improving, our market share. In fact, we scored an additional 5 LTE design engagements in the quarter, bringing our total to 40 LTE design engagements to date. Importantly, 2 of these were for TD-LTE.

Furthermore, we also scored 6 TD-SCDMA design engagements, as it appears, China will begin rolling out their version of 3G small cells in the future. As with 4G LTE, however, we will not be commenting as to the specific timing of these rollouts.

We believe we are well-positioned in all 3 major markets in which we compete. In small cells, we lead the market and have carrier-proven technology for typically risk-averse service providers, enabling a smoother testing and deployment cycle for our OEM customers.

In communications processors, we are expanding our market presence beyond the BHR and customer premise equipment or CPE market, including major design wins with CNAS customers. And our HPA product line continues to open new opportunities and take share in new markets, driven by a strong portfolio of crosspoint switches, signal conditioners and optical PMDs.

With that, I'd now like to turn the call over to Stephen to provide more detail on last quarter's financials and our fiscal Q4 guidance. Stephen.

Thank you, Raouf. First, let's discuss our Q3 results and then our outlook for the fiscal fourth quarter.

Total revenue for the fiscal third quarter was $35.6 million, essentially flat compared to the prior quarter. Product revenue from the high-performance analog business represented 43% of total revenue, and recorded $15.3 million, down 3%, compared to the prior quarter.

Product revenue from the communications processors business represented 50% of total revenue, and recorded $17.7 million, up 3%, compared to the prior quarter. Product revenue from the wireless infrastructure business represented the remaining 7% of total revenue, and recorded $2.6 million, up 3%, compared to the prior quarter.

Product revenue for the fiscal third quarter was split by geographic region as follows -- Asia Pacific at 70%, Americas at 24%, and Europe at 6%. China specifically represented 33% of total fiscal third quarter product revenue. No end customer represented product revenues of 10% or greater in the fiscal third quarter.

Now turning to gross margin. Non-GAAP gross profit was $22 million, or 62% of product revenue, and 200 basis points ahead of our expectation of 60%. This was up 130 basis points versus our prior fiscal quarter on a non-GAAP basis, principally due to product mix.

Total non-GAAP operating expenses were $21.4 million, a reduction of $626,000 compared to the prior quarter, and consistent with our expectations. Non-GAAP operating expenses were comprised of research and development expenses of $14.4 million and selling, general and administrative expenses of $7 million. The resulting non-GAAP operating income for the fiscal third quarter was approximately $644,000.

Now finishing the income statement for the fiscal third quarter. Non-GAAP, other income and expenses totaled a net expense of approximately $1 million, composed primarily of net interest expense. The provision for income taxes was $57,000. Non-GAAP net loss for the fiscal third quarter was approximately $461,000, resulting in a non-GAAP loss per share of $0.01.

Turning now to the balance sheet for the fiscal third quarter. Cash and cash equivalents were $43 million at the end of the fiscal third quarter, down $3.5 million versus the prior quarter.

Accounts receivable at the end of the quarter were $17.5 million, resulting in net days sales outstanding of 44 days, down from 48 days in the prior quarter. Inventories at the end of the quarter were $11.2 million, up slightly from $11 million in the prior quarter.

Now I'd like to provide our outlook for the fiscal fourth quarter of 2013. We anticipate fiscal Q4 product revenue to range between $35 million and $37 million. We expect HPA and wireless infrastructure to show modest improvement, offset by a softer quarter in communications processors after a strong sequential and year-over-year growth for the past 2 fiscal quarters.

Backlog coverage at this point in the quarter is slightly stronger than it was in the prior quarter, supporting our guidance range. We expect non-GAAP gross margin to be approximately 60%, and non-GAAP operating expenses to be approximately $21.5 million.

Finally, we expect non-GAAP, other income and expense, and the provision for income taxes to be approximately $1.1 million, and weighted average shares outstanding to range between 41 million and 41.5 million shares.

Operator, we are now ready to open the lines for questions.

Thank you, sir. (Operator Instructions). Our first question comes from Kevin Cassidy of Stifel. Your line is open.

Thanks, and congratulations on the quarter. The video market with the crosspoint switches, can you -- do you know how long that buildout would last?

Yes. Kevin, this is Raouf. Yes, first of all, we're very pleased with our market share, and our position with Tier 1s in the video space with particularly crosspoints for that important infrastructure segment. We think we enjoy at least 70% to maybe as much as 80% market share with our crosspoints and video. But what we're seeing in video, Kevin, is a significant upgrade cycle associated with 4K TV deployments. We started shipping a little bit last quarter, fiscal Q3, and we expect those design wins to start ramping in earnest in this current fourth fiscal quarter. That's both crosspoints, as well as some of our other SDI video components. So we're quite pleased with how that's playing out.

Okay. And also, there was an announcement yesterday of Qualcomm making an investment in Alcatel-Lucent. How would that affect your business, do you think?

Yes. So generally speaking, Kevin, we prefer not to comment on competitors. We're watching what's happening there. We're watching what areas -- how we'll use strategy adjust over time. I guess I would say in the small cell segments that we play in, ALU, at this point, appears to be only shipping, or shipping primarily, 3G today, where we are deploying with ALU with multiple Tier 1 carriers, 3G, HSPA, and so forth. And as far as we can tell, there's absolutely no near-term risk to our revenue stream.

Okay, great. And it just looks like you're doing a good job of controlling OpEx. How long can this last? What are your expectations for OpEx as we look out to 2014?

Yes. Kevin, so we've gone through quite a bit of, I guess I would say, focus on SG&A costs and wringing out all the costs that we can from our SG&A and support infrastructure over the past few quarters. We've minimized the impact to R&D within our 3 businesses.

And at this point, I think we're in a stable spot, and we expect OpEx to remain approximately these levels going forward until such time as we have a global merit increase. In which -- and at that time, it might increase somewhere around $300,000 to $500,000 per quarter. But at this point, I would think about it as sort of staying around the $21.5 million for at least the next 3 to 4 quarters.

Okay, great. Thanks.

Thank you. At this time, I'd like to turn the call over to CEO, Raouf Halim for closing remarks.

Thank you very much, and we look forward to updating you on our next earnings call. Thank you, and have a good day.

And ladies and gentlemen, that does conclude our program. Thank you for your participation, and have a wonderful day. You may disconnect your lines at this time.