Neonode Inc (NEON) 2005 Q1 法說會逐字稿

Good morning. My name is Natasha and I will be your conference facilitator today. At this time, I would like to welcome everyone to the first quarter fiscal 2005 results investor 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. (OPERATOR INSTRUCTIONS) Thank you.

Mr. Grey, you may begin your conference.

Thank you very much to SBE shareholders, prospective shareholders, our employees, partners, and competitors listening to the call. Thank you for joining us and welcome to SBE's first quarter 2005 investor conference call. I'm with Dave Brunton, our Chief Financial Officer, and we're going to review our financial results, product and customer activities of the past quarter, and then open the door for your questions. With that I'd like to turn the call over to Dave.

Good morning. This is Dave Brunton and thank you for joining us today for SBE's first quarter 2005 earnings conference call. If you would like to receive a fax or e-mail copy of the full earnings press release, please feel free to contact Judy at 925-355-7602 and she will be happy to send you a copy.

As a reminder, this conference call may contain forward-looking statements that are subject to risks and uncertainties including, among others, those described in the annual report on Form 10-K for the year ended October 31, 2004, and subsequent filings filed with the Securities and Exchange Commission. Actual results may differ materially from those described during the call.

I'm going to start with a quick review of our results for the first quarter ended January 31, 2005. Our net sales for the quarter were 2.8 million compared to 3 million in the first quarter of 2004 and 2.2 million in the fourth quarter of 2004. For the quarter, we did ship $1 million worth of VME products to HP compared to 1.3 million for the same quarter last year. As a result of this shipment, our sales to HP represented 36 percent of our total sales for the first quarter of fiscal 2005 compared to 44 percent of total sales during the comparable quarter in 2004. This was the last shipment of our VME products to HP and we do not expect to sell substantial amounts of VME products to HP in the future.

Two other customers combined for a total of 29 percent of our sales for the quarter just ended. No other customer accounted for over 10 percent of sales in the fiscal quarter of 2004.

We did see a nice increase in the sales of our HighWire products, growing to $585,000 in the quarter just ended, as compared to 153,000 of HighWire products in the same quarter last year. We also, during the quarter, shipped a small number of our TOE adapters to customers who will use the TOE to facilitate TCP/IP Offload when using iSCSI storage applications. We continue to test our TOE and iSCSI products at customer sites and expect customer adoption of these new technologies to begin in fiscal 2005.

For the remainder of fiscal 2005, we expect our sales to be generated predominantly by sales of our HighWire and adapter products with a growing demand for TOE and iSCSI products. Dan will talk more about our products and customers later.

For the quarter, we reported net income of 177,000 or $0.03 per share, basic and diluted, compared to net income of 527,000 or 11 percent basic and 9 percent - - $0.09 diluted in the first quarter of 2004. In our first quarter ended last year, we did record a $239,000 reversal of a loan valuation allowance that served to reduce our operating expenses for the quarter. Excluding this item, our net income for the quarter would have been $288,000 or $0.05 per share diluted.

Our gross profit margin was 56 percent compared to 55 percent gross profit margin in the first quarter of 2004. The slight increase in the gross profit margin in 2005 compared to 2004 is primarily due to the inclusion of $100,000 of non-cash intellectual property amortization expense in our cost of goods sold in the first quarter of 2004 and not in the 2005. As you may remember, we did write off that intellectual property in full at year end.

As you know, our gross profit margin is highly dependent on product mix, raw material pricing, and production department utilization rates. In the future, we expect our gross profit margin to settle in the 50 percent range.

Our total operating expenses in the first quarter of '05 were 1.4 million compared to 1.0 million for the first quarter of '04. If we exclude the one-time $239,000 reversal of the loan valuation allowance previously discussed, our operating expenses in the first quarter of fiscal 2004 would have been 1.4 million, which is comparable to this quarter.

We ended the quarter with cash and cash equivalents of 1.6 million, no debt and working capital of 4.3 million, compared to cash of 1.8 million and working capital of 3.9 million at October 31, 2004. The reduction in our cash balance is primarily due to an increase in trade accounts receivable as a result of the $1 million shipment to HP in January. We did collect that payment in February. We also reported a decrease in our current payables as we paid our contract manufacturers for product delivered in October of last year.

Our inventory decreased due to shipments to HP. We ended the quarter with a sales backlog of 1.4 million compared to 2.5 million, which included $1 million to HP at the end of the fourth quarter of last year. Our customers continue to focus on the very near term with very little ordering activity going out beyond 2 or 3 months into the future, which makes forecasting extremely difficult.

We expect our working capital to be sufficient to fund the on going operations and growth of the Company. We do have a working capital line of credit with a bank, if needed. However, our current plans and projections do not include any requirements to draw down on this available credit line.

That concludes my comments for the historical and quarterly information for the first quarter of 2005 and 4.

As of January 31st, we determined that we would no longer provide revenue or EPS guidance. We believe that it is in the best interest of shareholders to avoid engaging in predictions of short-term financial performance which are inherently uncertain. We believe this will allow the management team to more effectively run operations and build long-term shareholder value.

That concludes my comments and I'll turn the call back to Dan. Dan?

Thanks, Dave.

This is my second month as President and CEO and things are going pretty much as expected. It's incredibly fast, fast paced and very busy. I've spent time with individuals and departments reinforcing the corporate policies to serve our customers and to see continuous improvement and focus on operations, finance, engineering, sales and marketing. I appreciate the support from SBE's executive team, our employees, and our Board of Directors during the important phase and transition.

To fill the void left by my recent promotion, I recently announced the promotion of Nelson Abal to Director of Global Sales. Nelson has been with the company for 1.5 years and has an excellent strategic sales sense, as well as an understanding in the technology. So I'm sure he'll do well for us.

As I mentioned last quarter, we categorize our products into 3 different groups -- core products, legacy products and new products. So I'd like to now describe the activity we saw with each 3 of those groups. For the first quarter, we saw more growth of core products which are important in increasing the profit margins and leveraging the mix of I/O products that we offer. These products include the wide area networking, the T1/E1/T3, Ethernet Modules and Intelligent HighWire Processors. The products accounted, in total, for 43 percent of quarterly revenues and are highlighted by the increasing SS7 T1/E1 business that we have at DCL MetaSwitch, a customer that basically provides soft switches, as well as increasing revenues for VPN router products at Nortel.

As I mentioned last quarter, we expect excellent growth from core product customers in the future since the economic growth over the past year has benefited our solid customer base. Next week we're going to announce a reseller agreement with a start up company out of Europe introducing ATM, Sonet and T1 packet processors. And these provide on board conversions of TDM to IP streams. This particular announcement will fill a void that has been missing in the wide area network product line and complement our existing sales of other products of these types.

In the legacy area, as Dave had mentioned, we shipped the final production delivery of $1 million to them for sync serial and token ring controllers that are used in sale or base station management equipment. Other legacy products included Enterprise Ethernet, Storage Adapters aimed at the Sun Marketplace, as well as Government Marketplace VME Ethernet Adapters, which represented roughly 15 percent of quarterly revenues.

In the new product front, we see future design wins that will fill the hole left by HP, as well as propel us into a very positive revenue and earnings position. So for us, new product development is key. Our product strategy targets both embedded and enterprise products, balances the TCP/IP Offload Engine, or what we call the TOE, with Voice Over IP. Both are hot applications in the early stages of deployment and represent huge growth potentials for SBE. The TOE itself is a platform that runs iSCSI, the IP storage software that virtualizes mass storage using common internet networks. And the Voice Over IP will produce carrier-grade blades sold to telecom providers and ISPs using the internet for low cost telephone services, as well as mixed digital media to businesses and private residences. Our engagement with the Voice Over IP product development will result in OEM revenues next year. So we have, again, both the TCP/IP Offload Engine and Voice Over IP products that we consider impact products.

In the first quarter of this year, SBE's TOE began shipping to a small volume of customers and we look forward to seeing a ramp up in customer activity going forward. We are very disappointed though in the long evaluation period by our prospects, but are encouraged with the tier 1 and tier 2 companies that showed great interest in the products. Last week, we got over 60 leads in the LinuxWorld Trade Show in Boston and roughly half of them are interested in TOE and iSCSI.

Recently and in related news, PyX Technologies, our iSCSI software partner, announced the first ever public release of an iSCSI initiator stack aimed at Linux distribution later this year. The source code distribution will propagate the use of iSCSI in general and leave users to SBE and PyX for high performance feature offered in the combined hardware-software solution that we have.

To summarize, SBE's first quarter financials are consistent with past expectations. Going forward, the design wins from our core products, along with new product successes, provide revenue growth and earnings growth. Our day-to-day focus remains on increasing value-added solutions to the customers. To that end, we've chosen to continue our momentum with new product development and operations and execute on plans resulting in better revenues and earnings. We appreciate the improving economy, new technologies that are coming out, and our investors that have followed SBE for years. So at this time I'd be happy to open the floor for questions for Dave and myself.

(OPERATOR INSTRUCTIONS) At this time, there are no questions. Are there any closing remarks?

We don't have any at this time.

We would like to thank everybody for joining us on the call and look forward to talking to you in the future.

Thanks, everybody.

We do have one question in queue. This concludes today's first quarter fiscal 2005 results investor conference call. You may now disconnect.