UTStarcom, Inc. (UTSI)
Q1 2010 Earnings Call
May 4, 2010 5:00 pm ET
Peter Blackmore - Chief Executive Officer
Jack Lu - Chief Operating Officer
Kenneth Luk - Chief Financial Officer
Randy Liao - Director of Investor Relations and Global Treasurer
Previous Statements by UTSI
» UTStarcom, Inc. Q4 2009 Earnings Call Transcript
» UTStarcom, Inc. Q3 2009 Earnings Call Transcript
» UTStarcom Q2 2009 Earnings Call Transcript
Good afternoon. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to the UTStarcom first quarter 2010 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 session. (Operator instructions)
Good afternoon. Earlier today, we announced our financial results for the first quarter of 2010. That press release is available on our company web site at utstarcom.com.
On today’s call we have Peter Blackmore, our Chief Executive Officer; Jack Lu, our Chief Operating Officer; Kenneth Luk, our Chief Financial Officer; and Randy Liao, Director of Investor Relations and Global Treasurer.
This call will include forward-looking statements relating to, among other things, the company's restructuring initiatives, projected business model, the closing of the sale of our Hangzhou building, and the strategic investment of the Beijing development area.
Forward-looking statements are generally indicated by such words as “will,” “expects,” “estimates,” “goals,” “plans” or similar words. These statements are forward-looking in nature and subject to risks and uncertainties that may cause actual results to differ materially.
These risks include the ability of the company to realize anticipated results from operational improvements, execute on its business plan and manage regulatory matters as well as risk factors identified in its latest annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K as filed with the Securities and Exchange Commission.
The company assumes no obligation to update any forward-looking statements. And in addition, today's call will include certain non-GAAP financial measures. The most directly comparable GAAP information and a reconciliation between the non-GAAP and GAAP figures is attached to the earnings release issued earlier today, and filed on Form 8-K.
Now I will turn the call over to Peter.
Thank you and hello everybody. It’s good for you to join the call today. I happened to be in the US this week and Kenneth is in China so please bear with us if they are any slight delays between us during the call.
I’d like to start by talking about our first quarter 2010 financial results which we released earlier today. While Kenneth will provide more detail, I’d just like to discuss some factors that drove the key financial and operational metrics for our business.
Importantly, our first quarter results for the first time were almost entirely based on the performance on our core products. These are the ones that will drive bookings and revenue going forward. I’d remind you that core revenue does include the past restatement that will continue until the end of 2011.
Revenue was $81 million for the quarter. This sequential decline from quarter 4 was as expected and as you remember in quarter 4, we had some accelerated revenues from BS&L because we started revenue recognition of that and got the full year of 2009 all in quarter 4, and we also recognized a very small amount of handset revenues in quarter 1 in an immaterial amount as we’ve now completely exited this business and this compared with the $17 million we recognized in quarter 4.
The first quarter gross margins were 34%. This was above our target gross margin expectations for our business. It does represent some one time items but also the positive impact of serving higher margin broadband products including the TN product.
Our operating expenses were $46 million which did include a restructuring charge of $7.5 million. We also had a bad debt charge of $4 million. In addition, we sold certain assets and liabilities related to our remote access server RAS product line which benefited operating expenses by $1.8 million.
However, our run rate operating expenses continued to decline sequentially and we expect our run rate operating expenses to be lower next quarter as approximately 300 employees left the company in quarter 1 as planned. We have additional cost measures planned in quarter 2 plus the ongoing transition of outsourcing manufacturing due in quarter 2.
So I want to make clear that by the end of quarter 2, we should be below 1,800 employees and we are still on track to achieving our target of $100 million in annualized operating expenses.
The cash importantly we ended the quarter with $235 million in cash and short term investments and this number includes $14 million of deposit from the building sale. In Aril we also received an escrow of an additional $56 million of the sales proceeds from the building. As we will discuss later, we shall get the balance of the building monies in quarter 2.
So I’d now like to update you on the two pending transactions we’ve talked about in the last couple of calls. First, the BDA investment. We continue to believe this investment is an important strategic move for UTStarcom as it will improve the company’s ability to tap high growth China IPTV market. In connection with the transaction we will also move our headquarters to Beijing, China, and will be eligible for tax incentives and other financial and non-financial assistance to the company from the BDA. We are waiting for approval and we expect this transaction to close in the second quarter.