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UTStarcom, Inc. Q2 2010 Earnings Call Transcript

UTStarcom, Inc. Q2 2010 Earnings Call Transcript

UTStarcom, Inc. (UTSI)

Q2 2010 Earnings Call

August 04, 2010 10:00 am ET


Peter Blackmore - CEO

Jack Lu - COO

Edmond Cheng - CFO


Jean Lu

Ari Bensinger - Standards and Poor's



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Previous Statements by UTSI
» UTStarcom, Inc. Q1 2010 Earnings Call Transcript
» UTStarcom, Inc. Q4 2009 Earnings Call Transcript
» UTStarcom, Inc. Q3 2009 Earnings Call Transcript

Welcome to UTStarcom Second Quarter 2010 Earnings Call. Earlier today, we issued a press release announcing our financial results for the second quarter. This press release is available on the company's website at

On today's call we have Peter Blackmore, Chief Executive Officer; Jack Lu, Chief Operating Officer; and Edmond Cheng, Chief Financial Officer.

This call will include forward-looking statements relating to, among other things, the company's restructuring initiatives, projected business model, and the closing of the BEIID investment. 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.

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These risks include the ability of the company to realize anticipated results from operational improvements, increase bookings, successfully transition to new management team and headquarter location, execute on its business plan, 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. 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 in Form 8-K.

With that, I will turn the call over to Peter.

Peter Blackmore

Thank you and hello everybody, and thank you very much for joining our call today. I am in the US, and Edmond and Jack are in China, so please bear with us if they are any slight delays during the call.

I would like to start with summarizing our second quarter 2010 financial results, which we released earlier today and then I will turn the call over to Edmond, who will provide greater detail around our financial results for the quarter.

So let's start with quarter two. As you would have seen revenue was $73 million for the second quarter, this is slightly down $8 million from the $81 million in the first quarter. The revenues were in line with our expectations.

Also, I want to remind you about two transactions that occurred during the quarter. We sold our Latin American IP Messaging and US PDSN assets in the quarter. You will also recall we announced the sale of China PDSN in quarter one, which will benefit from the one-time gain from the China PDSN divestitures in quarter three. That transaction is also now closed with the final signatures were received early in July.

Gross margins were 31% for the second quarter, which reflects healthy margins for both IPTV and the Broadband businesses and I am pleased we have managed to deliver solid gross margins for three consecutive quarters.

Operating expenses were $28 million for the second quarter, which included two one-time benefits. A small one benefit from restructuring reversal of 216,000 and a net gain of $2.1 million related to the divestiture of IP Messaging and US PDSN Assets.

On the overall cost structure, we continue to reduce it. We shutdown all our locations in Latin America and two locations in US during the quarter, in conjunction with this, we have signed partnerships and have moved to an indirect sales approach in Latin America and the overall Americas.

We are also in conversations with potential partners in Europe, to establish a reseller operation there as well. These partnerships not only provide what we believe to be a more effective, and successful go-to-market strategy for certain regions, that they also enabled the management team to be even more focused on China, India and Japan, which are our primary market focus.

Although we have not completely transitioned our outsourcing for manufacturing, we are now very close to achieving our target of $100 million in annualized operating expenses. As a final note on costs, we should be closing our elevator office, which is the last building open in the US and so we will be closing that this month in August.

We continue to reduce our operating loss. For this quarter the operating loss of $5.1 million is a solid improvement from the operating loss of $19 million in the prior quarter. For cash importantly we increased our cash position by $73 million from the prior quarter. We had $308 million in cash and short-term investments at the end of the quarter, and this include net proceeds of approximately $130 million related to the sale of our Hangzhou building in China.

I would now like to update you on the BDA pending transaction. The BDA has informed us that they have received all of the approvals from NDRC, Mosscom, and SAFE and that is good news, and they are now establishing their Hong Kong investment entity through, which they will complete their investment. This final step is expected to be completed shortly, and we shall then expect to close following the completion of that step.

Once the deal closes, Jack Lu, you remember, joined the company on March the 1st, the COO will transition at an agreed time to the CEO role. We also will add three new board members, who all have significant China expertise.

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