RadiSys Corporation. (RSYS)

Q1 2010 Earnings Call

April 27, 2010 05:00 AM. ET

Executives

Scott Grout - President, Chief Executive Officer & Director

Brian Bronson - Chief Financial Officer

Analysts

Rajiv Jenveja - Jefferies & Company, Inc.

Aalok Shah - D. A. Davidson

Presentation

Operator

Ladies and gentlemen, thank you for standing by. And Welcome to the RadiSys First Quarter Earnings Conference Call with Scott Grout, President and CEO of RadiSys. As a reminder, today Tuesday, April 27th, this call is being recorded. Later we will conduct a question-and-answer session. (Operator Instructions) Mr. Grout, please go ahead.

Scott Grout

Thank you, Marcello [ph]. Good afternoon and thank you very much for participating in our first quarter conference call. In this call we will review results for the first quarter as well as our outlook for the second quarter and then open the call up for questions.

Participating on the call today are Holly Stephens, Finance & Investor Relations Manger, Brian Bronson, our Chief Financial Officer and myself, Scott Grout, President and CEO.

Before we get started, I’d like to turn the call over to Holly for a caution about forward-looking statements.

Holly Stephens

Thanks, Scott. These statements in this call regarding future expectations for the business of RadiSys constitute forward-looking statements that involve a number of risks and uncertainties. We caution you not to place undue reliance on these statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in our earnings release today and in our SEC filings most recently in our 2009 annual report on Form 10-K.

All information provided in this call is as of today. RadiSys undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations. In addition, during the call we’ll refer to some non-GAAP measures. We've provided a GAAP to non-GAAP reconciliation for these measures in our earnings release issued today.

Now, I’ll turn the call back over to Scott.

Scott Grout

Thank you, Holly. So I am very pleased with our results and our progress in the first quarter. We came in at the upper end of our revenue range and exceeded our expectations on earnings. We continue to expand our next generation revenues nicely reaching over $30 million for the quarter our highest level yet for shipments of these products. With a solid start to 2010, we believe that we are on track to grow our next generation business by 20% to 30% this year.

We announced the number of important new products in the quarter including several new 10/40 gigabit ATCA offerings and a new media server based mobile video solution that I’ll talk about later.

We also announced our acquisition of Pactolus Communications, a maker of next generation IT solutions for converged VoIP networks. The Pactolus products will further strengthen our higher value software based solutions, while leveraging our existing portfolio of communication networking products.

Pactolus software is used on operator-assisted and reservationless audio conferencing, pre and post-paid long distance services and is installed in over 45 telecommunications service provider customers worldwide.

We expect that the acquisition will be accretive to non-GAAP EPS and operating cash flow by the third quarter. This acquisition is a nice example of a smaller high value technology acquisition that incrementally builds on our existing product portfolio.

In the first quarter, we announced a new Integrated Mobile Media Server product or IMMS, which enhances mobile service providers' ability to expand new revenues from the growth of mobile video services. Our IMMS is expected to increase service provider revenues and reduce their cost of deployment for 3G, 4G/LTE mobile video services.

We were again named the market leader in media servers for the sixth consecutive year by Infonetics Research. RadiSys' media servers captured 50% of the total fourth quarter 2009 market and 57% for the full year 2009. This an 8 and 10 point percent gain respectively over 2008.

We also had another excellent design win quarter which wins for many new and existing customers in a variety of compelling applications. We are awarded our first VoIP Voice Quality Enhancement or VQE with a major Tier 1 service provider. This is an important win for us as it expands the market for our media server products to now include Voice Quality Enhancement or VQE. We also won new media server business in applications including announcements, interactive voice response and conferencing.

Moving over to our ATCA business, we won new ATCA system business in LTE, in WiMAX, in Femtocell, in wireless WLAN and satellite communication applications. The LTE win was of notable size with a Tier 1 TEM in Asia, and the WiMAX win was with a new customer for an Access Service Network gateway project in India. Our 40G ATCA platform was named 2009 product of the Year by Technology Marketing Corporation's Internet Telephony magazine. We also announced three new ATCA products that offer our customers' increased choice and flexibility in 10 and 40 gigabit processing power. These new products provide significant performance increases and improved energy efficiency over previous processing technology and target applications for the communications and mil/aero markets.

We reached several significant deployment milestones with our ATCA customers in the quarter. One of our customer's Femtocell deployment in North America is now planned to occur sooner than was expected. One of our Tier 1 TEM customer is in customer trial with RadiSys ATCA solutions. And, in addition, a satellite communications deployment using our ATCA solutions is currently scheduled for the second quarter. For our commercial business, we introduced new ruggedized COM Express module for deployments in harsh military/aerospace in industrial environments that require extended temperature and vibration performance.

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