RadiSys Corporation (RSYS)

Q2 2010 Earnings Conference Call

July 27, 2010 5:00 PM ET

Executives

Scott Grout – President and CEO

Holly Stephens – Finance and IR Manager

Brian Bronson – CFO

Analysts

Rich Valera – Needham & Company

George Notter – Jefferies & Co.

David Nierenberg – Nierenberg Investment Management

Colin Denman – D. A. Davidson

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the RadiSys Second Quarter Earnings Conference Call with Scott Grout, President and CEO of RadiSys. As a reminder, today, Tuesday, July 27, 2010 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 very much (Daryl). Good afternoon everybody and thank you for participating in our second quarter conference call. In this call, we will review results for the second quarter as well as our outlook for the third quarter and for the year and then we will open the call up for questions.

Participating on the call with me today are Holly Stephens, Finance and Investor Relations Manger, Brian Bronson, our CFO and myself, Scott Grout, President and CEO.

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

Holly Stephens

Thanks, Scott.

Any 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 is 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 will 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

Thanks Holly. So I am very pleased with our overall financial and strategic progress for the quarter as well as the continued growth in our next generation business. From a financial perspective, we grew both revenue and earnings over the prior quarter and we delivered at the high end of our revenue range well exceeding our range on earnings.

In the quarter we also successfully completed the full integration of Pactolus, a leader in next generation IP communication solutions. This acquisition was closed in the first quarter and further strengthens our higher value software based networking solutions. From a design win perspective, our largest win the quarter was for a fully integrated network security application.

This marks one of our first wins of a complete turnkey network element solutions built on our market leading ATCA platform. We expect to announce more about this new product in the third quarter. We also saw our wins expand in the military and aerospace markets reinforcing our strategy of applying our highly reliable solutions to these growing market segments.

In the quarter we also materially completed the outsourcing of all manufacturing to Asia. While we will hold ongoing work to optimize our operating model, all products have been successfully transitioned out of our Hillsboro facility. I want to talk about a couple of, excuse me talk about a couple of highlights for the quarter in different areas. First from an industry recognition standpoint, we were fortunate to be recognized for IMMS our Integrated Mobile Media Service received the 2010 NGN Leadership Award from Technology Marketing Corporation’s NGN Magazine. Recall that IMMS enhances mobile service providers’ ability to grow new video service revenues on both 3G and emerging 4G LTE mobile networks.

The second recognition we got in the quarter was on our VQE or Voice Quality Enhancement feature for our media server platform. It was recognized for exceptional innovation by Unified Communications Magazine and won their 2009 product of the year award. VQE significantly improves audio quality and reduces end-to-end delay for an improved customer experience and finally our ATCA 40 gig platform received NGN’s 2010 Leadership Award from again Technology Marketing Corporation’s NGN Magazine. So some pretty nice recognition from industry forums in the quarter.

During the second quarter we also announced a number of new innovative products including real time transcoding services for our media server product family. This transcoding capability allows operators to seamlessly interconnect differently encoded IP media streams which enables converged IP-based mobile NGN and IMS networks.

We are very excited about these new transcoding services and the new opportunities we believe they will bring. We also introduced our new Promentum C2 Server, the industry’s first ruggedized portable ATCA platform for mobile command and control applications. The C2 server is designed for high performance ruggedized mobile applications in military and aerospace markets.

Switching over to design wins, we had another good quarter in Q2 for design wins. In our media server business we were awarded multiple new design wins across the all three geographies, North America, Asia and Europe in a variety of applications including voice and video services, video lawful intercept, conferencing and messaging. In our ATCA business we were awarded new business in network security as I had mentioned earlier military reconnaissance, network monitoring and EPON applications.

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