Symmetricom, Inc. (SYMM)

F4Q10 (Qtr End 06/27/10) Earnings Call Transcript

August 10, 2010 4:30 pm ET

Executives

Dan Madden – VP, Finance & IR

Dave Côté – President and CEO

Justin Spencer – CFO

Analysts

Victor Chiu – Morgan Keegan

Mark Sue – RBC Capital Markets

Mike Crawford – B. Riley & Company

Chris Blackman – Empirical Capital

Presentation

Operator

Good afternoon and thank you for standing by. All participants will be in listen-only mode until the question-and-answer session of the conference. This conference is being recorded at the request of Symmetricom. If you have any objections, you may disconnect at this time. I would like to introduce the host for today's conference, Mr. Dan Madden, Vice President of Finance and Investor Relations. Mr. Madden, you may begin.

Dan Madden

Good afternoon. Welcome and thank you for attending Symmetricom's fiscal 2010 fourth quarter and year-end conference call. With me today are Dave Côté, Chief Executive Officer, and Justin Spencer, Chief Financial Officer. If you have not received today's news release, you may download it from our website.

I would like to remind everyone that statements made during the course of this call concerning Symmetricom's business outlook, the market acceptance of new products, the competitive environment, and financial performance expectations are forward looking statements that involve a number of risks and uncertainties.

Actual results could differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in the company's Form 10-K for the year ended June 28, 2009 and subsequent filings with the SEC, as well as in today's news release.

I will now turn the call over to Dave.

Dave Côté

Thank you, Dan, and good afternoon, everyone. In today's call, I will begin with a review of the fourth quarter results followed by a summary of our performance by business. Justin will then provide details on our financials and guidance, and I'll wrap up with a review of the year and a few concluding remarks before we take questions.

Let's get started with the fourth quarter results. Total revenue was $55.7 million. Revenue from our Communications Business was $33 million. Our Government Business reported $22.7 million. Strong gross margins and lower operating expenses drove a 33% year-over-year increase in non-GAAP earnings to $0.12 per share. And we strengthened our balance sheet by completing the repurchase of our convertible notes, ending the year with no debt.

We are very pleased with a number of developments in the quarter. In our Communications Business, we saw continuing traction with our new PTP PackeTime products. Our products now provide the Sync infrastructure in more than 20 next generation deployments worldwide. And in the quarter, we received a sizable purchase order for our PackeTime products from a large North American carrier.

We also made excellent progress with our embedded solutions, signing multiple license agreements related to the support and sale of our new line of embedded software synchronization technology. In our Government Business, system sales showed continued strength and we bolstered our leadership position in the important GPS space with additional funding on the GPS Block III program and the achievement of a key milestone on GPS Block IIF.

With that overview, let me discuss our two businesses in more detail, starting with our Communications Business. I’ve had a year to look at this business and I know it can be somewhat difficult for investors to fully understand. So let me take this opportunity to provide a framework for how we think about it.

At its core, we see the business as having two main drivers. Number one is the development of IP-based next generation networks and wireless technologies. And number two is the modernization and expansion of existing wireline infrastructures, including SONET/SDH and cable infrastructures such as DOCSIS 3.0.

First, with respect to next generation networks, an increasing portion of our Communications Business is directly linked to carrier deployments of next generation networks and 3G and 4G wireless technologies. This category of revenue includes the sync systems deployed and support of carrier Ethernet and Ethernet backhaul, notably PackeTime grandmasters, blades and chassis.

It also includes GPS and PackeTime-based embedded solutions that support new wireless technologies, including WiMAX and LTE. In total, we estimate that roughly 20% of our communications product revenue is currently next generation oriented, and we expect this category to grow at an annual rate of 20% to 25%.

In the fourth quarter, we saw several notable successes in the next generation network part of our business, including continuing traction on our new PackeTime products. Many wireline and wireless carriers worldwide are in the process of migrating to Ethernet backhaul. And as I just mentioned, there are now more than 20 commercial deployments underway worldwide that are using our PackeTime products.

In the fourth quarter alone, Nokia-Siemens supported five new PTP deployments with our PackeTime gear. Internationally, major carriers in Brazil and Japan also became new PackeTime customers. In addition, in the fourth quarter, a large North American carrier made a sizable purchase of PackeTime for its network. We are encouraged by the level of market activity for PTP as a primary method for distributing time across packet networks.

In the quarter, we continued to expand our ecosystem of partnerships with network equipment manufacturers and others that support the sale and deployment of our PackeTime technology. Since our recent launch of a line of embedded PTP sync software solutions, we started working with network equipment manufacturers, silicon vendors, and other partners that will allow mobile backhaul equipment and bay station manufacturers to incorporate our PackeTime software client to their equipment. Earlier in the quarter, we announced our first such offering. The new SCi 2000 reference design board utilizing Freescale Semiconductor’s processor technology.

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