RadiSys Corporation ( RSYS)

Q3 2010 Earnings Call

October 26, 2010 5:00 p.m. ET

Executives

Holly Stephens - IR

Scott Grout - President & CEO

Brian Bronson - CFO

Analysts

Rich Valera - Needham & Co

George Notter - Jefferies

Presentation

Operator

Welcome to RadiSys Corporation Third Quarter Earnings Conference Call with Scott Grout, President, CEO of RadiSys. As a reminder today October 26, 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 Tiffany. Good afternoon and thank you for participating in our third quarter conference call. In this call, we will review our results for the third quarter as well as our outlook for the fourth quarter and full year and then we will open the call up for questions as usual.

Participating on the call today are Holly Stephens, Finance and Investor Relations Manager, Brian Bronson, our Chief Financial Officer and again 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

Thank you, 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 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 our third quarter revenues were $75.2 million with NexGen revenues of 30.9 million up 42.5% year-over-year. On a year-to-date basis our NexGen revenues have been 90.1 million up 22.5% over the last year as more of our customer programs ramped production and deployment.

Gross margins for media server ATCA platforms application solutions continued to be strong while margins for our legacy and larger volume ATCA Blade only business continues to be under pressure.

You will continue to see as more of our investment and growth focus are of more valuable software and system level solutions. For example, in the quarter we announced our new LTE Security Gateway or SEG product targeted at providing security solutions for new all IP wireless networks.

Our LTE SEG is built upon our industries leading ATCA carrier grade platform with five times the performance of existing enterprise focus solutions. The SEG provides authentication, data integrity and encryption for IP based wireless networks and can be deployed as standalone solution or integrated into other wireless network elements.

Our security gateway is now under evaluation by a Tier 1 equipment maker and will be available for trials in the fourth quarter and commercially available in the first half of next year. Other key developments for us in the quarter included in our media server business, we released our new Interactive Mobile Media Server or IMMS solution to a Tier 1 China based equipment maker to begin trials. IMMS as you might recall is built upon our industry leading IP Media Server and is targeted at innovative new revenue generating services in the wireless arena.

In addition another global Tier 1 equipment went live with our RadiSys CMS-9000 with China Mobile. We were also awarded other new business for our IP Media Server product in Color Ring Back Tone, conferencing and network announcement applications.

Moving to our ATCA products, we won new business of notable size in a military application for unmanned vehicle reconnaissance. In this application ATCA will be used for high performance computer control and image display. This win is meaningful for us in that it validates our strategy of bringing robust high capacity ATCA systems into military applications.

Other new ATCA application wins in the quarter include LTE, Evolved Packet Core, IPTV and wireless access location. A number of these program awards were in China as this geography continues to grow for us.

In our commercial business we were awarded new COM Express business across all three geographies in medical imaging, defense and networking applications. In addition a Tier 1 enterprise infrastructure provider in North America began production of a new network switching and routing solution using RadiSys high performance COM Express products.

Returning to our results for the quarter, our top five customers in the third quarter in alphabetical order were Cisco, GE Healthcare, NEI, Nokia Siemens Networks and Phillips Healthcare. Collectively these five customers represented 64% of our revenue in the quarter with 42% from Nokia Siemens Networks.

NSN continues to be a very strategic customer for us with revenues diversifying nicely beyond legacy products to include meaningful new business in ATCA and IP Media Servers. Again this quarter over 25% of our NSN business is coming from our NexGen products and we expect this percentage to continue to increase over time.

Finally, before I turn the call over to Brian, I wanted to highlight a new addition to our Board of Directors. Niel Ransom joined as board member in August and brings extensive background and communications networking including serving as the past CTO of Alcatel Networks as well as serving the boards of a number of highly successful public and private technology companies.

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