Actions Semiconductor Co., Ltd. ( ACTS)

Q3 2010 Earnings Call Transcript

November 2, 2010 5:30 pm ET

Executives

Grace Reyes – IR, The Blueshirt Group

Patricia Chou – CFO

Niccolo Chen – CEO

Analysts

Rick Fearon – Accretive Capital Partners

Douglas Whitman – Whitman Capital

Presentation

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Actions Semiconductor third quarter 2010 earnings conference call. During today’s presentation, all parties will be placed in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, Tuesday, November 2nd, 2010.

I would now like to turn the conference over to Grace Reyes. Please go ahead, ma'am.

Grace Reyes

Good afternoon and thank you for joining us on today’s conference call to discuss Actions Semiconductor's third quarter 2010 financial results. This call is being broadcast live over the web and can be accessed on the Investor Relations section of Actions’ website, www.actions-semi.com for 90 days. On today’s call are Niccolo Chen, Chief Executive Officer; and Patricia Chou, Chief Financial Officer.

After the market closed in the U.S. today, Actions issued a press release discussing the results for its third quarter ended September 30th, 2010. The press release was also filed on Form 6-K with the U.S. Securities and Exchange Commission. The press release is accessible online at the company’s website, as well as the SEC’s website or you can call The Blueshirt Group at 415-217-7722 and we will fax or e-mail you a copy.

We would like to remind you that during the course of this conference call, Actions' management team may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are simply estimates and actual events or results may differ materially.

We refer you to the documents that Actions files from time to time with the SEC, specifically the company’s most recently filed Form F-1, 20-F and 6-Ks. These documents identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

And now, I would like to turn the call over to Patricia Chou.

Patricia Chou

Thank you for participating in Actions’ third quarter earnings conference call. We appreciate your continued interest and support for Actions. I will provide a business update and discuss financial results for the third quarter, as well as expectations for future performance. And Niccolo will be available during the Q&A portion of the call where I will translate from Mandarin to English on his behalf. As a reminder, our financials are reported on a U.S. GAAP basis.

Our results for the third quarter were largely in line with our expectation. Our gross margins were slightly better than expected, continuing a positive trend since the beginning of 2010. We experienced increased revenue contribution from our high-end products, which leaded to higher average selling prices during the quarter. With reduced sales of our low-end products, such as automotive and boom box products, we saw a decline in shipment volume sequentially.

During the quarter, we recognized several one-time items that significantly contributed to our bottom line results, such as the foreign exchange gain, a reversal of overestimated employee stock-based compensation expenses, and a gain resulting from the acquisition of additional equity interest of Mavrix.

For the third quarter ended September 30th, 2010, we recorded revenue of $9.3 million compared to $9.7 million in the second quarter. Our gross margin for the third quarter was 40.1% compared to 39.6% for the second quarter. As noted, we were pleased our gross margins benefited from a product mix shift to advanced products, higher ASPs, and favorable unit cost as a result of enhanced processing technology, as well as improved product design.

For the third quarter, total stock-based compensation expense amounted to a credit of $0.2 million, after a true-up of underestimated forfeiture rate compared to an expense of $0.9 million in the second quarter.

R&D expense was $3.9 million or 42% of revenue for the third quarter, which was slightly lower than the second quarter of $4.4 million, due to the reversal of overestimated stock-based compensation expense. With the addition of approximately 40 engineers from Mavrix, which we acquired this quarter, we anticipate our R&D expense to continue to represent a high percentage of revenue as we focus on our product development initiatives.

G&A expense was $1.8 million in the third quarter or 19.7% of revenue, which was slightly lower than the second quarter of $2.4 million, also due to the true-up of employee forfeiture rate on our stock-based compensation expense.

Sales and marketing expense was $0.2 million in the third quarter or 2.5% of revenue compared to $0.3 million in the second quarter. We continue to tightly manage expense levels in this category, as a demonstrated by our hiring freeze across non-engineering functions and the salary cuts at the management level.

Operating loss was $1.8 million for the third quarter compared to operating loss of $2.9 million for the second quarter. We continue to focus on the sequential improvement in profitability and our persistent cost management in the third quarter.

Net other income was $1.1 million as a net result of a foreign exchange gain due to the appreciation of renminbi versus U.S. dollars. Other income of $0.5 million for the second quarter was also related to a net foreign exchange gain.

Read the rest of this transcript for free on seekingalpha.com