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
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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