Anaren, Inc ( ANEN) F3Q11 Earnings Call April 27, 2011 5:00 p.m. ET Executives Lawrence Sala - Chairman, President and CEO George Blanton - SVP, CFO and Treasurer Joe Porcello - VP of Accounting Analysts Jim McIlree - Merriman Mike Walkley - Canaccord Genuity Christian McDonald - Kennedy Capital Presentation Operator
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Net sales for the third quarter were $44 million, up 4.3% from the third quarter of last year. Robust demand for Wireless standard components continued throughout the quarter driving the overall increase in net sales. In addition, Space & Defense Group experienced a strong flow of new orders including the finalization of the previously announced IridiumNEXT contract.Non-GAAP operating income for the quarter was $5.6 million or 12.8% of net sales down 15.9% from the third quarter of last year. Margins were negatively impacted by increased R&D spending in both the wireless and Space & Defense groups. Wireless standard product price reductions that became effective in January and generally less favorable product mix in the Space & Defense Group. Wireless Group net sales for the quarter were $15.2 million up 6.7% from the third quarter of last year. The continuing increase in demand for standard components for infrastructure and consumer applications drove the increase in net sales from the third quarter of last year. And our customers are forecasting continued strong demand for the remainder of the calendar year. During the quarter, we experienced a continuing shift in demand to fourth generation or 4G base station applications, where our new products have increased our dollar content for base station. This uncharacteristically rapid shift in demand has positively impacted our net sales, but its negatively impacted gross margins for the group as the new 4G related products are still experiencing lower yields. We would expect yields to continue to improve over the next few quarters, positively impacting the Group’s profitability. New product and technology development efforts remain focused on expanding our standard component product portfolio. During the quarter, the Group continued to expand the Xinger III high power resistor and consumer component product lines. And in addition, development of the Anaren Integrated Radio or AIR product lines of low power wireless transceiver modules continued and drove much of the increase in the wireless group R&D spending for the quarter. Several new AIR products were introduced during the quarter, and we continue to see strong interest in our AIR product line.
Customers that exceeded 10% of Wireless Group net sales for the quarter were E.G Components, Huawei and Richardson.For the Space & Defense Group, net sales for the quarter were $28.8 million up 3.1% from the third quarter of last year. And unfavorable sales mix driven by new production start ups and engineering development programs, and an increase in R&D spending negatively impacted the Group’s profitably for the quarter. The increase in R&D spending was largely due to delays in finalizing two new satellite development contracts for which we aggressively hired new engineering talent in December and January. One of those contracts was finalized in February and the second contract was finalized just last week. Space & Defense Group revenue and profitability for the quarter were also negatively impacted by the continuing capacity expansion initiative at our Unicircuit subsidiary. This initiative is relatively complete and we anticipate improved efficiencies and yields at Unicircuit in our fourth quarter. During the quarter, the Group delivered several new integrated components for potential counter IED product improvement initiatives as well as the first production quantities of new radar sub assemblies for our ground based radar application. Product and technology development issues for the Group remain focused on expanding our radiation hardened hybrid electronic modules standard component product lines, advancing our RF manifold and hybrid electronic module technologies for radar applications and the continuing development of integrated microwave assembly technology. New orders for the quarter were $42.6 million and included contracts for components and assemblies for ground based radar, ship borne jamming and various satellite applications. During the quarter the Group finalized the contract valued at approximately $24 million from Thales-Alenia-Space for the development and production of integrated beamforming assemblies that will be deployed on the IridiumNEXT satellite payload. Space & Defense Group order backlog at March 31 st, 2011 was $88 million. Customers that generated greater than 10% of Space & Defense Group net sales for the quarter were Lockheed Martin, Northrop Grumman, and Raytheon. George? Read the rest of this transcript for free on seekingalpha.com