UTStarcom Holdings Corporation ( UTSI)

Q3 2011 Earnings Call

November 9, 2011 8:00 AM ET


Jing Ou Yang – Director, IR

Jack Lu – President and CEO

Jin Jiang – CFO


Jun Zhang – Wedge Partners

Jon Gruber – Gruber & McBaine

Lily Wu – TGRA Capital



Thank you for standing by for UTStarcom’s Third Quarter 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Ms. Jing Ou Yang, Investor Relations Director for UTStarcom. You may begin.

Jing Ou Yang

Hello everyone. Welcome to UTStarcom’s third quarter 2011 earnings conference call. We distributed our earnings press release earlier today and you can find a copy on newswire services or on our website at www.utstar.com. In addition we have posted a presentation on our website which you can download and use to follow along with today’s call. On our call today we have Mr. Jack Lu, our President and CEO; and Ms. Jin Jiang, UTStarcom CFO.

Before we get started I will read the company’s advisory and forward-looking statements. This call will include forward-looking statements on topics that include, but may not be limited to the company’s restructuring initiatives, IPTV revenues, profit margins and projected business model. Forward-looking statements are generally indicated by such words as will, expect, estimate, goals, plans or similar words. These statements are forward-looking in nature and subject to risks and uncertainties that may cause actual results to differ materially.

This includes risks and uncertainties regarding the ability of the company to realize anticipated results of operational improvements, the company’s ability to successfully launch Internet TV platform, continue to integrate recent acquisitions, successfully operate new service business, execute on its business plan and manage regulatory matters, as well as risk factors identified in its latest Annual Report on Form 10-K, 10 K/A, quarterly reports on Form 10-Q and current reports on Form 6-K as filed with the Securities and Exchange Commission. The company assures no obligation to update any forward-looking statements.

I will not turn the call over to our President and CEO Mr. Jack Lu.

Jack Lu

Thank you, Jing and hello to everybody on the call. As Jing mentioned you can follow along on today’s call by downloading the presentation from our website at www.utstar.com also unless otherwise stated all figures mentioned during this conference are in U.S. dollars.

Let’s start with slide four and then talk briefly about our third quarter highlights. Net income attributable to UTStarcom’s shareholders was $8 million, or basic earnings per share of $0.05 in the third quarter of 2011. Total revenue increased 35% year-over-year to $83.3 million in the third quarter of 2011 from $61.4 million for the same period in year 2010.

Gross margin was 38.4% in the third quarter of 2011compared to 19.7% in the third quarter of 2010. 37.6% in the second quarter of 2011 and 31.1% in the first quarter of 2011. Operating income was $14.2 million in the third quarter of 2011. Cash, cash equivalents and short-term investments were $305.9 million as of September 30, 2011.

The third quarter was our second consecutive profitable growth. Our strong bottom line supplements was driven mainly by improved gross profit of margin and the steadily decreasing operating expenses. Our main priority going forward will be achieving sustainable long-term profitability. We’re pleased to see that some of our restructuring and the reorganization efforts have gained attraction. Management have targeted the key growth driver for our company to achieve sustained profitability namely a move away from being entirely equivalent dependent to a more blended business model that include higher value and thus higher-margin services.

Of course, this type of shift was not occurred overnight, but we hope investors maintain a long-term perspective as we reinvest resources in areas that we believe will drive the growth of our business.

Moving onto slide number five, we did missed profit margin improvement in the third quarter driven mainly by the increase the sales of PTN product in Japan, which generally had higher gross margins. Our gross margin also improved in China as a result of our strong competitive advantage in the cable market.

On slide six, regarding some of our recent business highlights. We announced in the third quarter the completion and rollout of our end-to-end Internet TV solution for our cable TV network customers in China. This contract was our first successful Internet TV bill and we expect to win more of this type of contract in the future, which have potential to open up additional service related revenues.

In the third quarter we also won new sizable EPON contracts from cable operators in Hebei and Sichuan province and Ningxia Electric Power Company in China. These contracts reflect our ability to leverage our existing technology that we have traditionally sold to telecom operators to create sales to cable operators and the power grid companies in China.

We recently won the IPTV integrated broadcasting control platform contract in Tianjin, which extends our market leading position. We will continue to pursue market opportunities related to China’s cable network coverage and second round of trail series will be announced towards the end of this year or early next year.

In October, we won MSTP and the PTN contracts from Chunghwa Telecom, the largest integrated telecom operator in Taiwan. Our MSTP and PTN product will enhance operational capacity of the client better support its commercial services. Our success and the height of the more perfection in Japan with regard to our PTN products has helped us sell these products to other customers in Asia Pacific market.

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