UTStarcom Holdings' CEO Discusses Q1 2012 Results - Earnings Call Transcript

UTStarcom Holdings Corp (UTSI)

Q1 2012 Earnings Call

May 16, 2012 8:00 am ET


Jing Ou Yang – Investor Relations Director

Ying (Jack) Lu – Chief Executive Officer and President

Jin Jiang – Chief Financial Officer


Lily Wu – TGRA Capital Management LLC

Louis Lubrano – BMI Capital LLC

Himanshu Harshad Shah – Shah Capital Management, Inc.



Thank you for standing by for UTStarcom’s first quarter 2012 earnings conference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. If you have any objections, you may disconnect at this time.

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 and welcome to UTStarcom’s first quarter 2012 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 slide show presentation on our website, which you can download and use to follow along with today’s call. On today’s call, we have Mr. Jack Lu, our President and CEO; and Ms. Jin Jiang, our CFO.

Before we get started, I will read the company’s advisory on forward-looking statements. This call will include forward-looking statements on topics that include, but may not be limited to the company’s, IPTV revenues progressed in the video service cloud platform, profit margins and business model.

Forward-looking statements are generally indicated by such words as will, expects, estimate, goals, plans or similar words. These statements are forward-looking in nature and subject to risk and uncertainties that may cause actual result to differ materially.

This include risk and uncertainties regarding the ability of the company to realize anticipated result of operational improvements, and the company’s ability to successfully launch its Internet TV platform, continue to integrate recent acquisition, successfully operate its new Service business, execute on its business plan and manage regulatory matters, as well as risk factors identified in the company’s latest Annual Report on Form 20-F, previous annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and 6-K as filed with the Security and Exchange Commission. The company assumes no obligation to update any forward-looking statements.

I will now turn the call over to our President and CEO, Mr. Jack Lu.

Ying (Jack) Lu

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

As you may recall, deferred revenue amortization related to PHS was included in 2011 results at a rate of approximately $23.8 million per quarter. Specifically, for the first quarter 2011, PHS deferred revenue was $23.6 million, PHS deferred revenue amortization ended in the fourth quarter 2011 and starting in the first quarter 2012, were no longer impact our results.

In order to provide a true apple-to-apple comparison, throughout this call first quarter 2012 revenues, gross profits, and the gross-margin, year-over-year comparison will exclude PHS deferred revenue amortization, recorded in our first quarter 2011.

Let us start with the Slide 4 and I’ll talk briefly our first quarter highlights. For the first quarter 2012, total revenues increased 23.8% year over year to $46.7 million, compared to sales of $37.7 million if we exclude $23.6 million amortization of PHS deferred revenue in the first quarter 2011.

Gross profit increased 69.6% year-over-year to $18.4 million compared to $10.9 million if we exclude gross profit related to amortization of PHS deferred revenue in our first quarter 2011. Gross profit as a percentage of net sales or gross margin, was 39.5% compared to 31.1% in our first quarter of 2011. First quarter 2011 gross-margin excluding PHS deferred revenue amortization was 28.8%.

Operating expenses decreased 26.5%, year-over-year to $22.2 million, compared to operating expenses of $30.2 million for the corresponding period of 2011.

Let’s move to Slide 5, and take a look at our equipment business in China. On our last earnings call, we mentioned that the government has identified 42 new trial cities for the second phase of China’s three network convergence. Also we announced that we had won the tender to build an IPTV broadcasting controlling platform in Chongqing City. Chongqing was the first of the 42 new trial cities to award an IPTV contract to a solution provider.

In addition to Chongqing, we have recently won another IPTV tender with Hainan TV station. The new platform will support the content management and the distribution needs of IPTV, Internet TV and the Mobile TV. The platform will cover entire province of Hainan and provide approximately 100,000 household subscribers with digital high definition and bidirectional IPTV.

Out of the 42 new trial cities, 20 are provincial level and will require a solution provider to build an integrated IPTV broadcasting platform. We are targeting to win approximately 15 of these contracts. I am very pleased to share with you that, we have recently won our first IPTV broadcasting control platform expansion contract from Beijing TV Station.

This is a sizable contract with solid gross margin. It demonstrates that some of the trial cities have started to accelerate the capacity expansion progress. That initial IBCP contracts will pay the tax for additional business opportunities from a national rollout of the three networks convergence expected to take place from 2013 to 2015. Our expectation is that most of the IBCP platforms will result in future expansion contracts.

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