Entropic Communications Management Discusses Q2 2012 Results - Earnings Call Transcript

Entropic Communications (ENTR)

Q2 2012 Earnings Call

August 01, 2012 4:30 pm ET

Executives

Debra Hart - Director of Investor Relations

Patrick C. Henry - Chief Executive Officer, President and Director

David Lyle - Chief Financial Officer

Analysts

Ruben Roy - Mizuho Securities USA Inc., Research Division

Blayne Curtis - Barclays Capital, Research Division

Gary W. Mobley - The Benchmark Company, LLC, Research Division

Anthony J. Stoss - Craig-Hallum Capital Group LLC, Research Division

William S. Harrison - Wunderlich Securities Inc., Research Division

Hamed Khorsand - BWS Financial Inc.

Rajvindra S. Gill - Needham & Company, LLC, Research Division

Aalok K. Shah - D.A. Davidson & Co.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Alex Gauna - JMP Securities LLC, Research Division

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q2 2012 Entropic Communication Earnings Conference Call. My name is Claire, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Ms. Debbie Hart, Director, Investor Relations. Please proceed, ma'am.

Debra Hart

Thank you, Claire, and good afternoon, everyone. Participating in today's call are Patrick Henry, President and CEO; and Dave Lyle, our Chief Financial Officer. During the call, Patrick and Dave will present our quarter results and our short-term outlook, and then we'll open it up for questions.

Throughout this call, we will be discussing certain non-GAAP financial measures. Today's earnings release and the related report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present a reconciliation between the 2 for the periods reported in the release. We've also posted a schedule on the Investor Section of our website, which includes our quarterly reconciliation of our GAAP to non-GAAP gross margins, operating expenses and taxes.

During this conference call, we will make forward-looking statements regarding future events and anticipated operating or financial results of the company. Actual events or results could differ materially from those projected in the forward-looking statements.

Please refer to our SEC filings, including our most recent 10-K and 10-Q, which contain important factors that could cause actual results to differ materially from the forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances.

And now, it's my pleasure to introduce Patrick Henry.

Patrick C. Henry

Thank you, Debbie, and thanks, everyone, for joining the call today. Entropic delivered record revenue of $83.1 million and better-than-expected EPS for the second quarter. We saw strengths from both our connectivity and set-top box SoC products, which led us to outperform our initial revenue targets. We also reported stronger earnings and gross margins due to mix, solid product cost improvements and expense discipline. All in all, we made significant progress towards our longer-term objectives.

I'll provide some highlights before turning the call over to Dave, who will review the Q2 numbers in more detail and provide guidance for the third quarter. Then I'll provide a bit more color on our business trends and opportunities before opening the call for your questions.

From an organizational standpoint, we recently made an addition to our executive team. I'm pleased to welcome Charlie Lesko, as our new Senior Vice President of Worldwide Sales. Charlie is a seasoned executive, with more than 20 years of experience in direct sales, management, operations, marketing and business development, in the semiconductor industry. Charlie brings a strong combination of experience in energy that will be instrumental to Entropic's growth, as we continue to lead the charge toward ubiquitous connected home entertainment.

Moving to business highlights. The integration of set-top box SoC acquisition is going extremely well. With the addition of the set-top box SoC assets, we are now a broader-platform company that has world-class SoC products and technology optimized for the delivery of traditional pay-TV broadcast,, with support for IP video-streaming services today and into the future. We also recently announced a small technology acquisition of assets from PLX Technology. Through this transaction, we acquired PLX's digital channel stacking switch technology and corresponding assets. The acquired IPN assets are complementary to our current DBS ODU product portfolio and will strengthen our long-range strategic position in the satellite IP market.

Satellite to IP is where satellite signals are converted to Internet protocol, or IP, for distribution over an IP network to any IP-enabled client device, making content available to more devices throughout the homes. We believe home connectivity is a multi-years secular growth market, driven by several industry and service-provider trends.

First, there continues to be increases in HD attach rate and upgrades in multi-room DVR deployments.

Second, pay-TV operators are rolling out new services as they migrate to IP-based video delivery. And finally, the transition to digital signals internationally continues to open up new opportunities for us.

Now I'll turn the call over to Dave for a review of our second quarter results and our third quarter guidance. Dave?

David Lyle

Thanks, Patrick. Second quarter revenue was $83.1 million, a 41% sequential increase, primarily due to revenue contribution from the acquisition of the set-top box SoC business from Trident. Connectivity product revenue and set-top box SoC product revenue, each exceeded our original expectations by several million dollars. We did our original revenue and non-GAAP EPS guidance by about $7 million and $0.05, respectively. We beat the revised revenue guidance provided in late June by over $1 million, which allowed for $0.01 of upside to the revised non-GAAP EPS guidance.

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