UTStarcom's CEO Discusses Q2 2012 Results - Earnings Call Transcript

UTStarcom, Inc. (UTSI)

Q2 2012 Earnings Results Conference

August 13, 2012 08:00 AM ET

Executives

Ying (Jack) Lu - CEO and President

William Wong - COO

Jin Jiang - CFO

Jing Ou Yang - Investor Relations Director

Analysts

Presentation

Operator

Ladies and gentlemen, thank you for standing by for UTStarcom’s Second 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 of UTStarcom. You may begin.

Jing Ou Yang

Hello everyone and welcome to UTStarcom’s second 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; Ms. Jin Jiang, our CFO and Mr. William Wong, our COO.

Before we get started, I will read the Company’s advisory on forward-looking statements. This call will include forward-looking statements relating to the Company’s operational support services business, the divestiture of its IPTV equipment business and the Company’s performance in 2012. These statements are forward-looking in nature and subject to risk and uncertainties that may cause actual results to differ materially.

This include risk and uncertainties related to other things, changes in the financial condition and cash position of the Company, changes in the compensation of the management and their impact on the Company. The Company’s ability to realize anticipated result of operational improvements and the benefits of the divestiture transaction, successfully operate its 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, and current reports on Form 6-K as filed with the Securities and Exchange Commission. The Company is in a period of transition and the conduct of its business is exposed to additional risks as a result.

All forward-looking statements included in this release are based upon information available to the Company as of the date of this release, which may change and UTStarcom assumes no obligation to update any such 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. 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.

Let me start by saying that, the Company is pleased with its performance for the quarter, which was inline with prior expectations and demonstrated a strong improvement across nearly every metric relative to the first quarter 2012. We are pleased with the overall second quarter results. While year-over-year comparisons were impacted by significant one-time sales contract in the second quarter of 2011. The Company’s has improved performance versus the first quarter of 2012 is indicative of the healthy growth in overall business.

We realized strong sequential gains in net sales and the effort we have made to significantly improve gross margin and reduce costs, result in substantial increase in operating income and a positive operating cash flow in the quarter. As I mentioned, I will like to remind everyone that our 2011 second quarter results included revenue amortization related to PHS of $23.8 million, which generated gross margin of 34.8%. PHS deferred revenue amortization ended in the first quarter – the fourth quarter of 2011 and has not in our results, starting the first quarter of 2012. Therefore, in order provide a true apples-to-apples comparison or discussions in financial results of this call will exclude PHS deferred revenue, unless otherwise specified.

Let us start with slide 4, and talk briefly about our second quarter highlights. For the second quarter of 2012, total revenues decreased 17.9% year-over-year to $56.5 million compared to the second quarter of 2011 relative to the 2012 first quarter, revenue increased to 21% showing the fundamental stability in demand for our products and services.

Gross profit decreased 18.1% year-over-year to $21.7 million compared to $26.5 million in the second quarter of 2011. Sequentially, gross profit increased a 17.9% from the first quarter of 2012. It is important to note that Q2 gross profit margins were strong and are relatively flat compared with the 38.6% reported a year-ago, despite the lower sales levels and decreased slightly from 39.5% in the first quarter of 2012.

The benefits of our restructuring efforts on our expense structure continued to be substantial. As operating expenses decreased to 21.9% year-over-year to $19.6 million compared to $25.1 million for the corresponding period of 2011. Operating expenses also decreased 11.7% compared to $22.2 million in the first quarter of 2012. Be above resulted in income from operations for the second quarter of $2.1 million compared to adjusted operating income of $1.4 million in the second quarter of 2011, exclude PHS deferred revenue amortization.

Operating income also improved significantly from an operating loss of $3.8 million in the first quarter of 2012. Our positive operational cash flow of $2.9 million this quarter also increased dramatically from negative operating cash flow of $14.7 million in the first quarter of 2012.

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