Earnings Labs

UTStarcom Holdings Corp. (UTSI)

Q4 2017 Earnings Call· Fri, Mar 9, 2018

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Transcript

Operator

Operator

Hello, ladies and gentlemen. Thank you for standing by for UTStarcom’s Fourth Quarter and Full-Year 2017 Earnings Conference Call. Please note that we are recording today’s conference call. I will now turn over the call to Mr. Ralph Fong, Director of The Blueshirt Group Asia. Please go ahead, Mr. Fong.

Ralph Fong

Management

Thank you, Aaron, and hello everyone. Thank you for joining us on UTStarcom’s fourth quarter and full-year 2017 earnings call. Earlier today, we distributed our earnings press release. You can find a copy on our website at www.utstar.com. In addition, we have posted a slideshow presentation on our website, which you can download and use to follow along with today’s call. On today’s call, we have Mr. Tim Ti, Chief Executive Officer; and Mr. Eric Lam, Vice President of Finance. Before we get started, let me refer you to the Company’s Safe Harbor statement on slide two. This call will include forward-looking statements relating to the Company’s business and strategic initiatives. Those statements are forward-looking in nature and are subject to risks and uncertainties that may cause actual results to differ materially and adversely from the Company’s current expectations. The risks and uncertainties include factors identified in the Company’s latest annual report on Form 20-F and the current report on Form 6-K, which are filed with the Securities and Exchange Commission. All forward-looking statements including this call are based on information available to the Company as of the date of this call. That information may change, if so, the Company assumes no obligation to update any forward-looking statement. With that, I will now hand the call over to UTStarcom’s CEO, Mr. Tim Ti. Tim?

Tim Ti

Management

Thank you, Ralph. And thank you everyone for joining our call today. We appreciate your interest in UTStarcom. As Ralph mentioned, you can download the call presentation from the Investors section of our website. Please note that unless otherwise stated, all figures mentioned during this call are in U.S. dollars. I’ll begin our call with the summary of our highlights and then I’ll discuss opportunities for the Company’s long-term growth. After that I’ll turn the call over to our VP of Finance Eric Lam, who will present the financial details. Now, let me quickly recap our results on slide three. 2017 was an exciting year for us. This is the second consecutive year we generated operating profit. Full-year revenue grew double digits, gross margin expanded, and the net income was up substantially. We exceeded our financial goals and continue to invest aggressively in R&D to develop and introduce new and improved products to strengthen our comparative position. For Q4, revenue was lower than anticipated due to the timing of order delivery, impacting gross margin and the profitability. While the fourth quarter was below expectation, it does not diminish the success we achieved for the full-year. Technology leadership is the key to winning new business in the markets. Our R&D team is focused on developing new product for the most promising long-term market opportunities. To give you an example, the 10G to 100G transition is on the way in Japan and we’ll soon begin traction elsewhere. We are actively marketing our product in India, Taiwan and Brazil, and are making good progress. We are exploring new business opportunities globally. Broadband expansion in the rural area of the U.S. is promising opportunity for us. Furthermore, we are researching the opportunities in the optical networking market in China and may reenter if we…

Eric Lam

Management

Thank you, Tim. And thank you everyone for joining the call today. I will talk to our financial performance for the fourth quarter and full-year 2017. Please turn to page six for a non-GAAP revenue review. Please note that non-GAAP revenue excludes IPTV revenues. Full-year 2017 non-GAAP revenue was $98 million, up 14% from prior year. The increase was in line with our strategy to focus on high-value and high-margin products. In the fourth quarter, total non-GAAP revenue was $18 million which compares to $28 million in the same quarter last year. By geography, we saw strength in India, which accounted for approximately 62% of revenue, up 31% in Q3, Japan about 27%, down 60% from Q3; and the rest of the world, the remaining 10%. Please turn to page seven and eight, which highlight gross profit and gross margin. Please note that non-GAAP costs sales and operating expenses excluded stock-based compensation and legacy IPTV costs. Full-year 2017 non-GAAP gross profit was $33 million, up $28 million from last year. Non-GAAP gross margin for full-year 2017 was 34%, up slightly from 33% in 2016. For the fourth quarter, non-GAAP gross profit was $5 million, down from $10 million a year ago. Non-GAAP gross margin fell to 25% from 37% in the same period last year. Now, the delivery timing that Tim mentioned earlier when discussing revenue, impacted the gross margin due to product mix change. Now, let’s turn our attention to operating expenses on page nine. Full-year non-GAAP operating expenses were $26 million, up 6% from $24 million in 2016. The increase in operating expenses reflects our continuing R&D investment and one-time service fees related to the privatization offer and auditor change in 2017. In the fourth quarter, non-GAAP operating expenses were $6 million, essentially flat from a year-ago. Page…

Tim Ti

Operator

Thank you, Eric. We are confident our technology, product solution and geographic coverage provide a foundation for solid future. We are seeing strength in India. We have introduced important new products especially SyncRing and see other opportunities developing such as in retail store automation. Our operating achievements in 2017 positioned us well for future growth. We have a dedicated talented team in place to deliver long-term value to our shareholders. With that, Eric and I would like to take your questions. Operator, please open the lines for Q&A.

Operator

Operator

Ralph Fong

Management

Thank you, Aaron. That will conclude today’s conference call. And thank you for your participation. You may all disconnect.