Earnings Labs

UTStarcom Holdings Corp. (UTSI)

Q3 2018 Earnings Call· Sun, Nov 11, 2018

$2.50

+6.38%

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Transcript

Operator

Operator

Hello, ladies and gentlemen, thank you for standing by for UTStarcom's Third Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note that we are recording today's conference call, Friday, the 9th of November 2018. I'll now turn the call over to Mr. Gary Dvorchak, Managing Director of The Blueshirt Group Asia. Please go ahead, Mr. Dvorchak.

Gary Dvorchak

Analyst

Thank you, Amy. Hello, everyone, and welcome to UTStarcom's Third Quarter 2018 Earnings Conference Call. Earlier today, we distributed our earnings press release. You can find a copy of on our website at www.utstar.com. In addition, we have posted a presentation on our website, we 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 Page 2. 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 reports on Form 6-K filed with the Securities and Exchange Commission. All forward-looking statements included in 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 such forward-looking statements. Also please note that, unless otherwise stated, all figures mentioned during this call are in U.S. dollars. I will now hand the call over to UTStarcom's CEO, Mr. Tim Ti. Tim?

Tim Ti

Analyst

Thank you, Gary, and thank you, everyone, for joining our call today. We appreciate your interest in UTStarcom. As Gary mentioned, you can download the presentation on the Investors section of our website. Now let me quickly recap our results on Page 3. Our outstanding top line results demonstrate our ability to establish and to monetize strong new customer relationship. Revenue of $52 million doubled from a year ago, primarily driven by fulfillment of a large order for a big project at our top customer in India. Although our revenue would be uneven from quarter to quarter, over the long term, we are highly confident in our ability to serve the vast needs of new customers around the globe. The quarter's gross profit grew 32% from the last quarter due to the higher revenue from India. We also effectively controlled our operating expense, which decreased 23% from a year ago. This results in operating income of $4.1 million, up by 1/3 versus last year. Eric will go over the details of our financial results shortly. Please turn to Page 4. Innovation is the core competency that drives our business. We remain committed to technology leadership through investing in R&D. We have increased that investment by hiring additional engineering talent continuously over the last 12 to 15 months. Our engineers are dedicated to developing new products and technologies to capture future market opportunities. One such opportunity is the global transition to 5G wireless networks. 5G requires significant change to network architecture, which will result in compelling benefits such as greater network capacity, spectrum efficiency and higher data throughput. As the network operators around the globe prepare for commercial rollout of 5G, we are seeing a stepped up level of activity. Our growing product lineup ensures that we are well positioned to…

Eric Lam

Analyst

Thank you, Tim, and thank you, everyone, for joining the call today. As I review our financial performance, please keep in mind that all figures will refer to the third quarter of 2018, unless I say otherwise, also all comparisons with the same period last year unless I specify differently. Please turn to page 11 for our financial review. Now as Tim mentioned, revenue was $52 million, doubling from the same period last year. Q3 revenue also exceeded our guidance range, reflecting the substantial revenue growth from India. Please turn to page 12 which highlights gross profit and gross margin. Gross profit was nearly $10 million compared to $7.5 million in Q2. The higher gross profit reflects the growth in India. Gross margin was 19%. Now let's turn our attention to operating expenses on page 13. Operating expenses were less than $6 million compared to $7.5 million in the same quarter last year and $7 million last quarter. More importantly, R&D spending increased by 17% while SG&A expenses declined almost 40%. Now this is a vivid result of, one, our continuing effort to steamline. sorry, to streamline our support functions; and two, our firm commitment to R&D investments. The year-over-year increase in R&D spending largely reflects the steady addition of engineering resources. We achieved $4 million of operating income in the third quarter of 2018, up from $3 million last year and $0.5 million last quarter. I'd like to comment briefly on currency. The India rupee declined significantly and unexpectedly during this quarter, resulting in a large foreign exchange loss. Now despite the unfavorable currency impact, we achieved our highest-quality operating income in 7 years and attained net income of $2 million or $0.06 per share. This compares to net income of $2.2 million or $0.06 per share in the…

Operator

Operator

Thank you. [Operator Instructions] There are no questions at this time, I'd now like to turn the conference back to our presenters. Please continue. Yes, we have a question from Greg Gibas of Northland Securities. Please ask your question now.

Greg Gibas

Analyst

Hi guys. This is Greg on for Tim Savageaux. Thanks for taking the question. First, regarding the major customer in Japan, when should we expect to see a pickup in revenues from them again? Is it kind of being held off in the next several quarters, like you said?

Tim Ti

Analyst

Yes, it's Tim. And yes, the Japan, our major customer, still under POC and the trial for this new technology, due to the coming 2020 Olympics, so all the new networking deployment and job will be actually more controlled by the older projects so that's the reason we also tried to push the POC can we go faster, but there is some delay there. So hopefully, next year, second half, we can get some pretty good number. That's our expectation, yes. Thank you.

Greg Gibas

Analyst

Okay. And then just secondarily, kind of a similar question for the Indian market then. I guess, assuming a sequential decline next quarter, when should we expect strength from the Indian market again?

Tim Ti

Analyst

Yes, as mentioned in my presentation, mainly India is based on a tender basis. So it's a big project is when tenders open floating and then we win the tender then starting to deliver. There's a major project as we mentioned in our presentation. There's a major big project revenue because we finished that on time, delivered our product. So we get a bigger revenue result in Q3. And that will also impact Q4, it will mainly come from the other region. So the next one we still have some project we will deliver in Q1 and Q2, yes, next year. Okay.

Operator

Operator

Thank you. Our next question is from James Bartholomew. Please ask you question.

James Bartholomew

Analyst

Yes, it sounds like more of the same if you average up this quarter with the outlook, there's really not much progress. All these items that are presented, all the projects that allegedly you're involved with, you should be way ahead of where you are now. I don't see any progress -- any meaningful progress at all even though you tried to present one. If you've got $66 million in cash, let me manage it. I don't know why a company this size would have $66 million in cash or equivalents. I'll manage that money and I'll bet I make more money off than you guys are. I'm waiting for your response.

Eric Lam

Analyst

Okay. Well, we do see opportunities, but then we are working very hard on the next generation of technology. And as Tim mentioned before, we believe we are very well positioned for the next generation. However, it does take time because we do have -- we only have a few customers and we have large projects, so it's very difficult to maintain a very steady growth pace. But we are optimistic about our future and our technology, so we are confident that we're going to come ahead in the long run.

Operator

Operator

Thank you. As there are no questions as of this time, I'd like to turn the conference back to our presenters. Please continue.

Tim Ti

Analyst

Okay. Thank you, operator. We remain optimistic about our future. We are very confident of our technical direction and our cutting-edge product and service offering. We believe that we are well positioned to benefit from emerging trends in 5G migration, IoT, end-to-end and more. We look forward to updating you on the business progress in a few months. Thank you.

Operator

Operator

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.