Montage Technology Group's (MONT) CEO Chong He Yang On Q1 2014 Results - Earnings Call Transcript

May. 6.14 | About: Montage Technology (MONT)

Montage Technology Group Ltd (NASDAQ:MONT)

Q1 2014 Earnings Conference Call

May 6, 2014 8:00 AM ET

Executives

Leanne K. Sievers – Executive Vice President of Shelton Group

Chong He Yang – Chairman & Chief Executive Officer

Stephen Tai – President & Director

Mark Voll – Chief Financial Officer

Analysts

Sachin Shah – Albert Fried

Matt Diamond – Deutsche Bank Securities, Inc.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

David M. Wong – Wells Fargo Securities LLC

Suji De Silva – Topeka Capital Markets

Jay Srivatsa – Chardan Capital Markets LLC

Krishna Shankar – ROTH Capital Partners LLC

Quinn Bolton – Needham & Company

Operator

Good morning, and welcome to Montage Technology’s First Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only-mode. At the conclusion of today’s conference call instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference call is being recorded today, Tuesday, May 6, 2014.

I would now like to turn the call to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Leanne Sievers

Good morning, and welcome to Montage Technology’s first quarter 2014 earnings conference call. I’m Leanne Sievers, Executive Vice President of Shelton Group, Montage’s Investor Relations firm.

With us today are Montage’s Chairman and CEO, Howard Yang; President, Stephen Tai; and Chief Financial Officer, Mark Voll.

Before I turn the call over to Mr. Voll, I would like to remind our listeners that during the course of this conference call the Company may provide financial guidance, projections, comments and other forward-looking statements regarding future market developments, market share gains, the future financial performance of the Company, new products, current or future plans or other matters.

We want to caution you that actual reults and events or results may differ materially. We refer you to the documents Montage files from time-to-time with the SEC, including our most recent Registration Statements filed on January 30, 2014. These documents contain and identify important factors that could cause our actual future results to differ materially from those contained in our financial guidance, projections, comments or other forward-looking statements.

In addition, any projections as to the company’s future performance represent management’s estimates as of today, May 6th, 2014. Montage assumes no obligation to update these projections in the future as market conditions may change. Also, the Company’s press release and management statements during this conference call will include discussions of certain non-GAAP measures and financial information. These financial measures and a reconciliation of GAAP to non-GAAP results are provided in the Company’s press release and related current report on Form 8-K, which can be found at the Investor Relations section of Montage’s website at www.montage-tech.com.

For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 30 days in the Investor Relations section of Montage’s website.

And now, I’ll turn the call over to Montage’s CFO, Mark Voll. Mark, please go ahead.

Mark Voll

Thank you, Leanne, and good morning everyone. Let me begin the call today with a review of our financial results for the first quarter of 2014. I’m very pleased to report revenue for the fourth quarter was $35.6 million, exceeding our original guidance of $29 million to $32 million and compared to $35.4 million in the fourth quarter and $20.1 million in the first quarter of 2013.

Set-top box revenue consisted of $26.8 million or 75.3% of revenue representing 11.4% decline from the prior quarter, which was better than typical season decline of 15% to 20%, and an increase of 45.8% compared to the first quarter of 2013. Memory and interface revenue was $8.8 million or 24.7% of total revenue and increase of 68.8%, sequentially, and more than a four-fold increase compared to the same period year ago.

Gross profit in the first quarter was $22.7 million, or 63.9% of revenue, exceeding our original guidance of 60% to 62%, due to the higher than expected revenue growth of our memory interface products, an increase in the percentage of sales from integrated set-top box solution. This compares to $22.1 million or 62.4% of revenue in the prior quarter and $12.3 million or 61.3% in the prior year quarter.

In terms of our operating expenses for the first quarter, total operating expenses were $14.8 million or 41.5% of revenue compared to $13.3 million or 37.4% of revenue in the prior quarter and $8.8 million or 43.8% of revenue in the first quarter of 2013. Operating expenses in the first quarter included $2.6 million in expenses related to the audit committee's independent review process and $600,000 in cost related to the company’s follow-on offering.

Our first quarter guidance for operating expenses assumed approximately $250,000, in cost reimbursements under a set of government-funded technology, development project, which would be an offset to our first quarter operating expenses. We did not receive the $250,000 of reimbursements in the first quarter we also do not expect to receive any reimbursement funds in the second quarter. Instead, we expect to receive approximately $2.5 million and reimbursement funds in the third quarter of 2014.

Total non-GAAP operating expenses, which excludes stock-based compensation and amortization expenses, were $13.2 million or 37.2% of revenue compared to $11.7 million or 33.1% of revenue in the prior quarter and $8.2 or 40.6% of revenue in the first quarter of 2013.

Looking at operating expenses in more detail, our research and development expenses for the first quarter were $6.8 million or 19.2% of revenue, compared to $8.5 million or 24.1% of revenue in the prior quarter and $5.7 million or 28.4% of revenue in the first quarter of 2013.

R&D decreased sequentially, primarily due to lower tape out expenses, which were $400,000 in the first quarter, compared to $1.9 million in the fourth quarter of 2013. Selling, general and administrative expenses were $7.9 million, compared to $4.7 million in the prior quarter, and $3.1 million in the prior year quarter. As a percent of revenue, SG&A represented 22.3% in the first quarter, compared to 13.3% in the prior quarter, and 15.4% in the fourth quarter of 2013.

The entire increase in SG&A expense reflects the costs associated with the Company's follow-on public offering, and the audit committee's internal review process, which totaled $3.2 million. Income from operations was $8 million or 22.4% of revenue. This compares to $8.9 million, or 25.1% of revenue in the prior quarter, and $3.5 million or 17.5% of revenue in the prior year quarter.

Excluding stock-based compensation and amortization, our non-GAAP operating income was $9.5 million, or 26.8% of revenue. Adjusting for the one-time charge, that would include the audit committee's independent review and the follow-on offering costs, non-GAAP operating income would be $12.8 million or 35.9% of revenue.

Turning to income taxes, our effective income tax rate for the first quarter was 7%, compared to 3% in the prior quarter. We anticipate an effective tax rate ranging between 6% and 10% for 2014. Our first quarter net income was $7.8 million, or $0.27 per diluted share, compared to the prior quarter net income of $8.9 million, or $0.31 per diluted share, and $3.3 million, or $0.04 per diluted share in the first quarter of 2013.

Excluding $1.3 million of stock-based compensation and $200,000 of amortization of assembled work for us, our non-GAAP net income in the quarter was $9.4 million, or $0.32 per diluted share, compared to the prior quarter net income of $10.4 million, or $0.37 per diluted share, and $3.9 million, or $0.11 per diluted share in the first quarter of 2013.

Earnings per share were calculated using $29.2 million, full-diluted shares in the first quarter of 2014, 28 million shares in the prior quarter, and 6.6 million shares in the first quarter of 2013.

Turning to the balance sheet, as of March 31, 2014 our cash, cash equivalents and short-term investments were up $133.4 million, compared to $107.7 million at the close of the fourth quarter. The increase in cash includes $19.8 million in net proceeds from our follow-on offering.

In addition, cash flow from operations was $6.2 million compared to $4.6 million in the prior quarter, the decrease reflected and decline in net income from the prior quarter. Also of note, we have been in the process of transferring our parent company's excess cash balances to two cash managers picked by the Company. The Company picked Morgan Stanley in Hong Kong to be the one of the Company's designated cash managers. We have successfully completed the compliance process and transferred $50 million to Morgan Stanley.

Accounts receivable of $11.5 million, represents 29 days sales outstanding, which compares to $12.1 million and 31 days sales outstanding at the end of the prior quarter. Inventory of $14.6 million represents 4.6 times, as compared to $13.4 million or 4 times in the prior quarter. Inventory increased in the first quarter, primarily due to the increase in LRDIMM inventory to support higher sales volume.

Let me now present our guidance for the second quarter of 2014. Revenue is expected to be in the range of $36 million to $40 million, gross margin expected to be in the range of 59% to 61%. A Non-GAAP operating expense which excludes non-cash charges are expected to be in the range of $10.75 million to $11.75 million. Operating expenses assume one-time legal and accounting charges of $900,000 it also implies tape out costs in the quarter of $900,000.

Before, I turn the call over to Steve; I would like to make one comment regarding the audit committee's review process regarding the allegations made against our Company, and the resulting delay of our 10-K filing. We recently announced that the audit committee, with the assistance of the law firm, Jones Day, as well as forensic accountants from FTI Consulting, has reported on the results of the review conducted to date, representing more than 6000 hours of work by these outside advisors to the audit committee.

These hours were spent reviewing and checking thousands of records and transactions, interviewing Montage customers and suppliers, and closely reviewing customer records. This process was in addition to the already-completed extensive due diligence as part of our IPO process, and the rigorous public company audit work conducted in accordance with the requirements of any SEC filing company.

Based on the investigative procedure performed and the information gathered during the current independent review process, the audit committee does not anticipate any changes to our previously-reported revenue, gross margin, and cash balances for the years 2011, 2012 and 2013. The review also found no conclusive evidence that the Company owns or otherwise has an appropriate relationship with our largest distributor, LQW, or the entity referred to as SMMT in the short seller report. In other words, the allegations made by this short seller are without merit. We appreciate all of our shareholders who have supported us in this process.

The audit committee in consultation with its outside legal and accounting advisors and the Company's independent auditors is evaluating what additional review procedures are necessary or appropriate for the audit committee's review of the allegations in order to be able to file the Company’s Form 10-K for the year ending December 13, 2013 and regain compliance with and maintain our NASDAQ listing.

I would now like to turn the call over to Steve, who will now provide an overview of our set-top box solutions, the home entertainment market followed by Howard, who will discuss our memory interface solutions for the cloud computing market.

Steve, please go ahead.

Stephen Tai

Thank you Mark. As Mark highlighted, our set-top box revenue declined sequentially, due to the Chinese New Year holiday, but, remained above typical first-quarter seasonality. Our better than typical seasonal results reflect an overall increase in market demand, in part, due to upcoming summer sports events such as World Cup. We are also seeing this trend expanding to the second quarter, as we continue to differentiate our products in terms of performance, price and engineering support in the emerging markets that we serve.

Standard definition satellite was again the majority of our set-top box revenue in the quarter. We believe standard definition satellite will remain a strong growth opportunity for Montage, as we continue to take shares in this expanding market. Additionally, almost 85% of our set-top box revenue was generated from our integrated SoC solutions. As Mark discussed, this partially accounts for our gross margin improvement in the quarter.

These SoC solutions contain the entire set-top box ASIC functions including IF tuners, mix demodulators, and audio and video decoders as a total solution with both hardware and software, these highly integrated chips generate higher ASP than our standalone solutions. We are also working to expand our opportunities in the high-definition market.

We expect the percentage of revenue from high-definition products to increase more significantly toward the end of this year, and into 2015, as the market transition accelerates. We have made good progress with our high definition satellite decoder products released last year, and are in the design win phase, with customers on our HD satellite-associated solutions that we released earlier this year.

While the transition to HD in emerging markets is still in its early stage, we believe that we are well-positioned to benefit from this market opportunity. Also, in an effort to expand our total addressable market opportunities, we have released new products for the cable and traditional markets, with both SD and HD solutions.

Our standard definition cable solutions released last year are tracking well, and we expect to gain more market share this year. The cable market also represents a growth opportunity for Montage, due in part to the mandate transition from analog to digital cable in China.

In addition to our standard definition product, we also have engineering samples available for our high-definition SoCs for the cable market and expect to release this integrated solution late in 2014.

With our expanded product portfolio across satellite, cable, and terrestrial applications, Montage is well-positioned to grow our revenue across all three transmission mediums, as well as increase our market share for both standard definition and high definition solutions.

I would now like to turn the call over to Howard to address our memory interface results and outlook.

Chong He Yang

Thank you, Steve. Revenue from our memory interface products increased 69% sequentially, following 86% the growth last quarter. The significant growth and demand for our RDIMM products reflects the rapid adoption of Intel's high-performance Ivy Bridge platform. Revenue from RDIMM products, once again, represented more than 80% of our memory interface revenue.

Overall the major OEMs have now launched their next-generation servers, based on the Ivy Bridge platform. We continue to gain an increasing share of this market, primarily as a result of our superior performance and the lower power consumption, compared to competing solutions. While the majority of the current market is based on DDR3 technology platforms, we are making a significant stride to establish a leading position in next-generation DDR4 memory solutions.

In the first quarter, revenue from our DDR4 products represented more than $700,000 in revenue. We recently announced production release of our fully qualified DDR4 RDIMM and LRDIMM platforms for Intel's next-generation Xeon ES-2600 V3 product family at the Intel developer forum in China.

Montage's DDR4 chip set offers the highest performance and the lowest power in its class. Both the Registering Clock Driver and the Data Buffer have been extensively tested by both Intel and our DRAM partners at the system levels, including memory stress test and temperature and reset power cycling, in a variety of our end customer server platforms.

In addition to this significant milestone, we are close and also well-positioned with our RDIMM solutions for DDR4 with the launch of Intel's next-generation Haswell platform. RDIMM technology is well-suited for the Haswell platform, and has the potential to be another strong growth driver for Montage in the future. As this platform is launched, as the first company to make with DDR4 solutions, we have design wins at all three of the major DRAM suppliers, and are working closely with leading server OEMs worldwide, to further strengthen our market position.

Before I open the call to questions, I would like to update you on our Board's continuing review and evaluation of the unsolicited preliminary non-binding proposal made by Shanghai Pudong Science and Technology Investment Co., Ltd. as well as other strategic alternatives.

No decision has been made with respect to the Company's response to this proposal, or other strategic alternatives. There is no assurance that any definitive agreement will be executed on these or other terms, or at all, or that this or any other transactions will be approved by the Board or consummated.

There is no timetable for the review, and the Board does not intend to undertake any obligation to provide any comment on, or update, with respect to the evaluation of strategic alternatives. Except, if a specific transaction is recommended by the Board, if the process is concluded, or as required under applicable law.

That concludes my prepared remarks. Operator, you may now open the call for the questions.

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Your question comes from the line of Sachin Shah from Albert Fried. Please ask the question.

Sachin Shah – Albert Fried

Hi, good morning. So, I just wanted to understand, the investigation on these allegations on the short seller and the financials, are complete. That's the first question. The second question is, the reason why you can't comment on the strategic alternatives process, including the offer for the 2150, is because you have to wait to file your financials, including the 10-K?

Mark Voll

No, the answer for the last question first, we are in the process. And in the process, we're under NDAs with parties involved. As a result, we just can't disclose any information until the Board has determined a path to take, as far as that process is concerned. Regarding your first question, as we said in the process during our prepared remarks, while we've concluded the initial part of the investigation, we are doing the follow-up work now on some outstanding issues, so, the audit committee is reviewing that with outside legal and accounting advisors. We hope soon to be, conclude that process and, hopefully, file our K and get back into compliance.

Operator

Thank you for your questions. Your next question comes from the line if Ross Seymore from Deutsche Bank. Please ask your question.

Matt Diamond – Deutsche Bank Securities, Inc.

Hey guys. This is actually Matt Diamond calling on behalf of Ross. Good quarter here and just a couple questions from my side. One, if you could address the segment guide between the set-top box solutions and the memory interface for the second quarter. If we could just get some granularly there, that would be greatly appreciated. I have a follow-on, as well.

Mark Voll

Well, we gave guidance on the total revenue basis. We believe that the set-top box business will bounce back after the seasonality we typically see in Q1. We are a little bit cautious on going forward on memory interface, because we don't want to get too far ahead of ourselves. But, we see a demand and sell through pretty good. So overall, we are quite bullish on the opportunity there.

Matt Diamond – Deutsche Bank Securities, Inc.

Okay and on the gross margin side of the equation, I noticed that it was a little bit below us on the second quarter. If you could comment on why it should be expected to be down sequentially?

Stephen Tai

Yes. Basically, the customer demand is going up and I guess that has some discounts that we pass on to the customers to further ramp our products. So, on the set-top box side there will be – you will see some price erosion at certain key accounts. And I think, on the memory buffer side its still tracking well, so overall the margin is still within our corporate range also on the higher side.

Matt Diamond – Deutsche Bank Securities, Inc.

Okay. Great. Forgive me, one last one on the OpEx side of the equation. It was mentioned that the legal costs are going down to about $900,000 in the second quarter. When should these one timers disappear entirely? Is there any time frame for when those costs just go away?

Mark Voll

We hope real soon, but you know we will see those costs in the second quarter, hopefully we can conclude our internal review and that will be the last of it. So, although I would mention, there is litigation and that's out there, and so we would expect that unfortunately we may have some litigation costs as we go into the second half of the year.

Matt Diamond – Deutsche Bank Securities, Inc.

Okay. Thanks so much.

Operator

Thank you for your questions. Your next question comes from the line if Tore Svanberg from Stifel Nicolaus. Please ask your question.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Yes, thank you, good quarter. I was hoping you could talk, first, about your relative visibility in Q2, either by backlog or current order rates. And especially on the memory interface side, because it does look like you are being more conservative there. So if you could just talk about visibility, that would be great.

Mark Voll

Well, I mean we are getting forecasts from our customers. We do have some backlog. I think that we are just a little concern, a little bit conservative from the standpoint that this is a new market. We don't want to see an inventory buildup. We want to make sure that the product where selling for customers selling through to the end customer. And so as a result, I would say we're are being somewhat conservative there. I think in the set-top box market the visibility is pretty good. Q1 was stronger than we anticipated we continue to see strong growth in that market and we believe that will continue to do well in gain market share.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Very good, and can you comment on any more than 10% customers in the quarter? I mean, I assume LQW remains above 10%. But any other 10% customers in the quarter?

Mark Voll

So we actually had four 10% end customers. So we had two in the set-up box, one at 18%, one at 10% we had two in memory interface one at 11%, one at 10%.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

That's very helpful. And then the last question is on the R&D reimbursement they were expecting in Q3. What's your visibility on that? It seems to be a number that's shifting around a lot? So is that set in stone for Q3? Or could there be further push outs?

Mark Voll

We believe that is a good forecast, with the entire process, we submit our paperwork to the government and it’s subject to the review. It's whenever you get into the queue and get reviewed; there is always follow-ons for additional information. So we believe that is a pretty conservative forecast for us and we think its pretty reasonable estimate now that we have additional information that we didn’t have in the prior quarter.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Okay. And actually, I did have one last one, Mark. So my understanding is that you do expect to be able to file your 10-K in Q2?

Mark Voll

We are very hopeful of doing that. We have some outstanding issues that, or some additional information that wasn't part of the additional of the initial process. We are following through to get some additional information and support. We believe that we can do that pretty rapidly. Yes, we'd love to be able to file our K, and we are working to do so as rapidly as we can.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Sounds good. Good quarter guys. Thank you.

Mark Voll

Thank you.

Stephen Tai

Thank you.

Operator

Thank you for your question. You next question comes from the line of David Wong from Wells Fargo. Please ask your question.

David M. Wong – Wells Fargo Securities LLC

All right. Thanks very much, a few clarifications of things that you said. The OpEx, Mark, if I understand correctly, is at $10.75 million to $11.75 million for the June quarter. These are GAAP estimates? Or are these pro forma with expenses backed out?

Mark Voll

Yes, those exclude non-cash charges.

David M. Wong – Wells Fargo Securities LLC

Can you give us a number for GAAP OpEx expenses expected?

Mark Voll

I don't have those. I don't anticipate any additional changes from the prior quarter. So, last quarter we were $1.3 million in stock-based comp and $200,000 in amortization. So, I would assume that we would be at that same level.

David M. Wong – Wells Fargo Securities LLC

Okay. That's fine. Now, again, just to be sure I understand the words. DDR4, have you already received certification from Intel on your product with Intel?

Mark Voll

Yes. In fact, we announced – Howard announced that we had generated more than $700,000 in revenue in Q1 from DDR4 products.

David M. Wong – Wells Fargo Securities LLC

So that includes certification with Intel as well as qualification with three of your major vendors, is that right?

Mark Voll

That’s correct.

Chong He Yang

Yes.

David M. Wong – Wells Fargo Securities LLC

To your knowledge, has any other vendor received full certification with Intel and qualification with major DRAM makers on DDR4 products?

Chong He Yang

Since the Intel official listing is not published, we cannot comment on that. So, we do expect there is a second vendor is qualified.

David M. Wong – Wells Fargo Securities LLC

Okay. Now, you noted $700,000 in DDR4-related revenues in 1Q. Do you have any estimate for what that will be – DDR4 revenues will be in 2Q and 3Q this year?

Mark Voll

We believe that would be increasing, we are just uncertain to the amount of the increased. As we previously announced, in Q4 we had $500,000 revenues from DDR4.

David M. Wong – Wells Fargo Securities LLC

Right. Now, in terms of acquisition offers, you noted that you have the non-binding offer from Shanghai Pudong. Do you have any a firm offers either from Shanghai Pudong or from anybody else currently in hand?

Mark Voll

We can't discuss that. Again, we are in a process, there's other parties involved, we're under NDAs so we really can’t make any kind of comment on that.

David M. Wong – Wells Fargo Securities LLC

Okay. If I understand what you just said, in addition to Shanghai Pudong, there's at least one other or more than one other party who had made an expression of interest that you consider to be at least credible, is that correct?

Mark Voll

Yes, I just – we just can't comment on that, at this moment in time. Again, we are under NDA with parties, and I have to leave it at that.

David M. Wong – Wells Fargo Securities LLC

That's fine. And my final one, in terms of your set-top box revenue, can you give us a rough percent that is the satellite versus cable versus terrestrial today? Or, well say in 1Q? And what do you expect this to be by the end of this year?

Mark Voll

Can you repeat your question again? Percentage off…

David M. Wong – Wells Fargo Securities LLC

Of your set-top box revenue? What percent is satellite, what percent of cable, what percent of terrestrial? The 1Q just reported and what might this change to by the end of this year?

Mark Voll

We don't break like that we only break total solution SoC versus the finance standalone products, so the total solution SoC products account for 85% of the revenue in Q1, of set-top box. But, we do expect the growth in cable will continue growing this year on a total percentage of the revenue.

David M. Wong – Wells Fargo Securities LLC

Okay. Great. Thanks very much.

Mark Voll

Thank you, Dave.

Operator

Thank you for you question. Your next question comes from the line of Suji De Silva from Topeka. Please ask your question,

Suji De Silva – Topeka Capital Markets

A couple questions on how the preliminary rest of the year plays out. In terms of memory interfaces, do you expect the new platform that is going to ramp up here in the second half of the year; is that part of what's driving the conservatism in the second quarter?

Mark Voll

No, I think our conservatism on the second quarter is that DDR3 and Ivy Bridge are starting to ramp, now. We just want to make sure that the product that we are selling to our customers is selling through, and there is not an inventory build in the channel.

Suji De Silva – Topeka Capital Markets

Okay. As far as you can tell, is the next-generation Intel platform on track for the second half of this year? And when would you see orders for that platform? Would it be three months ahead, or timeframe-wise?

Mark Voll

Yes, we can’t comment on Intel really, so I think you will have to look at the data and the information coming from Intel.

Suji De Silva – Topeka Capital Markets

Okay. Fair enough. On the set-top box side, a similar question around the World Cup. Is there an order build up here that you think would be followed by some sort of pause as the channel fills in there? Or would the demand remain steady through the actual World Cup for the summer?

Stephen Tai

I think it just is increasing demand during this summer sports event. So, I don't believe it’s a channel buildup; it's basically an increasing end demand and the end market.

Suji De Silva – Topeka Capital Markets

Very helpful. Last question. Are you seeing any competition from the major set-top box vendors in developed markets, Broadcom, are part of the pricing pressure you are seeing? Or are they succeeding in any particular part of the China market? Or, are you not seeing them? Thank you.

Stephen Tai

Not at this moment. Thank you.

Suji De Silva – Topeka Capital Markets

Not at the moment. Okay. Great, thanks.

Operator

Thank you for your questions. Your next question comes from the line of Jay Srivatsa from Chardan Capital Markets. Please ask your question.

Jay Srivatsa – Chardan Capital Markets LLC

Yes, thanks for taking the questions. Back on the set-top box, Howard, you mentioned price pressure. Could you expand on that? Where are you seeing the price pressures from the local vendors? Or, is that from the box manufacturers themselves? Anything you can expand on that would be appreciated.

Chong He Yang

Mainly its just a demand increase that customer come back and want to have a little bit better pricing, we just basically work with our customers to get ore share.

Jay Srivatsa – Chardan Capital Markets LLC

Okay. Then, on the LRDIMM market, do you have a sense on what the attach rate is now, and what do expect the attach rate to be, as the year progresses?

Chong He Yang

Right now, we look at it's about 5% and we expect that will continue go up throughout the year.

Jay Srivatsa – Chardan Capital Markets LLC

Okay. Mark in terms of the OpEx, it looks like in the first quarter you had a little bit of hit from the legal expenses. What is your expectation on that segment, as you look at the OpEx for the rest of the year?

Mark Voll

Well we mentioned on the guidance that we thought that we have about $900,000 in legal and accounting fees related to the continuing review. Beyond for the rest of the year it’s uncertain at this time, hopefully we conclude the independent review and we know have a further expenses in the second half for the year. Although we will have some expenses related to the litigation that's out there. So, we will have that to deal with in the second half for the year, but its too early right now to even comment or give any guidance and what kind of impact that would be.

Jay Srivatsa – Chardan Capital Markets LLC

Okay, last question. Howard, given all the stuff that's happened with the short seller report, what are some of the structural changes you've made in the Company, relative to your own distributor model and/or the way you engage with your customers going forward?

Chong He Yang

Right now, we don’t have any plans, but anything going forward, I think once we pass the current stage and move on to a new fiscal year, probably we will review our distribution structure and see what we need to do. Yes.

Jay Srivatsa – Chardan Capital Markets LLC

Okay, maybe one more follow-up. In terms of the offer that's on the table, what's the timeline, here? Do you have to accept or decline the offer within a certain period of time? And/or, if you have other competing offers, is there like a timeline by which you have to respond and complete the acceptance or the rejection?

Mark Voll

There is no current timeline in place.

Jay Srivatsa – Chardan Capital Markets LLC

Thank you.

Mark Voll

Okay.

Operator

Thank you for your questions. Your next question comes from the line of Krishna Shankar from ROTH Capital. Please ask your question. Please ask your question.

Krishna Shankar – ROTH Capital Partners LLC

Yes, I was asking, what portion of your revenues are consumed in international markets outside China, versus domestic markets? With the set-top box and the memory box on market?

Mark Voll

Well, I would tell you for the set-up box market; if we are looking at end markets we assume that two-thirds of it is being shift end customers outside of China. In the memory interface that predominantly most of the revenue that we recognize is outside of China.

Krishna Shankar – ROTH Capital Partners LLC

Okay. And then, do you anticipate a period of coexistence between the DDR3 and DDR4 memory buffer margins? Or do you anticipate a rapid conversion in the second half of this year. Can you give us some sense on the timeline for conversion?

Chong He Yang

We expect, this year, predominantly other revenue will be from DDR3, even as the industry DDR3 will be the predominant revenue.

Krishna Shankar – ROTH Capital Partners LLC

Okay, thank you.

Chong He Yang

Yes.

Operator

Thank you for your question. Your next question comes from the line of Quinn Bolton from Needham & Co. Please ask your question.

Quinn Bolton – Needham & Co. LLC

Good evening gentlemen. Just a couple of quick questions. First, for Mark, you've got a compliance review going on at NASDAQ, that I think you have to respond by June 2, can you give us an update what happens if you haven't filed the 10-K by that point? June 2, is that a target date, potentially, for trying to file the 10-K and then I’ve got follow-up?

Mark Voll

So, the June 2 date is the date in which we have to submit a plan to NASDAQ. When we anticipate that we would be filing the K.

Quinn Bolton – Needham & Co. LLC

Got it. Okay, and then just on the business side of things, perhaps Howard, can you give us your view of the competitive landscape for DDR4? Particularly on the RDIMM side and DDR3 RDIMM has been just a small percentage of your memory interface. It sounds like you've got a leading position with the RCDs. Can you talk about your position for the RDIMM side of DDR4 as well as any thoughts on the split between RDIMMs and LRDIMMs for DDR4 going forward? Thank you.

Chong He Yang

Being the first one to qualify in DDR4, we expect we will be a key player in the DDR4 market, even in the RDIMM market. So that means a tremendous opportunity for us to gain market share in that market.

Quinn Bolton – Needham & Company

Can you comment? You had mentioned you have design wins for DDR4 across all three vendors. Is that for both RDIMMs and LRDIMMs, or is that just on the LRDIMM equivalents?

Chong He Yang

That’s both RDIMM and LRDIMM.

Quinn Bolton – Needham & Company

Okay. Great. Thank you.

Chong He Yang

Thank you.

Operator

Thank you for your question. Your next question is a follow up question from the line of David Wong from Wells Fargo. Please ask you question.

David M. Wong – Wells Fargo Securities LLC

Thank you very much. What's your ASP for DDR3 larger module at the moment? What about DDR4 on LRDIMM and RDIMM? What do you expect DDR4 ASPs will be in volume when you get to the end of this year?

Stephen Tai

For DDR3, the pricing has been pretty stable, is what we mentioned in the past. For DDR4, I think our pricing is pretty competitive. And right now, it's too early to say, because it depends on when and how large the volume will ramp up in the next year or so.

David M. Wong – Wells Fargo Securities LLC

Right. Thanks.

Chong He Yang

Thank you, David.

Operator

Thank you for your question. There are no further questions at this time. I would now like to hand the conference back to Mr. Mark Voll.

Mark Voll

One final comment, I will be attending the Deutsche Bank Semiconductor one-on-one conference in San Francisco on May 15. If you plan to attend this conference, I would welcome the opportunity to meet with you. I want to thank everyone again for joining us for our call today. We look forward to reporting our continued progress in the next quarter. Operator, you may now disconnect the call.

Operator

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

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Montage Technology Group (MONT): Q1 EPS of $0.32 beats by $0.01. Revenue of $35.6M (+77.3% Y/Y) beats by $0.18M.