Zoom Technologies Q3 2007 Earnings Call Transcript

| About: Zoom Technologies, (ZOOM)

Zoom Technologies (NASDAQ:ZOOM)

Q3 2007 Earnings Call

October 29, 2007 4:00 pm ET

Executives

Frank Manning - President and CEO

Operator

Welcome to the Zoom Technologies third quarter 2007 earningsrelease conference call. Today's conference is being recorded. At this time foropening remarks and introductions, I would like to turn the conference over toZoom Technologies’ President and Chief Executive Officer, Mr. Frank Manning. Pleasego ahead, sir.

Frank Manning

Thank you, Amy. Welcome to the Zoom Technologies conferencecall. First, I'll make remarks that supplement the 3Q07 earnings release madethis afternoon and then we'll turn to questions.

Zoom reported 3Q07 net sales of $5.6 million, up 56% from3Q06. The revenue increase was broad-based. Broadband was the star performer,particularly through high-volume retailers. DSL represented over half ourrevenues for 3Q07, with DSL sales in 3Q07 more than double DSL sales in 3Q06.

Cable modem sales were up dramatically due to Zoom shelfspace at Best Buy, Staples, and other U.S.retailers. Dial-up revenues for 3Q07 were down only 3% from 3Q06 as webenefited from recent placements at retail.

Sales of Zoom's wireless products including Wi-Fi andBluetooth products, also increased. Revenues rose dramatically in our majormarkets from 3Q06 to 3Q07. North American revenues rose $1 million to $3.3million, or 58% of the quarter sales. Revenues outside North Americaalso rose $1 million with particular strength in the UKand Latin America.

In Q2 '07, Zoom began shipping our DSL wireless product toPSG, the UK'slargest computer products retailer. PSG has generated significant sales.

Gross profit was $1.3 million, or 23.2% of net sales in3Q07, up from $0.2 million or 6.7% in 3Q06. The better gross margin percentagefor 3Q07 was primarily due to three factors:

First, fixed costs were lower due to the move of Zoom'sNorth American assembly, test, warehousing and shipping facility from Bostonto Tijuana during the third quarterof 2006.

Second, revenues rose so fixed costs were a lower percentageof revenues.

Third, new designs lowered the purchase price of certaindial-up and DSL products.

Manufacturing and freight costs remain a concern and anopportunity for improvement. These costs totaled $270,000 in 3Q07, up 32% from3Q06.

Operating expenses were $2 million or 36.4% of net sales in3Q07 compared to $2.0 million or 55.7% of net sales in 3Q06. Variable sellingexpenses, particularly for freight, warehousing and sales commissions, went upin 3Q07 due to higher revenues. These increases were offset by reductions inG&A and R&D expenses, primarily due to lower personnel costs.

Zoom's cash balance on September 30, 2007 was $3.7 million, down $2.1 millionfrom the start of the quarter. This change was primarily due to Zoom'spreviously reported investment in Unity, which was $1.2 million countingtransaction costs, and Zoom's $0.6 million loss in 3Q07.

Zoom's current ratio was a strong 3.6 on September 30, 2007 with workingcapital of $8.6 million. Shareholder equity was $9.85 million, over $1 pershare. Zoom has no long-term debt.

Now I will summarize some of our product initiatives.

(1) We continue to drive down the cost of goods for most ofour DSL modems. About 90% of our X6 shipments benefited from cost reduction in3Q07. Our X3, X4 and X5 shipments will start to benefit from cost reduction in4Q07.

(2) We want to bring our DSL in the Fastlane features to theX5 ADSL modem. We already have the QoS Fastlane feature in our X6 Wireless-GDSL modem, and people like this feature because it improves VoIP phone calls,gaming, and other important applications.

(3) We are designing a line of products, the highest end ofwhich includes DSL, wireless networking, a four-port router, and VoIP. A numberof customers are asking for products in this product line and we hope to beshipping in volume in March or April of 2008.

(4) We are experiencing strong demand for our recentlyintroduced dial-up modem, which is a USB mini-modem.

(5) We have started shipping our first product for Skype,and we have received a significant retailer commitment for shipments in thefirst half of 2008.

(6) We are shipping new Bluetooth products for the iPod and formobile phones. Production delays have slowed the rollout of this product linebut we are seeing reasonable demand in spite of that.

(7) We continue to work on innovative products and we willdiscuss some new ones as we get closer to shipping them.

Turning to other matters, you may recall that in our lastconference call we discussed the investment Zoom made in Unity BusinessNetworks, a leading hosted business VoIP service provider. I am a member ofUnity's board now and I am pleased with the progress at Unity.

In summary, Zoom continues to work hard to make its basebusiness successful. We are also actively seeking synergistic businesses thatpromote Zoom's success.

Before we turn to questions, I need to remind you that Icannot predict the future, and any forward-looking statements are subject touncertainty and risks as detailed in Zoom's press releases and filings with theSEC.

Now let's turn to questions.

Question-and-AnswerSession

Operator

(Operator Instructions) At this time, it looks like we haveno questions in the queue.

Frank Manning

Thank you, everybody for joining. Goodbye.

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