Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

ANADIGICS, Inc. (NASDAQ:ANAD)

Q1 2012 Earnings Conference Call

May 1, 2012 17:00 ET

Executives

Terry Gallagher – Chief Financial Officer

Ron Michels – President and Chief Executive Officer

Analysts

Blaine Carroll

Dale Pfau

Harsh Kumar – Stephens

Operator

Good afternoon. My name is (Olivia) and I will be your conference operator today. At this time, I would like to welcome everyone to the ANADIGICS First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn the call over to Mr. Terry Gallagher, Chief Financial Officer of ANADIGICS. Thank you. Please go ahead sir.

Terry Gallagher – Chief Financial Officer

Thank you, (Olivia). Good afternoon everyone and welcome to ANADIGICS first quarter 2012 conference call. With me today is Ron Michels, our President and Chief Executive Officer.

During the call, we will make forward-looking statements about our business. I must remind you that actual results could differ materially from our projections based on various risk factors, including those described in the press release we issued earlier today, and our reports on Forms 10-K, 10-Q, and other filings with the Securities and Exchange Commission. All numbers during the call will be presented on a non-GAAP basis. Non-GAAP financial measures exclude equity compensation charges and other specifically identified non-routine items. These non-GAAP measures are provided to enhance the understanding of our core operating performance. A full reconciliation of these non-GAAP measures to our GAAP results was presented in our press release.

With that said, I will now turn the call over to Ron Michels.

Ron Michels – President and Chief Executive Officer

Thank you, Terry and good afternoon everyone. Thank you for joining us. Today, we'll review our first quarter 2012 results and discuss key product developments for our target markets in wireless and broadband.

Our revenue for Q1 was $28.4 million, representing a 22% sequential decline that is greater than typical seasonality. Wireless revenue was $21 million representing a decline of 29.8% on the combination of seasonality and the tailing off of a business with the former number one customer. In broadband, we saw higher than expected revenue of $7.4 million, representing a quarter-on-quarter increase of 12%. This growth was largely attributable to the loosening of Q4 supply constraints caused by the flooding in Thailand.

Overall, we are making significant progress with the development and launch of new products in both wireless and broadband. Not only do our products offer more compelling performance, but many have been developed with our new ILD wafer process, which gives ANADIGICS a much healthier cost structure and provides our customers with fantastic value. I would like to discuss what we are doing operationally as we transition our portfolio from legacy products to new more competitive designs.

We have taken proactive steps to reduce expenses by an analyzed $8 million, which better aligns our cost structure with near-term business outlook. The majority of these savings are being implemented in areas that improve our operating efficiency while maintaining strong R&D investments in support of growth beginning in the late second half 2012 and into 2013.

I'll begin our discussion on wireless by highlighting our latest design wins and traction at key OEMs during the last quarter. At Samsung, we secured multiple sockets in the Galaxy S3 with the Sprint Network with our latest LTE and CDMA dual-band power amps. These devices employ our ILD process technology providing Samsung exceptional 3G and 4G performance and value. At Huawei, we have secured wideband CDMA positions on the (honor and the LANDFIRE) platforms and at ZTE with one single-band sockets in multiple handsets including the Blade 2.

Our penta-band 3G, 4G amplifier developed for Qualcomm's Gobi chipset is winning sockets at several major OEMs including Sierra Wireless for data card and hotspot applications. We are also engaged with OEMs on automotive and tablets applications. This 5-band PA offers high performance for 3G and 4G networks and a very compact highly integrated package. In the MMPA space, we are seeing wide ranging success across OEMs in Korea and Japan with our first generation products.

For the customer designs that are furthest along, we are nearing the final steps of qualification in air interface type approval. Assuming type approval acceptance, we will be on track with the planned volume ramp of our MMPA in the second half of this year. As for our dual-band power amps duplexers or PADs, we are supporting OEM design activities in applications such as gaming devices and are on track to ramp late this year. We are really pleased to highlight that we begun sampling our first single-band 3G, 4G PA that utilizes our unique high-efficiency architecture. It delivers the world's best combination of high efficiency at both high power for data traffic and low power for voice traffic.

Achieving high-efficiency at all power levels across the complete dynamic range is a compelling differentiator that our customers value. The OEM interest is very strong and we are accelerating the first product into high volume production. We are expanding our high efficiency portfolio with additional single-band and dual-band products, which will sample over the next few months.

Let me shift now to our broadband business. The emerging small cell market is a key growth area for 2013 for our broadband business and serves as a point of entry for our wireless infrastructure product portfolio. We are in early stages of ramping our latest small cell amplifiers for production orders and have secured new design wins at key OEMs including Contela, Alcatel-Lucent, and IP Access. We are continuing to expand our portfolio, which now includes PAs for our products for seven bands. In the CATV market, we are anticipating solid long-term growth in spite of today's challenging macroeconomic environment. We continue to innovate in the space and are sampling our latest gallium nitride-based high-performance line amplifiers. In addition to traditional CATV amplifiers, we are supporting the DOCSIS 3 standard with a new CMOS programmable game amplifier that is garnering a positive response in the market.

In summary, we are executing very well on the development and the launch of our new products. We've won significant wireless and broadband design sockets at key OEMs in the first quarter. I am especially pleased to see strong OEM pool for our PA posting the best performance of high-efficiency at both data and voice modes.

The outlook for our target markets is strong and we continue to focus on opportunities in which we offer true differentiation to value – end value to our customers. We are transitioning our portfolio to legacy products to more compelling new designs, many of which utilize our ILD wafer process, which has a significantly lower cost structure. In parallel with this transition, we have implemented cost improvements with an analyzed savings of $8 million. The resulting increase in operating efficiency will align with the return to revenue that we'll see late 2012 and 2013.

And with that, I'll turn it back to Terry for review of the Q1 financials. Terry?

Terry Gallagher – Chief Financial Officer

Thank you, Ron and good afternoon everyone and thank you for joining us. I would like to start my remarks with a review of first quarter results and discuss our cost reduction actions, and finally some observations about what we are seeing in the second quarter. For the first quarter, our total revenue of $28.4 million was comprised of $21 million in wireless and $7.4 million in broadband, approximately a 75:25 split. That represents an overall sequential decline of 22% led by a decline in our wireless business of 29.8%. In addition to seasonality, RIMM was a contributing factor as well as some customers reducing their inventories.

Meanwhile, broadband showed a 12.3% sequential improvement or $0.8 million as the prior supply constraints eased. In comparison to a year ago, revenues were down $15 million with the reduction entirely in wireless virtually all on the lower revenues from RIMM. For the quarter, we had three greater than 10% customers, namely Samsung, ZTE, and Huawei. We had another five customers in the 5 to less than 10% range including Cisco, LG, RIMM as well as two of our distributors Richardson and World Peace Group.

The decline in revenue resulted in both lower contribution and lesser absorption of fixed manufacturing costs leading to a $4.1 million sequential decline in non-GAAP gross profit. For the quarter, our non-GAAP gross profit was 6.7%. A $4.1 million sequential decline in GP when measured against the $8.1 million sequential reduction in revenue approximates 50% in line with historical trends.

Research and development expenses were up 12% sequentially principally in materials as we accelerated new product sampling for our MMPA, PADs, and high-efficiency single-than PAs. As Ron mentioned, we have received a positive technical feedback and are now working with customers to secure design wins and support our revenue growth late in the second half.

I’ll open to spending in order to accelerate new product introductions. We expect R&D spending to return to more normalized levels in Q2. Selling and administrative expenses were largely flat on a sequential basis with continued progress in reducing general and administrative expenses enabling a small increase in sales and marketing as we continue to focus on our customers in achieving design wins for future revenues.

We expect overall SG&A to decline 5% to 10% driven by the cost reduction actions, which I’ll speak about in a moment. Our non-GAAP loss was $14.9 million or $0.21 per share after adjusting out stock-based compensation, the Q1 restructuring and other GAAP income of $1.3 million, following the redemption of one of our auction rate securities.

Our EBITDA loss was $10.8 million. We ended the quarter with a strong balance sheet including $84 million in cash and short and long-term marketable securities. Working capital was controlled with reductions and accounts receivable and inventory that helped offset start of the year insurance premiums and a previously disclosed management separation payment. They are equaled 53 days and inventory approximated six turns. Capital spending in the quarter was $1.4 million and depreciation expense was $4.3 million. Capacity utilization approximated 45% during the quarter.

And now in retuning to the topic of cost reductions, we recorded a restructuring charge of $0.5 million in the first quarter from the approximate $1 million cost reduction action referenced in our February call. Additionally, ANADIGICS recently completed a reduction in force, which in combination with the Q1 restructuring and other identified cost improvement initiative is expected to improve our quarterly cost run rate by approximately $2 million when fully absorbed by year end. We anticipate cost improvements versus Q1 of nearly $1 million within the second quarter and up to $2 million when more fully in place for quarters three and four. The initiative will trigger a Q2 restructuring charge of $1.2 million equal to the cash portion.

It is important to note that while reducing our operating costs, we have protected our R&D capability. Accelerating new products to the market continues to remain the primary focus of our business turnaround. The cost reductions are principally in the operations in SG&A areas has remained continuous improvements in manufacturing and streamline workflows, lines of communication, and sustain a laser focus on execution. Consistent with last quarter, we'll not be providing specific guidance. However, to assist the financial community, our press release as already communicated that we expect a sequential reduction in revenue principally due to a final step down in sales to our former customer.

Closing, we want to continue to emphasize that our company remains in a transition period as we developed and introduce our new products while managing through a revenue decline in our legacy business. Our cost reductions will help realign our operating cost structure while maintaining momentum with our new product initiatives.

This concludes our prepared remarks. So, (Olivia) if you can please proceed and open up the lines for questions. Thank you.

Question-and-Answer Session

Operator

Yes sir. (Operator Instructions) Your first question comes from Blaine Carroll.

Blaine Carroll

Thank you. Good afternoon everybody.

Ron Michels

Hi, Blaine. Good afternoon.

Blaine Carroll

Ron, can you go back to the comment on the Galaxy S3 platform and give us a little bit more details surrounding that? That sounds like a big deal to me.

Ron Michels

Yeah, hi, Blaine. Thank you for joining the call. Yes, so, the – there is different platforms of course with the S3. The one that we're designed into is basically uses Band 2 and Band 5 at Sprint. And then there is – there is actually two drill dual-band parts that are designed into that radio. Two of our parts are basically we are handling four bands. So, it's a very good win for us. Lot of the wins that we've gotten historically over the last year or too have been single band wins and then sometimes dual-band, this time we scored two dual-band parts. So, we're very excited about it and I say major platform at Samsung.

Blaine Carroll

When do you start recognizing revenue from it? Can you give us some ballpark on what the dollar content?

Ron Michels

It's hard to tell, none now, and I'm really not 100% sure. It's hard for us to get to gauge to it. We are ready to go I think I'm not planning on a huge amount of revenue in Q3. There will be some and then should be ramped pretty heavily in Q4. The version – the non-Sprint version, I believe is ramping before this one, but this of course we follows.

Blaine Carroll

Okay. And do you have a hub relationship with Samsung or do you recognize revenue when you ship it.

Ron Michels

We recognized that as we ship it.

Blaine Carroll

As you ship it.

Ron Michels

Yeah.

Blaine Carroll

Terry, couple of questions for you that the cost reductions, you keep talking about operating and so forth. How much of it comes I would assuming most of it is on the operating expenses as the SG&A, It sounds like you have pretty much keep in R&D, but what were the split between operating expenses and cost of goods sold.

Terry Gallagher

Right, in the next quarter so, in quarter two, I would expect that to be about 50-50 between the two lines on that $1 million reduction that I had mentioned.

Blaine Carroll

Okay.

Terry Gallagher

Benefit to cogs and $0.5 million reduction on SG&A.

Blaine Carroll

And then the $2 million in the third quarter.

Terry Gallagher

It starts to tilt a bit more into kind of a two-thirds would be up in cogs may be 70% even.

Blaine Carroll

Okay. Terry, when we look at the gross profit line, is there a way of caging what the contribution margin is per dollar of revenue. Is there a number that we can have that can flow through to the gross profit?

Terry Gallagher

I'd referenced that in the drop – the sequential drop.

Blaine Carroll

Yeah.

Terry Gallagher

From Q4 to Q1 was broadly 50%, 50% is sometimes rich, sometimes it can be sharper than that, sorry, steeper than that as we drop off. But if you're looking for a model, I'd probably conservatively push it down below the 50% may be more or like 40% or something because there is a bit of it that with our revenue growth as we see it going forward, it's a little bit more titled to the wireless side.

Blaine Carroll

Okay. And then I'll just ask two quick ones. One, you mentioned growth in the second half of this year, I'm assuming you mean quarter-on-quarter growth and year-over-year growth.

Terry Gallagher

That's correct.

Blaine Carroll

Okay. And then last one, Terry, is there a way of sort of saying, okay, if we take RIMM as 5% customers we take that out of the first quarter just we get a baseline number. And then figure that RIMM is zero in the second quarter. Is there a way of looking at the remaining pieces of business and would that growth and other words is declined slowly because of RIMM.

Terry Gallagher

So, we're talking about Q1 to Q2.

Blaine Carroll

Yes.

Terry Gallagher

So, it's – it's all theory because we are forecasting here. Okay? But RIMM was closer to a 10% customer in Q1 very near and then we expect them to drop at more than $0.5 million range. So, it's the delta of in excess of $2 million. And yes, we expect a little bit of a backfill from others, but we are kind of playing it a little conservative here. Similarly, we had some broadband, had a bit of the supply constraints ease in Q1, so you may have shipped – shaped more than three months worth of consumption out there and we are trying to protect against Q2 maybe suffering a small decline, but that's a bit in the noise, but in terms of trying to walk Q1 to Q2, I think RIMM is the primary explanation.

Blaine Carroll

Okay, great. Thanks for the answers. Nice talking to you.

Terry Gallagher

Thanks Blaine.

Operator

Your next question comes from Dale Pfau.

Dale Pfau

Good afternoon gentlemen.

Terry Gallagher

Good afternoon Dale.

Dale Pfau

Can we talk a little bit about the MMPA? And the first question is on the Galaxy S3, are those MMPAs or are those, you said they are dual-band parts what kind of parts are they?

Ron Michels

They are not MMPAs, they are just straight dual-band power amps. One dual-band part is for LTE and the other is for CDMA, not PADs.

Dale Pfau

They are not PADs, then they are not just dual-band power amps, okay, great. Next question as we come into the back half of the year, your high-efficiency PAs we have certainly seen some up tick in some of your competitors and lot of interest in the market out there. Are you seeing the same sort of drive for those high-efficiency PAs, I mean, it certainly used to be a sweet spot for ANADIGICS, do you think you could recover some of that share that you lost over the past couple of years?

Ron Michels

Yeah. No, that's exactly right. So, yeah, there is a big pull from the wireless OEMs for higher efficiency. So, we feel we have not just having higher efficiency, opens up a market for us than any of our competitors, if you can commit with a high power efficiency that's in the order of 47, 48 or higher, you have something that's compelling. Maybe in a year from now that won't be so compelling, because everybody will have it, but today it's nothing than special. We've gone actually beyond that. And we are getting those types of efficiencies at high power and then we have also kept high efficiency at low power. So, basically, we have something that's different than I think anything I have seen on the market before. And the pull has been great. Our first part is designed for band 1 which is a very popular band. So, it was the logical one to do first.

Now, the question did I put to the design community here at ANADIGICS, how quickly can we crank out more of these at different bands? And there is various schedules and for each one of them and so we are working very quickly on that, that will be, I think you had to know on the head, if we are looking for upside towards the end of this year, a lot of it will be how many of these parts if we rolled out and our focus is 100% to roll out as many of them as we can. Anything else?

Dale Pfau

Okay. And then on the MMPAs and your dual-band pads, could we go back to those and talk just a little bit about the actual number of design win that you actually expected see ramping in the second half on each of those products?

Ron Michels

I can't really tell you at this point. I'd say today we have I'd say a minimum of two that I would say are very close being design wins. The way we define a design win is that we've already gotten in an order of appeal for a significant amount of parts. We are not at that point yet. I think we are very close that I want to be very careful on how I state that. And I would say that I think we are close on one and maybe two and I'd say by the end of the year, our goal is to have three to four.

Dale Pfau

Okay, great. Thank you very much.

Ron Michels

Thank you.

Operator

(Operator Instructions) Your next question comes from Harsh Kumar.

Harsh Kumar – Stephens

It's Harsh Kumar at Stephens. Couple of questions. I was wondering if I could get the breakdown for broadband for starters?

Terry Gallagher

Give one moment, Harsh. Okay. It's good to hear your voice again Harsh.

Harsh Kumar – Stephens

Thanks guys.

Terry Gallagher

So, of the 7.4, 3.2 was in infrastructure, 1.7 as set-top box, 1.3 wireless LAN, and a 1 million in WiMAX and then just I’ll call it other for now to round.

Harsh Kumar – Stephens

Great, great. And then broadband, you guys saw a little bit of a pickup. Was it all Thailand or was some of it driven by some kind of pickup and demand that you might have noticed?

Ron Michels

I don’t think we saw any particular strength in anyone area, I think it was just some pent-up demand from not being able to shift quite as much in the quarter before that.

Harsh Kumar – Stephens

Okay, okay. So, maybe we should think of the broadband business to be a little bit of a spike perhaps, Ron, is that how we should look at the…

Ron Michels

Yes, yeah.

Harsh Kumar – Stephens

Fair enough.

Ron Michels

I think so, Harsh, it's a spike, but we’re quite excited about what broadband is going to look like as we get out through the end of the year and into next year.

Harsh Kumar – Stephens

Okay great. And then as you guys think about your restructuring and your $2 million in savings. What kind of revenue number, do you come up, I’m sure we will come up – I'm sure we'll come up with ours and we work our models but what are you thinking in terms of your revenue breakeven point – EPS breakeven point from revenue angle.

Ron Michels

Harsh, I talked more on EBITDA, okay?

Harsh Kumar – Stephens

Okay.

Ron Michels

So, it’s kind of a cash breakeven of the P&L, but we believe we improved our position by approximately 10% net kind of more model out again depending on your mix, but sort of $45 million in revenues.

Harsh Kumar – Stephens

Great, thanks guys, I appreciated.

Ron Michels

Thank you, Harsh.

Terry Gallagher

Thank you, Harsh.

Operator

And there are no further questions.

Ron Michels – President and Chief Executive Officer

Okay. We’ll thank you very much, thank you everybody for taking the time to chat with us and as we look ahead, we’re excited and we’ll talk to you again next quarter. Thank you very much.

Operator

This concludes the ANADIGICS first quarter earnings call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: ANADIGICS' CEO Discusses Q1 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts