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UTStarcom Holdings Corp.
Third Quarter 2012 Results & New Strategy Discussion
Mr. William Wong, CEO Mr. Robert Pu, CFO NASDAQ: UTSI November 2012
Disclosure & Forward Looking Statements
This investor presentation contains forward-looking statements, including statements regarding the Company's expectation regarding its operational support services business, the divestiture of its IPTV equipment business and the Company’s performance in 2012. Forward-looking statements are based on current expectations, estimates, forecasts and projections about the Company, the Company’s future performance and the industries in which the Company operates as well as on the Company management's assumptions and beliefs.
These forward-looking statements are only predictions and are subject to risks and uncertainties that may cause actual results to differ materially and adversely from the Company’s current expectations. These include risks and uncertainties related to, among other things, changes in the financial condition and cash position of the Company, changes in the composition of the Company’s management and their effect on the Company, the Company’s ability to realize anticipated results of operational improvements and benefits of the divestiture transaction, successfully operate and grow its services business, execute its business plan and manage regulatory matters, as well as the risk factors identified in the Company’s latest Annual Report on Form 20-F, and Current Reports on Form 6-K, as filed with the Securities and Exchange Commission. We undertake no obligation to update these forward-looking statements to reflect events or circumstances occurring after the date of this investor presentation. The Company is in a period of significant transition and the conduct of its business is exposed to additional risks as a result. This investor presentation also includes financial guidance and information about the Company previously disclosed during the Company's 2011 and first quarter 2012 earnings conference calls and other filings with the Securities and Exchange Commission.
Such guidance and information reflects the Company’s information and expectations as of those dates and this presentation is not intended to confirm or update that information and expectations.
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Introduction Third Quarter Financial Overview Overview of New Strategy
UTStarcom’s New Vision UTStarcom Aims to Become a Next Generation Media Company
Higher Margin Broadband Equipment Products and Services Targeting a Specific Set of Customers Higher Growth, More Profitable Business Focused on Deploying Media Operational Support Services
Equipment Focused Business transition into Next Generation Media Services Provider 5
Third Quarter Financial Overview
Third Quarter 2012 Financial Highlights
The Company successfully closed the divestiture of its IPTV business on August 31, 2012 as part of a plan to transition the Company into higher growth, more profitable areas. As of September 30, 2012, the Company did not meet the requirements to report results from the IPTV division separately as discontinued operations.
To enable a comparison of the year-to-date and future periods financial results the Company has prepared non-GAAP results. Included in this presentation are quarterly and year-to-date non GAAP comparisons that exclude financial results from the IPTV business and amortization of PHS deferred revenue. Third quarter of 2012 non-GAAP net sales decreased 19.1% year over year to $37.0 million, compared to $45.8 million non-GAAP net sales in the third quarter of 2011.
Third quarter of 2012 non-GAAP gross profit decreased 37.7% year over year to $12.7 million, compared to $20.5 million non-GAAP gross profit in the third quarter of 2011.
Non-GAAP net loss attributable to UTStarcom’s shareholders was $0.2 million, or non-GAAP basic loss per share of $0.0, in the third quarter of 2012, compared to non-GAAP net income of $3.4 million, or non-GAAP basic income per share of $0.02, for the corresponding period of 2011.
Non-GAAP Total Revenue
Non-GAAP total revenues for the third quarter of 2012 were $37.0 million, a decrease of 19.1% year-over-year from $45.8 million for the corresponding period of 2011.
Non-GAAP total revenues for the nine months ended September 30, 2012 were $116.3 million, a decrease of 11.9% year-over-year from $132.0 million for the corresponding period of 2011.
US$(mm) 50 45 40 35 30 25 20 15 10 5 0 45,8 Q3 2011 37,0 Q3 2012 US$(mm) 135 130 125 120 115 110 105 132,0 9 Mons 2011 116,3 9 Mons 2012 8
Non-GAAP Gross Profit
Non-GAAP Q3 2012 gross profit was $12.7 million vs. Q3 2011 gross profit of 20.5 million.
Non-GAAP gross profit in the first nine months of 2012 was $40.7 million vs. first nine months 2011 gross profit of $56.6 million.
US$(mm) 30 US$(mm) 60 56,60 25 50 20,50 40,70 20 40 15 12,80 30 10 20 5 10 Q3 2011 Q3 2012 9 Mons 2011 9 Mons 2012 9
Non-GAAP Gross Margin
45,0% 40,0% 35,0% 30,0% 25,0% 20,0% Non-GAAP Q3 2012 gross margin was 34.4% vs. Q3 2011 gross margin of 44.7%.
Non-GAAP gross margin in the first nine months of 2012 was 35.0% vs. first nine months 2011 gross margin of 42.9%.
44,7% 34,4% 45,0% 40,0% 35,0% 30,0% 25,0% 20,0% 42,9% 35,0% Q3 2011 Q3 2012 9 Mons 2011 9 Mons 2012 10
Non-GAAP Operating Expense
20 15 10 5 0 US$ (mm) 10,8 4,2 18,1 Q3 2012 40 One-time gain on divestiture 30 20 10 0 70 60 50 US$ (mm) 50,1 4,2 9 Mons 2011 49,5 Q3 2011 9 Mons 2012 The one –time gain on divestiture of $4.2 million in the third quarter of 2011 was due to contingent gain realized upon entering into a three-party assignment agreement.
Non-GAAP Operating Result & Net Income/Loss
US$ (mm) 12 10 8 0 -2 -4 -6 6 4 2 Non-GAAP Operating Income/Loss Comparison 9,6 Q3 2011 Q3 2012 -5,3 US$ (mm) 12 10 8 0 -2 -4 6 4 2 Non-GAAP Net Income/Loss Comparison 3,4 Q3 2011 Q3 2012 -0,2 12
Q3 2012 Cash Position
Cash balance of $213.1 million in cash, cash equivalents, and short-term investment Zero debt Cash Distribution by Region Cash Distribution by Currency
Non-GAAP Cash Flow Analysis
Quarterly non-GAAP net cash used by operating activities for the third quarter of 2012 was $1.8 million. Impact on cash balance due to IPTV divestiture $30M cash balance deconsolidation $20M convertible bond Share repurchase program update: The Company repurchased $3.5 million in ordinary shares in the third quarter of 2012 The cumulative total execution under the current program is $13.0 million Board extended the repurchase program for an additional six month through February 2013 14
Overview of New Strategy
Guiding Priorities and Objectives
Focus on faster-growing, higher margin opportunities TV over IP Services for broadband and cable operators Exit from lower-margin equipment business to enhance overall profitability Divested the IPTV equipment business as the first step Grow existing higher margin broadband business with select strategic clients Generate a more predictable, subscriber-based recurring revenue stream Identify new business opportunities where UTStarcom has the potential to become the top one or two service provider 16
Market Trends and Opportunities
For Content Providers For Consumers
Multiple Screens (Desktop, Mobile, Tablet, TV, etc.) AM Watch News on TV Monetization (Branding, Advertising, Digital Rights Management, Syndication, Subscription and Internet Based Content, etc.) Multiple Platforms (Content Management, Content Distribution, Content Publishing, etc.) Demand of Video Delivery Solutions PM Watch Live Shows on Mobile PM Watch Videos on iPad “Pull” Video Anytime/Anywhere 17
The Components of Our Strategy
Build Out Media Operational Support Services Offering by Creating and Building a TV over IP Services Platform 2
Build Out New Services through a Combination of Internal Development and Strategic Acquisitions 3
Design an Optimal Operating Structure to Maximize the Potential of Business Units, Maximize Efficiency in Operations, and Minimize Costs to Keep Underlying Business Strong
Build Out TV over IP Services Platform
TV over IP Service Market Size UTStarcom Strategy
IPTV Services Market (US$ billion) ’11 – ’15 CAGR 20% 46 22 2011 2015 Over-the-Top Services Market (US$ billion) 11 ’11 – ’15 CAGR 32% 32
Service Offering Content Platform Partners
Rich Content with Personalized Entertainment Experience Blended Paid-for and Free Programs Anytime/Anywhere/Any Device Value-added Services (e.g. social TV, games, education, TVshopping) High Demand Content in Regional Markets Across Asia for Main Stream – – – Local Content Premium Licensed Content Internet Content Integrated Platform Support the Entire Workflow of the TV over IP Operations Existing Relationships with Cable Operators Partnerships with Broadband Service Operators 2011 2015
UTStarcom to Become a Leading TV over IP Service Provider that Delivers High-in-Demand Digital Content Over a Variety of Platforms
Building New Services & Maximizing Potential
2 Build Out New Services Through Internal Development and Strategic Acquisitions
Leverage strong technical expertise in UTStarcom launched video service cloud platform and the understanding and knowledge of broadband/IPTV equipment customers’ needs to develop new services Leverage existing relationships to establish partnerships with cable and broadband service providers to rapidly establish a subscriber base Acquire or take significant stakes in companies that have market leading media technologies which could help add UTStarcom’s services platform
3 Optimize Business Structure
Structure the business in a way that aggregates and maximizes the potential of very strong business units Provide business units the flexibility to pursue opportunities while also aligning their interests with broader corporate goals and those of shareholders Maximize efficiencies and minimize costs to keep underlying business strong 20
UTStarcom Competitive Advantages
Well Regarded Brand
Strong brand recognition as a leading telecom equipment provider Widely deployed network system equipment
Technology Expertise Existing Relationship with Operators
Experienced in set top box technologies and product development Expertise with mobile terminals through the PHS business and mobile terminal business Expertise and know how with IPTV and cable services providers’ business operating support systems (BOSS) Expertise in developing and selling broadband equipment and services Expertise in content aggregation and licensing through the investment in iTV Media Served a broad base of telecom and cable operators Long-standing relationships with leading cable and broadband service providers, including SoftBank and Chunghwa Telecom
Strong Balance Sheet
Strong cash position Zero debt Well-capitalized for investment 21
UTStarcom Strategy Timeline 2012
Divested IPTV equipment business Reorganized company structure Restructured broadband business Redesigned management team and added new independent director to Board
Fully transition to new business model Invest in new product development Make strategic acquisitions and investments Full-scale commercial deployment of TV over IP service offerings in multiple countries
Full-scale commercial deployment of value added services in TV over IP customer regions Grow subscriber count and increase ARPU
Service business to become majority revenue contributor Overall gross margin of service business expected to reach more than 50% 22
Appendix – GAAP Financial Statement
UTStarcom Holdings Corp.
Unaudited Condensed Consolidated Balance Sheets September 30, December 31, 2012 2011 (In thousands, except par value) ASSETS
Current assets: Cash, cash equivalents and short-term investments Accounts and notes receivable, net Inventories and deferred costs Prepaids and other current assets Total current assets Long-term assets: Property, plant and equipment, net Goodwill Intangible assets, net Long-term deferred costs Other long-term assets Total assets $ 213,091 129,005 407,332 $ 12,348 52,888 10,580 24,951 63,072 505,935 $ $ 303,998 20,216 137,484 42,099 503,797 12,199 13,820 3,625 39,741 27,758 600,940
LIABILITIES AND EQUITY
Current liabilities: Accounts payable Customer advances Deferred revenue Other current liabilities Total current liabilities Long-term liabilities: Long-term deferred revenue and other liabilities Total liabilities Total equity Total liabilities and equity $ 191,817 $ 22,836 84,763 44,145 40,073 87,474 279,291 226,644 505,935 $ $ 23,530 82,589 64,989 52,679 223,787 106,114 329,901 271,039 600,940 24
Appendix – GAAP Financial Statement
Net sales Cost of net sales Gross profit Operating expenses: Selling, general and administrative Research and development Amortization of intangible assets Impairment of goodwill and other long-lived assets Restructuring Net loss (gain) on divestiture Total operating expenses Operating income (loss) Interest income, net Other income (expense), net Income (loss) before income taxes Income taxes benefit(expense) Net income (loss) Net loss attributable to noncontrolling interest
UTS tarcom Holdings Corp.
Unaudited Condensed Consolidated S tatements of Operations Thre e months e nde d Se pte mbe r 30, 2012 2011 Nine months e nde d Se pte mbe r 30, 2012 (in thousands, e xce pt pe r share data) 2011
$ 40,328 26,010 14,318 35.5 % $ 83,297 51,352 31,945 38.4 % $ 143,454 88,998 54,456 38.0 % $ 237,110 151,326 85,784 36.2 % 13,988 8,243 854 (191) 17,297 40,191 14,780 7,327 310 (509) (4,151) 17,757 (25,873) 14,188 39,738 23,850 516 854 358 16,640 81,956 52,528 21,591 929 2,175 (4,185) 73,038 (27,500) 12,746 363 5,398 (20,112) (649) (20,761) 369 (7,305) 7,252 301 7,553 1,556 811 (25,133) (2,806) (27,939) 1,240 (3,214) 10,772 (2,461) 8,311 $ (20,761) 458 $ 8,011 1,195 $ (26,744) 1,006 $ 9,317 Net income (loss) attributable to UTStarcom Holdings Corp.
Net income (loss) per share attributable to UTStarcom Holdings Corp.—Basic Weighted average shares outstanding—Basic $ (0.14) 143,688 $ 0.05
155,516 $ (0.18) 148,200 $ 0.06
Investor Relations Contacts
Robert Pu Tel: + 86-10-8520-5153 Email: [email protected]
Jing Ou-Yang Tel: + 8610 8520 5153 Email: [email protected]
May Shen (China) Tel: +86-10-8591-1951 Email: [email protected]
Daniel DelRe (Hong Kong) Tel: +852-3768-4547 Email: [email protected]
Eric Boyriven (U.S.) Tel: +1-212-850-5671 Email: [email protected]