SIGM

Sigma Designs, Inc. (SIGM)

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Sigma Designs (SIGM)

Q1 2014 Earnings Call

June 12, 2013 5:00 pm ET

Executives

Kenneth Lowe - Vice President of Strategic Marketing

Elias N. Nader - Interim Chief Financial Officer, Principal Accounting Officer, Principal Compliance Officer, Corporate Controller and Secretary

Thinh Q. Tran - Founder, Chief Executive Officer, President and Director

Mustafa Ozgen - Vice President and General Manager

Gabi Hilevitz - Chief Executive Officer and Executive Director

Analysts

Quinn Bolton - Needham & Company, LLC, Research Division

Presentation

Operator

[Audio Gap]

You may begin.

Kenneth Lowe

Thank you. Welcome to Sigma Designs' conference call to discuss the financial results for our first fiscal quarter of 2014. I'm Ken Lowe, Sigma's Vice President of Strategic Marketing. With me today are Thinh Tran, Sigma's CEO; Elias Nader, Sigma's Interim CFO; Mustafa Ozgen, our Vice President and General Manager of our Home Multimedia Products; and Gabi Hilevitz, our Vice President and General Manager of our Home Connectivity Products. The press release containing the quarter results, including selected income statement and balance sheet information, was released after the market closed today. If you did not receive the results, the release is available in the Investors section of our website.

Today's agenda will begin with my brief introduction; a review of the selected financials by Elias; an executive overview by Thinh; a business update by Mustafa and Gabi on their respective business units; and finally our forward guidance by Thinh. We'll then open the call to questions from analysts and institutional investors, and we expect to conclude the call within 1 hour.

Before we begin, I'd like to remind everybody that today's call contains forward-looking information, including guidance we provide about future revenues, gross margin and other financial measures and anticipated trends in our target markets. We caution you that the forward-looking information that we present today is based on our current beliefs, assumptions and expectations and speak only as of today's date, and involve risks and uncertainties that could cause actual results to differ materially from our current expectations.

Other risk factors that may affect our business and future results are detailed from time to time in SEC reports, including Sigma's Form 10-K as filed with the SEC on April 12, 2013. A partial list of these important risk factors is set forth at the end of today's earnings press release. Sigma undertakes no obligation to revise or update publicly any forward-looking statement except as required by law.

In addition, during today's call, we will be reporting certain financial information on a non-GAAP basis, such as non-GAAP net income, which excludes certain costs and expenses. These excluded items are described in more detail in today's earnings press release, along with a detailed reconciliation of our GAAP to non-GAAP results.

And with that, I'll turn it over to Elias.

Elias N. Nader

Thank you, Ken. Hello, everyone. For the first quarter of fiscal 2014, revenue was $52.5 million, an increase of $8.3 million or 19% compared to $44.2 million in the previous quarter. Compared to the year-ago quarter, our revenues increased $12.3 million or 31% from $40.3 million. Our revenue breakouts for the quarter are as follows: DTV, $15.8 million, or 30%; set-top box, $9.3 million, or 18%; home networking, $20.1 million, or 38%; home control, $4.6 million, or 9%; license and other, $2.6 million, or 5%. During the first quarter, we had 2 customers that exceeded 10% of our net revenue. They were Flextronics, $7.3 million, or 14%; TP Vision, $5.6 million, or 11%.

Gross margins. GAAP gross margins were 51.3% for the first quarter compared to 31.5% in the preceding quarter and 52.4% in the same period last year. Non-GAAP gross margins were 54.7% for the first quarter compared to 46.2% in the preceding quarter and 56.4% for the same period last year. During the first quarter, we had $600,000 write-down of inventory that negatively impacted our margins. The primary factor in our improved non-GAAP gross margin in Q1 was product mix.

Operating expenses and cost reduction program. Sigma remains focused on continued profitability in the remainder of FY '14, as well as executing on the $45 million cost reduction plan into FY 2014. Our non-GAAP operating expenses decreased by approximately $9 million to $28.3 million compared to the previous quarter. The main drivers were labor and labor-related expense reductions of approximately $6.7 million and a decrease in other variable operating expenses of $2.3 million.

GAAP and non-GAAP net loss. The GAAP net loss for the first quarter of fiscal 2014 was $4.5 million, or $0.13 per share. This compares to a GAAP net loss of $35.2 million, or $1.05 per share in the previous quarter and a GAAP net loss of $13.7 million, or $0.42 per share in the year-ago quarter. On a non-GAAP basis, the net income in the first quarter was $300,000, or $0.01 per share. This compares to a non-GAAP net loss of $16.8 million, or $0.50 per share in the previous quarter and a non-GAAP net loss of $8.5 million, or $0.26 per share in the year-ago quarter. Please refer to our press release for a detailed reconciliation of our GAAP to non-GAAP performance.

Now I'd like to cover a few key areas on our balance sheet. Cash, cash equivalents, restricted cash and marketable securities totaled $87 million at the end of the quarter, an increase of $2.3 million compared to the end of last quarter. The increase in cash was mainly due to $5.6 million cash generated by operating activities and $2 million proceeds from the sale of an R&D development project. The increase in cash was partially offset by purchases of approximately $5.3 million in IP, software and equipment during the quarter. Looking forward to our second fiscal quarter, we currently expect to receive the final tranche payment of an $8.4 million from our home control technology license. We have been recognizing revenue from this license ratably over the term of the agreement, but are scheduled to receive the second of 2 lump sum license fee payments in Q2. Net accounts receivable was $26.3 million at the end of the first quarter, an increase of $4.6 million compared to the previous quarter. The average days sales outstanding for our receivables as of the end of the first quarter was 46 days, representing an improvement of 2 days compared to the previous quarter. Net inventory was $19 million at the end of the quarter compared to $24.9 million in the previous quarter, a decrease of $5.9 million. The decrease in inventory brings our inventory turns for the quarter to 7 on an annualized basis compared to 5.3 in the previous quarter. Now, I will turn the call over to Thinh for an executive overview. Thank you.

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