Sigma Designs, Inc. (SIGM)

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Sigma Designs, Inc. (SIGM)

F3Q10 Earnings Call

December 2, 2009 5:00 pm ET


Edward McGregor - Manager, Investor Relations

Thomas E. Gay - Chief Financial Officer

Thinh Q. Tran - Chairman and Chief Executive Officer

Kenneth Lowe - Vice President, Strategic Marketing


Analyst for Tristan Gerra - Robert W. Baird

Uche Orji - UBS

Mark Sue - RBC Capital Markets

Quinn Bolton - Needham & Co.

John Vinh - Collins Stewart

Sukhi Nagesh - Deutsche Bank

Lauren Stoller - Lazard Capital Markets

Hamed Khorsand - BWS Financial

Dunham Winoto - Avian Securities



Good day, ladies and gentlemen and welcome to the third quarter 2010 Sigma Designs earnings conference call. (Operator Instructions) I would now like to turn the conference over to your host for today, Mr. Edward McGregor, Manager of Investor Relations. Please proceed, sir.

Edward McGregor

Thank you and welcome to Sigma Designs' conference call to discuss financial results for our third fiscal quarter 2010. I’m Ed McGregor, Sigma’s Manager of Investor Relations. With me today are Thinh Tran, our Chairman and CEO; Tom Gay, our CFO; and Ken Lowe, our Vice President of Strategic Marketing.

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 Investor section of our website.

Today’s agenda will begin with my brief introduction, a review of selected financials by Tom, an executive overview by Thinh, a market update by Ken, and comments on guidance by Thinh. We’ll then open the call to questions from analysts and institutional investors. We expect to conclude the call within one hour.

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

Specific factors that may affect our business and future results are discussed in our SEC reports most recently on Form 8-KA filed with the SEC on November 25, 2009. 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.

Now, I’d like to hand the call over to Tom, who will review our financial results.

Thomas E. Gay

Thank you, Ed. For the third quarter of fiscal 2010, revenue was $35.5 million, a decrease of $15.8 million or 31% compared to the $51.3 million reported in the previous quarter. Compared to the year ago quarter, our revenue decreased $11.3 million, or 24% from the 46.8 reported then. Our revenue break-outs are as follows: by market segment and percentage of total revenues for the quarter, IPTV represented $22.5 million or 64% of our quarter; connected media players, $10 million or 28%; prosumer, $1.8 million or 5%; connected home technologies, $1.1 million, or 3%. By billing region, the revenue breaks down so that Asia was $27.5 million or 78% of the total; Europe, $5.4 million, or 15% of the total; and North America, $2.5 million or 7% for the quarter.

During the third quarter, we had three customers that exceeded 10% of our revenue. Highest was [Yuniyan] Corporation, coming in at $5.3 million, or 15%; Cowen represented $4.2 million or 12% of the total; and Motorola Singapore, $3.8 million or 11% of the total.

Gross margins were 45.3% for the third quarter compared to the same result in the preceding quarter and 46.3% in the same period last year. Because of the lower revenue in the current quarter, the absorption of manufacturing overhead was lower, having a negative impact of approximately 1% in the third quarter compared to the previous one.

GAAP net loss for the third quarter of fiscal 2010 was $2.3 million or $0.09 per share. This compares to a GAAP net income of $4.8 million or $0.18 per diluted share in the previous quarter. On a non-GAAP basis, net income for the third quarter was $2.5 million, or $0.09 per diluted share. Compared to the previous quarter, this is a decrease of $5.3 million from non-GAAP income of $7.8 million or $0.28 per diluted share. Compared to the year-ago quarter, this is a decrease of $4.7 million from the $7.2 million or $0.27 per share that we reported net.

Please refer to our press release for a detailed reconciliation of our GAAP to non-GAAP performance. The reconciliation includes the following categories of differences for the third quarter. First is amortization of intangible assets associated with three acquisitions, a total of $0.8 million from [Blue 7], BXP, and [Zensys]. Second, stock-based compensation of $2.2 million, and third, G&A expenses of $1.8 million associated with the work done on the acquisition of CopperGate during the third period.

I would now like to cover a few key areas from our balance sheet. Cash, cash equivalents, and marketable securities totalled $235 million, an increase of $43 million, or $1.54 per share outstanding compared to the beginning of the current fiscal year. The increase is due to the $12.8 million reduction in receivables, $12.9 million reduction in inventory, and $4.8 million increase in accounts payable besides a $12.9 million cash generated by other operational activities. Based on our shares outstanding at the end of the quarter, this represents a total value of cash, cash equivalents, and marketable securities of $8.78 per share outstanding.

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