SIGM

Sigma Designs, Inc. (SIGM)

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Sigma Designs (SIGM)

Q3 2014 Earnings Call

December 11, 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

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2014 Sigma Designs Earnings Conference Call. My name is Denise, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Ken Lowe, Vice President, Strategic Marketing. Please proceed.

Kenneth Lowe

Thank you, Denise. Welcome to Sigma Designs' conference call to discuss financial results for our third 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, Vice President and General Manager of Home Multimedia Products; and Gabi Hilevitz, Vice President and General Manager of 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 will be available in the Investors section of our website. Today's agenda will begin with my brief introduction, a review of selected financial 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 statements, 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 based on our current beliefs, assumptions and expectations speak of 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 Sigma's SEC reports, including Sigma's quarterly report on Form 10-Q as filed with the SEC on September 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 otherwise 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 to cover the financial aspect.

Elias N. Nader

Good afternoon, everyone. Thank you, Ken. For the third quarter of fiscal 2014, revenue was $54.4 million, an increase of $600,000 or 1.2% compared to $53.8 million in the previous quarter. Compared to the year ago quarter, our revenue decreased $9.5 million or 14.9% from $63.9 million. Our revenue breakouts for the quarter are as follows: by target market and percentage of total revenues for the third quarter, our DTV, $13.1 million or 24%; set-top box, $9.6 million or 18%; home networking, $19.4 million or 35%; home control, $5.9 million or 11%; license and other, $6.4 million or 12%.

Gross margins. GAAP gross margins were 57.1% for the third quarter compared to 52.2% in the preceding quarter and 39.8% in the same quarter last year. Non-GAAP gross margins were 59.8% for the third quarter compared to 55.3% in the preceding quarter, and 44.3% in the same period last year. The primary factor in our improved non-GAAP gross margins in Q3 was due to higher license revenue.

Operating expenses and cost reduction program. In the third quarter, our non-GAAP operating expense has decreased by approximately $1 million to $25.9 million, compared to the previous quarter, mainly due to continued reductions in labor and labor-related expenses and other variable operating expenses. Operating expenses in Q3 were $11.2 million below the same quarter a year ago, a 30% reduction. Since announcing our restructuring in the third quarter of 2013, we have reduced the operating expenses on an annualized basis by $40 million. As a result of our emphasis on cost control and a significant improvement in our cost structure, we expect our non-GAAP operating expenses in Q4 to trend lower than Q3 operating expenses. We remain focused on our objective to maintain profitability.

GAAP net loss and non-GAAP net loss and earnings. The GAAP net loss for the third quarter of fiscal 2014 was $3 million or $0.09 per share. This compares to a GAAP net loss of $4.8 million or $0.14 per share in the previous quarter, and a GAAP net loss of $39.5 million or $1.18 per share in the year ago quarter. On a non-GAAP basis, the net income in the third quarter was $3.3 million or $0.10 per share. This compares to a non-GAAP net income of $2 million or $0.06 per share in the previous quarter and a non-GAAP net loss of $9.5 million or $0.28 per share in the year ago quarter. Please refer to our press release for a detailed reconciliation of our GAAP to non-GAAP performance.

Read the rest of this transcript for free on seekingalpha.com