Sigma Designs, Inc. (SIGM)

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Sigma Designs, Inc. (SIGM)

F4Q2014 Earnings Conference Call

April 9, 2014 5:00 PM ET


Ken Lowe – VP, Strategic Marketing

Thinh Tran – CEO

Elias Nader – CFO

Mustafa Ozgen – VP and General Manager of Home Multimedia Products


Hamed Khorsand – BWS Financial

Quinn Bolton – Needham & Co.

Dan Scovel – Edison Group



Good day, ladies and gentlemen, and welcome to the Q4 2014 Sigma Designs earnings conference call.

My name is Jasmine [ph] and I will be your operator for today. (Operator Instructions)

I would now like to turn the conference over to your host for today, Mr. Ken Lowe, Vice President, Strategic Marketing. Please proceed.

Ken Lowe

Thank you. Welcome to Sigma Designs conference call to discuss financial results for our fourth fiscal quarter and yearend 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 CFO; and Mustafa Ozgen, Vice President and General Manager of Home Multimedia Products.

The press release containing the quarterly results was just released on the wire today at 2:00 p.m., after experiencing some technical delays at MarketWire. The release is also available in the Investors section of our website.

Today's agenda will begin with my introduction, a review of financials by Elias, an executive overview by Thinh, a strategic update by myself, and finally, our forward guidance by Thinh. Then we'll open the call to questions from analysts and institutional investors. We expect to conclude the call within one hour.

Before we begin, I'd like to remind everybody that today's call contains forward-looking information, including guidance we provide about future revenue, gross margin, 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 that speak only as of today's date and involve risks and uncertainties that could cause actual results to differ materially from our current expectations.

The outlook 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 December 12, 2013. A partial list of these important risk factors are 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'll 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 the detailed reconciliation of our GAAP to non-GAAP results.

With that, I'll turn it over to Elias.

Elias Nader

Thank you, Ken. Good afternoon everyone.

Net revenues for the fourth quarter of fiscal 2014 was $38.5 million, a decrease of $15.9 million or 29.2% compared to $54.4 million in the previous quarter. Compared to the year-ago quarter, our revenue decreased $5.7 million or 12.9% from $44.2 million. Net revenue for fiscal year 2014 was $199.2 million, a decrease of $17.4 million or 8% from $216.6 million in the previous year.

Our revenue breakout for the quarter are as follows. I'll go over this by target market and percentage of total revenues for the fourth quarter. DTV, $6.2 million or 16%. Set-top box $8.1 million or 21%. Home networking $13.8 million or 36%. Home control $4.3 million or 11%. License and other $6.1 million or 16%.

Gross margins. GAAP gross margins were 57.3% for the fourth quarter compared to 57.1% in the preceding quarter and 31.4% in the same quarter last year. GAAP gross margins were 54.3% for the fiscal year 2014, compared to 42% in the previous year.

Non-GAAP gross margins were 61.1% for the fourth quarter, compared to 59.3% in the preceding quarter and 46.2% in the same period last year. Non-GAAP gross margins were 57.5% for the fiscal year 2014 compared to 49.1% in the previous year.

Operating expenses. In the fourth quarter, our non-GAAP operating expenses decreased by approximately $1.5 million to $24.4 million compared to the previous quarter, mainly due to continued reductions in labor and labor-related expenses and other variable operating expenses. The non-GAAP operating expenses in the fiscal year decreased by $38.9 million to $105.5 million compared to the previous year. Since announcing our restructuring in the third quarter of fiscal 2013, we have reduced our operating expenses on an annualized basis by more than $40 million.

Mr. Tran will cover our forward guidance in more detail toward the end of our call, but I wanted to spend a moment discussing where we see our operating expenses next quarter in light of the extreme amount of attention we have paid to lowering our operating expenses over the last year and our continued rigor in this area.

While we continue to believe we must size our operating expenses with our revenue levels to make profitability, we do anticipate an increase in operating expenses of approximately 5% next quarter, primarily due to certain amortization of design tools we took delivery of late in the fourth quarter.

GAAP net loss and non-GAAP net loss and earnings. The GAAP net income for the fourth quarter of fiscal 2014 was $1.3 million or $0.04 per share. This compares to a GAAP net loss of $3 million or $0.09 per share in the previous quarter and a GAAP net loss of $35.2 million or $1.04 per share in the year-ago quarter. The GAAP net loss for fiscal year 2014 was $11 million or $0.32 per share. This compares to GAAP net loss of $101.8 million or $3.06 per share in the previous year.

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