Sigma Designs, Inc. (SIGM)

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Sigma Designs, Inc. (SIGM)

Q3 2010 Earnings Call Transcript

December 1, 2010 5:00 pm ET


Ed McGregor – Manager, IR

Tom Gay – CFO

Thinh Tran – Chairman and CEO

Ken Lowe – VP, Strategic Marketing


Hamed Khorsand – BWS Financial

Mark Sue – RBC Capital Markets

John Vinh – Collins Stewart

Sukhi Nagesh – Deutsche Bank

Gary Mobley – Benchmark

Dan Amir – Lazard Capital Markets

Dunham Winoto – Avian

Stephen Chin – UBS



Good day, ladies and gentlemen, and welcome to the Q3 2011 Sigma Designs earnings conference call. My name is Keith and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (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. Ed McGregor, Manager of Investor Relations. Please proceed, sir.

Ed McGregor

Thank you, Keith. Welcome to Sigma Designs’ conference call to discuss financial results for our third fiscal quarter of 2011. As Keith said, I am Ed McGregor, Manager of Investor Relations, and 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 result – release is available in the Investor section of our website.

Today’s agenda, we’ll 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, and 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 margins, 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; 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 Sigma’s SEC reports, including Sigma’s quarterly report on Form 10-Q as filed with the SEC on September 8, 2010. 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 publicly update 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.

Tom Gay

Thank you, Ed. For the third quarter of fiscal 2011, revenue was $77.8 million, an increase of $4.5 million or 6% compared to 73.3 million in the previous quarter. Compared to the year ago quarter, our revenue increased $42.3 million or 119% from 35.5 million.

Our revenue breakouts are as follows. By business segment and percentage of total revenues for the quarter, IPTV media processors came in at $35.8 million or 46% of the total, connected home technologies is 28 million even or 36%, connected media players, $9 million even or 12% of the total, and prosumer $5 million even or 6% of the total. By ship to region, Asia represented 71.5 million or 92% of the total, Europe 1.8 million or 2% and North America 4 million even or 5% of the total.

During the third quarter, we had two customers that each exceeded 10% of our net revenue. Those were Gemtech at 22.4 million or 29% of the total and Motorola 18.7 million or 24%.

GAAP gross margins were 49.6% for the third quarter compared to 47.7% in the preceding quarter and 45.3% in the same period last year. Non-GAAP gross margins were 53.2% for the third quarter compared to 51.6% in the preceding quarter, and 48.5% in the same period last year.

GAAP net income for the third quarter of fiscal 2011 was $5.1 million or $0.16 per diluted share. This compares to GAAP net income of 0.5 million or $0.02 per share in the previous quarter and GAAP net loss of $2.3 million or $0.09 per diluted share in the year ago quarter.

On a non-GAAP basis, net income for the third quarter was $13 million (inaudible) or $0.41 per diluted share. Compared to the previous quarter, this is an increase of $4.8 million from non-GAAP income of 8.2 million or $0.26 per diluted share. Compared to the year ago quarter, non-GAAP net income increased $10.2 million from 2.8 million or $0.10 per share that we reported then.

Please refer to our press release for a detailed reconciliation of our GAAP to non-GAAP performance. The reconciliation includes the following three categories of differences for the third quarter. First, amortization of intangible assets associated with four acquisitions, a total of $4.6 million from the Blue7, VXP, Zensys, and CopperGate acquisitions. Second, share-based compensation of $3.3 million, and third, the fair value markup on inventory purchased through acquisitions and sold during Q3 of $0.1 million.

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