SIGM

Sigma Designs, Inc. (SIGM)

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Sigma Designs (SIGM)

Q2 2012 Earnings Call

August 24, 2011 5:00 pm ET

Executives

Thomas Gay - Chief Financial Officer, Principal Accounting Officer and Secretary

Edward McGregor - Manager, Investor Relations

Thinh Tran - Founder, Chairman, Chief Executive Officer and President

Kenneth Lowe - Vice President of Strategic Marketing

Analysts

Stephen Chin - UBS Investment Bank

Daniel Amir - Lazard Capital Markets LLC

Gary Mobley - The Benchmark Company, LLC

John Vinh - Collins Stewart LLC

Quinn Bolton - Needham & Company, LLC

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Sigma Designs, Inc. Earnings Conference Call. My name is Melanie, and I'll be your coordinator today. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. Edward McGregor, Manager of Investor Relations. Please proceed, sir.

Edward McGregor

Thank you, Melanie. Welcome to Sigma Designs' conference call to discuss financial results for our second fiscal quarter 2012. I'm Ed McGregor, Sigma's Manager, Investor Relations. And with me today are Thinh Tran, our Chairman and CEO; Tom Gay, our CFO; 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 Investors 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 will 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 would like to remind everyone that this 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 that we present today is based on our current beliefs, assumptions, and expectations, speaks only as of today's date and involves 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 report, including Sigma's quarterly report on Form 10-Q as filed with the SEC on June 9, 2011. 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 now, I'd like to turn the call over to Tom.

Thomas Gay

Thank you, Ed. For the second quarter of fiscal 2012, revenue was $46.7 million, a decrease of $13.9 million or 23% compared to $60.6 million in the previous quarter. Compared to the year-ago quarter, our revenue decreased $26.6 million or 36% from $73.3 million.

Our revenue breakouts for the quarter are as follows: By target market and percentage of total revenues for the quarter, IPTV Media Processors represented $18.3 million or 39% of the total; Connected Home Technologies, $19.4 million or 42%; Connected Media Players, $5.6 million or 12% of the total; and Prosumer, $3.3 million or 7% of the total. During the second quarter, we had 2 customers that each exceeded 10% of our net revenue. Gemtek, $13.3 million or 28%; and Motorola, $8.1 million or 17% of the total.

GAAP gross margins were 27.8% for the second quarter compared to 49.1% in the preceding quarter, and 47.7% in the same period last year. Non-GAAP gross margins were 34% for the second quarter compared to 53.7% in the preceding quarter, and 51.6% in the same period last year. A major factor causing this quarter's lower gross margin was a write-down of excess inventory valued at $7.8 million, which equals a gross margin decrease of 16.7%. Without the non-recurring inventory adjustment, our GAAP gross margin would've been 44.5% and the non-GAAP gross margin, 50.7%.

GAAP net loss for the second quarter of fiscal 2012 was $22 million or $0.69 per diluted share. This compares to GAAP net loss of $5.7 million or $0.18 per diluted share in the previous quarter and GAAP net income of $0.5 million or $0.02 per diluted share in the year-ago quarter.

On a non-GAAP basis, net loss for the second quarter was $14 million, or $0.44 per diluted share. Compared to the previous quarter, this was a decrease of $16.3 million from non-GAAP income of $2.3 million or $0.07 per diluted share. Compared to the year-ago quarter, non-GAAP net income decreased $22.2 million from income of $8.2 million, or $0.26 per share that we reported.

Please refer to our press release for a detailed reconciliation of our GAAP to non-GAAP performance. The reconciliation includes the following 3 categories of differences for the second quarter. First, amortization of intangible assets associated with acquisitions, a total of $4.8 million; second, stock-based compensation of $3.1 million; and third, the fair value markup on inventory purchased through acquisitions and sold during Q2 of $0.1 million.

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