SIGM

Sigma Designs, Inc. (SIGM)

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Sigma Designs (SIGM)

Q3 2012 Earnings Call

November 30, 2011 5:00 pm ET

Executives

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

Kenneth Lowe - Vice President of Strategic Marketing

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

Edward McGregor -

Analysts

Stephen Chin - UBS Investment Bank, Research Division

Hamed Khorsand - BWS Financial Inc.

John Vinh - Collins Stewart LLC, Research Division

Gary W. Mobley - The Benchmark Company, LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Sigma Designs Earnings Conference Call. My name is Keith, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. And I would now like to turn the conference over to your host for today, Mr. Ed McGregor, Director of Investor Relations. Please go ahead, sir.

Edward McGregor

Thank you, Keith. Welcome to Sigma Designs' conference call to discuss financial results for our third fiscal quarter of 2012. I'm Ed McGregor, Sigma's Director of Investor Relations, and with me today are Thinh Tran, Sigma's 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 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 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 market. 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 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 reports, including Sigma's quarterly report on Form 10-Q as filed with the SEC on September 8, 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 E. Gay

Thank you, Ed. For the third quarter of fiscal 2012, revenue was $39.7 million, a decrease of $7 million or 15% compared to $46.7 million in the previous quarter. Compared to the year-ago quarter, our revenue decreased $38.1 million or 49% from $77.8 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 $10.8 million or 27% of the total; Connected Home Technologies, $16.8 million or 42%; Connected Media Players, $9.1 million or 23%; Prosumer, $2.8 million or 7%.

During the third quarter, we had 3 customers that each exceeded 10% of our net revenue. Alpha Networks represented $5.5 million or 14% of the total; Gemtek, $5.4 million or 14%; and Motorola, $5.1 million or 13% of the total. GAAP gross margins were 45.3% for the third quarter compared to 27.8% in the preceding quarter and 49.6% in the same period last year. Non-GAAP gross margins were 52.4% for the third quarter compared to 34% in the preceding quarter and 53.2% in the same period last year. A major factor causing last quarter's gross margin being lower was a write-down of excess inventory valued at $7.8 million, which equals a gross margin decrease of 16.7%.

GAAP net loss for the third quarter of fiscal 2012 was $121.6 million or $3.78 per diluted share. This compares to a net loss of $22 million or $0.69 per share in the previous quarter, and GAAP net income of $5.1 million or $0.16 per diluted share in the year ago quarter. Included in this quarter's loss was a $111 million write-down of goodwill and a portion of our intangible assets based primarily on reductions of our market capitalization. These intangible assets were created in association with our various acquisitions and are a noncash expense in this quarter.

On a non-GAAP basis, net loss for the third quarter was $2.7 million, or $0.08 per diluted share. Compared to the previous quarter, this is an improvement from $11.3 million of non-GAAP net loss of $14 million or $0.44 per diluted share. Compared to the year ago quarter, non-GAAP net income decreased $15.7 million from income of $13 million or $0.41 per diluted share that we reported.

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