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Q3 2012 Results Earnings Call

October 29, 2012 8:30 AM ET


Terry Gallagher - Chief Financial Officer

Ron Michels - President and CEO


Blaine Carroll - Avian Securities

Harsh Kumar - Stephens Incorporated

Dale Pfau - Cantor Fitzgerald

Aalok Shah - DA Davidson

Anthony Stoss - Craig-Hallum Capital

Quinn Bolton - Needham & Company

Edward Snyder - Charter Equity

Krishna Shankar - Roth Capital

Paul McWilliams - Next Inning Technology



Good morning. And welcome to today’s Teleconference. I will now turn the call over to Terry Gallagher, CFO of ANADIGICS. Please go ahead, sir.

Terry Gallagher

Thank you, Stephanie, and good morning, everyone. Thank you for joining us as we broadcast live from Warren, New Jersey, during Hurricane Sandy, and welcome to ANADIGICS Third Quarter 2012 Conference Call. With me today is Ron Michels, our President and Chief Executive Officer.

During the call, we will make forward-looking statements about our business. I must remind you that actual results could differ materially from our projections based on various risk factors, including those described in the press release issued earlier this morning and our reports on Forms 10-K, 10-Q and other filings with the Securities and Exchange Commission.

All numbers during the call will be presented on a non-GAAP basis. Non-GAAP financial measures exclude equity compensation charges and other specifically identified non-routine items. These non-GAAP measures are provided to enhance the understanding of our core operating performance. A full reconciliation of these non-GAAP measures to our GAAP results was presented in our press release.

With all that said, I will begin with our financial discussion. For the third quarter, revenue was $28.6 million comprised of $21.1 in wireless and $7.5 million in infrastructure. Sequentially, this represents an increase of $3.5 million from the second quarter or 14.1%.

Infrastructure rose 5.8% sequentially, primarily driven by growth in CATV infrastructure. Wireless increased a healthy 17.3%, largely through greater 3G content per device at our top customers, fueled by increased Dual-band shipments. Additionally, I should highlight that revenue commenced in the quarter for both our ProEficient and MMPA products.

For the quarter, we again had three greater than 10% customers, Samsung, ZTE and Huawei. We also had four customers in the 5% to 10% range, including Cisco and Sierra Wireless, as well as two of our distributors Richardson and World Peace Group.

Infrastructure revenues by category were $3.8 million in CATV infrastructure. $1.1 million for CATV subscriber, WiMAX had a $1 million, WiFi with $1.3 million and the balance categorized as other.

Gross profit was favorably impacted by the incremental contribution of the increase in revenue and improved absorption of manufacturing costs. Our non-GAAP gross profit improved by $1.9 million to just above break-even from a negative 7.5% in the prior quarter.

In the third quarter, we continued to experience ramp costs as we scale new technologies and processes and delivered many new products. This margin headwind will ease in future as revenues increase and we complete the transaction from legacy products.

We have continued to accelerate new product introductions and at the same time, we are effective in managing research and development expenses to a 3% sequential reduction. I should emphasize that although there was a reduction in R&D, it was not at the expense of future growth, as new products introduction and investments in R&D remain critical to our growth strategy.

Selling and administrative expenses also decreased by approximately 8% to $5 million as we eliminated non-critical expenses through past restructurings and remain tough on costs going forward.

Combining our gross profit improvement with lower operating expenses, we reduced our non-GAAP loss by $2.6 million sequentially or almost 15% to $15.3 million or $0.21 per share. Our EBITDA loss improved by a similar, $2.5 million to $11.3 million for the quarter, more than 18% sequential improvement.

We ended Q3 with a strong balance sheet including a solid $62.2 million in cash and marketable securities. Working capital was well-controlled, with only a small increase in accounts receivable to $13.6 million representing 43 days.

Inventory was reduced marginally to a level that approximates six turns per year. Capital spending in the quarter was $0.25 million and depreciation expense was $4.1 million.

Capacity utilization was approximately 45% during the quarter and similar in the past, we will not be providing specific guidance. However, as indicated in our press release, we expect sequential growth in wireless with new products continuing to more than offset the decline in legacy business.

In closing, I’m pleased with -- the revenue, gross profit and expense improvements we are delivering. And I’d now like to turn the call over to our President and CEO, Ron Michels for more on our growth strategy.

Ron Michels

Great. Thank you, Terry, and good morning, everyone. I’m very pleased with our strong third quarter results as we achieved a 14% sequential increase in revenue and greater than a $2.5 million improvement in our bottom line. This performance is a direct result of strong execution and delivering innovative new products to leading customers in high growth markets.

ANADIGICS remains focused on three market drivers that greatly expand our served available market. The first driver is the rapid adoption of 3 and 4G data connectivity in wireless mobile devices, the second driver is expansion of wireless and CATV infrastructure to support increase data use, and the third driver is the proliferation of high performance WiFi connectivity in mobile devices.

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