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Article Excerpt
OPERATOR: Welcome to Microtune's third quarter 2008 financial results conference call. This conference is being recorded at the request of Microtune. If there are any objections, you may disconnect at this time.
Now I will turn the call over to your host, Jeff Kupp, Microtune's Chief Financial Officer.
JEFF KUPP, CFO, MICROTUNE: Thank you. Good afternoon, everyone, and thank you for joining us today.
Jim Fontaine, Microtune's President and Chief Executive Officer; and Bud Taddiken, Microtune's Chief Operating Officer, are joining me on the call today.
Earlier this afternoon, Microtune issued a press release announcing our financial results for the quarter and nine months ended September 30, 2008. This press release was also filed on Form 8-K with the SEC and has been posted to Microtune's website at www.Microtune.com.
Our press release includes certain non-GAAP financial measures, as well as reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, in accordance with SEC Regulation G. We believe these non-GAAP financial measures, when presented in conjunction with the corresponding GAAP financial measures provide meaningful information for investors, analysts, and management in assessing business trends in our financial performance.
During this call, we may make forward-looking statements, which will be based on our current expectations and projections about our business. And such information and related underlying assumptions are likely to change. Statements concerning future products, our expectations regarding our target markets, and future financial results are especially likely to change. We will not inform you each time such a change occurs, and such a change could materially and adversely affect our future results.
All such forward-looking statements are made pursuant, in part, to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Please read our Form 10-K, Forms 10-Q, and other reports filed with the SEC for a discussion of the risks and uncertainties facing our business.
At the conclusion of our prepared remarks, we will take questions. You are encouraged to ask any questions you may have at that time, as we will be limited in our ability to answer questions after this call.
Now I will turn the call over to Jim for opening remarks.
JIM FONTAINE, CEO AND PRESIDENT, MICROTUNE: Good afternoon, everyone. Today I will provide a short summary of our accomplishments from Q3, offer limited guidance into the future, then ask Jeff to present a detailed discussion of our financial results. I will also share with you reasons why I believe Microtune is uniquely positioned to weather the current global financial and economic storm. Rather than use valuable time on a scripted message, will devote more time to questions and answers.
Having said that, let me first begin by discussing our solid Q3 results. I'm pleased to report that we achieved another great quarter, consistent with our past excellent performance. This is the 11th quarter of year-over-year revenue growth.
Let me give you a summary of our outstanding performance for the third quarter of 2008. Revenue was a record $31.9 million, a significant 20% sequential and 34% year-over-year increase, and highest recorded quarterly revenue in our history. Sequential growth was driven primarily by DTV converter box, with a smaller contribution from automotive.
Our non-GAAP income per diluted share was a strong $0.08, and our net margin was also strong at 14.4%. During the quarter, we repurchased almost 680,000 shares of Microtune stock on the open market. We ended the quarter with cash and cash equivalents of $82.2 million, which means that as of today, 75% of our market cap is in cash.
In my opinion, it's unbelievable to have a profitable with over $100 million in revenue -- in annual revenues, and enterprise value of $28 million.
During the second quarter, we reached our 100 millionth silicon tuner shipment mark, which was a major milestone for the Company. During the third quarter we increased our cumulative total to 112.8 million silicon tuners.
I'm extremely pleased with our financial performance this quarter.
Unfortunately, companies never have the opportunity to celebrate their financial accomplishments for very long before the focus turns immediately to the future outlook. So let's now discuss the outlook for Q4. Given the current macroeconomic uncertainties, we will be limiting our guidance to the fourth quarter. We will provide a little color for 2009, but will not provide any forecasted numbers beyond the current quarter.
Consistent with our message during the past year, the digital TV coupon-eligible converter box market has proved to be dynamic and unpredictable. For example, we were expecting a smoother life-cycle curve for this market, but it has not behaved as we would have predicted.
Instead, our converter box revenue for the third quarter spiked to $5.8 million. We recognized over $2.0 million of converter box revenue in Q3 that we expected to recognize Q4. For the fourth quarterly we now expect to achieve approximately $2.0 million in revenue from the converter box market. We're currently not forecasting any meaningful revenue from the converter box market in 2009.
While converter box market opportunity is short-term, our success reflects our ability to quickly ramp our operations to respond to digital TV market opportunities. In addition, our experience in the DTV converter box market provides an important learning steppingstone to the broader digital TV market.
The cable market will continue to provide the foundation for our Q4 revenues. Although we have seen some weakness in the Korean cable set top box market, demand in the rest of the world remains relatively strong. Additionally, DOCSIS 3.0 tuner shipments quadrupled this quarter from Q2, and we expect to ship over one million DOCSIS 3.0 tuners during 2008.
We expect our cable-based revenue to follow the same Q4 seasonal revenue curve that we have experienced historically. It is expected to decrease by approximately $1 million from Q3 to Q4.
A significant percentage of our automotive revenue comes from sales of our car radio and car TV tuners to major automotive customers in Europe. 2008 was a solid year for our automotive segments, as the European car market was stable compared to the US auto industry.
However, we are beginning to see a significant weakening in the European car market, and therefore, a resultant softness in our automotive business. This economic slowdown will begin to impact our revenues in Q4, and we anticipate automotive revenues to decrease by approximately $1.5 million from Q3 to Q4.
Given the volatile nature of our converter box revenue in Q3 and Q4, I think viewing the entire second half of 2008 will give you a much better perspective of our business, rather than focusing on Q3 and Q4 results independently.
For the fourth quarter, we are guiding to a net revenue of $24.5 million to $26.5 million. From a 2008 full-year perspective, we should meet or beat the current revenue and EPS consensus estimates.
So what about 2009? We believe that the cable markets will continue to be the cornerstone of our revenues in 2009, as well. We anticipate growth in both cable set top box and cable modem markets. We expect to see cable market revenues grow in 2009, driven by multiple industry trends, including the steady rollout of DOCSIS 3.0, the continuing conversion to HD-capable multi-tuner DVR set top boxes, a continued conversion from analog to digital services around the world, and a gradual increase in the number of cable set top box found in each home.
In both the cable modem and the set top box market, we are the market leader and now offer differentiated products that we believe will sustain our competitive advantage.
I think we've all heard of the market analyst reports about the recession-proof nature of the cable market, that is, in a challenging economic times, consumers will forego eating out, new purchases, and vacations, but do not give up TV, and in fact often spend more on it as their one last source of family entertainment. These consumer market predictions will be tested during the next year.
We do not believe that the automotive market will hold up as well as the cable markets during 2009. We anticipate that the automotive revenues will remain soft throughout most of 2009.
We know that the converter box opportunity of our digital TV market will be winding down as the analog shutoff date nears, and we are actively looking for opportunities to replace the converter box revenue with revenue from other markets, such as integrated DTV.
Now, ignoring the short-term revenue spike from the converter box market, we can achieve overall...
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