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Article Excerpt
PARTICIPANTS
. Jeff Kupp, Microtune, CFO . Jim Fontaine, Microtune, CEO and President . John Vinh, Collins Stewart, Analyst . Bud Taddiken, Microtune, COO . Dan Morris, Oppenheimer, Analyst . Christopher Longiaru, Sidoti, Analyst . Jeeves McCann, Courtside Capital, Analyst . Simon Michael, Balch Hill Capital, Analyst
OVERVIEW
TUNE reported YTD net revenue of $84m and non-GAAP net income of $9.1m or $0.16 per diluted share. 3Q08 net revenue was $31.9m, non-GAAP net income was $4.6m and non-GAAP diluted EPS was $0.08.
FINANCIAL DATA
A. Key Data From Call 1. YTD net revenue = $84m. 2. 3Q08 net revenue = $31.9m. 3. YTD non-GAAP net income = $9.1m. 4. 3Q08 non-GAAP net income = $4.6m. 5. YTD non-GAAP diluted EPS = $0.16. 6. 3Q08 non-GAAP diluted EPS = $0.08. 7. YTD GM = 49%. 8. 3Q08 GM = 48.4%. 9. 3Q08 non-GAAP OpEx = $11m. 10. 3Q08 DSO = 46. 11. Cash and investments balance at 09/30/08 = $82.2m. 12. 3Q08 share repurchase = almost 680,000 shares of Co. stock on open market.
PRESENTATION SUMMARY
S1. 3Q08 Results Review (J.F.) 1. Overview: 1. Another great qtr., consistent with past excellent performance. 2. 11th qtr. of YoverY revenue growth. 3. Revenue, record $31.9m. 1. Significant 20% sequential and 34% YoverY increase. 2. Highest recorded quarterly revenue in Co.'s history. 3. Sequential growth, driven primarily by DTV converter box, with smaller contribution from automotive. 4. Non-GAAP diluted EPS, strong $0.08. 5. Strong net margin at 14.4%. 6. Repurchased almost 680,000 shares of Co. stock on open market. 7. 3Q08-end cash and cash equivalents, $82.2m. 1. As of 10/23/08, 75% of Co.'s market cap is in cash. 2. It is unbelievable to have a profitable co. with over $100m in annual revenues and enterprise value of $28m. 8. During 2Q08, reached 100 millionth silicon tuner shipment mark, a major milestone. 1. During 3Q08, increased cumulative total to 112.8m silicon tuners. 2. Converter Box Market: 1. Expecting smoother life cycle curve for digital TV coupon-eligible converter box market, but it has not behaved as predicted. 2. Converter box revenue spiked to $5.8m. 3. Recognized over $2.0m of converter box revenue that is expected to recognize in 4Q08. 4. For 4Q08, now expects to achieve approx. $2.0m in revenue from converter box market. 5. Currently not forecasting any meaningful revenue from converter box market in 2009. 6. While converter box market opportunity is short-term, success reflects ability to quickly ramp operations to respond to digital TV market opportunities. 3. Cable Market: 1. Cable market will continue to provide foundation for 4Q08 revenues. 2. Has seen some weakness in Korean cable set-top box market. 1. Demand in rest of the world remains relatively strong. 3. DOCSIS 3.0 tuner shipments quadrupled from 2Q08. 1. Expects to ship over 1m DOCSIS 3.0 tuners during 2008. 4. Expects cable-based revenue to follow same 4Q seasonal revenue curve experienced historically. 1. Expected to decrease by approx. $1m from 3Q08 to 4Q08. 4. Automotive Market: 1. Significant percentage of automotive revenue comes from sales of car radio and car TV tuners to major automotive customers in Europe. 2. 2008 was a solid year for automotive segments, as European car market was stable vs. US auto industry. 3. Beginning to see significant weakening in European car market, a resultant softness in automotive business. 1. This economic slowdown will begin to impact 4Q08 revenues. 4. Anticipates automotive revenues to decrease by approx. $1.5m from 3Q08 to 4Q08. 5. Guiding to 4Q08 net revenue of $24.5-26.5m. 6. For 2008, should meet or beat current revenue and EPS consensus estimates. 5. 2009 Outlook: 1. Believes cable markets will continue to be cornerstone of 2009 revenues. 2. Growth in cable set-top box and cable modem markets. 3. To see cable market revenues grow, driven by multiple industry trends, including: 1. Steady rollout of DOCSIS 3.0. 2. Continuing conversion to HD-capable multi-tuner DVR set-top boxes. 3. Continued conversion from analog to digital services around the world. 4. Gradual increase in number of cable set-top box found in each home. 4. In cable modem and set-top box market, Co. is market leader. 1. Offers differentiated products that Co. believes will sustain its competitive advantage. 5. Does not believe that automotive market will hold up as well as cable markets. 1. Automotive revenues to remain soft throughout most of 2009. 6. Converter box opportunity of digital TV market will be winding down, as analog shutoff date nears. 1. Actively looking for opportunities to replace converter box revenue with revenue from other markets, such as integrated DTV. 7. Can achieve overall revenue growth from 2008 to 2009, if cable revenue grows sufficiently enough to compensate for softness in automotive markets. 8. As real impact of global financial crisis on consumer market begins to be known, believes will find any level of growth for 2009 will be viewed as positive.
S2. Financials (J.K.) 1. Net Revenue: 1. 3Q08, $31.9m. 1. Represented another record qtr. 2. Recognized $5.8m in revenue related to short-term digital TV converter box opportunity. 3. Up 34% vs. 3Q07, driven by: 1. Triple-digit growth in digital TV. 2. Strong growth in automotive and cable markets. 4. Up 20% vs. 2Q08, driven by growth in digital TV and automotive, offset somewhat by small decline in cable revenue. 2. YTD, $84m. 1. Up 23% over first nine months of 2007, driven by growth from all three target markets. 3. Estimated converter box revenue guidance has changed over time. 1. During July update, published an estimate of $5m for 2008, with potential upside. 2. Given the larger than expected 3Q08 revenue, has recognized about $6m in converter box revenue YTD. 4. Entering 4Q08, expecting another $2m in converter box revenue, bringing expected 2008 converter box revenue total to approx. $8m. 5. Three 10% customers. 1. Cisco at 28%. 2. ATM Electronic Corporation at 18%. 3. Panasonic at 12%. 4. Almost all of the ATM revenue related to converter box opportunity. 2. GM Percentage: 1. 3Q08, 48.4%. 1. Slightly below lower end of target of 49-50%. 2. Biggest driver for lower GM percentage was higher than expected volume of converter box business, which involves lower GM percentage than corporate avg. 2. YTD, 49%. 1. Reflects impact of lower margin converter box business. 2. Represents low-end of target range. 3. 4Q08 guidance, 49-50%. 1. Considers impact of anticipated 4Q08 converter box business. 3. 3Q08 Income & Expenses: 1. Non-GAAP OpEx, $11m. 1. Up about $400,000 from 2Q08. 2. R&D expenses continue to track in line with full-year guidance. 3. SG&A expenses are coming in slightly lower than guidance. 1. Updated expense guidance for 2008 reflects these positive trends. 4. Interest income, $465,000. 1. Up significantly over 2Q08, due to improved portfolio performance. 5. Started 2Q08, invested primarily in US Treasuries, but moved into money market funds in pursuit of better yields. 1. In mid-Sept., given the significant credit market issues, moved out of money market funds into government agencies. 6. Number 1 goal is to avoid principal losses. 1. Has not encountered any losses with cash investments. 7. 3Q08 non-GAAP net income, strong $4.6m. 1. Diluted EPS, $0.08. 2. Net margin, 14%. 8. YTD non-GAAP net income, $9.1m or $0.16 per diluted share. 1. Net margin, 11%. 4. 3Q08 Balance Sheet: 1. Cash...
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