corporate presentation nasdaq: utsi august 2011. disclosure & forward looking statements 2 this...
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Corporate PresentationNASDAQ: UTSI
August 2011
Disclosure & Forward Looking Statements
2
This investor presentation contains forward-looking statements, including statements regarding the Company's strategy to reduce operating expenses, ability to achieve profitability, investment in selective products and certain geographic regions, diversification of business and customer base, transition to a new business model and anticipated or assumed future financial results. Forward-looking statements are based on current expectations, estimates, forecasts and projections about the Company, the Company’s future performance and the industries in which the Company operates as well as on the Company management's assumptions and beliefs.
These forward-looking statements are only predictions and are subject to risks and uncertainties related to, among other things, the ability of the Company to realize anticipated results of operational improvements, increase bookings, successfully transition to a new management team and headquarters location and execute on its business plan, as well as risk factors identified in its latest Annual Report on Form 10-K, as amended, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as filed with the Securities and Exchange Commission. Therefore, actual results could differ materially and adversely from the Company's current expectations. We undertake no obligation to update these forward-looking statements to reflect events or circumstances occurring after the date of this investor presentation.
The Company is in a period of significant transition and in the conduct of its business is exposed to additional risks as a result. This investor presentation also includes financial guidance and information about the Company previously disclosed during the Company's 2009 and 2010 earnings conference calls, restructuring announcements on December 18, 2008 and November 9, 2009 and other filings with the Securities and Exchange Commission. Such guidance and information reflects the Company’s information and expectations as of those dates and this presentation is not intended to confirm or update that information and expectations.
Agenda
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Corporate Overview1
Financial Overview and Outlook
Market Dynamics & Growth Strategy2
3
CORPORATE OVERVIEW
Company Introduction
5
A leading provider of interactive, IP-based network solutions in iDTV, IPTV, Internet TV and Broadband for cable and telecom operators
Technology and services expand and help modernize communications networks, giving operator customers the capability to provide their subscribers with interactive communications experiences while opening up increased revenue opportunities for operator clients
The new service business represents a “business model innovation” that leverages UTStarcom’s current core technology and management background to generate more recurring, higher margin returns.
Share Price: $1.37 (as of July 30, 2011)Shares Outstanding: 156.1 mMarket Cap: $213.9 m (as of June 30, 2011) Legal Counsel: Wilson Sonsini Goodrich & RosatiAuditors: Price Waterhouse
Investment Highlights
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Focused on achieving breakeven in 2011
Strong existing relationships with leading telecom, cable and media players in China and across the rest of Asia
Well positioned to benefit from China’s Three Network Convergence policy and development
Diversifying business model into high-margin new service business (“Operation Support Business”) with recurring revenues
Diversifying customer base to broaden profit opportunities
Strong cash position and no debt
Our Positioning and Growth Strategy
7
• Enables focus on Chinese and Asian markets
• Leverage Three Network Convergence (TNC) policy in China
• Senior management close to client decision-makers
• Improved internal communication & lower costs
• Core IP technology applied across different networks
• Strong competitive edge and opportunity with both telecom and cable operator
A leading provider of interactive, IP-based network solutions in iDTV, IPTV, Internet TV and
Broadband to cable and telecom operators
Strategy 1: Return to China
• Demand for interactive services creates opportunity for equipment AND services revenues with higher margin earnings
• New service business model moves UTStarcom up the value chain and closer to interactive TV operators
Our existing telecommunication equipment products, RollingStream technology and sales channels are the foundation of new service business, which taps a
major opportunity in video content services over the broadband network and internet.
Strategy 2: Telecom and Cable in Parallel
Strategy 3: Equipment AND Service
RollingStream Technology
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SOLUTION AND VALUE TO CUSTOMER
PRODUCTS OR SERVICE PROVIDED TARGET CUSTOMERS
RollingStream® Technology: provides customers market -leading interactive TV solutions
RollingStream enables operators to provide IPTV, iDTV, Internet TV, mobileTV, video information and other industrial applications. Hardware includes:
Infrastructure
Components:
Terminals:
1.Telecom operators
2. Cable operators
3. TV stations and content license holders who, in China, run broadcast control platforms
Video Storage and Streaming Servers OSS
IP STB Dual-mode STB
Broadband and NGN Solutions
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SOLUTION AND VALUE TO CUSTOMER
PRODUCTS OR SERVICE PROVIDED
TARGET CUSTOMER
Broadband Solution: provides high bandwidth network infrastructure for communications networks
• PTN
• MSTP
• G/E-PON
1.Telecom operators
2. Cable operators
NGN Solution:Provides a multi-service IP-based soft switch system for voice, data, mobile and multimedia operations
1.Telecom operators
2. Cable operators
Call server Media Gateway
BBS 4000 ONU
NetRing 4K
TN725
NetRing2500
TN705
Market Dynamics & Growth Strategy
China’s Three Network Convergence: a growth catalyst for UTStarcom
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Focused on cable / teleco two-way entrance
Pilots concluded and expansion drives ahead
Policy LaunchedPilots Conducted
National Implementation
2010 2010—2012 2013—2015
Equipment Spending & Network Buildout
Media Platform
Spending16%
Set Top Box Sales
28%
Telecom Network Buildout
42%
Cable Network Buildout
14%
Three Network Convergence (TNC) is the Chinese government policy dedicated to integration of telecom, broadband and cable TV networks
Three Network Convergence related market will reach RMB 688B over the next three years, including RMB 249B on equipment and network buildout and RMB 439B from interactive media user demand
Source: iChina Research Center, 2010.4, “Analysis of Market Size, Industry and Region for Three-Network Convergence” and policy directives issued by China’s State Council.
Strategy 1: Opportunities in Other Asian Markets
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Market & Focus Area
UTStarcom’s Achievements
South Asia:
Focused on IPTV and Broadband
IPTV: Cooperate with MTNL, BSNL, Bharti, SLT and other leading South
Asia operators to secure our market leading position Exploring a joint venture with local partner in India with better
government relations and local market support to retain and extend leading position in IPTV sector
Received the first Purchase Order of IPTV systems from TOT in Thailand in the fourth quarter of 2010
Broadband: Currently have more than 30% market share
Japan:
Focused on Broadband
50% of SoftBank Broadband (SBB)’s MSTP transmissions. SBB is currently Japan’s 3rd largest telecom operator
Preferred PTN supplier of next generation IP transmission equipment for SBB
Received sizable orders of PTN product from Japan following the successful completion of previously disclosed field trial in 2010
Strategy 2: Parallel Growth Opportunities
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none
4million(iDTV)
<5million
>1 billion
6.7million(IPTV)
>100million
187 million88 million
none
Interactive video services
Interactive video services
Broadband serviceBroadband service
TV and Digital TV service
TV and Digital TV service
Voice servicesVoice services
<25% 100%
Bi-directional network percentage
Bi-directional network percentage
Service Cable Telco• TNC will increase
opportunities with cable and telecom operators because of infrastructure investment
• Our Broadband, RollingStream video platform and mSwitch NGN solutions help meet the TNC needs of both sectors
Source: SARFT Report January 2011 and UTStarcom
Strategy 3: Our Operational Support Services
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Equipment Sales Related Service Business
IP SignagePlatforms
IPTV, Internet TVPlatforms
iDTVPlatforms
TelecomOperators
TV and Cable
Operators
EnterpriseOperators
RollingStream platform allows our clients to provide end-to-end solutions including, video content service and other value added services like on-line gaming, on-line shopping and video phone service through their networks
Cable network operators need partners that can provide continued technological and operational support services for these platforms
Operational Support Services (OSS) expands our revenue stream with higher margin, recurring revenues
An Overview of the New Service or “Operational Support Services” Business
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ContentProducers /Providers
Ad ManagementSolutions
VASSolutions
IPTV/iDTVSubscriber Base
ContentDistribution
RollingStreamVideo Platform
Internet TVSubscriber Base
Mobile TVSubscriber Base
Internet TV Platform by Stage Smart Acquisition
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iTV.cn: Internet TV for Chinese outside China
Non-commercial trial underway in 300 households; mostly in North America
Integrated multi-screen viewing from a single managed platform
Time and location shifting
Reliable HD streaming
Multi-language programming
Value-added interactive service, such as distance-learning, gaming and e-commerce
Q2 2011
Launched non-commercial trial
launch subscription service to distribute content globally
Q3 2011 Q4 2011
EducationEducation
GamingGaming
SocialSocialShoppinShoppin
gg
RadioRadio
Financial Overview and Outlook
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Second Quarter 2011 Highlights
Net Income of $11.6 million, or basic earnings per share of 7 cents; UTStarcom’s first profitable quarter after 24 consecutive loss making quarters
Revenues of $92.5 million, a 26.4% / $19.3 million increase, compared to the same period of 2010
Gross profit margin of 37.6%, compared to 31.3% in same period of 2010 and 31.1% in Q1 2011
Operating income of $9.7 million
Positive operational cash flow
Cash balance of $316.4 million in cash, cash equivalents, and short-term investments
Strong Financial Performance & Effective Cash Management
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Revenue Trend and Significant Items
$92.5 million in Q2 2011, a 26.4% or $19.3 million increase, compared to $73.2 million in Q2 2010 and a 50.9% or $31.2 million increase when compared to Q1 2011.
1H 2011 total revenue was $153.8 million, an 0.1% or $0.2 million decrease, compared to1H 2010
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Booking Trend in Q2
Without PAS deferred revenue, book-to-bill ratio for the second quarter was 0.85.
With the PAS deferred revenue, book-to-bill ratio was 0.64.
Actual booking amount increased from Q1 2011; however book to bill ratio dropped due to significantly higher revenue in Q2 2011.
20
30
40
50
60
70
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
Booking
US$ (mm)
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Gross Profit Increased
Gross margin for the second quarter of 2011 was 37.6% as compared to 31.3% in the second quarter of 2010 and 31.1% in the first quarter of 2011.
Gross profit was $34.8 million in the second quarter of 2011 compared to $22.9 million in the corresponding period of 2010.
US$ (mm)
27.2
23
12
8
19
34.8
0%
5%
10%
15%
20%
25%
30%
35%
40%
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 20110
5
10
15
20
25
30
35
40
Gross Profit
Gross Margin
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Continued Progress in Cost Cutting
US$ (mm)
46
28
35.4 34.7
30
25
20%
25%
30%
35%
40%
45%
50%
55%
60%
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 201120
25
30
35
40
45
50
OPEX
OPEX/Sales
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Quarterly Profit Achieved
Operating income of $9.7 million…US$ (mm)
Net income of $11.6 million…US$ (mm)
-18.8
-5.1
-23.3-26.6
-11.1
9.7
-28
-23
-18
-13
-8
-3
2
7
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
-16
-9
-17.2
-23
-10.3
11.6
-24
-19
-14
-9
-4
1
6
11
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
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Segment Reporting
Note: Deferred revenue related to PAS is included in equipment sales through the end of 2011 at the rate of $23 million per quarter. Gross margin associated with the PAS deferred revenue is approximately 35%.
Revenue by Segment Q2 2011 Q2 2010
Equipment Sales $81.3 $62.6
Service Sales Equipment-based 11.1 10.6
New OSS-based 0.1 -
Total $92.5 $73.2
Revenue by Segment 1H 2011 1H 2010
Equipment Sales $134.2 $131.8
Service Sales Equipment-based 19.4 22.2
New OSS-based 0.2 -
Total $153.8 $154.0
US$ (mm)
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Strong cash balance of $316.4 million in cash, cash equivalents, and short-term investment
Zero debt
Balance Sheet & Deposits
Cash Balance by Region Cash Balance by Currency
China, 52%Int'l, 48%
EUR1%
INR8%
JPY18%
RMB41%
TWD1%
USD31%
Other0%
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Positive quarterly operational cash flow of $12.0 million resulted from:
1) High collections– caught up from collections delayed in Q1 2011
2) More effective cash management
3) Strict control over inventory purchase
Positive Cash Flow
27
Reiterating 2011 Financial Outlook
Total revenue targeted to be within the range of $300 – $320 million (includes PAS deferred revenue)
Targeting annualized operating expenses of less than $100 million
Targeting breakeven in 2011 on a full year basis
Reiterate
Our target of generating 10% of total sales in 2011 from new OSS business is subject to the due diligence process and detail terms and condition negotiation on acquisition targets and revenue sharing projects which may result in delay.
Delay in progress