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UTStarcom Releases Financial Results for the First Quarter of 2009

ALAMEDA, Calif., May 7 /PRNewswire-FirstCall/ -- UTStarcom, Inc. (Nasdaq: UTSI), today reported financial results for the first quarter ended March 31, 2009.

UTStarcom Releases Financial Results for the First Quarter of 2009
UTStarcom Releases Financial Results for the First Quarter of 2009

(Logo: https://www.newscom.com/cgi-bin/prnh/20051013/SFTH063LOGO)

On July 1, 2008, the Company divested its Personal Communications Division ('PCD') which has historically represented a significant portion of the Company's revenues. On December 18, 2008, the Company announced actions to wind down its Korea-based handset manufacturing operations. To enable a comparison of the financial results for the Company on a year-over-year basis the Company has prepared certain pro forma non-GAAP results which present the Company's results as if both the divestiture of PCD and the wind down of the Company's Korea-based handset operations were completed prior to each time period presented. The reconciliation between GAAP and these pro forma non-GAAP financial measures is provided at the end of this press release and on the Company's website.

GAAP Results

Net sales for the first quarter of 2009 were $119 million as compared to $586 million in the first quarter of 2008 primarily reflecting the PCD divestiture and our exit from other non-core businesses. Gross margins for the first quarter of 2009 and 2008 were 18.1% and 15.7%, respectively. The operating loss for the first quarter of 2009 and 2008 was $59 million and $31 million, respectively.

The net loss for the first quarter of 2009 was $67.4 million, or ($0.54) per share, as compared to a net gain of $25.4 million, or $0.21 per share in the first quarter of 2008.

Net cash, cash equivalents and short-term investments as of March 31, 2009 was $301 million compared to $314 million on December 31, 2008.

'Although the first quarter revenue was slightly below our expectations we are encouraged by the first quarter bookings which indicate continued demand for our products. Additionally, our quarter end cash balance was well above the level we previously anticipated,' said
Peter Blackmore, UTStarcom's chief executive officer and president. 'The execution of our recently announced initiatives led to further improvement in the Company's ongoing cost structure.'

Mr. Blackmore added, 'In order to accelerate our return to profitability we expect to announce further significant initiatives later this month.'

Significant Items Impacting the First Quarter 2009 and 2008 Results

The following significant items negatively affected the first quarter 2009 operating loss:

  • A net increase of $4.9 million in inventory reserves due to the anticipated decline in demand for PAS handsets.
  • A charge of $8.1 million relating to one customer consisting of a $1.5 million inventory reserve and a $6.6 million increase in allowance for doubtful accounts receivables.
  • A $4.8 million restructuring charge related to the initiatives announced in December 2008.

The net gain in the first quarter 2008 includes the positive impact of certain significant items including $49 million in gains on sale of investments and a net $9 million tax benefit primarily due to a change in withholding tax laws in China.

Pro Forma Non-GAAP Results

The first quarter 2009 pro forma non-GAAP revenue and gross margins were $80 million and 23.8%, respectively. This compares to non-GAAP revenue and gross margins of $155 million and 36.8% in the first quarter of 2008. The decrease in pro forma non-GAAP revenues and pro forma non-GAAP gross margins primarily reflects the expected volume decline in our PAS business. The first quarter 2009 pro forma non-GAAP operating loss was $59 million compared to $49 million a year ago.

The significant items outlined above also negatively impacted the first quarter pro forma non-GAAP results.

Conference Call

The call will take place at 2:00 p.m. (PST) / 5:00 p.m. (EST) on May 7, 2009. The conference call dial-in numbers are as follows: United States -- 888-889-1058; International -- 706-634-2327. The conference ID number is 9821-6310.

A replay of the call will be available for 30 days. The conference call replay numbers are as follows: United States -- 800-642-1687; International -- 706-645-9291. The Access Code is 9821-6310.

Investors will also have the opportunity to listen to the conference call and the replay over the Internet through the investor relations section of UTStarcom's Web site at: https://www.utstar.com.

To listen to the live call, please go to the Web site at least 15 minutes early to register, and to download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will also be available on this site.

Discussion of Pro Forma Non-GAAP Financial Measures

In order to provide both management and investors with a more complete understanding of UTStarcom's underlying results and trends in light of the PCD divestiture and planned wind down of its Korea-based handset manufacturing operations, UTStarcom has prepared reconciliation tables for comparing GAAP results to non-GAAP measures of revenues, gross profits, operating expenses and operating profit (loss), along with an abbreviated, pro forma non-GAAP profit and loss statement based on these non-GAAP measures. The pro forma non-GAAP measures present the Company's results as if both the July 2008 divestiture of the Company's Personal Communications Division and the wind down of the Company's Korea-based handset operations were completed prior to each time period below.

In addition, these pro forma non-GAAP measures are among the information management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles in the United States.

About UTStarcom, Inc.

UTStarcom is a global leader in IP-based, end-to-end networking solutions and international service and support. The Company sells its solutions to operators in both emerging and established telecommunications markets around the world. UTStarcom enables its customers to rapidly deploy revenue-generating access services using their existing infrastructure, while providing a migration path to cost-efficient, end-to-end IP networks. Founded in 1991 and headquartered in Alameda, California, the Company has research and development operations in the United States, China, Korea and India. For more information about UTStarcom, visit the Company's Web site at https://www.utstar.com.

Forward-Looking Statements

This release includes forward-looking statements relating to, among other things, the Company's strategy to become profitable (including the timing of announcement and execution of further initiatives), future expected financial results, anticipated liquidity, capital expenditure requirements and the expected investment in the Company's IP-based product portfolio. Forward-looking statements are generally indicated by such words as 'will,' 'expects,' 'estimates,' 'goals,' 'plans' or similar words. These statements are forward-looking in nature and subject to risks and uncertainties that may cause actual results to differ materially. These risks include the ability of the Company to realize anticipated results from operational improvements, finalize plans for additional initiatives, increase bookings and execute on its business plan as well as risk factors identified in its latest Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as filed with the Securities and Exchange Commission.



                                 UTStarcom, Inc.
                      Condensed Consolidated Balance Sheets
                                  (in thousands)
                                   (Unaudited)

                                                        March 31, December 31,
                                                          2009        2008
                          ASSETS
    Current assets:
      Cash, cash equivalents and short-term
       investments                                      $300,534     $313,865
      Accounts and notes receivable, net                  99,504      169,496
      Inventories and deferred costs                     296,731      304,716
      Prepaids and other current assets                  113,527      144,515
                                                         -------      -------
        Total current assets                             810,296      932,592
    Long-term assets:
      Property, plant and equipment, net                 172,122      175,287
      Long-term deferred costs                           142,246      149,258
      Other long-term assets                              48,955       53,669
                                                          ------       ------
        Total assets                                  $1,173,619   $1,310,806
                                                      ==========   ==========

                  LIABILITIES AND EQUITY
    Current liabilities:
      Accounts payable                                  $102,233     $176,384
      Customer advances                                  160,659      144,700
      Deferred revenue                                   123,880      117,584
      Other current liabilities                          176,940      181,852
                                                         -------      -------
        Total current liabilities                        563,712      620,520
    Long-term liabilities:
      Long-term deferred revenue and other
       liabilities                                       205,678      222,644
                                                         -------      -------
        Total liabilities                                769,390      843,164

    Total equity                                         404,229      467,642
                                                         -------      -------
        Total liabilities and equity                  $1,173,619   $1,310,806
                                                      ==========   ==========



                                UTStarcom, Inc.
                Condensed Consolidated Statements of Operations
                   (in thousands, except per share amounts)
                                  (Unaudited)

                                                          Three months
                                                         ended March 31,
                                                        ----------------
                                                          2009      2008
                                                          ----      ----

    Net sales                                          $119,340  $585,989
    Cost of net sales                                    97,688   493,910
                                                         ------   -------
    Gross profit                                         21,652    92,079
                                                         ------    ------

    Operating expenses:
      Selling, general and administrative                54,180    79,744
      Research and development                           21,508    41,400
      Amortization of intangible assets                       -     1,824
      Restructuring charges                               4,819         -
                                                         ------   -------
    Total operating expenses                             80,507   122,968
                                                         ------   -------

    Operating loss                                      (58,855)  (30,889)
                                                        -------   -------

    Interest income (expense), net                          459    (3,254)
    Other (expense) income                               (7,214)   53,970
                                                         ------    ------
    (Loss) income before income taxes                   (65,610)   19,827
    Income taxes (expense) benefit                       (1,824)    5,020
                                                         ------     -----
    Net (loss) income                                   (67,434)   24,847
    Net loss attributable to noncontrolling interest          1       510
                                                            ---       ---
    Net (loss) income attributable to UTStarcom, Inc.  $(67,433)  $25,357
                                                       ========   =======


    Net (loss) income per share attributable to
     UTStarcom, Inc. - Basic and Diluted                 $(0.54)    $0.21

    Weighted average shares used in per share
     calculation:
      - Basic                                           125,731   122,096
                                                        =======   =======
      - Diluted                                         125,731   123,098
                                                        =======   =======



                                UTStarcom, Inc.
                Condensed Consolidated Statements of Cash Flows
                                 (in thousands)
                                  (Unaudited)

                                          3 months ended   3 months ended
                                             March 31,        March 31,
                                               2009             2008
                                          ---------------  ---------------


    Net cash (used in) provided by
     operating activities                    $(12,007)         $92,734
                                             --------          -------

    Cash flows from investing activities:
      Property, plant and equipment, net       (1,055)          (7,630)
      Purchase of an investment interest            -           (1,949)
      Proceeds from repayment of loan by
       a variable interest entity                   -            7,728
      Change in restricted cash                 2,068           (4,517)
      Short-term investments, net               3,286           52,162
      Other                                       301               96
                                                  ---               --
    Net cash provided by investing
     activities                                 4,600           45,890
                                                -----           ------
    Cash flows from financing activities:
      Payments on borrowings                        -         (288,861)
      Other                                      (163)           2,473
                                                 ----            -----
    Net cash used in financing activities        (163)        (286,388)
    Effect of exchange rate changes on
     cash and cash equivalents                 (2,463)           8,797
                                               ------            -----
    Net decrease in cash and cash
     equivalents                              (10,033)        (138,967)
    Cash and cash equivalents at
     beginning of period                      309,603          437,449
                                              -------          -------
    Cash and cash equivalents at end of
     period                                  $299,570         $298,482
                                             ========         ========



                                 UTSTARCOM, INC.
                          May 7, 2009 Conference Call

            RECONCILIATION OF GAAP REVENUE TO PRO FORMA NON-GAAP REVENUE
                                  ($ in millions)
                                    (Unaudited)

    To supplement our condensed consolidated financial statements presented
    on a GAAP basis, UTStarcom uses certain pro forma non-GAAP measures which
    are adjusted to present those metrics as if both PCD had been divested
    and the Korea handsets business had been wound down prior to each time
    period reflected below.  We believe this enables year over year
    comparisons to our recent financial results.  These adjustments to our
    GAAP results are made with the intent of providing both management and
    investors a more complete understanding of UTStarcom's underlying results
    and trends.  In addition, these adjusted pro forma non-GAAP results are
    among the information management uses as a basis for our planning and
    forecasting of future periods.  The presentation of this additional
    information is not meant to be considered in isolation or as a
    substitute for results prepared in accordance with generally accepted
    accounting principles in the United States.



                        Qtr     Qtr      Qtr      Qtr      Year       Qtr
                       ended   ended    ended    ended     ended     ended
                        31-     30-      30-      31-       31-       31-
                        Mar-    Jun-     Sep-     Dec-      Dec-      Mar-
                         08      08       08       08        08        09
                        ----    ----     ----     ----      ----      ----
    GAAP Revenue (a)    $586    $633     $181     $241     $1,641     $119

    Less: PCD Segment
     Revenue (b)         431     449        -        -        880        -

    Less: Korea
     Handset Sales to
     PCD (c)               -       -       35       92        127       39
                        ----    ----     ----     ----       ----      ---
    Non-GAAP Revenue    $155    $184     $146     $149       $634      $80
                        ====    ====     ====     ====       ====      ===

    (a) GAAP Revenue for each period is the consolidated revenue as
        reported on Form 10-Q or Form 10-K, as applicable, for such
        period, except for the consolidated revenue for the quarter
        ended December 31, 2008, which is derived from the revenue reported
        in the Form 10-Qs and Form 10-K with respect to fiscal year 2008.

    (b) Effective July 1, 2008 the PCD segment was divested by the Company.

    (c) Prior to the July 1, 2008 divestiture of PCD, Korea handset did not
        record revenue for units shipped to PCD as this activity was an
        intercompany transfer.  After July 1, 2008 this activity was recorded
        as a third party sale in the Handset segment.



                                 UTSTARCOM, INC.
                           May 7, 2009 Conference Call
      RECONCILIATION OF GAAP GROSS PROFIT TO PRO FORMA NON-GAAP GROSS PROFIT
                                   ($ in millions)
                                     (Unaudited)



                        Qtr     Qtr      Qtr      Qtr      Year       Qtr
                       ended   ended    ended    ended     ended     ended
                        31-     30-      30-      31-       31-       31-
                        Mar-    Jun-     Sep-     Dec-      Dec-      Mar-
                         08      08       08       08        08        09
                        ----    ----     ----     ----      ----      ----
    GAAP Gross
     Profit (a)          $92     $82      $57      $30      $261       $22
       GAAP Gross
        Margin %          16%     13%      31%      12%       16%       18%

    Less: PCD Segment
     Gross Profit (b)     33      36        -        -        69         -

    Less: Korea
     Handset
     Gross
     Profit from
     Sales to
     PCD (c)               2       0        6       (4)        4         3
                         ---     ---       --      ---      ----       ---
    Non-GAAP
     Gross
     Profit              $57     $46      $51      $34      $188       $19
                         ===     ===      ===      ===      ====       ===
       Non-GAAP
        Gross
        Margin %          37%     25%      35%      23%       30%       24%


    (a) GAAP Gross Profit and GAAP Gross Margin % for each period is the
        consolidated gross profit and gross margin % as reported on Form
        10-Q or Form 10-K, as applicable, for such period, except for the
        consolidated gross profit and gross margin % for the quarter ended
        December 31, 2008, which is derived from the gross profit and gross
        margin % reported in the Form 10-Qs and Form 10-K with respect to
        fiscal year 2008.

    (b) Effective July 1, 2008 the PCD segment was divested by the Company.

    (c) Prior to the July 1, 2008 divestiture of PCD, Korea handset earned a
        gross profit on the intercompany transfer of inventory to PCD.  This
        gross profit was recorded in the Handset segment.  After July 1, 2008
        this activity was recorded as a third party transaction.



                                  UTSTARCOM, INC.
                            May 7, 2009 Conference Call

             RECONCILIATION OF GAAP OPERATING EXPENSE TO PRO FORMA NON-GAAP
                                  OPERATING EXPENSE
                                    ($ in millions)
                                      (Unaudited)

    To supplement our condensed consolidated financial statements presented
    on a GAAP basis, UTStarcom uses certain pro forma non-GAAP measures which
    are adjusted to present those metrics as if both PCD had been divested
    and the Korea handsets business had been wound down prior to each time
    period reflected below.  We believe this enables year over year
    comparisons to our recent financial results.  These adjustments to our
    GAAP results are made with the intent of providing both management and
    investors a more complete understanding of UTStarcom's underlying results
    and trends.  In addition, these adjusted pro forma non-GAAP results are
    among the information management uses as a basis for our planning and
    forecasting of future periods.  The presentation of this additional
    information is not meant to be considered in isolation or as a substitute
    for results prepared in accordance with generally accepted accounting
    principles in the United States.



                        Qtr     Qtr      Qtr      Qtr      Year       Qtr
                       ended   ended    ended    ended     ended     ended
                        31-     30-      30-      31-       31-       31-
                        Mar-    Jun-     Sep-     Dec-      Dec-      Mar-
                         08      08       08       08        08        09
                        ----    ----     ----     ----      ----      ----
    GAAP Operating
     Expense (a)        $123    $113      $92     $109      $437       $81

    Less: PCD Operating
     Expense (b)           8       7        -        -        15         -

    Less: Korea Handset
     Operating Expense
     (c)                   9      10       10        5        34         3
                         ----     ---      ---     ----      ----       ---
    Non-GAAP Operating
     Expense            $106     $96      $82     $104      $388       $78
                        ====     ===       ===     ====      ====       ===

    (a) GAAP Operating Expense for each period is the consolidated operating
        expense as reported on Form 10-Q or Form 10-K, as applicable, for such
        period, except for the consolidated operating expense for the quarter
        ended December 31, 2008, which is derived from the operating expenses
        reported in the Form 10-Qs and Form 10-K with respect to the fiscal
        year 2008.

    (b) Effective July 1, 2008 the PCD segment was divested by the Company.

    (c) Both prior to and after the July 1, 2008 divestiture of PCD, all
        direct operating expense relating to Korea handset has been
        recorded in the Handset segment.



                                  UTSTARCOM, INC.
                           May 7, 2009 Conference Call

          RECONCILIATION OF GAAP OPERATING LOSS TO PRO FORMA NON-GAAP
                                  OPERATING LOSS
                                  ($ in millions)
                                     (Unaudited)

    To supplement our condensed consolidated financial statements presented
    on a GAAP basis, UTStarcom uses certain pro forma non-GAAP measures which
    are adjusted to present those metrics as if both PCD had been divested
    and the Korea handsets business had been wound down prior to each time
    period reflected below.  We believe this enables year over year
    comparisons to our recent financial results.  These adjustments to our
    GAAP results are made with the intent of providing both management and investors a more complete understanding of UTStarcom's underlying results
    and trends.  In addition, these adjusted pro forma non-GAAP results are
    among the information management uses as a basis for our planning and
    forecasting of future periods.  The presentation of this additional
    information is not meant to be considered in isolation or as a substitute
    for results prepared in accordance with generally accepted accounting
    principles in the United States.



                        Qtr     Qtr      Qtr      Qtr      Year       Qtr
                       ended   ended    ended    ended     ended     ended
                        31-     30-      30-      31-       31-       31-
                        Mar-    Jun-     Sep-     Dec-      Dec-      Mar-
                         08      08       08       08        08        09
                        ----    ----     ----     ----      ----      ----
    GAAP
     Operating
     Loss (a)          ($31)   ($31)    ($35)     ($79)    ($176)     ($59)

    Less:  PCD
     Operating
     Profit (b)          25      28        -         -        53         -

    Less: Korea
     Handset
     Operating
     Loss (c)            (7)    (10)      (4)       (9)      (30)        -
                       ----    ----     ----      ----     -----      ----
    Non-GAAP
     Operating
     Loss              ($49)   ($49)    ($31)     ($70)    ($199)     ($59)
                       ====    ====      ====      ====     =====      ====

    (a) GAAP Operating Loss for each period is the consolidated operating
        loss as reported on Form 10-Q or Form 10-K, as applicable, for such
        period, except for the consolidated operating loss for the quarter
        ended December 31, 2008, which is derived from the operating loss
        reported in the Form 10-Qs and Form 10-K with respect to fiscal
        year 2008.

    (b) Effective July 1, 2008 the PCD segment was divested by the Company.

    (c) Both prior to and after the July 1, 2008 divestiture of PCD, the
        operating loss relating to Korea handset has been recorded in
        the Handset segment.



                                  UTSTARCOM, INC.
                          May 7, 2009 Conference Call

                 ABBREVIATED PRO FORMA NON-GAAP P&L STATEMENT (a)
                                 ($ in millions)
                                    (Unaudited)

    To supplement our condensed consolidated financial statements presented
    on a GAAP basis, UTStarcom uses certain pro forma non-GAAP measures
    which are adjusted to present those metrics as if both PCD had been
    divested and the Korea handsets business had been wound down prior to
    each time period reflected below.  We believe this enables year over year
    comparisons to our recent financial results.  These adjustments to our
    GAAP results are made with the intent of providing both management and
    investors a more complete understanding of UTStarcom's underlying results
    and trends.  In addition, these adjusted pro forma non-GAAP results are
    among the information management uses as a basis for our planning and
    forecasting of future periods.  The presentation of this additional
    information is not meant to be considered in isolation or as a substitute
    for results prepared in accordance with generally accepted accounting
    principles in the United States.



                        Qtr     Qtr      Qtr      Qtr      Year       Qtr
                       ended   ended    ended    ended     ended     ended
                        31-     30-      30-      31-       31-       31-
                        Mar-    Jun-     Sep-     Dec-      Dec-      Mar-
                         08      08       08       08        08        09
                        ----    ----     ----     ----      ----      ----
    Non-GAAP Revenue    $155    $184     $146     $149      $634      $80

    Non-GAAP Gross
     Profit               57      46       51       34       188       19
       Non-GAAP Gross
        Margin %          37%     25%      35%      23%       30%      24%

    Non-GAAP
     Operating Expense   106      96       82      104       388       78

                        ----    ----     ----     ----     -----     ----
    Non-GAAP
     Operating Loss     ($49)   ($49)    ($31)    ($70)    ($199)    ($59)
                        ====    ====     ====     ====     =====     ====

    (a) Please refer to the preceding reconciliation tables for the
        adjustments to GAAP Revenue, Gross Profit, Operating Expense
        and Operating Loss.



SOURCE UTStarcom, Inc.