Fei Wang - Deputy Director, Financial Planning and Analysis and Investor Relations William Wong - Chief Executive Officer, Director Min Xu - Chief Financial Officer.

Jun Zhang - Rosenblatt Securities Inc..

Ladies and gentlemen, thank you for standing by for UTStarcom's Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. If you have any objections, you may disconnect at this time.

It is now my pleasure to introduce the host for today's call, Fei Wang. Fei Wang, you may begin..

Okay, thank you. Hi, hello everyone and welcome to UTStarcom's second quarter 2015 earnings conference call. Earlier today, we distributed our earnings press release and you can find a copy on our website at www.utstar.com.

In addition, we have posted a slideshow presentation on our website, which you can download and use to follow along with today's call. On today's call, we have Mr. William Wong, UTStarcom's Chief Executive Officer and Mr. Min Xu, UTStarcom's Chief Financial Officer. Before we get started, I will read the company's advisory on forward-looking statements.

This call will include forward-looking statements relating to the company's business, strategic initiatives and the performance for the second quarter 2015. These statements are forward-looking in nature and subject to risks and uncertainties that may cause actual results to differ materially and adversely from the company's current expectations.

This includes risks and uncertainties related to, among other things, changes in the financial condition and the cash position of the company, changes in the composition of the company's management and their effect on the company, the company's ability to realize anticipated results of operational improvements and benefits of the divestiture transaction, the ability to successfully identify and acquire appropriate technologies and businesses for inorganic growth and to integrate such acquisitions, the ability to internally innovate and develop new products, assumptions the company makes regarding the growth of the market and the success of the company's offerings in the market and the company's ability to execute its business plans and manage regulatory matters.

The risks and uncertainties also include the risk factors identified in the company's latest Annual Report on Form 20-F and current reports on Form 6-K as filed with the Securities and Exchange Commission. The company is in a period of strategic transition and the conduct of its business is exposed to additional risks as a result.

All forward-looking statements included in this conference call are based upon information available to the company as of the date of this call, which may change and the company assumes no obligation to update any such forward-looking statements. I will now hand the call over to UTStarcom's Chief Executive Officer, Mr. William Wong..

Thank you, Fei Wang, and hello, everyone. As Fei mentioned, you can follow along with today's call by downloading the presentation from our website at www.utstar.com. Also unless otherwise stated all figures mentioned during the call are in U.S. dollars.

I will first take you through an overview of our financial and operating highlights for the second quarter 2015 and then I will share an update with you on our strategic initiatives, current company direction and our near-term business outlook.

I will then turn the call over to our CFO Min Xu, who will share with you the details of our first quarter financial performance. Please turn to slide five. While Min will walk you through the full detail in just a bit, let me provide a topline summary of our overall financial results for the second quarter.

Please note that in today's discussion Min and I will mention certain non-GAAP financials. In today's earnings release, in addition to disclosing financial measures prepared in accordance with GAAP, we also provided non-GAAP financial measures which we believe better reflect the company's core business status and the development trend.

Min will give more information on the GAAP and non-GAAP financial measures specifically related to the second quarter during his remarks. As stated during this last quarter's call, the company has revised its business strategy which has resulted in a modified revenue profile for this and subsequent quarters.

Non-GAAP second quarter revenues were $16.7 million, in line with our expectations set and shared last quarter. Second quarter gross margin was 16.2%. We continue to maintain a strong balance sheet with and from a cash perspective we ended the quarter with cash and cash equivalents in the amount of $73.5 million.

Now let me walk you through some of the key operational highlights in the second quarter. Please turn to slide seven. First, as we said would be the case we focus only on margin revenue for our broadband business which I've stared repeatedly will be a key driver of our business globally.

As stated last quarter we are committed to migrating fully towards the higher end of the market, producing higher margin products and moving away from less profitable ones.

I am pleased to report that we have made significant progress in this regard, not only are we building a more favorable product mix, we have also put together network solutions where we can add further value by participating in network design, implementation and management.

As a result of this strategic shift, we are already starting to see interest from current and prospective customers for their solution oriented offering.

As part of our efforts to acquire a large share of the mobile backhaul and Metro aggregation markets we introduced a new centralized Layer3 solutions with SDN/NFV enabling that implements Layer3 VPN services over Packet Optical Transport network to bolster its packet optical transport and SDN portfolio.

This is a second addition to our SDN/NFV offering and adds further to the bandwidth on demand service that we introduced earlier. Second, we revised our approach to key markets and in doing so are working hard to achieve a healthy geographic diversification in markets where we can be more successful.

Recognizing the importance of Japan we continue to dedicate resources to expand our customer relationships and current offering in this key market. We are encouraged by how our offering is received and we are continuing to expand on our business with a second carrier there and particularly with our new TN765 a 100G product.

During the quarter, we worked on deepening our relations with our global customer base and successfully secured significant contract expansion to support a major network enhancement for the largest national wireline carrier in India, BSNL.

We also secured a major contract to support carrier WiFi system integration for Banglalion Communications Limited, our leading WiMAX operator in Bangladesh. We are also pursuing new business opportunities with our existing customer in LATAM as well, more importantly, also with our new TN765 product. On the U.S.

front, earlier this week we announced the launch of Virtual Gateway Labs a standalone entity that is developing products that allows cleanliness [ph], access and aggregation of the SDN [ph] network.

Virtual Gateway Labs platform will help fuel tomorrow's open access network when broadband will be more than just the Internet, but instead will also offer a new variety of virtual services such as emerging communications, interactive entertainment, home automation, smart TV [ph] and connective [indiscernible] systems.

UTStarcom owns about 75% of the company with the remaining 25% being held by employees of the business. The company has recently received its first purchase order of the newly introduced Virtual Broadband Gateway product.

In addition to this, we have bolstered our go-to-market strategy partnering where possible with experts who can help us to access new and exciting markets. This dynamic approach has helped us to deliver our products to new and diverse growth markets.

More specifically, during the quarter we made significant progress with expanding our presence in Myanmar and also in initiating our reach into Africa. We are already seeing the results of this strategic geographic diversification and we expect to share more exciting developments as we progress through the year.

Third, we further streamlined the business and cut costs while improving operational efficiency. We successfully further reduced our operating expenses and we are on track to achieve our target of 10% operating expense reduction. This was achieved by a combination of initiatives.

Not only did we make certain headcount reductions, we also redeployed certain employees towards the higher margin side of the business. We also continue to further streamline our operations. As an example of this, we combined our Taiwan sales operation with our Asia Pac sales operations.

We remain focused on our new efficiencies and ways in which we can be more agile in the current market. We also expect to share an update on other cost cutting strategic initiatives as the year progresses.

Let me now take a quick moment to provide an update on the two major parts of our business, our broadband business and our strategic and new investments. Please turn to slide eight.

Starting with broadband, as we have stated consistently, broadband continues to be the key area of the focus for the Company and we are continuing to make significant progress in this area.

As mentioned, we formally launched our new Layer3 solution with SDN/NFV enabling at the Softbank World 2015 Exhibition, an integral part of our Software-defined Open Optical, SOO network solution introduced earlier this year. The L3 NFV solution builds on the benefits that UTStarcom's SDN/NFV enabled network infrastructure offers.

It has an extended range of Layer3 services that were not previously available on Layer2 networks. It will offer a CapEx and OpEx savings to our customers. It will be easy to implement, flexible and also scalability. This is yet another example of our design philosophy of simple network, simple operations.

Furthermore, with the proliferation of IOT [ph] that needs to build our IPv6 network will become very important in order to support the huge demand for additional IP addresses. Our Layer3 NFV solution is a perfect fit to provide such low cost solution on the metro network.

Our newly created entity, Virtual Gateway Labs, VGL recently launched its first virtual broadband gateway product as mentioned we are pleased to announce that VGL has received the first purchase order for its virtual broadband gateway product.

Again, VGLs platform will help fuel tomorrow's open access network where broadband will be more than just the Internet, but instead it will also offer a new variety of virtual services. All of such and many other services can be deployed remotely by operators.

Our high margin Flagship product, TN765 with 100G Ethernet services and the carrier-grade Wi-Fi solutions continue to be popular and in demand with carriers. It is currently undergoing field trials and tests with different operators in Japan, Asia Pacific as well as LATAM.

We're seeing strong demand from our diverse range of emerging country network operators for our market leading solutions which include carrier Wi-Fi, mobile backhaul, and as well as metro network aggregation solutions.

We have been focusing on the opportunities in the higher end of the market and our R&D teams are working on new products and solutions to meet the evolving customer needs. Moving to our strategic investments in new media, please turn to slide nine.

As the largest investor in both UiTV and aioTV we fully expect to benefit from their growth and expansion and we therefore continue to actively support the development of their businesses. We are happy to say that there have actually been a lot of positive movement in this area and there are exciting things to report. First an update on UiTV.

In August, UiTV secured a ground-breaking contract win, its first in Mainland China. We expect to be able to share more information on this specific win in the third quarter.

Cable operators in China as well as in many parts of the world have been evaluating the choice between simply adding OTT services to its existing DDB direct broadcast service versus changing completely to an all IP based system for direct broadcast as well as OTT services.

This first all IP conversion contract win will become a showcase to other cable operators who are still contemplating on how to make the switch. As for UiTV's IPTV operation in Thailand for TOT it has now resumed subscriber growth as the geopolitical environment has stabilized. TOT is now actively promoting the IPTV services.

UiTV achieved positive operating cash flow for the Month of June and very close to breakeven EBITDA for May and June. It is continuing on its path to reach breakeven in the second half of this year. Even that business growth is resuming a healthy track.

Turning to aioTV, during the second quarter aioTV secured an additional critical patent from the U.S. Patent and Trademark Office.

This latest patent in addition to aioTV's other granted patents, is indicative of its growing capabilities to enable video providers to create channels and packages from a blend of VOD, linear and Internet video within the common experience.

The patent covers among other things normalization of historic metadata sources, associated packaging and video playback. It helps to solve the common challenge for large content owners and MEPDs [ph] to enhance their middleware platform and customize user experiences in order to deal with the massive demand of desperate metadata.

Besides this Central and South Americas aioTV continued to gain foothold in the U.S. We have signed an agreement with a major FSO. Announcement will come sometime in the third quarter when they begin to launch the services.

aioTV has also recently launched QT an online video service offering customers a better way to discover and enjoy internet video on devices they want. QT is highly curated web TV that is hosted by aioTV.

aioTV continues to be recognized in the market as the leader and was recently included in the Fierce 15 list of top privately held online video OTT companies of 2015. Their inclusion in the list further demonstrates the innovation aioTV is bringing to the live streaming and online video industry.

Trade analysts have been touting that 2015 is the year of OTT. Consumers are now demanding it. Business models are there to support it, including subscription based and advertizing based.

Technology platforms and ecosystems are beginning to be in place to deliver enhanced user experience and aioTV is very well positioned in this market with its product offerings. We are working with both of these partners' aioTV and UiTV to help generate long-term value which we hope to monetize in due course.

In addition to these two strategic investments, we have also made great strides in maximizing returns from two other strategic investments, IPTV and ESA. IPTV has paid back $10 million in cash out of the $20 million convertible loan from 2012.

The rest of the interest and the remaining $10 million principle have been converted into a 14% stake in what we consider to be a high-value company. Separately, ESA has also repaid the full loan with interest, returning approximately $6 million at the beginning of the third quarter.

Both of these transactions highlight that our plan to start to monetize our investments is beginning to generate good returns for our company. Now please turn to Slides 11 and 12. With our standard quarterly update concluded, I would like to share with you an update on where we are as a company and our view of our future business direction.

As stated in the last quarter's call we remain focused on our business transformation. You will recall we said that we would focus on the higher margin products suite generating more sustainable and healthier revenue and would take more aggressive actions needed to cut costs and improve our business foundation.

As we mentioned, increased volatility in global market continue to impact our businesses and we are taking steps to ensure that we are nimble and agile enough to handle his volatility.

The evolution of the business model is an ongoing process and it will not happen overnight although we are pleased with the progress we have made so far in the second quarter.

Our performance during the quarter has demonstrated our aggressive steps are starting to pay off and will offer us a healthier base from which to build future sustainable growth in revenue.

To this effect, we have made significant progress in this regard scaling our business back to the most profitable segments meeting our expectations for revenue and cost reduction targets.

As we look forward, please do remember that moving to the higher margin product line does mean that we have a modified revenue profile and a reduced size of a new turnover.

Further, our high quality and higher margin broadband products are still in the early stages of the product lifecycle, but we do believe that uptake will gather pace as we approach the third and fourth quarters. Looking specifically at the third quarter the company expects to generate non-GAAP revenue in the range of $18 million to $22 million.

Once again we reiterate that while this ongoing transformation and adjustment to our business strategy will have near-term impact on our revenue profile, the management and I are confident we are building a more efficient player in the higher-end of the market and becoming poised to capitalize on opportunities in diverse global locations.

This will ultimately yield a stronger, more competitive and more profitable UTStarcom in the long-term albeit with the lower expected overall topline growth rate. Update on shareholder matters. You might have noted a recent 13D filing by two of our investors.

We will stress that at this time the proposal is in term sheet phase with prospective investors. We would like to reassure our shareholders that if there is a company-specific events are announced we will do so in a timely manner.

In addition to this, we will add that we welcome all investors who recognize the promise and underlying value of our business and support our long-term strategic direction. With that let me turn the call over to Min, who will walk through the financials for the second quarter in more detail..

Thank you, William, and hello everyone. I will now take a few minutes to discuss our second quarter 2015 financial results. Please turn to Slide 14. Before I walk through the financial details, I would like to highlight a few key items for the second quarter. Second quarter non-GAAP revenues were within our guided range of $15 million to $20 million.

Non-GAAP gross margin increased sequentially to 16.2% largely due to improving product mix. Our cash balance at the end of the quarter was $73.5 million, an improvement from last quarter and we had zero debt.

As part of our effort to monetize our investments, we received $10 million cash repayment from IPTV and $0.7 million cash refund from our Cortina investment during the quarter. In addition, we received $6 million ESA loan repayment in July. As a result we recorded $4.6 million gain from the investment during the quarter.

In the second quarter, we recognized $11.8 million sales that were subject to the Indian Department of Telecom agreement or DoT agreement. This revenue was previously deferred due to the difficulty in assessing the potential liability in the event of a network security breach.

With relaxed regulation and five-year operation record, the company concluded that the likelihood of non-compliance is low and thus recognized revenue during the quarter. Given the non-cash and a one-time nature of the revenue we excluded the impact from our non-GAAP financials. Please turn to Slide 15 for non-GAAP revenue review.

Please note that non-GAAP revenues excluded legacy IPTV revenues and Indian DoT related revenues. In the second quarter total non-GAAP revenues were $16.7 million in line with our initial expectation of $15 million to $20 million and below the previous quarter's revenue of $32.4 million.

The sequential revenue decrease was due to a decline in PTN sales and the proactive realignment and third party sales. Please turn to Slide 16 and 17 for our gross profit and gross margin. Please note that non-GAAP cost of sales and non-GAAP operating expenses excluded stock-based compensations.

In the second quarter non-GAAP gross profit was $2.7 million down from $4.8 million of gross profit in the previous quarter and $6.4 million a year ago. Gross margin was 16.2% up from 14.9% in previous quarter, but down from 20.1% a year ago. The sequential margin improvement was due to favorable product mix.

Please turn to Slide 18 for operating expenses. In the second quarter non-GAAP operating expenses were $11.7 million which included expense associated with an internal investigation as well as severance cost.

Excluding these special items, the non-GAAP operating expenses would have been $7.9 [ph] million compared to $8.6 million in the prior year period. Looking forward we maintain our target to achieve more than 10% year-over-year savings operational expense in the second half of 2015. Please turn to Slides 19 and 20 for operating loss and the net loss.

In the second quarter non-GAAP operating loss was $9.0 million compared to operating loss of $2.2 [ph] million in the prior year period. In the second quarter non-GAAP net loss was $0.9 million compared to net loss of $4.0 million in the prior year period.

The second quarter net loss included tax reversal benefit of $7.2 million, $4.6 million gain from investments and loss pick up of $3.4 million from UiTV Media. Please turn to Slide 21 for cash balance and cash flow. We ended second quarter with $73.5 million in cash and we had no debt.

Subsequent to the quarter we received ESA loan repayment of $6.0 million. In the second quarter cash used by operating activities was $4.3 million. Cash flow from investing activities was $11.8 million among which $10 million were from IPTV convertible bond repayments.

Cash used in financing activities was $1.1 million which was entirely related to our ongoing share repurchase program. This concludes my financial review. Now I will like to turn the call back to William for concluding remarks.

William?.

Thank you, Min. Turning now to Slide 23. I would like to recap our go forward strategy and priorities with you. First, we will continue to focus on high margin revenue driven by our broadband business. We continue to see our broadband business as the key driver of our business globally.

In order to support this aggressive strategy we will expand existing and developing new relations in each markets for our products and services. Second, we revised our approach to key markets and in doing so achieved a healthy geographic diversification.

We remain focused on key growth markets and we are making significant progress in a diverse range of both established and the emerging markets including Japan, U.S., LATAM, Bangladesh, Myanmar. We expect to share an update on our progress in this regard as we move forward.

Third, cost cutting efforts we are exploring to make our business agile and nimble. We continue to access our current business model and are actively looking where we can reduce costs while still supporting our business transformation.

Lastly, we will continue to add value to our strategic investments in UiTV and aioTV with the goal of monetizing these investments and generating good return in the future. Both of these investments are growing in prominence and gaining a stronger share of their respective markets.

As they continue to grow, we firmly believe that they will add value to our portfolio and will ultimately yield good return in the future. We will share updates on their progress as we go. As mentioned earlier, we believe we have delivered on the strategic adjustments we set out in the last quarter.

We firmly believe that these adjustments will support our business and to build a stronger, more competitive and more profitable UTStarcom in the long-term. We will continued to focus on this business transformation into the second half of this year while simultaneously expanding our share of the higher end of the market.

We thank you for your support as we continued to work hard to deliver improved value for our business and our stakeholders. With that, Min and I would like to take your questions. Operator, please open the line for Q&A..

Thank you. [Operator Instructions] And your first question comes from the line of [indiscernible] from Rosenblatt Securities. Your line is open. Please go ahead..

Hi, thanks for taking my call. These questions are actually on behalf of our analyst, John Treenan who could not make it today. Could you please give more color on your updates in Japan, when should we expect the business turnaround and what are the steps are you looking to increase value to shareholders? Thank you. I also have a followup..

Maybe I'll start with that and Min could chime in. Actually in Japan, all along we know we have a great strong business with Softbank all this time around and we have stated couple of quarters ago that we would start to diversify our business in Japan.

And we’re very happy to report that at the end of last year, we already won the second carrier in Japan and at the current time, we’re working very diligently and expanding our business with the second carrier as well as with our entrenched customer Softbank. Now we’re also going beyond that. We’re not stopping at these two carriers.

So right now we have assembled a new team that is going out to a third major carrier in Japan, so that we would continue to expand our presence and leverage on our strong local support and capability that we have established over in Japan over the years..

Adding to William’s point, so we have always been trying or working very hard to add new customers to our customer portfolio and in addition to that we always want to expand our sales providing new service and new products to our existing customers.

Doing that will help us expand our revenue and improve our margins and in return we can - our target is to achieve operating cash flow positive and eventually achieve a profitability to add value to our investors..

Great, thanks guys. One more question.

Could you also give us more color on how recently some Chinese listed company purchased all shares from Shah Capital at over $6 per share?.

As I stated during the call earlier, the binding term sheet is currently at the term sheet's base right now. So we’re not in a position to speculate on such an arrangement between individual investors.

However, as I stated again, we do very much welcome investors who see the promises and particularly the underlying value with the UTStarcom and who see the long-term strategic value that the company is bringing, because if you look at the business we are in the blink of turning around.

At the same time, there is plenty of cash in the company with very little or actually zero debt and a very substantial sizeable investment portfolio that we have and we are beginning to show tell tales of monetizing those investments that you see with the return of money from IPTV and ESA.

So hopefully, more and more investors will begin to see the true value of the company and we welcome investors who would want to join the investment group for UTStarcom..

Just a few more comments, so as indicated by the 13D filing filing, the timeline for this deal is expected to close late October and so at this point, it’s just kind of private transaction between investors. If there are any company-specific events, we will definitely put out an update..

Okay. Thanks guys. Much appreciate it..

Thanks a lot..

Thank you..

Your next question comes from the line of Chris Irons [ph] from the Markets Edge. Your line is open. Please go ahead..

Hi guys, how are you doing? Sorry to beat a dead horse again on this peculiar 13D transaction, but that is really what we have our question about also. I understand that the term sheet isn’t supposed to close until October.

We’ve read the initial terms on the term sheet, but I guess what we’re trying to figure out is what is the intention of the transaction? And then kind of what is the future plan of the company after the transaction? It’s peculiar to see a premium of 200% of the current price and so we’re just trying to put a little color around what the intention is of this transaction?.

Yes certainly, as I say that there is not a whole lot we can comment upon this at this moment, the only thing that I would add is that this is a strategic investor. I mean if you look at the premium they are offering obviously there is a lot of [indiscernible] in this investment and this is the extent that we can talk about it.

I’m sure as they get closer to a more definitive agreement and so forth then at such time there may be more information can be revealed by the investors and of course by the time if and the deal closes, then I am fully sure investor and the company would have a full-blown detailed discussion of the strategy moving forward..

Right, we would hope so. Just one followup real quick. Is there any additional information that you can give us about the buyer of the transaction the Smart SOHO International Limited? We’re trying to find out whether that is like an affiliated or related party of Shanghai Feixun Communication Co.

they share the same President this [indiscernible]?.

There is nothing further that we can discuss at this point unfortunately from our perspective..

Sure. Okay all right, well thanks for taking the call..

Thank you..

Thank you..

[Operator Instructions] You have a question from Jun Zhang from Rosenblatt Securities. Your line is open. Please go ahead..

Hi, William and Min. So, yes I think my question is the potential opportunity from this transferring as I understand that the company that going to potentially acquire stakes from Shah Capital kind of bought is the telecom equipment company, it is limited with Huawei or ZTE in China.

So, I'm just wondering if there is any synergy or potential opportunity from this deal? Thanks..

Jun thanks for calling in and as I stated, unfortunately there is a lot of whole lot of detail that we can't discuss at this moment. This proposed deal is still in the term sheet phase right now.

So I think by the time they close this then we would be able to disclose a lot of information with the new investor if it closes, but at this moment I do apologize there is not a whole lot of information that we can share or disclose at this point..

No problem. So and also I just want to - trying to figure out what is the cash flow most likely in the second half although trying to make kind of around revenue the business growth, but I just want to trying to figure out what the cash flow looks like in the second half? Thanks..

Yes, so we don’t provide guidance on cash flow, but I can give you some color. So at this point, I think we’re still trying to achieve cash flow breakeven. So I would still expect for second half the total cash flow from operation will be negative.

However, as I mentioned before, we received the $6.0 million cash repayment from the ESA loan, so that would definitely help our cash balance, but in general I wouldn’t expect too much volatility in terms of a cash flow in terms of cash balance..

Okay, thanks a lot. That’s all my questions, Thanks.

Thank you..

Thank you, Jun..

[Operator Instructions] Thank you. There are no further questions at this time. I would turn the conference back to your host for closing comments..

Okay, thank you for joining us on our second quarter 2015 earnings conference call. We look forward to updating you on our third quarter 2015 results in a few months' time. Feel free to get in touch with us any time if you have any further questions, concerns or comments. Thank you everyone..

That does conclude today’s call. Thank you for your participation. You may all disconnect..