Gary Dvorchak - Managing Director of Blueshirt Group Tim Ti - Chief Executive Officer Xu Min - Chief Financial Officer Eric Lam - Vice President of Finance.

Analysts:.

Hello, ladies and gentlemen, thank you for standing by for UTStarcom's Third Quarter 2016 Earnings Conference Call. Please note that we are recording today’s conference call. I will now turn over the call to Mr. Gary Dvorchak, Managing Director of The Blueshirt Group. Please go ahead Mr. Dvorchak..

Welcome to UTStarcom's third quarter 2016 earnings conference call. Earlier today, we distributed our earnings press release. You can find a copy at 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.

Tim Ti, Chief Executive Officer, Mr. Min Xu, Chief Financial Officer; and Mr. Eric Lam, VP of Finance. Before we get started, I’ll read the Company's advisory on forward-looking statements. So you can see on Slide 2 this call will include forward-looking statements relating to the Company's business and strategic initiatives.

Those statements are forward-looking in nature and are subject to risks and uncertainties that may cause actual results to differ materially and adversely from the Company's current expectations.

These includes risks and uncertainties related to, among other things, changes in the financial condition and 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 the benefits of the divestiture transaction, the ability to successfully identify and acquire appropriate technologies in the businesses for an organic 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 to the Company's ability to execute its business plan and to 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 the Current Reports on Form 6-K, that are 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 well.

All forward-looking statements included in this conference call are based upon information available to the Company as of the date of this call, and that information can change. The Company will assumes no obligation to update any such forward-looking statements. I will now hand the call over to UTStarcom's CEO, Mr. Tim Ti..

Thank you, Gary, and thank you everyone for joining our call this morning. We appreciate your interest in UTStarcom. As Gary mentioned, you can download the call presentation from the Investor Section of our website at www.utstar.com. Also please note that unless otherwise stated, all figures mentioned during this call are in U.S. dollars.

I’ll begin our call with the overview of our financial and operating highlights for the third quarter of 2016. Next, I will provide an update on our strategic initiatives and near-term business outlook. Then, I will turn the call over to our CFO, Min Xu, who will present financial details for the third quarter.

Before starting on the results, I want to discuss the news we released today, our Director Mr. Gu resigned from the Board for personal reasons, and I would join the Board. I want to thank Mr. Gu for his contribution to the Board during his tenure. We also announced today that Min is leaving us for a new CFO opportunity.

Min has been a variable contributor to our success, especially during the strategic transition we began last year. He is leaving on good terms and we will miss him. I want to welcome Eric Lam who is joining us to be our VP of Finance.

Eric was UT Veteran [ph] and was with UTStarcom from 2006 to 2013, and is quite familiar with UT finance, supply chain, and sales operations. Supported by our excellent financial staff, you can rest assure that Eric will manage our financial function seamlessly during the transition.

In addition, Min will remain available to us on a consulting basis until next May. Eric is here with us on the call today. I would like to have him say a few words..

Thank you, Tim and hello everyone. I'm excited to be back with my old colleagues at UTStarcom. I have been in the high-tech industry for almost 40 years of which eight of those years were with UTStarcom.

I worked in the U.S., Philippines, Hong Kong, and China in various finance and accounting leadership capacities with both multinational and startup companies. I studied finance and accounting and have an MBA from Columbia Graduate Business School in New York. I am confident that I can fit into my new role quickly with help of Min and the finance team.

I look forward to speaking with and meeting all our shareholders and analysts in the months ahead. Please feel free to reach out to me with any questions or comments. Back to you, Tim..

Thanks, Eric. If you have any questions, Eric will be available during the Q&A period. Now let’s move on to the results starting on Slide 3. Last quarter, we previewed our expectation that the second half will be soft, and the lot is what we saw this quarter.

Nonetheless, results were not bad just [indiscernible] from the fast pace we experienced earlier in the year. We are considering the period of pause that refreshes. Our efforts this quarter are setting us up for continued profitability and growth next year.

Third quarter revenue was $16.4 million, down sequentially and year-over-year, but within our guidance range. We remain on track with our strategy of focusing on higher value, higher margin product, thus achieving a gross margin of 24.4%. Obviously that is down from the second quarter which was unusually high.

Our operating expenses are scaled for slightly higher revenue run rate, so we did have a loss this quarter. However, we still managed to take nearly $1 million out of operating expense in just the past three months. So you can see that our expense discipline is still firmly increased.

Finally, we remain highly focused on cash management and sustaining our strong balance sheet. We had a positive operating cash flow, and our cash balance was relatively flat even with our share repurchase. From a financial perspective, we are solidly on track for seeing the advantages from our strategy.

Now let me walk you through some of the key operational highlights from the third quarter. Please turn to Slide 4. First, as you know, we’ve focused on pursing high margin revenue opportunities in the broadband business. This is an important drive for us around the world.

Our product revenue in the quarter was mainly from our [indiscernible] PTN product line. This product line is doing well in Japan which is an early adopter in move from 10G to 100G metro networks. We also see meaningful 100G migration opportunities in India and Taiwan.

This generational shift is just beginning, so we should drive growth in PTN for the near future. Our core business is our focus to persuade new opportunities. Earlier in the quarter, we introduced a new product that addresses the mobile backhaul market, which is involving the mobile network move to LTE and LTE advanced.

We introduced our SyncRing product family at SoftBank World export in Tokyo on July. SyncRing addresses a growing problem within mobile backhaul networks, timing synchronization among the base stations making up the network. The super high-speed data transfer our LTE advanced network creates huge challenges for SyncRing synchronization.

As the world moves to LTE advanced mobile networks, we see an immense opportunities for SyncRing. We expect this product to be a major contributor in the years ahead. SyncRing is a complex high value, high margin products that we pursue in our R&D effort. You should expect to see us grow similar type of product in the years ahead.

The development of the SyncRing product demonstrates our commitment to R&D spending. We believe it is essential to continue to develop and introduce new and enhanced products to maintain our comparative position. We have a stable and effective R&D team increase and continue to execute our strategic plan to develop next generation products.

We will continue to use R&D strategically to reduce cost and improve product performance which can result in better pricing and higher margins. As we invest in our R&D spending, we continue to control other operating expense. This focus on efficient operations is a key element of our strategy.

In the third quarter, operating expense were $5.4 million almost $1 million below the second quarter level. Part of [indiscernible] savings came from the relocation of our global R&D and operation center to a new building in Hangzhou. That move is also resulted in our new attractive work environment that makes our employee happier and more productive.

Finally, then you again emphasize our commitment to shareholders who are the owners of the Company and our province. Operating efficiently and more profitably is one element of that commitment and now that is the prudent return of capital which we accomplished again in the quarter.

We repurchased 352,000 shares returning 721,000 to shareholders since inception of the repurchase program through today we have bought back approximately 3.5 million shares at the total cost of $7.8 million.

The Board recently approved of two-year extension to our existing 40 million share repurchased program extending the expiration day to November 2018. With that, let me turn the call over to Min who will walk through the financial in a more detail..

Thank you, Tim. And thank you everyone for joining us on the call today. I will review our financial performance for the third quarter 2016. Let’s taking with Slide 5, before I walk through the specific numbers I would like to highlight a few key items for the third quarter.

Q3 non-GAAP revenue was $16.4 million within our guidance range of $15 million to $20 million. Non-GAAP gross margin improved 160 basis points to 24.4% from the same period last year. The increase in gross margin was largely due to favorable product mix. Non-GAAP net loss was $1.5 million or $0.04 per share in the quarter.

This compares to non-GAAP net loss of $4.8 million or $0.13 per share in the same period last year. Cash provided by operating activities in the quarter was $1.6 million. Our cash balance at the end of the quarter was $81.1 million largely flat compared to the prior quarter and we have no debt.

Now, please turn to Slide 6, for a non-GAAP revenue review. Please note that non-GAAP revenue excludes IPTV revenues and legacy Indian DoT revenues. In the third quarter, total non-GAAP revenue was $16.4 million, which compared to $20 million in Q2 and $26.8 million in the same quarter last year.

The revenue decline was largely due to lower revenue in Japan. Please now turn to Slide 7 and 8, which highlight our gross profit and margin. Note that non-GAAP cost of sales and the non-GAAP operating expenses exclude stock-based compensation, legacy IPTV costs, and the costs related to legacy Indian DoT revenues.

In the third quarter, non-GAAP gross profit was $4.0 million, down from $8.3 million in the previous quarter and $6.1 million a year ago. Non-GAAP gross margin was 24.4% down from 41.2% in the previous quarter, but up from 22.8% a year ago. The sequential margin decline was due to lower mix of higher margin product sales in the quarter.

Moving on to Slide 9, let’s look at operating expenses. In the third quarter, non-GAAP operating expenses were $5.1 million down from $6.4 million last quarter and $6.7 million in the prior year period. Next, let me summarize our operating income and net income shown on Slide 10 and 11.

In the third quarter of 2016, non-GAAP operating loss was $1.1 million compared to operating income of $1.9 million in the previous quarter and operating loss of $0.6 million a year ago. In the third quarter, non-GAAP net loss was $1.5 million compared to a net income of $5.5 million in the previous quarter and net loss of $4.8 million a year ago.

Slide 12, summarizes our cash flow. As discussed earlier, we ended the quarter with $81.1 million in cash and no debt. Cash provided by operating activities in the quarter was $1.6 million, cash used in investing activities was $1.3 million mostly related to CapEx.

Cash used in financing activities was $0.7 million, largely for the ongoing share repurchase program. On Slide 13, we include both GAAP and non-GAAP key financial highlights for your reference. This concludes the financial review. Before I hand the call back to Tim, I want to thank my finance team for their contributions in the past two years.

They have been amazing. I am grateful for having the opportunity to work with Tim, everyone in the senior management team, and all UT employees to make a difference at UT. I would also like to thank our investors, sell side analysts, and everyone on call for your support.

I am confident and optimistic that the Company is on the right track and we will have much success in the years ahead under Tim’s leadership. I also have full confidence in Eric leading UT’s financial team. With that, I will turn the call back over to Tim for additional comments on business outlook..

Thank you, Min. In summary, the third quarter was transitional for us, as we progress from the strong demand environment in the first half of the year to the [ramp] of exciting new growth opportunities in 2017.

During the quarter we introduced our newest SyncRing product, which provides critical functionality for the next generation mobile backhaul networks. Our PTN product line is poised to benefit next year from the rollout of 100G metro networks in our prime geographies such as Japan.

We believe that our new strategy is the right one, with a tight focus on small set of markets in which we can add the most value for our customers. We are seeing the payoff from this strategy with stable revenue and higher margins. Looking at the fourth quarter of 2016.

The Company expects to generate non-GAAP revenue in the range of $15 million to $20 million as shown on Slide 14. As we look through the remainder of 2016 and into 2017, we will maintain our commitment to growing positively, prudently, and managing our operations and remaining financially strong.

We believe we are in position to execute well and build a great foundation to increase shareholder value. With that, Min and I would like to take your questions. Operator, please open the line for Q&A..

Q -:.

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Thank you. [Operator Instructions] There are no questions from the telephone..

Okay well, operator if we don’t have any questions and we will conclude the call. If anyone on the call wants to give us a ring afterwards, we will available to speak with shareholders and analysts. So thanks for your attention and we will all disconnect now..

That will conclude today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect..