UTStarcom(UTSI) - 2023 Q1 - Quarterly Report

Executive Summary & Business Update Business Update UTStarcom made significant 2H 2022 progress in 5G transport, new platform launch, expansion orders, and India receivables reduction - Progressed collaboration with China Unicom Research Institute on a disaggregated networking solution for 5G transport networks, winning two RFPs for v.2.x NOS development (including SRv6 and protocol stack) and a disaggregated hardware platform[2] - Launched the new SkyFlux UAR Disaggregated Router platform, including three chassis-based modular routers (SkyFlux UAR400A-04X, SkyFlux UAR500A-08X, SkyFlux UAR500B-12X) and the SkyFlux NOS Network Operating System[3] - Received an expansion order for NetRing® TN704E metro access and aggregation products for a mobile operator's 5G transport network deployment in Europe[3] - Secured multiple expansion orders for the IMS solution deployed in India, aimed at increasing subscriber capacity to meet growing demand[4] - Collected $23.4 million in India receivables in 2022, reducing the outstanding balance to $9.8 million by year-end, an over 80% decline from its peak[4] CEO Commentary CEO Hua Li cited COVID-19 and geopolitical impacts on 2022 results, emphasizing progress in network disaggregation and new growth initiatives - Second half and full year 2022 results were negatively affected by the COVID-19 pandemic and geopolitical issues[5] - The company is progressing with business partners in China to implement network disaggregation solutions[5] - Actively working on other opportunities to restore growth[5] Financial Highlights (Unaudited) Second Half 2022 Financial Summary 2H 2022 revenue decreased 9.72% to $6.5 million, but gross profit turned positive to $1.3 million, and net loss narrowed to $3.4 million 2H 2022 Key Financials (Unaudited) | Metric | 2H 2022 ($M) | 2H 2021 ($M) | Y/Y Change | |:---|:---|:---|:---| | Revenue | $6.50 | $7.20 | -9.72% | | Gross Profit | $1.30 | ($3.30) | -139.39% | | Operating Expenses | $3.00 | $2.90 | 3.45% | | Operating Loss | ($1.70) | ($6.20) | $4.50 | | Net Loss | ($3.40) | ($6.10) | $2.70 | | Basic EPS | ($0.38) | ($0.67) | $0.29 | | Cash Balance (including Restricted Cash) | $66.80 | $66.30 | 0.75% | Full Year 2022 Financial Summary Full year 2022 revenue decreased 11.95% to $14.0 million, with gross profit improving to $2.7 million and net loss narrowing to $5.1 million Full Year 2022 Key Financials (Unaudited) | Metric | 2022 ($M) | 2021 ($M) | Y/Y Change | |:---|:---|:---|:---|\ | Revenue | $14.00 | $15.90 | -11.95% | | Gross Profit | $2.70 | ($1.10) | -345.45% | | Operating Expenses | $7.20 | $4.20 | 71.43% | | Operating Loss | ($4.50) | ($5.30) | $0.80 | | Net Loss | ($5.10) | ($5.80) | $0.70 | | Basic EPS | ($0.56) | ($0.65) | $0.09 | | Cash Balance (including Restricted Cash) | $66.80 | $66.30 | 0.75% | Detailed Financial Performance Analysis Total Revenues 2H 2022 revenues decreased to $6.5 million due to lower equipment sales and JPY depreciation; full year revenues declined to $14.0 million from reduced service sales - 2H 2022 net equipment sales decreased by 42.5% to $0.8 million, mainly due to decreased revenue from major customers in India[9] - 2H 2022 net services sales decreased by 1.3% to $5.7 million, primarily due to lower Japan service revenue as JPY depreciated against the U.S. dollar[9] - Full year 2022 total revenues were $14.0 million, an 11.9% decrease from $15.9 million in 2021[9] - Full year 2022 net services sales decreased by 13.5% to $11.8 million, mainly due to the completion of current projects and no new major projects in India, and lower Japan service revenue due to JPY depreciation[11] Gross Profit Gross profit significantly improved in 2H and full year 2022, turning positive due to a 2021 inventory reserve and increased service gross margin - 2H 2022 gross profit was $1.3 million (20.6% of net sales), compared to negative $3.3 million (negative 45.0%) in 2H 2021[12] - 2H 2022 equipment gross loss improved to $0.3 million (32.4% negative margin) from $4.8 million (325.4% negative margin) in 2H 2021, attributed to a one-time inventory reserve in 2021[12] - Full year 2022 gross profit was $2.7 million (19.1% of net sales), compared to negative $1.1 million (negative 6.8%) in 2021[13] - Full year 2022 service gross margin increased to 28.0% from 24.1% in 2021[13] Operating Expenses Operating expenses increased to $3.0 million in 2H 2022 and $7.2 million for the full year, mainly due to less reversal of credit loss allowance, despite lower R&D - 2H 2022 operating expenses were $3.0 million, compared to $2.9 million in 2H 2021[14] - 2H 2022 SG&A expenses were $0.9 million (compared to negative $0.7 million in 2H 2021), higher due to less reversal of allowance for credit loss from India customer[14] - Full year 2022 operating expenses were $7.2 million, compared to $4.2 million in 2021, with SG&A increasing to $2.4 million (from negative $2.6 million) for similar reasons[16] - R&D expenses decreased in both 2H 2022 ($2.1 million from $3.6 million) and full year 2022 ($4.8 million from $6.9 million), reflecting different stages of 5G product development[14][16] Operating Loss Operating loss significantly narrowed in both 2H and full year 2022, driven by improved gross profit despite higher operating expenses - 2H 2022 operating loss was $1.7 million, a significant improvement from $6.2 million in 2H 2021[17] - Full year 2022 operating loss was $4.5 million, compared to $5.3 million in 2021[17] Interest Income, Net Net interest income increased in both 2H and full year 2022, primarily due to higher interest income from India - 2H 2022 net interest income was $1.3 million, up from $0.7 million in 2H 2021[18] - Full year 2022 net interest income was $2.2 million, up from $1.1 million in 2021[18] - The increase in interest income was mainly due to higher interest income in India[18] Other Income (Expenses), Net Net other expenses were reported in 2H and full year 2022, mainly due to foreign exchange losses from Indian Rupee depreciation - 2H 2022 net other expense was $2.3 million, compared to net other income of $0.5 million in 2H 2021, mainly due to foreign exchange loss from Indian Rupee depreciation[19] - Full year 2022 net other expense was $0.7 million, compared to net other income of $1.6 million in 2021, also mainly due to foreign exchange loss from Indian Rupee depreciation[19] Net Loss Net loss attributable to shareholders decreased in both 2H and full year 2022, with basic net loss per share also improving - 2H 2022 net loss attributable to shareholders was $3.4 million, compared to $6.1 million in 2H 2021[20] - 2H 2022 basic net loss per share was $0.38, compared to $0.67 in 2H 2021[20] - Full year 2022 net loss attributable to shareholders was $5.1 million, compared to $5.8 million in 2021[20] - Full year 2022 basic net loss per share was $0.56, compared to $0.65 in 2021[20] Cash Flow 2H 2022 operating activities generated $3.4 million, investing used $0.2 million, with cash balance at $66.8 million by year-end - Cash provided by operating activities in 2H 2022 was $3.4 million[21] - Cash used in investing activities in 2H 2022 was $0.2 million[21] - Cash provided by financing activities in 2H 2022 was nil[21] - As of December 31, 2022, cash, cash equivalents, and restricted cash totaled $66.8 million[21] Company Information & Disclosures About UTStarcom Holdings Corp. UTStarcom is a global telecommunications infrastructure provider, founded in 1991, listed on Nasdaq, focusing on mobile backhaul, metro aggregation, and broadband access in key markets - UTStarcom is a global telecommunications infrastructure provider[22] - Offers high-performance advanced equipment for mobile backhaul, metro aggregation, and broadband access[22] - Has operations and customers worldwide, with a special focus on Japan, India, and China[22] - Founded in 1991 and listed on the Nasdaq Market in 2000 (symbol: UTSI)[22] Forward-Looking Statements This section contains forward-looking statements subject to risks including COVID-19, financial condition changes, operational improvements, new product development, and regulatory matters - Statements regarding strategic initiatives and business outlook are forward-looking and subject to risks and uncertainties[23] - Risks include the effect of the COVID-19 pandemic, changes in financial condition, management changes, ability to realize anticipated results, integrate acquisitions, develop new products, market growth assumptions, and regulatory matters[23] - The company is in a period of strategic transition, exposing its business to additional risks[23] Investor and Media Inquiries Contact information for investor and media inquiries is provided, including UTStarcom Holdings Corp and The Blueshirt Group - Contact information for UTStarcom Holdings Corp Investor Relations (Ms Shelley Jiang) is provided[24] - Contact information for The Blueshirt Group (Mr Gary Dvorchak) for inquiries in the United States is provided[24] Unaudited Condensed Consolidated Financial Statements Balance Sheets As of December 31, 2022, total assets decreased to $88.9 million, liabilities to $31.6 million, and equity to $57.4 million, mainly due to reduced accounts receivable Unaudited Condensed Consolidated Balance Sheets (in thousands) | ASSETS | Dec 31, 2022 | Dec 31, 2021 | |:---|:---|:---|\ | Cash and cash equivalents | $54,500 | $53,797 | | Accounts receivable, net | $11,357 | $27,445 | | Total current assets | $81,722 | $97,793 | | Total assets | $88,923 | $108,279 | | LIABILITIES AND EQUITY | | | | Accounts payable | $12,974 | $19,031 | | Total current liabilities | $28,527 | $35,427 | | Total liabilities | $31,563 | $39,928 | | Total equity | $57,360 | $68,351 | Statements of Operations Unaudited statements show 2H 2022 net loss of $3.4 million and full year net loss of $5.1 million, with improved gross profit, increased SG&A, decreased R&D, and foreign exchange losses Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Six months ended Dec 31, 2022 | Six months ended Dec 31, 2021 | Twelve months ended Dec 31, 2022 | Twelve months ended Dec 31, 2021 | |:---|:---|:---|:---|:---|\ | Net sales | $6,533 | $7,229 | $14,025 | $15,921 | | Gross profit | $1,348 | ($3,252) | $2,675 | ($1,075) | | Operating expenses | $3,033 | $2,942 | $7,167 | $4,244 | | Operating loss | ($1,685) | ($6,194) | ($4,492) | ($5,319) | | Interest income, net | $1,342 | $668 | $2,154 | $1,136 | | Other income (expense), net | ($2,303) | $545 | ($706) | $1,649 | | Net loss attributable to UTStarcom Holdings Corp. | ($3,426) | ($6,080) | ($5,107) | ($5,828) | | Net loss per share—Basic | ($0.38) | ($0.67) | ($0.56) | ($0.65) | Statements of Cash Flows Full year 2022 operating activities provided $7.26 million, investing used $0.25 million, with cash, cash equivalents, and restricted cash totaling $66.84 million Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow | Six months ended Dec 31, 2022 | Six months ended Dec 31, 2021 | Twelve months ended Dec 31, 2022 | Twelve months ended Dec 31, 2021 | |:---|:---|:---|:---|:---|\ | Net cash provided by operating activities | $3,410 | $6,126 | $7,260 | $19,829 | | Net cash provided by (used in) investing activities | ($174) | ($208) | ($250) | $1,752 | | Net cash provided by financing activities | $20 | $0 | $7 | $0 | | Effect of exchange rate changes on cash and cash equivalents | ($872) | ($1,591) | ($6,452) | ($3,693) | | Cash, cash equivalents and restricted cash at end of period | $66,841 | $66,276 | $66,841 | $66,276 |