Q1 2007 Aastra Technologies Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good afternoon, and welcome to the Aastra first conference call. Your host for today will be John Tobia Please go ahead.

JOHN TOBIA, VP - LEGAL, GENERAL COUNSEL, AASTRA TECHNOLOGIES INC.: In addition to myself, Francis Shen, Co-CEO and Chairman, Tony Shen, Co-CEO and President ,and Allan Brett, CFO, will be participating on the call. The first portion of the call will include management presentation. Allan will present an overview of the first quarter 2007 financial results and Francis will provide a general overview of our business. We'll commence our question-and-answer session. Analysts are more than welcome to ask questions. Time permitting, will also allow other participants to ask questions. A part of this presentation we want to provide cautionary statements.

This conference call may contain forward-looking statements or information within the meaning of applicable securities legislation. The new statement involved, predictions, expectations, beliefs, plans, objectives, assumptions or future performance including phrases such as believes, expects, anticipates, intends, or stating that certain actions or results could or might or will happen are not statements of historical fact that are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause our actual results and performance and achievements in our business to differ materially from the anticipated results or performance expressed or implied by such statements.

Forward-looking statements may include but are not limited to our expectations regarding our research and develop efforts and commercialization of our products and solutions, as well as medium turn to 2007 objectives and strategies to achieve objectives. Please refer to the heading risk factors in our annual (INAUDIBLE) form filed on our website for material factors that could cause our actual results to differ materially from the forward-looking statements made today.

Relevant risk factors include our European integration plans, the continued demand for our products including our new IP and wireless products and solutions. Reliance on third party manufacturers and component suppliers. Exchange rate fluctuations of the Canadian dollar being another currency particularly especially with the Swiss franc and Euro and U.S. dollars. Risk associated with product returns and product defects, consolidation, reorganization and rapid technological change in our industry, competition in our industry and risk of third party claims. Material factors and assumptions are applied in making any forward-looking statements today include our research and development efforts and our European integration plans will enable us to successfully commercialize our products and solutions to become a leader in providing IP and standard based solutions in the enterprise communications market.

Unless otherwise indicated, forward-looking statements made today describe our expectations as of today's date. We caution not to place undue reliance as the actual results may differ materially from our expectations. Therefore, we cannot provide any assurance that forward-looking statements will materialize, and we have no obligation to update or revise any forward-looking statements. Allan will commence his presentation.

ALLAN BRETT, CFO, AASTRA TECHNOLOGIES INC.: Thanks, John. As indicated I will review the company's financial results for the first quarter ended March 31, 2007. Sales for the three months ended March 31, 2007 were 153.3 million, compared to sales of 145.7 million for the same period of 2006. This represents an increase of approximately 5.2%.

Sales in the European Enterprise Communications segment increased 6.9% from 120.4 million ending March 31,2006 to 128.7 million in the same period of 2007. Sales in this segment were positively impact by the Canadian dollar to the Euro and Swiss franc compared to the first quarter of last year. In addition we experience strong sales in Switzerland and Spain, while sales in Germany and France remain stable.

Sales in the North American enterprise communications segment were 24.6 million in the three months ending March 31, 2007. Compared to 25.3 million in the same period of 2006. Primarily as a result of the weakness in U.S. sales during the first quarter. Gross margin was 42% of sales for the first quarter of 2007, consistent with the same period last year. Mild improvement in European gross margins were offset by weaker gross margins in North America due to achieve new product mix. Research and development presented for the first quarter of 2007 were 14.4 million or 9.4% of sales, compared to 14.9 million or 10.2% of sales for the same quarter of 2006.

A reduction in research and development expenses reflects impact of restructuring efforts taken in Europe subsequent to the first quarter of 2006. Selling general and administrative expenses were 37.5 million or 24.5% of sales in the quarter, compared to 33.4 million or approximately 23% of sales in the first quarter of 2006. The increase in SG&A expenses was driven by higher sales and marketing expenses, professional fees, as well as impact of foreign exchange. Gains from foreign exchange were 1.2 million in the first quarter of 2007 compared with only 200,000 in the same period last year.

As a Canadian dollar weekend, primarily in the Euro but also in the Swiss franc, the British pound and to a limited extent the U.S. dollar. The company recorded investment income of 1.1 million in 2007 compared to 600,000 in the first quarter of 2006, mainly as a result of higher average cash balance, cash balances as well as modestly higher rates of return on these excess cash balances. Income tax expense was 2.7 million in the first quarter, of 2007, for approximately 25% of pretax profits, compared to 1.9 million or 20% of pretax profits for the first quarter of 2006. Income tax expenses is a percentage of the pretax profit increased mildly in the first quarter of 2007 as the company--company's benefit from utilization of tax loss carry forwards decreased compared to last year.

In addition the company recorded a loss of $100,000 net of tax in the first quarter of 2007 as a result of a post-closing adjustment related to the May 2006 sale of the digital video business. As a result of the above, net earnings for the three months ending March 31, 2007, were 8.2 million, or $0.50 diluted earnings per share compared to 7.6 million or $0.42 diluted earnings per share in the same period last year. If we look at the balance sheet, on March 31st, 2007, Aastra had a balance of cash in short term investments of approximately 123 million, compared to approximately 116 million on December 31st, 2006.

Cash flow from operations was 10.5 million in the first quarter of 2007, compared to 10--sorry, compared to 7.6 million for the …