Q1 2008 Aastra Technologies Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good morning and welcome to Aastra reports first quarter 2008 financial results conference call for April 23, 2008.

Your host for today will be John Tobia. Mr. Tobia, please go ahead.

JOHN TOBIA, VP LEGAL & GENERAL COUNSEL, AASTRA TECHNOLOGIES INC.: Thank you, Melanie, in addition to myself, Francis Shen, our Co-CEO and Chairman, Allan Brett, our CFO, and Kathy Ristic, our VP of Finance, Treasurer, Investor Relations will also be participating on the call. The first portion of the call will include management's presentation. Allan will present a financial overview of our first quarter 2008 unaudited financial results and Francis will provide a general overview of our business. Afterwards we will commence our question and answer session. Analysts are most welcome to ask questions. Time permitting we will also allow other participants to ask questions. Prior to commencing the presentation, we want to provide some brief cautionary statements. This conference call may contain forward-looking information of forward-looking statements within the meanings of applicable securities legislation.

Any statements that express or involve discussions with respect to predictions, beliefs, plans or expectations or objectives, or future performance often but not always including the phrases believes, expects, and anticipates are not statements of historical fact but are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Forward-looking statements may include but are not limited to expectations regarding our European integration plans, our research and development efforts and our completion of our acquisition of Ericsson Enterprise Communication Business. Please refer to the heading risk factors in our annual information form filed on SEDAR for the material factors that could cause our actual results to differ materially from the forward-looking statements made today.

It's important to note that unless otherwise indicated forward-looking statements are made as of today's date based on our expectations. We caution readers not to place undue reliance on these forward-looking statements as actual results may differ materially from our expectations if both known and unknown risks or uncertainties affect our business or if our estimates or assumptions ultimately prove to be inaccurate. Therefore we cannot provide any assurance that forward-looking statements will materialize and we assume no obligation to update or revise any forward-looking statements. Now I will introduce Allan who will commence his presentation.

ALLAN BRETT, CFO, AASTRA TECHNOLOGIES INC.: Thanks, John. As indicated I will review the Company's unaudited financial results for the first quarter ended March 31, 2008. Sales for the three months ended March 31, 2008, grew C$140 million compared to sales of C$153.3 million for the same period in 2007. This represents a decrease of approximately 8.6%. Sales in the European Enterprise Communications segment decreased from C$128.7 million in the three months ended March 31, 2007, to C$117.7 million in the same period this year. The Company experienced a decline in sales of approximately C$7 million in Spain as a result of the shift in the sales model by our main customer in this market. Our main customer in this market changed it's sales model to a leasing model where their small business customers would rent their PBX as opposed to buying it out right. As a result of a weak customer response to this program, our sales in Spain declined by more than 50% compared to the same period last year.

Sales in Europe are also negatively impacted by the strength of the Canadian dollar against the Euro, British pound and Swiss franc when compared to the first quarter of 2007. While the Canadian dollar generally weakened throughout the quarter, average exchange rates against these currencies was stronger than in the first quarter of 2007. The negative impact from foreign exchange resulted in a sales decline of just over C$2.5 million in this segment during the first quarter. Sales in our North American Enterprise Communications segment were C$22.3 million for the first quarter, which is a decrease from sales of C$24.6 million in the same period of 2007. This results from primarily a weakness in sales relating to foreign exchange. The impact from a sales decrease from foreign exchange was approximately C$2.5 million in this segment.

Excluding foreign exchange our increased sales revenue from IP phones was offset by weaker revenue from large systems solutions from our intercom group in the United States. Gross margins were 44.4% of sales for the three months ended March 31, 2008, a sharp increase from gross margins of 41.9% in the same period last year. Gross margins were positively impact by the effects of foreign currency, where we were able to secure better pricing in local terms as a result of weakness in the U.S. dollar compared to the Euro and other European currencies, as many of our components used in our products are priced in U.S. dollars. In addition gross margins were assisted or were improved by an improvement in overhead expenses during the quarter. Research and development expenses in the first quarter of 2008 were C$13.7 million, or 9.8% of sales, compared to C$14.4 million or 9.4% of sales in the same quarter of 2007.

The reduction in research and development expenses reflects the impact of restructuring efforts taken in the United States, while also reflecting the impacts of foreign …