Q1 2005 Carrier Access Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Hello and thank you for standing by for the First Quarter 2005 Earnings Call. (Operator Instructions)

It is now my pleasure to turn the meeting over to your host, Mr. Kevin Kosmicki, Associate General Counsel for Carrier Access Corporation.

KEVIN KOSMICKI, ASSOCIATE GENERAL COUNSEL, CARRIER ACCESS CORPORATION: Thank you. Good afternoon from Carrier Access, and thank you for joining this discussion of our first quarter 2005 operating results. Our earnings press released across the business wire about 30 minutes ago, and is available at our website at www.carrieraccess.com.

Here with me for today's teleconference are Roger Koenig, Chairman, CEO and President of Carrier Access and Nancy Pierce, Chief Financial Officer. We'll hear from Mr. Koenig shortly.

First, I need to advise you that during the course of this call Carrier Access may make financial projections or other forward-looking statements regarding future events, including new customers and new customer and market initiatives; the ability to attain revenue with these new customers; the ability to obtain revenue in new service deployments and new markets, including our belief in the growth of the wireless and voice markets; our product cost reduction measures; expense levels and revenue projections; gross margins; market conditions; our financial position; and our growth prospects and market share gains in wireless access, broadband business services, fiber access or other statements regarding the future performance of the Company.

These statements are made pursuant to the Safe Harbor provisions of the Securities and Litigation Reform Act of 1995. We wish to caution you that such a statement reflects only management's belief based upon information known to us at this time, and that actual events and results may be materially different. These forward-looking statements should not be relied upon as representing our views as of any subsequent date, and the Company undertakes no obligation to update these statements to reflect events or circumstances after they were made.

For more information, we refer to documents the Company has filed with the Securities and Exchange Commission, specifically Form 10-K for the year ended December 31, 2004, and our report on Form 10-Q. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

Factors that could cause results to differ include the growth rates within our industry; problems at or with our distributors, OEMs and/or direct customers; dependence on key suppliers for critical components for product development and product production; integration of acquired product and customer acceptance of the acquired products; continuing uncertainty regarding general economic conditions; overall demand levels for networking solution products; regulation over the adoption of new technologies; changes in capital spending by carriers and telecommunications companies; the financial stability of our customers; timely development and market acceptance of new products; and intense competition and competitive announcements in the networking industry.

Now, I would like to introduce Roger Koenig, our Chairman, CEO and President.

ROGER KOENIG, CHAIRMAN, CEO & PRESIDENT, CARRIER ACCESS CORPORATION: Thanks, Kevin. And welcome everyone to our first quarter 2005 conference call. I'll start with a brief overview of our results and then discuss our current progress in our two primary markets; wireless and converged business access. Then I'll turn the call over to Nancy Pierce, our CFO, for more specific financial details. Finally, we'll conclude the call with a brief question-and-answer session.

Revenue for the first quarter of 2005 was $12.4 million. Net loss for the first quarter of 2005 was $5.1 million or $0.15 per diluted share. During the first quarter, our wireless sales were down as compared to Q4 2004. Wireless sales accounted for 53% of our revenue in Q1. As we communicated on our last earnings call, the visibility of our wireless customers was less than what we had in the past due to market consolidation relating to the merger between Cingular and AT&T Wireless and T-Mobile buying Spectrum from Cingular.

This lack of visibility resulted in reduced sales, as we believe budgets were held at two of our major wireless customers, because of our customers' ongoing consolidation efforts and network planning. We believe the budget push out from our wireless customers impacted our OEM customers as well, as we did not see resume spending from our OEM customers.

Last year, our wireless OEM sales were approximately 25% of the 2004 revenue and particularly significant in the first half of 2004. In addition, we believe our wireless sales were lower in Q1 as one major wireless customer placed project specific orders in the fourth quarter of 2004 did not occur in the same level in the first quarter. Although, our quarterly results were below our expectations, we are optimistic about an upturn in our wireless revenue for the remainder of 2005.

Our preliminary information indicates that CapEx spending has not been changed within our major customer base. Although, CapEx reports, such as, Lehman Brothers and Credit Suisse First Boston indicate that our customers did not spend what they had projected during the first quarter of 2005. Carrier Access results for the first quarter are somewhat consistent with reported wireless capital expenditures for the first quarter.

Although, our sales were significantly down in the first quarter, we continue to believe that we are well positioned to participate in new builds and other specific products and projects within our major wireless carriers during 2005. As we have previously communicated, we are dependent on our customer budget releases and funding of specific Radio Access Network projects. We do believe that cell site bills, combined with cell site upgrades and other specific projects will benefit Carrier Access as budgets are formally released.

Very late in the first quarter we were informed that we would be participating in a rebuild of the Cingular network in California. We're currently in the process of providing installation services for our products within Cingular's California network. Progressing into Q2, we have improved our visibility for the specific customer, although complete 2005 budgets have not yet formally been released.

Recent industry reports have shown an increase in wireless data revenues due to increased customer use of web, picture, video and gaming mobile handsets. Industry analysts continue to predict that wireless data usage and the adoption of new wireless services will drive major capital spending in 2005. For example, the Yankee Group reported that in 2003 the worldwide mobile data market was worth $50.7 billion in equipment and services. We predict this market could double in 2005 and rise to 172 billion by 2008.

We believe our products are designed to take advantage of this increase in wireless data spending by increasing the capacity and data integration that results in new generation Radio Access Network infrastructure. Although, our wireless revenue decreased in the first quarter, we believe that we have a strong embedded product base within the wireless industry.

We're an incumbent vendor for a number of major North American wireless carriers and we believe that we are market leader to cell site transport and data integration. When our customers have completed rationalizing their networks; we believe we will see more of our products deployed. We saw a pickup in wireless orders late during the first quarter and are hopeful that this trend will continue throughout the rest of the year.

During the first quarter, we delivered a first shipment of our new FLEXengine based products. We also continued our focus on research and development efforts with FLEXengine software options to deliver packetization and compression of transport connections used in wireless cell site …