CORPORATE
PARTICIPANTS
Helene
Jaillet
Lumera
Corp. - Director, IR and Corporate Communications
Joe
Vallner
Lumera
Corp. - Interim CEO
Peter
Biere
Lumera
Corp. - SVP, CFO, Treasurer
Raluca
Dinu
Lumera
Corp. - VP, Electro-Optic Business Unit
CONFERENCE
CALL PARTICIPANTS
Lee
Danias
Private
Investor
A.
Cannon
Private
Investor
PRESENTATION
Operator
Good
day,
ladies and gentlemen, and welcome to the quarter 1 2008 Lumera Corporation
earnings conference call.
(Operator
Instructions)
And
I
would now like to turn the presentation over to your host for today's
call, Ms.
Helene Jaillet, Director of Investor Relations and Corporate
Communications.
Helene
Jaillet
-
Lumera Corp. - Director, IR and Corporate Communications
Thank
you
and good afternoon and welcome to the Lumera's first quarter 2008 conference
call. This follows our news release, which was issued at approximately
4 p.m.
Eastern Time today, May 6, 2008.
Again,
my
name is Helene Jaillet and I'm Director of Investor Relations and Corporate
Communications for Lumera. After I make some brief housekeeping remarks,
you'll
hear from Dr. Joe Vallner, Interim CEO of Lumera, from Peter Biere,
Senior Vice
President, Chief Financial Officer and Treasurer, and from Dr. Raluca
Dinu, Vice
President of the Electro-Optic business unit.
Now,
a few
comments before we begin. Please remember, as always, that elements
of this
presentation are forward-looking and are based on our best view of
the world and
our business as we see them today. It is no guarantee of our future
performance.
The forward-looking elements discussed in this conference call can
change as the
world changes and we would ask that you interpret these comments in
that light
and as more explicitly stated both in the current press release and
in the Risk
Assessment section of our annual report on Form 10-K and other filings
with the
SEC that are posted on our website.
Additionally,
may I also remind you that this conference is being broadcast via the
internet
and it is available on the Investor Relations section of our website
at
www.lumera.com. The call is being recorded and will be available for
replay on
our website. The prepared remarks that are being made are copyrighted
and cannot
be reproduced without the permission of Lumera Corp.
This
afternoon we'll cover our performance for the first quarter of 2008,
make some
comments regarding the year and of course at the end we'll have time
for
questions and answers.
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Final
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May.
06. 2008 / 1:30PM PT, LMRA - Q1 2008 LUMERA CORP Earnings
Conference
Call
|
And
now
I'll turn the call over to our CEO, Joe Vallner.
Joe
Vallner
-
Lumera Corp. - Interim CEO
Thanks,
Helene. Needless to say, the biggest event of the quarter was the announcement
of our proposed merger with GigOptix, LLC. I realize that there's been
a lot of
frustration on the part of our investors due to the lack of information
that
we've been able to convey on the details of the proposed merger, the
benefits we
expect and specifically information on GigOptix financials.
Many
of
you have read the definitive agreement and are asking about the status
of the
GigOptix audit. As a private company, GigOptix' financial statements
were
un-audited and GigOptix is currently in the process of having its audit
completed. Completion of this audit, GigOptix' first, involves very
complicated
accounting principles and is a challenging effort.
GigOptix
reports that the audit process is going well and that while it's not
possible to
know a completed date for certain, at this point they feel confident
the audit
will be completed in time to file the S4 in June or July at the latest.
We
obviously can't promise that, but we are hopeful that they will be
able to keep
to the June time frame. When the S4 is filed, we'll be able to hold
another
conference call to expand on the anticipated benefits of the proposed
merger.
We
very
much appreciate your patience in this. We want you to know that we're
very
enthusiastic about the benefits of working as one with GigOptix.
Now,
from
a procedural standpoint, let me outline the events that will transpire
between
now and the time we hope to close the merger. Once the S4 is filed,
the SEC will
review and make comment on the S4 and we will likely have to file one
or more
amendments. Once the SEC has completed its review, which can last generally
60
to 90 days, we will send the proxy statement, prospectus and related
materials
to our shareholders. Depending on when the mailing takes place, we
will set a
date for an official annual meeting. This will give shareholders at
least 30
days in which to cast their votes on the proposed merger.
Based
on
where we are today in the process, we believe that the meeting, the
shareholder
meeting will likely be held later in the third quarter. We'll be able
to update
that expectation as we go forward. If approved, and we strongly recommend
that
it be approved, the new combined company, to be known as GigOptix,
Inc., will
begin trading on the NASDAQ under the symbol GIGX.
At
this
point I want to turn the call over to Peter, who will discuss this
quarter's
financials and some of the significant other activities that occurred
during the
quarter and then to Raluca to update you on the Electro-Optic business.
I will
return after their comments to address some items regarding Plexera.
Peter?
Peter
Biere
-
Lumera Corp. - SVP, CFO, Treasurer
Thanks,
Joe. Much of what I'll discuss on today's call can be found in our
press
release. I'll add a little color and answer some of the questions that
you may
have about our operating results and activity during the quarter.
Looking
at
revenues, our revenues totaled $484,000 for the first quarter of 2008
compared
to $860,000 for the same quarter last year, a decrease of $376,000,
or 44%. Our
contract revenues totaled $472,000 during the first quarter of 2008,
which is
$303,000 less than the same period last year.
I
mentioned on our earlier call in March that we expected first quarter
revenues
to be below last year as we waited for the award or renewal process
on our
government contracts to occur. We didn't lose any revenue associated
with the
late renewal, but some of it will be earned during the first quarter
of 2009.
And while the comparison to last year's revenue isn't favorable, we
now have
more revenue under government contract than ever before.
That
the
same agencies continue to renew and award Lumera contract development
work is a
testament to our team's continued ability to meet contract milestones.
This
current group of contracts are more focused on later stage device development,
which we believe signals that we're closer to being able to transfer
technology
from research projects to customers, both on the government side and
commercially.
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Final
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May.
06. 2008 / 1:30PM PT, LMRA - Q1 2008 LUMERA CORP Earnings
Conference
Call
|
With
the
four contracts we've announced, we've signed a total of $5.6 million
in new or
renewed contracts and meeting a milestone on the SBIR grant can put
that number
over $6 million, all to be earned over the next year. And I'll discuss
the
relative importance of this revenue to our ongoing operating costs
in a
moment.
Backlog
on
our government contracts totaled $5.2 million at March 31, 2008 and
also
included in first quarter revenues we sold $12,000 of electro-optic
modulators
and materials. That compares to last year's total of $85,000.
Operating
expenses totaled $6.41 million during the three months ended March
31, 2008.
That compares with $3.434 million for the prior year quarter, an increase
of
about $3 million, or 87%. Now, the $6.4 million in operating expense
does
include a lot of cost that's unrelated to our post-restructuring and
post-merger
cost structure.
Let
me
summarize it this way. Plexera operating costs in Quarter 1 totaled
about $2
million. The restructuring charge, which was mostly related to Plexera,
and a
smaller Lumera workforce reduction totaled $934,000. Merger related
advisory and
legal fees totaled about $840,000. And our non-cash reserve for Asyrmatos
note
receivable was $0.5 million.
So
out of
the $6.4 million in operating costs during the quarter, about $4.2
million of
that will not be recurring. That leaves about $2.2 million related
to true
ongoing operating costs, about $1.3 million for electro-optic and $900,000
for
corporate. And I'll say more on this subject when I cover liquidity
in a minute
or two.
On
our
income statement we break out operating expense into two categories.
The R&D
component of operating expense totaled $2.294 million during the current
quarter, increasing about $1 million, or 80%, from the first quarter
of 2007.
Lower contract revenues in the current period mean we're charging less
labor and
related overhead costs to the cost of contracts, so that drops down
into the
R&D expense line and makes up about $500,000, or roughly half of the
increase.
Incremental
spending on Plexera product development, mostly with outside contractors,
made
up the rest of the increase over 2007. And as mentioned earlier, with
the
shutdown of Plexera, these product development costs will not carry
past the end
of the current quarter.
The
marketing G&A component of operating expense totaled $4.116 million during
the current quarter, up about $2 million, or 90%, from the first quarter
of
2007. The increase in the first quarter this year is due primarily
to costs
associated with restructuring activity and then professional fees related
to the
proposed merger with GigOptix. I'll discuss the details of our restructuring
charge, which totaled $934,000, in a minute. Financial advisory and
legal fees
were higher by just over $1 million from the prior year quarter. And
again, that
primarily relates to proposed merger activities.
During
the
quarter we also recorded a collectibility reserve of $500,000 for our
note
receivable from Asyrmatos. Generally accepted accounting principles
makes us do
this because of the early stage of Asyrmatos' business, so the reserve
is not a
commentary on our assessment of Asyrmatos millimeter wave
opportunity.
Lastly,
we
recorded a $556,000 reduction to non-cash stock-based compensation
expense,
mostly associated with option forfeitures which followed our reduction
in
workforce and which partly offsets the expense increases that I just
noted.
We
earned
$121,000 in interest income on our cash investments during the current
quarter.
That compares with $321,000 for the first quarter of 2007 and this
is a lower
interest level due to declining investment balance.
Our
net
loss for the first quarter totaled $6.041 million, or $0.30 per share,
on 20.1
million weighted average shares. That compares to a net loss of $2.696
million
for the prior year quarter, or $0.13 per share, on 20.1 million shares.
Without
Plexera and other expenses that are unrelated to ongoing operating
activities,
our net loss this quarter would have been approximately $1.8 million,
or $0.09
per share.
At
March
31, 2008, we had $9.2 million in cash and investment securities, which
is in
line with our overall expectation. So we spent $5.4 million in cash
this quarter
to finance our operations and working capital requirements and that
includes the
loan to Asyrmatos.
And
before
elaborating on our cash burn, I would like to highlight the restructuring
charge
and explain the impact of our Plexera decision and other cost cutting
measures
-- the impact of our other cost cutting measures on our ongoing burn
rate.
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Final
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May.
06. 2008 / 1:30PM PT, LMRA - Q1 2008 LUMERA CORP Earnings
Conference
Call
|
In
March
we recorded a restructuring charge which totaled $934,000. Of that
amount,
$524,000 relates to severance costs and taxes, about 80% of which we
paid during
the second quarter and then the remainder in the third quarter this
year. We
eliminated 23 positions in Plexera, five positions in corporate and
one position
in electro-Optics.
We
also
recorded a provision for fixed asset impairment totaling $243,000.
This is our
best estimate of the non-cash loss that we'll eventually realize once
we
determine what will happen to a certain -- to certain of Plexera's
fixed
assets.
The
third
restructuring component is a provision for Plexera license and contract
terminations, which totaled $157,000. So of the total restructuring
charge of
$934,000, approximately $616,000 will impact cash and that mostly in
the second
quarter.
Apart
from
restructuring, we spent approximately $2 million in Plexera during
the first
quarter and this will obviously not repeat, as operations did cease
on March
27th. Electro-optic spent about $1.1 million in its operating activities
during
the quarter and that includes gross margin on contract revenues, which
are
lower, as discussed, than future quarters. So we expect the net spending
in EO
to go down from this level.
And
while
we spent about $900,000 in recurring corporate costs during the first
quarter,
this total will fluctuate on a quarterly basis. I think it should be
a
reasonable estimate, aside from additional upcoming merger related
costs.
Earlier
I
mentioned the corporate expense accruals during the first quarter included
about
$840,000 in direct expense for financial advisory and legal fees related
to the
proposed merger. These payments will also be made in the second
quarter.
Working
capital changes apart from our restructuring and merger related accruals
during
the quarter netted to about a $1 million use of cash. And finally,
while our
Asyrmatos stock acquisition during the quarter was made with the value
of our
intellectual property so it was a non-cash investment, we did loan
Asyrmatos
$0.5 in startup cash and that in exchange for a long term note
receivable.
Without
factoring in any effects of the proposed merger, we believe that we'll
have
enough cash to fund ongoing operations through the middle of 2009.
Based on our
operating plan over the next five quarters, which includes about $6
million in
government revenues which are mostly committed, plus some additional
product
revenue we expect from partnering and sales of modulators, chips and
electro-optic materials.
Back
in
March we filed a registration statement covering a portion of the shares
that
were committed under the Kingsbridge Committed Equity Financing Facility,
or
CEFF. This filing is still in progress but should be effective sometime
in the
coming weeks. Between the $25 million CEFF and our active $50 million
shelf
registration, we have a couple of options should we decide to raise
additional
operating capital.
So
with
those comments, I'd like to turn the call over to our Vice President
of
Electro-Optics, Raluca Dinu.
Raluca
Dinu
-
Lumera Corp. - VP, Electro-Optic Business Unit
Thank
you,
Peter. In the fourth quarter call we indicated that we had several
government
contracts under negotiation. And we hope to be able to announce them
soon. This
indeed all came through in the first quarter.
To
briefly
recap, first, DARPA, which formally awarded Lumera Phase III of the
contract
that had been tentatively approved in July 2006. DARPA officials indicated
that
all milestones contingent on the award have been successfully met by
Lumera and
awarded $2.4 million for the 12-month contract. The technical achievement
realized to attain this milestone represent truly significant breakthrough
efforts, making our 1.2 V driving voltage in 7 to 8 dB of insertion
loss on the
stable 40 gigahertz modulator. To our knowledge, an unmatched achievement
in
industry.
Second,
the U.S. Air Force Research Laboratory awarded us a $2.2 million contract
to
fabricate low driving voltage, reliable electro-optic polymer modulators
using
Lumera's high performance organic polymers. Current concepts of phased
array
radar in high performance satellite systems require high bandwidth
electro-optic
modulators with low driving voltages and wide bandwidth.
Lumera's
EO devices have made significant strides in reaching these very aggressive
goals
and we look forward to meeting the AFRL, or the Air Force Research
Laboratory
requirements over the course of the 12-month contract.
Third,
DARPA also awarded Lumera a Phase I small business innovation research
contract,
or an SBIR contract, for the amount of about $99,000 to design and
fabricate
polymer devices. Upon successful completion of certain milestones,
Lumera could
receive a second contract in the range of about $750,000.
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Final
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May.
06. 2008 / 1:30PM PT, LMRA - Q1 2008 LUMERA CORP Earnings
Conference
Call
|
The
final
goal and the end product of the contract will be to economically produce
high
bandwidth small chip, small form factor, stable, low voltage, ultra
linear
polymer directional coupler modulators.
The
fourth
contract awarded was an extension to a U.S. government contract to
continue
development of technologically advanced wideband optical modulators.
The
contract is valued at approximately $900,000. The overall funding value
has now
reached about $7.8 million.
The
objective of this contract is to fabricate low driving voltage electro-optic
modulators from high performance organic polymers recently scaled up
or
developed at Lumera. The low driving voltage is crucial for development
of
phased array radar and high performance satellite systems. These four
contracts
total approximately $5.6 million in revenue for the 2008 and that is
the highest
revenue Lumera had ever had.
In
the
last quarter I spoke about the team's focus on Telcordia testing. I
can report
that we are on track to complete our testing by mid 2008, as previously
indicated.
And
now I
will pass the call back to Joe. Joe?
Joe
Vallner
-
Lumera Corp. - Interim CEO
Thanks,
Raluca. Let me address a question that shareholders have voiced regarding
the
ultimate disposition of Plexera's assets. Since the announcement that
operations
at Plexera have ceased, we have been in discussions with a number of
parties who
have expressed an interest in acquiring some or all of these assets,
both hard
assets, such as equipment, and soft assets, such as intellectual property.
To
date we have not reached an agreement with anyone but we will continue
to
negotiate in order to realize value from these Plexera assets.
This
concludes our formal remarks and we'd now like to open this up to questions.
Thank you.
QUESTION
AND ANSWER
Operator
(Operator
Instructions)
Your
first
question comes from the line of [Lee Danias]. Please proceed.
Lee
Danias
Private
Investor
Yes,
Peter, I have a question on the revenues, other revenues last year
to this year.
The $12,000 versus $85,000, was that simply a cyclical situation?
Peter
Biere
-
Lumera Corp. - SVP, CFO, Treasurer
Well,
it's
only cyclical in that we're still in the development stage with various
customers. So last year, I believe in the first quarter, we shipped
-- we
shipped some modulators to Fujitsu, we shipped some electro-optic materials
to
Lockheed. Not big dollars but the two of them together I think added
to $75,000,
$80,000 or something. We have ongoing activity with those customers
but it's not
predictable. So you'll see it coming in one quarter, not another, and
occasionally when you compare back and forth it looks like a
difference.
Lee
Danias
Private
Investor
Has
there
been any significant progress with the Lockheed relationship?
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Peter
Biere
-
Lumera Corp. - SVP, CFO, Treasurer
Well,
I
guess I would answer that to say yes and it's continuing and ongoing.
We
continue to expect good things from that relationship. And like any
development
project, it takes a while to come to fruition. But we're well into
it with
Lockheed at this point and DARPA and so the combination of the two
look good to
us.
Lee
Danias
Private
Investor
In
regards
to the coming S4, can you shed some light on why that's taking so
long?
Peter
Biere
-
Lumera Corp. - SVP, CFO, Treasurer
Well,
I
think number one it's the audit of the GigOptix financials. The S4,
when you see
it, and I don't know -- I don't expect you to really appreciate how
much time
and effort goes into preparing it. It's difficult. But the toughest
part in
there is right now just getting the GigOptix financials audited.
You
may
not know this, but iTerra, the predecessor organization, didn't keep
their books
and records in a fashion that allowed for an auditor to come in and
just
complete the project. So some pretty tough accounting rules have changed
over
the last two or three years. They've got to bring everything up to
GAAP
standards and they're working furiously on it. So I can report good
progress but
still no date certain.
Lee
Danias
Private
Investor
I'm
assuming that the management at Lumera knows the cash position of
GigOptix.
Peter
Biere
-
Lumera Corp. - SVP, CFO, Treasurer
Yes.
Lee
Danias
Private
Investor
Does
this
still support your premise that this is a merger of equals?
Peter
Biere
-
Lumera Corp. - SVP, CFO, Treasurer
Well,
I
think my fast answer is yes, it does. But saying that, different people
in a
marriage bring different attributes and skills and capabilities and
value
propositions to the table. So Lumera and GigOptix, while there's a
lot of
overlap and I guess rather than saying overlap I would say synergies
between the
two companies, the things we bring to the table, the financial assets
and the
technology assets and the human assets are somewhat different on both
sides of
the table. But yes, it's a merger of equals.
Joe
Vallner
-
Lumera Corp. - Interim CEO
And
the
customer assets.
Peter
Biere
-
Lumera Corp. - SVP, CFO, Treasurer
True.
Lee
Danias
Private
Investor
Customer
assets I totally agree with. Looking at obviously your share price
and where
GigOptix is coming in and as an investor, I'm as much concerned about
the
balance sheet as I am the customer list.
Peter
Biere
-
Lumera Corp. - SVP, CFO, Treasurer
Yes.
Lee
Danias
Private
Investor
All
right,
gentlemen, thank you.
Peter
Biere
-
Lumera Corp. - SVP, CFO, Treasurer
Thank
you.
Operator
Your
next
question comes from the line of [A. Cannon], private investor. Please
proceed.
A.
Cannon
Private
Investor
How
much
cash does GigOptix bring into this table?
Peter
Biere
-
Lumera Corp. - SVP, CFO, Treasurer
Well,
you
might have heard me mention it before. We can't discuss the financials
that
GigOptix will put in until they finish their audit and until the S4
gets filed,
which we're anticipating sometime in June, hopefully.
A.
Cannon
Private
Investor
So
what
was the urgency in announcing the merger if you cannot share these
details?
Peter
Biere
-
Lumera Corp. - SVP, CFO, Treasurer
Well
--
A.
Cannon
Private
Investor
When
you
announced the merger it was north of $2. And right now the stock price
is
floundering.
Peter
Biere
-
Lumera Corp. - SVP, CFO, Treasurer
Yes.
It's
mostly a function that we had a definitive agreement to merge the companies
and
when that condition exists, as a public company we're required to make
that
information public. And that's the primary driver on the timing.
Operator
Sirs,
you
appear to have no more questions at this time.
Helene
Jaillet
-
Lumera Corp. - Director, IR and Corporate Communications
All
right,
well, thank you for listening into the call and may I remind you that
the replay
is available on our website. Good afternoon.
Operator
Ladies
and
gentlemen, thank you for your participation in today's conference.
This
concludes the presentation. You may now disconnect. Have a great
day.
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