Add
INFS to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| INFS > SEC Filings for INFS > Form 10-Q on 8-Aug-2008 | All Recent SEC Filings |
8-Aug-2008
Quarterly Report
Forward Looking Statements and Factors Affecting Our Business and Prospects
Some of the statements in this quarterly report on Form 10-Q are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, or the PSLRA. Forward-looking statements in this Form 10-Q are being made pursuant to the PSLRA and with the intention of obtaining the benefits of the "safe harbor" provisions of the PSLRA. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words like "intend," "plan," "believe," "anticipate," "project," "may," "will," "could," "continue," "expect" and variations of these words or comparable words or phrases of similar meaning. They may relate to, among other things:
• our ability to operate profitably;
• our ability to successfully introduce new products;
• our ability to compete in the market, including our ability to compete against alternate technologies;
• the wind-down of South Mountain Technologies ("SMT"), our 50-50 joint venture with TCL Corporation;
• the supply of components, subassemblies, and projectors manufactured for us;
• our financial risks;
• fluctuations in our revenues and results of operations;
• the impact of regulatory actions by authorities in the markets we serve;
• anticipated outcome of legal disputes;
• uncertainties associated with the activities of our contract manufacturing partners;
• expectations regarding results and charges associated with restructuring our business and other changes to reduce or simplify the cost structure of the business;
• our ability to grow revenue;
• our ability to grow the business; and
• our various expenses and expenditures, including marketing and sales expenses, research and development expenses, general and administrative expenses and expenditures for property and equipment.
These forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, which may cause actual results to differ materially from trends, plans or expectations set forth in the forward-looking statements. The forward-looking statements contained in this quarterly report speak only as of the date on which they are made and we do not undertake any obligation to update any forward-looking statements to reflect events or circumstances after the date of this filing. See Item 1A. Risk Factors below for further discussion of factors that could cause actual results to differ from these forward-looking statements.
Company Profile
InFocus Corporation is the industry pioneer and a worldwide leader in digital projection technology. We have over twenty years of innovative experience allowing us to constantly improve our product offerings and deliver a compelling immersive visual experience in business, education and home entertainment environments. Our products include projectors and related accessories for use in the conference room, board room, auditorium, classroom and living room. With one of the largest installed bases of projectors in the industry, we are also the most recognized brand in the U.S. projector market according to TFCinfo, the premiere market research organization for advanced display technologies.
Overview
We continued to invest in our sales, marketing and product development resources during the second quarter of 2008 and are beginning to see positive results from these investments:
• Revenue increased by $11.6 million, or 19%, compared to the first quarter of 2008 and was relatively flat compared to the second quarter of 2007;
• Revenue grew in each of our three regions in the second quarter of 2008 compared to the first quarter of 2008, with the Americas growing by 20%, Europe by 19% and Asia Pacific by 15%;
• In Asia, quarterly revenue exceeded $10 million for the first time in three years; and
• Our unit volume increased by 33% in the second quarter of 2008 compared to the first quarter of 2008 and 26% compared to the second quarter of 2007.
At InfoComm 2008, the annual industry show for professional AV dealers, we showcased new industry-leading features across three new platforms for mobile, portable and installation projection needs:
• Ease of use continues to be a significant issue for the projection industry. To address this, we introduced a new feature - true plug and play projection using DisplayLink™ technology. Using a simple USB cable, connect any laptop to an InFocus IN1100 series mobile projector, or an InFocus IN3100 series portable projector, and your image is instantly projected onscreen.
• The 1100 and 3100 series also feature InFocus' implementation of DLP® BrilliantColor™. InFocus BrilliantColor™ can reduce total cost of ownership by providing lifelike color reproduction that does not degrade over time or require regular filter maintenance or replacement.
• Each of the three platforms announced at InfoComm has a wide format option, which allows our customers to accommodate the shifting trend towards widescreen laptops. In addition, we announced a SplitScreen™ feature on our IN5100 series installation projector, which allows side by side projection from two different sources.
Our ongoing investments in product development resources support our strategy of creating differentiation in our products and our brand name. The evolving features of our products are intended to address the changing needs of our customers and the evolving usage model for displaying visual content. We are addressing the commoditization in our industry by bringing back innovation to the InFocus brand.
We recently redefined our internal projector categories to better reflect the converging usage models between the commercial and home market segments. We are now classifying projectors into the categories "Portable," "Mobile," and "Installation." Portable is the new name for our meeting room category and better represents our projectors used in meeting rooms or classrooms. The mobile projector category has not changed and includes all of our portable projectors that weigh less than 4.4 pounds and are easily adaptable for travel. Installation now includes our home projectors, as well as our business installation projectors.
We continue to streamline our regional and global marketing functions to drive greater efficiencies and eliminate redundant activities. The centrally driven organization will continue to understand specific regional needs, but will ensure our initiatives and programs are focused on revenue-generating marketing activities. In addition, in the second quarter of 2008, we recorded a restructuring charge of $0.9 million to account for estimated employee severance costs related to cost reduction initiatives. The anticipated reduction in costs will allow us to continue to invest in sales and product development activities while maintaining the desired operating expense levels.
While our patent portfolio remains strong and growing, we will continue to invest in advanced development for new projection opportunities and applications. We currently have approximately 240 U.S. patents issued in our name with another 85 patents pending. Additionally, we will seek to partner with third parties where a solution may be more readily available. In the first quarter of 2008, we announced a partnership with DisplayLink™ Corporation to utilize DisplayLink's™ USB graphics connection technology, which is now being used in our products. This addition improves ease of use of our products and allows for application innovations for new projector solutions. We expect to explore other opportunities to leverage third parties' technology and products where there are market opportunities
outside of our core competencies or a solution is more readily available for incorporation into our overall solution.
Results of Operations
Three Months Ended June 30, (1)
2008 2007
% of % of
(Dollars in thousands) Dollars revenues Dollars revenues
Revenues $ 72,673 100.0 % $ 73,633 100.0 %
Cost of revenues 59,439 81.8 61,649 83.7
Gross margin 13,234 18.2 11,984 16.3
Operating expenses:
Marketing and sales 8,898 12.2 9,442 12.8
Research and development 2,777 3.8 3,905 5.3
General and administrative 3,957 5.4 4,770 6.5
Restructuring costs 900 1.2 2,050 2.8
16,532 22.7 20,167 27.4
Loss from operations (3,298 ) (4.5 ) (8,183 ) (11.1 )
Other income (expense):
Interest expense (87 ) (0.1 ) (122 ) (0.2 )
Interest income 326 0.4 676 0.9
Other, net (438 ) (0.6 ) (195 ) (0.3 )
Loss before income taxes (3,497 ) (4.8 ) (7,824 ) (10.6 )
Provision (benefit) for income taxes 346 0.5 (36 ) -
Net loss $ (3,843 ) (5.3 )% $ (7,788 ) (10.6 )%
|
Six Months Ended June 30, (1)
2008 2007
% of % of
(Dollars in thousands) Dollars revenues Dollars revenues
Revenues $ 133,698 100.0 % $ 151,288 100.0 %
Cost of revenues 108,029 80.8 130,824 86.5
Gross margin 25,669 19.2 20,464 13.5
Operating expenses:
Marketing and sales 17,189 12.9 19,086 12.6
Research and development 5,561 4.2 7,966 5.3
General and administrative 8,399 6.3 10,308 6.8
Restructuring costs 900 0.7 4,450 2.9
32,049 24.0 41,810 27.6
Loss from operations (6,380 ) (4.8 ) (21,346 ) (14.1 )
Other income (expense):
Interest expense (235 ) (0.2 ) (187 ) -
Interest income 798 0.6 1,425 0.9
Other, net 748 0.6 (580 ) (0.4 )
Loss before income taxes (5,069 ) (3.8 ) (20,688 ) (13.7 )
Provision for income taxes 582 0.4 147 0.1
Net loss $ (5,651 ) (4.2 )% $ (20,835 ) (13.8 )%
|
(1) Percentages may not add due to rounding.
Revenues
Revenues decreased $1.0 million, or 1.3%, and $17.6 million, or 11.6%, respectively, in the three and six-month periods ended June 30, 2008 compared to the same periods of 2007.
The decreases in revenue in the 2008 periods compared to the 2007 periods were due primarily to a 22.0% and 10.0% decrease, respectively, in overall average selling prices ("ASPs"). The decreases in ASPs in the three and six-month periods ended June 30, 2008 compared to the same periods of 2007 were due to a higher percentage of entry level products sold in the 2008 periods associated with seasonal purchase patterns of the education sector. Partially offsetting the declines in the overall ASPs in the three-month period ended June 30, 2008 compared to the same period of 2007 was an increase in units sold of 27.8%. The increase in units sold in the second quarter of 2008 was primarily due to growth in the
portable and installation product segments from increased demand in the education sector, as mentioned above. In addition, contributing to the unit growth experienced in the portable segment in the second quarter of 2008 was incremental unit sales of our newly introduced wide format XGA projectors.
In the six-month period ended June 30, 2008, revenues were also negatively impacted, when compared to the same period of 2007, by a 1.8% decrease in units sold. Units sold in the six-month period ended June 30, 2008 were 161,000 units compared to 164,000 units sold in the six-month period ended June 30, 2007.
Geographic Revenues
Revenues by geographic area and as a percentage of total revenue were as follows
(dollars in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2008 2007 2008 2007
United States $ 36,448 50.1 % $ 45,594 61.9 % $ 66,261 49.6 % $ 89,737 59.3 %
Europe 22,144 30.5 % 15,808 21.5 % 40,744 30.5 % 36,845 24.4 %
Asia 10,012 13.8 % 8,162 11.1 % 18,720 14.0 % 17,084 11.3 %
Other 4,069 5.6 % 4,069 5.5 % 7,973 5.9 % 7,622 5.0 %
$ 72,673 $ 73,633 $ 133,698 $ 151,288
|
U.S. revenues decreased 20.1% and 26.2%, respectively, in the three and six-month periods ended June 30, 2008 compared to the same periods of 2007. These decreases were primarily due to declines in unit sales of 5.6% and 27.7%, respectively. Also negatively impacting U.S. revenues in the three-month period ended June 30, 2008 compared to the same period of 2007 was an ASP decline of 15.3% due to an increase in the percentage of the overall sales during the quarter coming from the entry-level products sold into the education sector. U.S. ASPs increased 1.2% in the six-month period ended June 30, 2008 compared to the same period of 2007. The decrease in units and offsetting increase in ASPs in the six-month period ended June 30, 2008 compared to the same period of 2007 was related to increased sales in the 2007 period of our lower-margin, entry-level portable and installation products as we aggressively depleted existing inventory to make room for higher margin follow-on products.
European revenues increased 40.1% and 10.6%, respectively, in the three and six-month periods ended June 30, 2008 compared to the same periods of 2007. These increases were primarily due to increases in units sold of 98.2% and 45.9%, respectively, partially offset by declines in ASPs of 29.3% and 24.2%, respectively, in the three and six-month periods ended June 30, 2008 compared to the same periods of 2007. The increases in units sold and corresponding increases in revenue in the three and six-month periods ended June 30, 2008 compared to the same periods of 2007 were driven by new product introductions targeted at channels and markets where we have identified strong growth potential.
Asian revenues increased 22.7% and 9.6%, respectively, in the three and six-month periods ended June 30, 2008 compared to the same periods of 2007. These increases were primarily due to increases in units sold of 52.2% and 26.5%, respectively, partially offset by declines in ASPs of 19.4% and 13.4%, respectively, in the three and six-month periods ended June 30, 2008 compared to the same periods of 2007.
Other revenues primarily consist of sales in Canada and Latin America. Other revenues were flat and increased 4.6%, respectively, in the three and six-month periods ended June 30, 2008 compared to the same periods of 2007. Other revenue unit sales increased 41.2% and 9.9%, respectively, in the three and six-month periods ended June 30, 2008 compared to the same periods of 2007. Other revenue ASPs decreased 29.2% and 5.0%, respectively, in the three and six-month periods ended June 30, 2008 compared to the same periods of 2007.
Backlog
At June 30, 2008, we had backlog of approximately $9.1 million, compared to approximately $6.6 million at December 31, 2007. Given current supply and demand estimates, it is anticipated that a majority of the current backlog will turn over by the end of the third quarter of 2008. The stated backlog is not necessarily indicative of sales for any future period, nor is a backlog any assurance that we will realize a profit from filling future orders.
Gross Margins
We achieved gross margins of 18.2% and 19.2%, respectively, in the three and six-month periods ended June 30, 2008, compared to 16.3% and 13.5%, respectively, in the three and six-month periods ended June 30, 2007 and 20.4% in the first quarter of 2008.
The increases in gross margin in the three and six-month periods ended June 30, 2008 compared to the same periods of 2007 were due to an overall shift in product mix to higher margin products between the comparable periods, as well as continued decreases in other costs of goods sold primarily due to efficiencies achieved within our supply chain and lower costs associated with warranty repair activities. Charges for inventory related write-downs totaled $0.2 million and $1.7 million, respectively, in the three and six-month periods ended June 30, 2008 compared to $0.8 million and $2.4 million in the comparable periods of 2007.
Marketing and Sales Expense
Marketing and sales expense decreased $0.5 million, or 5.8%, to $8.9 million in the three-month period ended June 30, 2008 compared to $9.4 million in the same period of 2007 and decreased $1.9 million, or 9.9%, to $17.2 million in the six-month period ended June 30, 2008 compared to $19.1 million in the same period of 2007.
The decreases in marketing and sales expense were primarily due to our ongoing efforts to reduce our cost structure to better align with current revenue and gross margin levels. The majority of the reductions have been in discretionary spending, such as marketing programs and advertising. These decreases were partially offset by our investment in additional sales and product marketing resources to drive increases in revenue as discussed above.
Research and Development Expense
Research and development expense decreased $1.1 million, or 28.9%, to $2.8 million in the three-month period ended June 30, 2008 compared to $3.9 million in the same period of 2007 and decreased $2.4 million, or 30.2%, to $5.6 million in the six-month period ended June 30, 2008 compared to $8.0 million in the same period of 2007.
These decreases were primarily due to a reduced cost structure related to our previous restructuring activities, including a decrease in personnel related costs and other discretionary spending. We have shifted our research and development model to outsource more of the design functions to our contract manufacturers, which allowed us to reduce our in-house research and development resources. These decreases were partially offset by our increased investment in product development resources to support our strategy of creating differentiation in our products and our brand name.
General and Administrative Expense
General and administrative expense decreased $0.8 million, or 17.0%, to $4.0 million in the three-month period ended June 30, 2008 compared to $4.8 million in the same period of 2007 and decreased $1.9 million, or 18.5%, to $8.4 million in the six-month period ended June 30, 2008 compared to $10.3 million in the same period of 2007.
Included in general and administrative expense in the three and six-month periods ended June 30, 2007 was $0.1 million and $0.9 million, respectively, of costs incurred for various external advisors engaged as part of our strategic alternatives evaluation process. The remainder of the decreases in the 2008 periods compared to the 2007 periods were primarily related to a reduced cost structure, including decreases in personnel related costs and other discretionary spending.
Restructuring
In the second quarter of 2008, we incurred $0.9 million of restructuring costs primarily related to employee severance in connection with the elimination of several middle management and other positions in the company.
In the three and six-month periods ended June 30, 2007, we incurred restructuring charges totaling $2.1 million and $4.5 million, respectively. The charge of $2.1 million in the second quarter of 2007 was primarily for severance costs and the charge in the first quarter of 2007 of $2.4 million was primarily related to estimated lease losses on vacated or partially vacated facilities at our corporate headquarters and various European office locations. A portion of the $2.1 million charge recorded in the second quarter of 2007 for severance costs was related to a shift in our research and development model to outsource more of the design functions to our contract manufacturers, which allows us to reduce in-house research and development resources.
At June 30, 2008, we had $4.6 million of restructuring costs accrued on our consolidated balance sheet classified as other current liabilities. See further detail in Note 9 of Notes to Consolidated Financial Statements.
Other Income (Expense)
Interest income in the three and six-months ended June 30, 2008 decreased to $0.3 million and $0.8 million, respectively, compared to $0.7 and $1.4 million respectively, in the comparable periods of 2007. The decreases were primarily due to lower interest rates realized on our invested balances. Average cash and investment balances were $29.5 million and $29.2 million, respectively, in the first six months of 2008 and 2007.
Other, net included the following (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2008 2007 2008 2007
Income related to the profits of
Motif, 50-50 joint venture $ (3 ) $ 4 $ 1,222 $ 312
Losses related to foreign currency
transactions (419 ) (179 ) (422 ) (833 )
Write-down of cost-based investments
in technology companies - - (20 ) -
Other (16 ) (20 ) (32 ) (59 )
$ (438 ) $ (195 ) $ 748 $ (580 )
|
Income Taxes
Income tax expense in the three and six-month periods ended June 30, 2008 was $346,000 and $582,000, respectively, compared to a benefit of $36,000 and expense of $147,000 respectively, in the comparable periods of 2007. Income tax expense the first half of 2008 and 2007 primarily represented income tax expense in certain foreign tax jurisdictions.
Liquidity and Capital Resources
Total cash and cash equivalents and restricted cash and marketable securities were $69.8 million at June 30, 2008. Working capital totaled $79.7 million at June 30, 2008, which included $65.9 million of unrestricted cash and cash equivalents. The current ratio at June 30, 2008 and December 31, 2007 was 2.2 to 1 and 2.0 to 1, respectively.
We sustained an operating loss of $6.4 million in the first six months of 2008 and a decrease in net working capital of $3.6 million for the period. If we continue to experience significant operating losses or experience significant reductions in net working capital, we may need to obtain additional debt or equity financing to continue current business operations. There is no guarantee that we will be able to raise additional funds on favorable terms, if at all.
We have a $10 million line of credit facility with Wells Fargo Foothill, Inc. ("Wells Fargo") that matures August 31, 2008. As of June 30, 2008, there were no borrowings outstanding under the agreement and we were in compliance with all financial covenants. We are currently seeking to replace our existing line of credit with a new line of credit from a different division of Wells Fargo and expect to complete negotiations prior to the expiration of the existing line of credit.
We anticipate that our current cash and cash equivalents and marketable securities, along with cash we anticipate generating from operations, will be sufficient to fund our known operating and capital requirements for at least the next 12 months. However, to the extent our operating results fall below our expectations, we may need to raise additional capital through debt or equity financings. We may also need additional capital if we pursue other strategic growth opportunities. There is no guarantee that we will be able to raise additional funds on favorable terms, if at all.
At June 30, 2008, we had two outstanding letters of credit totaling $1.8 million. The letters of credit secure our obligations to suppliers for the purchase of inventory. One letter of credit, totaling $0.3 million, expired on August 2, 2008 and was not renewed. The expiration of this letter of credit is linked to reduced obligations for the purchase of lamps and other spare parts inventory as we complete the wind-down of our business relationship with this supplier. The second letter of credit, totaling $1.5 million, expires on September 30, 2008. In addition, on July 28, 2008, we entered into a new letter of credit in the amount of $10.0 million which expires on February 28, 2009. The fair value of these letters of credit approximates their contract values. The letters of credit were collateralized by $1.9 million of cash and marketable securities at June 30, 2008, and, as such, were reported as restricted on the consolidated balance sheets. The remaining restricted cash and marketable securities of $2.0 million secures our merchant credit card processing account, deposits for building leases and value added taxes in foreign jurisdictions.
Accounts receivable decreased $2.3 million to $44.0 million at June 30, 2008 compared to $46.3 million at December 31, 2007, due primarily to lower sales in the second quarter of 2008 compared to the fourth quarter of 2007, partially offset by an increase in days sales outstanding ("DSO") to 54 days at June 30, . . .
|
|