EXHIBIT 99.1
Script for May 13, 2002 Conference Call
Fiscal 2002 Q3 results
RICK DUTKIEWICZ
o Good afternoon. Some of the statements we make in this conference
call are "forward-looking statements" as that term is used in the
Private Securities Litigation Reform Act of 1995. In most cases,
when we use words like "believe," "expect," "estimate,"
"anticipate," "project," or "plan" to describe something that has
not yet occurred, we are making a forward-looking statement.
Forward-looking statements we make are based on a number of
assumptions by us about the future, usually based on current
conditions or on the broader expectations of others. These
assumptions may or may not prove to be correct and, as a result,
our own forward-looking statements may also be inaccurate. On the
other hand, based on what we know today and what we expect in the
future, we believe that the forward-looking statements we make in
this conference call are reasonable.
o We cannot list here all of the risks and uncertainties that could
cause our plans for the future to differ materially from our
present expectations but we can identify many of them. For
example, we may be affected by the overall market for various
types of wireless communications products, the success of the
specific products into which our products are integrated,
governmental action relating to wireless communications, licensing
and regulation and the timeliness and relative success of the
resolution of pending and threatened litigation. It is also
important to remember that forward-looking statements speak only
as of the date when they are made and we do not promise that we
will publicly update or revise those statements whenever
conditions change or future events occur. Accordingly, we do not
recommend that any person seeking to evaluate our company should
place undue reliance on any forward-looking statement in this
conference call. With that, I would like to introduce Chuck
Bland...
CHUCK BLAND
o Good afternoon and welcome to our conference call to discuss
results for the third quarter of fiscal 2002. I'm Chuck Bland, CEO
of Vari-L. Rick Dutkiewicz, our chief financial officer, is here
with me and he will lead off with a recap of our financial
results. Rick....
RICK DUTKIEWICZ
Thank you, Chuck.
o I'm going to step through the numbers fairly quickly today since
I'm sure by now most of you have reviewed our news release.
o As in the past several quarters, our sales results continued to
reflect general sluggishness in the wireless telecommunications
sector. By now this is starting to sound like a broken record for
investors following the big wireless companies as well as
component providers such as Vari-L. At the same time, however, I
think we're pretty safe in believing that this market has to start
turning in the not-to-distant future as the predicted growth of
wireless communications over the next decade is fairly well
assured.
o Net sales in the third quarter were down about $400,000 from the
second quarter at $5.6 million. Our gross profit, as always
sensitive to fixed manufacturing costs in relation to variable
production volumes, drifted back to the 37 percent range where we
were in the first quarter, down four points from second quarter
levels.
o On the expense side we continued to maintain a tight reign.
Routine operating expenses remained consistent with the second
quarter, although we had a $222,000 expense related to accounting
restatements and related legal matters. The majority of the
expenses in this quarter related to independent counsel that
advised the Special Litigation Committee we created in December.
We anticipate receiving the final report of the Special Litigation
Committee this quarter. As we told you on our last conference
call, this category will vary from quarter to quarter depending on
activity. Of course, we are looking eagerly forward to resolving
our issues and eliminating this line item once and for all.
o Net loss in the quarter was $1.2 million, or 17 cents per share.
As you may have noticed in our news release, we presented "as
adjusted" bottom line results that reflect certain charges and/or
credits that are not indicative of normal operating expenses. We
think this type of disclosure gives you and other investors a
clearer picture of our actual results.
o For the nine-month period net sales were $16.4 million versus
$32.4 million for the same period last year - again, giving you a
pretty good indication of what's going on throughout our industry.
Gross profit through nine months was approximately 40 percent of
revenue.
o Total operating expenses through nine months were $9.1 million,
again reflecting effective cost controls. Our year-to-date net
loss was just shy of $3 million, or 40 cents per share.
o At March 31 our working capital stood at $4.9 million, including
cash and cash equivalents of $1.6 million. We're pleased to say
that we generated $1.7 million in cash from operations during the
first nine months of the fiscal year, largely due to a reduction
in accounts receivable and a continued focus on reducing inventory
levels and increasing turns.
o As always, at the end of our presentation I'll be available to
answer any questions you have on our financial performance, but in
the meantime I'll turn it back over the Chuck Bland. Chuck.....
CHUCK BLAND
o Thanks, Rick.
o Over the past year or so we've been talking a lot about reducing
our cost structure as a means of weathering the downturn in the
wireless telecom industry. That is certainly a sound strategy in
this environment, and we have made tremendous progress toward that
end. At the same time, however, we have been working on a parallel
strategy -- new product development -- that we think will prove to
be much more important over the long run.
o For many years Vari-L has been known as a company with some pretty
impressive technology. Unfortunately, that technology has been
limited to just a handful of product lines which, in turn, have
limited the Company's ability to exploit excellent customer
relationships and grow more aggressively. During the past six
months we have set in motion plans to leverage our technology and
customer relationships with a variety of new products that we
think will find acceptance among existing and new customers who
are seeking a second source and/or higher quality components.
o In the third quarter we introduced two new product lines, made
meaningful progress toward the introduction of a third later this
year, and completed development of several prototype PLLs for two
of our major wireless customers. These are important milestones
for Vari-L in that they should reduce our reliance on a limited
number of products while opening new revenue and profit
opportunities that can lessen the impact of the wireless industry
downturn. In other words, we are not waiting for an industry
upturn to begin re-building our top line.
o In February we introduced a wideband version of our flagship
Voltage Controlled Oscillator product. The new product line,
VCO790, is targeted at higher bandwidth applications in some
important, emerging broadband systems. This really is a natural
progression for us since for many years Vari-L has been a force in
the narrowband VCO marketplace. Our new VCOs are cost competitive
and offer very low phase
noise, something we are known for, and we think we'll be
especially successful in the satellite, cable and military arenas.
Right now our new VCOs are being tested and evaluated by more than
20 companies and we have received scale-up orders from a large
telecom. We estimate the annual market for this new VCO line is
approximately $40 to $50 million.
o In March we introduced an advanced line of 3-dB Hybrid Couplers
which, unlike the new VCOs, was a bit of a departure for us.
Couplers are critical components that are used to build power
amplifiers for wireless systems such as base stations. This
product line is right in our sweet spot in terms of technology and
engineering, and we are in discussions with a number of companies
who are seeking a reliable second source. We currently have
samples out to 12 potential customers - among them some of the
largest telecoms and power amplifier companies in the business --
and we have received positive feedback as to product performance
and pricing. We estimate the market for our new Coupler line is
approximately $30 million.
o We mentioned on our last conference call that we have high hopes
for a new product line under development that is based on YIG
technology and patents pending that we purchased in January of
this year. We are making rapid progress. We have a working
prototype and expect to provide evaluation units to potential
customers in the second half of calendar 2002. These units will be
YIG-based oscillators and synthesizers that support a host of
emerging wideband and higher frequency applications. Like the
aforementioned VCO790 line of wideband VCO's, our YIG line will be
notable for its low phase noise and strong price performance
characteristics. We estimate the market for our new YIG line is
approximately $80 million.
o As to precisely when we expect the wireless sector to begin
showing improvement, we are really not comfortable making any
predictions. The sense we are getting from the larger
infrastructure suppliers is that the soonest we will see signs of
a meaningful recovery is in the first half of calendar 2003. In
the meantime, as I said earlier, we are not sitting around waiting
on the recovery. Our engineering team has been working
aggressively with two of our major wireless customers to develop
PLLs, or phase locked loop synthesizers, that will replace our
VCOs on a one-for-one basis. PLLs have traditionally been
developed by our customers, and our VCOs were an integral part of
those systems. These customers have chosen to outsource more of
the design and manufacturing of the components, giving us the
opportunity to provide a more "value added" solution. This is a
significant revenue opportunity for us as PLLs typically sell for
two to three times the price of a VCO. We have completed several
of the designs and passed the initial testing. We have some
scale-up orders in the system for this quarter. We are supporting
this initiative through key additions to our engineering and sales
teams.
o Before I open the call to questions, let me again mention that our
class action shareholder litigation is ongoing and we are still
not at liberty to discuss details of the process. What I can say
is that we remain committed to resolving these outstanding issues
in the best interests of our current and former shareholders.
Unfortunately, we are currently unable to predict when such
resolution will occur.
o With that I will now open the call to questions. Operator...
(Mr. Bland and Mr. Dutkiewicz then answered questions from participants
in the call, including but not limited to the following:
In response to a question concerning the significance of scale-up
orders, particularly in the PLL line, Mr. Bland stated that the major Telecom's
are outsourcing more of their design work as they re-evaluate their own
operating costs infrastructure, but that the impact upon revenue is really hard
to predict and that the Company would probably not see any meaningful revenue
(in excess of a million dollars) until the latter part of this calendar year.
In response to a question concerning the Company's military and
aerospace business, Mr. Dutkiewicz and Mr. Bland confirmed that the Company
remains committed to becoming a quality supplier to that segment of the
electronic products industries and that it remains a fairly bright spot.
Additionally, the Company would like to grow that segment over the next couple
of quarters.
After there were no further questions, Mr. Bland closed the call as follows:)
o I'd like to thank every one for attending today, and for the
continued support of the shareholders. We realize that we have
some credibility to re-build. We hope that we've demonstrated that
over the last several quarters we continue to work for the
maximization of shareholders' value; that may be a cliche but it
is really meaningful here, and we've worked hard to make sure the
employees understand it. The issue for us is that we cannot cost
cut our way out of this problem. We need a certain size
infrastructure to be a supplier to the major telecoms sector. Our
solution to this problem is growth, tight control of our cost and
growth. You'll see us focused on that for at least the next six to
eight quarters as we roll out these new product lines and
penetrate new markets. So, I thank everyone for coming today and
appreciate you taking the time to be with us. Thank You.