ZMTP - Earnings call transcript Q3 2019

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Operator

Ladies and gentlemen, thank you for standing by and Welcome to the Zoom Telephonics Shareholders Call. At this time all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker for today, Frank Manning, Zoom's CEO. you. Thank turn now over. it will I

Frank Manning

Stephanie. Okay. Conference the Telephonics to for Thank QX CEO. you, Call Zoom's XXXX. Zoom Manning, Welcome I'm Frank

questions Wytanis speaking call. Joe also during answering President, this and Our after will and be

a statements you time, predict are uncertainty When the subject As at and our We risk. Slide have slides to call please in are reminder, comments www.zoom.net/sqXXX. X. future, read cannot this and and forward-looking

business of overview Zoom Zoom since brief XXXX. a in provides X Slide has Telephonics. been

brand Motorola internet exclusive We license area for products. of the have number large worldwide access network a local and

Our includes strongest product category with by cable far is cable cable modems, bridges built-in which modem routers. modem and

We modems and are cellular growth also in sensors. seeing

We modems, expect in including cable significant mesh beyond. routers, growth cellular routers sales in and and products XXXX

excellent through excited still XXXX. execution, our negatively XXXX. in spite XXXX through business, months, of X and China and we'll revenues X% we're year products from tariffs discuss our great tariffs. very ahead And tripled impacted about these beyond and revenues next brand, XXXX are and of dramatically Motorola have The why

XX On had see China everyone XXXX trend the modem QX interrupted QX you quarters of through with can XXXX. dealt that sudden business was in we year-over-year tariffs, That primarily the due which Slide to XXXX and QX increased disrupted X, as sales cable straight changes.

But challenges that have QX sales. up QX that in price sales report growth, net to XXXX The [ph] X.X% over tariffs sales million, stable. become million. time, were more XXXX our $X.X to resumption initially very up net since $XX.X highest a to QX showed with XX.X% prices hurt sales We're pleased year-over-year caused XXXX. year-over-year

Best shelf very improvement space and Buy, electronics from in retailer. benefited position significant XXXX a QX important shelf at

sales also in U.S. achieved the were our almost especially of good Amazon, We at XXX% growth, online

Slide X QX compared of an QX overview results XXXX. XXXX to gives

starting sales to our and early with many exciting pleased very look lower a products, expect significantly phased we XX.X% QX. new introduce to to duty XXXX have starting growth. where we are in And We in forward XXXX

see margin tariff can XX.X% after our gross before that QX expense. million in for that was XXXX You expense and XX.X% $X.XX

likely to continues to incurred QX inventory that in XX% tariff a our shift U.S. to in of XX% is drop to margin inventory the XXXX XX%. gross Our about as instead

course, we with improve will Of this succeed economic dramatically our filing. if harm

March However, and in out, will and suppliers for beyond. improve built our begin for that the moving filing in our turns gross latest are of with production XXXX, we've that believe estimate, with more Vietnam cost our to key XXXX We from to QX majority our will we margin transition products improvement XXXX significantly achieved reductions when be Vietnam. significantly QX

net the Our done achieve net tariffs. to was loss work of $XXX,XXX would QX our very the have great income XXXX I'm $XXX,XXX. employees We for proud QX of had results. Zoom's by XXXX And without

QX Slide this grew as XX% X to and over earnings a our QX QX our updates call our XX% our share up to of under time, Amazon market lot from XXXX. moved XX%,from just year. share. We almost revenues grew XXXX Amazon We has that

grew category Amazon share. modem As we cable its our improved and

our share care our a Amazon, care about we profitability. We more lot even about but

impact ad about these on and ad as We return pricing, our other share. Amazon very spend and modem expenses product are expenses, cable all careful profitability

issue, people team we and affects success. contributions addressing progress the issues, of I'm encouraged our else customer of Amazon a also success. issue resources our whether to spend make Amazon on it's that Zoom or who inside drive money the outside considerable box and Amazon We anything continue buy the by

other discussed distributors. Best brick-and-mortar comment who of like Target the And Buy, in to electronics retailers of on X We've already you reminds I'd U.S.A., Slide our Amazon. and who's and customers now retailers. excellent of

SKU each If as in We If have for are counts store, there a a SKU of the that in X the that stores that still stores, as it's the it X,XXX. X,XXX in. number as in shelf-space one store. SKUs is metric measures counts

is X,XXX if stores, counts in a as X,XXX. it So SKUs again,

grew beginning X,XXX, of the shelf-space we that year jump. from metric X,XXX huge year, a This at to the

Importantly, the X placed position on growth Target. and improved important at we Comcast stores Buy, accounts, Best the occurred regions. focal Buy in we our of our not shelf display shelf shelf At only grew top extremely and Best space, the

forward. and we shelf improved is Our at Target going should space now, happening benefit

brick-and-mortar do and our and Our modems routers also retailers. to appropriate to cable modems We is current Costco focus modem approach XXXX customers on and for the and cable routers. in placements for stores cable to at hope in best new Walmart

We're also on those goals. perhaps, other cellular to retailers. Buy at guarantees, these products new but hoping think a and, chance we to are want I hopes, very have meeting at Best I And not reasonable place emphasize some

we X, Slide On profit gross show margin. gross our and quarterly

unusually As before XX.X% us. high shown for earlier, margin was gross tariffs, which was

was margins. in margin which for However, call Zoom. gross in commented are we XX.X%, low towards million $X.XX driving exceptionally our higher after how We tariffs, this earlier was on

X Slide situation. tariff the updates

count trade are way, success main for in is called, that. our ruling harm getting soon check a this A China improvements can and new of representative an there the on we X One USTR, U.S. policy, forward, the as ways there's cable office modems. some as economic tariffs. Going XX% second escape We from month. chance the don't

more so already and request for status Some of our our we of good initial some economic even improved support. with modems, harm and withdrew calls case refiled cable letters failed,

including several large Those letters letters politicians; Lynch; X key shareholders; from included Steve and Congressman, U.S. some employees, me. state Massachusetts

We're of and office. from Hampshire U.S. office calls Massachusetts the New USTR able Center, [indiscernible] support offices Senator, Hassan's to U.S. to get

to from also both home but easier state. politicians attempted states, from support parties in U.S. people surprisingly, support get Congress a of get to from number in We it's not your

but were there's way Vietnam. main China we aggressively why ruling, November the harm no December. of escape or to were decision namely That's China products late very our also make pursuing successful of the out production hear to USTR's the tariffs, in success. to guarantee moving most likely third We economic of To deserving in we're that,

significant we shift earlier, shift, we rapid XXXX to a next XXXX a start QX QX results, and see noted more pay decline with tariffs starting the the expect earlier. should or As summary, quarter. a significant In much starting

Slide of was hires we including Technology people XX, our main Zoom, discussed key the On Officer The new QX $XXX,XXX increase and expense 'XX and our operating to increase important QX compensating President, Chief and support. in at of our VP Sales, engineering 'XX. the new from source recruiting

marketing in increase and including minimum to Motorola $XXX,XXX with our programs. a payment. a brick-and-mortar We increase due marketing, expenses Best the Buy marketing other included retailer reasons focal royalty had the expanded in $XXX,XXX Other increase display

[XXXX] You once for $XXX,XXX budget, product. to XXXX. can a at a see big QX advertising each XXXX on QX from decreased we that (sic) We've maintained week spend look least at and advertising expenses ad return

on is we plan profitability, focus profits. maximize Our and frequently to our fine-tune

Most of we has and ads ad XXXX, will with and spend those and ad our experiment other been also Facebook Google. types continue on programs Amazon ads. In of

evolved at shows million offsetting Slide share, XX has our more tariff-related how May in with financing a losses. XXXX per than $X.XX our $X balance sheet

in million is still and with X as $X.X strong, sheet balance November of cash debt bank Our X.

brand exclusive our Motorola summarizes current license. XX Slide

covers categories lot see surcharges. of that a You it geographic product in can

in in America, largest the So is, world. modems USA North partly by retailer because far, far, for the the vast sales Motorola cable majority market are the of our

that picture some and said, in products we XXXX. start the We being other providers as countries sell XXXX All expect this appropriate to introduce we start countries. for to in to change more will other in service U.S. dominate as to

President. Now I'll turn Zoom's the Wytanis, Joe presentation over to

Joseph Wytanis

Slide provides the we very steps many what fruition. Frank. to traction to come we've a of summary, XXXX. you, our positive business in expect are taken expecting in of In in XXXX XX compared glimpse Thank as we XXXX good

Let of to me moment take highlight a them. some

First, tariff. the

to majority Frank production we're as XXXX. made-in-Vietnam ship and our be believe our of margin This will dramatically over As we these China fully products. moving we mentioned, converted QX we improve Vietnam, of current as the will from

you map. categories. bringing China. in to the categories will the products of product a product market new moment, product numerous In also various exciting we're vast I slide of outside that manufactured Second, road introducing new shows them show We're majority a with

Third, recurring downstream revenue.

our IoT and pay application in Minim home users relationship leveraging with management a our to end a with last as security we call, capabilities and that mentioned service. Motorola previously from As are for they network provide earnings subscription control will

space and Fourth, and Amazon shelf growth expansion service in channels. includes in This growing our retail, growing channel. provider penetrating the different continually share

manufacturers. and/or new engaging suppliers Lastly,

we expansion of now we road collaborate our suppliers closely place. have to the that map, needed additional in with product and us, With new

I channel. detail margins time. worked let In service slide significantly fact, with this major us help when of well the provider for the supplier the partner manufacturing rest is in read will you that past have our I one you position and improve a the on will

in we're Slide XX provides making sales. progress an update on the

We are channel. and sales, very company core key from continue to to growth to retail our is the e-tail business. of our in be grow but in we It objective realized with our this pleased net a share this continues

into provider While service the expanding channel.

At that of very for the with response map. our in and especially products service tell positive, can are is operators, this you road the many point, I new meetings have we place taking

and grow Another the will downstream differentiate top line, key that with our to increase our is subscription-based from margins services our sales competition. recurring objective improve us

we believe Minim see and services product Motorola-branded current nice with will revenue with from subscription recurring shift partnership strategic our sales mix a sales with onetime applications, we our in cloud to growing product Again, sales.

working reseller help sales America. partners the significant U.S. of to With the Sales the are who VP to we in experience Latin with of and Canada newly hired now grow has service channel, beyond provider the

and modem QX coming category. anticipate XXXX, Lastly, in with new gross we product market routers profit cell cell meaningful in into and sales many this

into acceptable to most offer to products, point making #X up to while Slide on been The down sure can further still now achieve important we in what competitive price an accomplished our XX we service for have successfully drills us has a margin. order operators. until allowing detail sell

a products but manufacturing suppliers that are are do and place support of positioned the the nicely component to new transitions with performance, best-in-class this in to industry, new now ago, go with year taking key full we business. difficult was after That partners,

hire accelerate sales growth. As channel, this to will help appropriately we grow we talent in sales

of addressing from content XG, us growth. support to users touches move new WiFi map sharing have of X WiFi these most applications. to trends the XX upstream taking drive or place, need to them address X.X, and technological it's allow Whether downstream have road LTE we we endless of a of product a DOCSIS X.X sales to XG to In end all. areas, for to the and for X some that higher are speeds Slide on would technology

technology with is WiFi in the market like Again, good solutions what's or But a this product faster are is area particular address business to if to challenge. speed mesh, we home uncovered? bringing

As also to to Motorola we and is network allowing ensure offer products pareto security we manage accommodate cetera. device every against and network, realize management IoT the where et each speeds, service their users will range, device, better network subscription patrols, offer see control and help. guard and This network attacks, security, of faster sensitivity

Slide is in XX slide this in products products each market. mix to into highlights XXXX. the to new launched products identified the on market new how busy the What these of been first it plan in multiple all It bringing is of exciting a product categories. our comprehensive half we've addressing category, you have see

new that above we wireless and also categories design. [ph] know product will it's You a voice the are launching gateways EMTA's

are about be and We customer believe very will tremendous. receptiveness excited this

Slide Motorola whole our home you WiFi offering. insight into gives XX

their As have home down we're a to to application. network allows bringing a each home agent device left, manage user devices embedded an market that you from that see on control can the single and specific to

offered rate while users The services. period the provides unlike devices can the End of address and trial market to free additional service application and time and, be network management we're a charge our value-add subscribe cloud and of bringing security. to afterwards, offering use range, potentially will and

home a in important that our very team to customer technical is support. also highlight order slide Motorola certain support this visibility have into is will network own best-in-class how performing provide to in It

Number steps eliminating China. impact I to are taking here: XX, tariff margins by improve in them summarize Slide production we by In significantly I to mentioned one, to most of product we reducing, them, aggressively reducing increase of shareholder value. are the working but I want recap

are we key suppliers. component closely addition, In working with

Our manufacturing major our manufacturing to costs. current new partners partner, improve greatly

early line. changes high-margin two, these from benefit significant revenue on see to expect while Number We focus attention year. to areas continuing grow next our top

and core good Number best serve margin needs. that technology, three, provide adopt provide our introducing customers' new differentiation, latest leverage products our competency,

to sales our Number sales sales mix continue recurring efforts. and to we -- drive to top sales embrace grow five, Number to only and service shift in line marketing only margin, product four, to a revenue product from as excellence our and increase from continue our support in revenues.

In about summary, we near positive spite impact they in the term. of the taken, make we've make tariffs. steps to We're will progress continue good the in the and excited

We let's greatly And questions. now appreciate support. to turn your

Operator

with Ben [Operator Instructions] Your from comes the Robotti. first Rubenstein line question of

Ben Rubenstein

Hey, good morning.

Frank Manning

Good morning.

Ben Rubenstein

So the have But you to what walk the kind I of new to guys And with a hoping what terms you you like? want I'm looking question, did and look further, you want to what's just could what the look recently? ambition, somewhat but obviously, offering I guess out one created here, guys you kind of XXXX. the just for you about business have of in out if story, talk through few years if you're do

Frank Manning

Sure. This is Frank.

all, - retail one we where as I in are like important of think we element. we first

a we're that. that, we will to steps I to focus continue certainly, So the providers. excited towards to that. And we very think we're major definitely go great about making But have service on and want

next I job of key. a really early think, positioning ourselves for Joe year. very very, was costs Wytanis, And by we've Cost lower good led done starting

cetera. We energy, at routers technology be home because very extend well handle themselves are that to to are other may your the WiFi, use securing IoT managing looking very they area some might for but positioned seriously your or et devices our

finalized haven't about But thinking that. at So that's be think at that something look looking we to area to And have certainly, we we very our that's that, seriously. it. an important

we'll made essentially say were all-US of back be especially and finally, many next of a even of way then I company. had has our years us nature Europe. wasn't we to our We sales in year. sales countries, I - when that would think And in we've like see in the significant -- number think little true products, that bit modems. But on products earlier Many, an actually dial-up ago, focus a I retail change

But I of and more we'll - that think see in years from that. XXXX, from more out

to obviously, United continue Motorola the the States. United outside and of it States important will is, be. think market, there's, the United I and opportunity our brand most I far, of huge But outside States, by the think extends

I think So exciting. that's

Joseph Wytanis

in in on application, that. end home allow add those Ben, their just manage that and very the it's their and simply, home by from to us. to their are home to devices like all and network control I'd Yeah, to being are there home users, provided the users in single a devices

and So we're devices. user see channels into we devices. control here current service IoT be products, able and provider and as in rapidly U.S. manage channels the The the but DOCSIS And this those our providing products the providing to business. mentioned, Frank ourselves that cell beyond through that the expanding will grow the

vision that's our real So quick.

Ben Rubenstein

it. appreciate I Absolutely.

Joseph Wytanis

you. Thank

Operator

a investor. Lehman, line next Spencer private of Your is the from question

Spencer Lehman

a Frank just presentation. conference and call Hi, and was Joe, great that

you now, Or XX%? at tariffs. XX% your... what quick is a Right clarification on currently are Just the or

Frank Manning

take I that. can Sure,

in on So we that reason P&L to XX%, much moved we inventory United but rate the of went you the our that as June, increase is could wouldn't in States. the into anticipation the see as

blend you in XX%. so that have of just And the ended a is XX% and what quarter

XX%. moves shifts inventory it over time, toward that As obviously,

picture. the basically that's So

Spencer Lehman

your then of And XXX% Okay. be goal China? is out to

Frank Manning

give things that buy you old -- We dialogue counter that. what say, So one for some basically I'll make, meanwhile, just technology meant. let it's terminals -- me people like just really I it's still almost still modems and that's example, very

doesn't flying. a the China. China. But is on important the be picture enough not we're of of will worth to out money now that's that just we're -- Honestly, of moving products -- move And big there there's China. And mission it out that's out all

Spencer Lehman

Yes. move with the he would reduce there Vietnam? saying at let Trump though, the least And continue trying news, currently that to that will you with momentum? to some your with me Or or the change in Even or to -- continue? that would was close eliminate China say, -- to tariffs, getting thoughts,

Joseph Wytanis

to around movers products, lot in our commitment. the Spencer, continue. that all we're committed going wheels motion plan. of then that make to and Vast backwards, go majority outside are to move. will you a turn not move the that's There's the Once and We're China. of of high-volume

Spencer Lehman

easy your Okay. That expense lot see fairly a new that quality a you with transition? makes of any don't this and sense. Is And with the the problem re-doing of or manufacturers?

Frank Manning

that manage. on I and right have I fairly as say wouldn't it's of would we, something company, be closely it's top easy. say to a that

a a fair of. been raising certainly that you're and that one point -- point we've is thinking that So is

going watch a And is make quality that point our and we're dual a make running to run and to I strategy to tightly approach. control so are - want The the we sure. is

up Vietnam. ramp into we While and move production

will to just and a S&P is Everything forth. the smooth there China, fine lines with the transition. We so and continue for some production that make is with period sure

we're the exactly go confident, then where to overlap. over, and them will have we we switch we once we full levels but do have be, see a And are quality to want plan

Spencer Lehman

a so and prudent that call. sounds very Well, luck Okay. thanks and for good great

Frank Manning

Thank Okay. Spencer. you,

Operator

the from is question line next investor. Paul a private of Lucat, Your

Paul Lucat

last to could Motorola? sales and samples those wanted product for Zoom, number of or that at some get give see to on all efforts? indication can an trials guys I Nice doors are able just equipment quarter. if to of we open any the progress color guys. Are Hi, customer delivered about growth comment you anything customers, premises how

Frank Manning

on And that Is I service think probably you're correct? the providers. here, focusing

Paul Lucat

Correct. Yes.

Joseph Wytanis

Yes.

service service definitely the a more as The X.X with mentioned, at having as discussions providers. looking they're towards now, the right their having, DOCSIS spends the move that forth. we're next products with budget meetings is of and so providers So we are with I discussions, interest

majority we as are for those So a in bringing partner manufacturing new of a products.

will we them samples, be them. to As we providing have

point, have that samples, X.X, but not it quarter. them we is plan our them by this this at the provided to have So to of DOCSIS samples

Paul Lucat

compatible Also, would compatible be services? that the you routers routers Minim Great, anticipate you having great. Minim's for sessional with offerings? when with timeline are that having service on Can comment

Joseph Wytanis

as availability. Minim QX say commercial for -- are We But say I I would that integrating would we will ready be and speak.

Frank Manning

product are put Minim new router trying And just answer. and I have that shipping that already some But to that capability capability. clarify so products with that, a has agree in router to we're that

So And and Joe's But Minim big task, the is and more it's what capability. a is it's years correct. think over of happening. products I you'll with answer our just see more

Joseph Wytanis

Absolutely.

Paul Lucat

only or on cable And Are Or wireless modem cable modems just are with the targeting carve modems out to you expanding capability? the you DSL Minim to be going that capable you routers Minim? issue topic, that will with modems?

Joseph Wytanis

cable No, wireless it's it's it's of Minim. modems, key for just no. -- a have It's other all with ex-DSL cable Mesh, just not devices devices. we certainly, The the number we It's I try devices. wouldn't capability, -- integrate say focus But WiFi gateway, modems. of that to not DSL, a most routers, us. is will

Paul Lucat

for all Great. for able renewal? due services Motorola next-generation for and products And investment name? the to longer-term you're I a under wondering you Motorola that is great will the when you're be secure name. secure And making brand was the to as developing these -- license

Frank Manning

the of end expires contract at current XXXX. Our

have a confidence can high we pleased line that little a actively we year can over we're but but goal renew not progress, it, that you highly on we the that say contract. and we've that that over I now. been And you the So will it's will as working yet. likely And guess, That's would from not were contract. renew we with guarantee, a think I that

Paul Lucat

that? was give Board filed -- out that you you GE would lastly, comment Hitchcock, XX about Could And a initiatives meeting. of together was a meeting on emergency anything discussed Jeremy the a that there's the might emergency, [ph] called Monday on comment not Board note that Great. and by the have guys come in any just but last

Frank Manning

concept. didn't member, did not can that Jeremy should to that necessarily I results CEO wanted is step one discussed. CEO. everything down because whether down But consider the the meeting was Board support And as not directors I Hitchcock, board the comment, that step as basically, of I that

plan But step way the that hope a that me. of the for for the transitioning sense jobs I company, a including I ended the positive now. a I I'm do the very and lot once a we worthwhile in company as doing CEO for to down that, -- discussion, that and makes think it execute plan, graceful was think But

so think actually. worked well, I very And it out

Paul Lucat

Great.

I would at think, done have you reasonable yes, seem order built and job, company plan be in succession great time. the and to a this

So have coming I'm the technologies into to excited report quarter. and to look the with company are investor you'll next what forward be to an new that

Frank Manning

very you Thank much.

Joseph Wytanis

Thank you, Paul.

Operator

Walter Edmonds Your Cap Private next with Instructions] the Young from question [Operator of is line [ph]

Unidentified Analyst

you Hi. to My question your the two or go is, questions. If more give successful, is probabilities are is relief, tariff Can happens detail? are? when what a One you what back it - little you retroactive?

Frank Manning

It if product is in unlikely, new category, is And unless that whole retroactive. Yes. is put into price wins the category which then wins. category, a a one

terms will million of in of play it $X So end well over in by issue. the the this be year,

important. hard the kept on rest of But it it. it very our obviously. put working We was so of But obviously, And we a focus retroactive. is business, lot yes, on also

Unidentified Analyst

you the were And say, in successful XXXX, Right. the then -- what license, of before license, and let's long? is term how the of on likely is part December that Motorola second

Frank Manning

or Well, a term that's years. X think X Motorola I has typically license

Unidentified Analyst

to X X? Before

Frank Manning

years. X to X No.

Unidentified Analyst

Thank Okay. Those next exciting my were It questions. sounds for year. you.

Operator

MicroCapClub. is next line Ian Cassel of from Your question with the

Ian Cassel

tariff between $XXX,XXX positively of would an the versus taking this the $XXX,XXX situation. the XX% you even if impacted the it, time presentation have you and were of the all one out in and the by quick been profit it. have situation professional that loss question, And for blend I presentation. have have might you morning, Appreciate tariff a Thanks just produced gentlemen. XX% loss. sort Hi, that $XXX,XXX

side producing product of of is comparing, was situation? on difference But Vietnam, China there that, between out like margin with my Vietnam either producing kind is of sort question and if tariff producing producing product out the of -- the of obviously, what tariffs, versus out China product profile out of of no no

Joseph Wytanis

Ian, established a that for, Vietnam been would in manufacturer so one. with you lower who's say, and for of take I'll years, manufacturing than see Vietnam cost number actually a China. a

However, all of that's taking right companies with out now numerous China. because place moving of this activity

is in There in a into Vietnam, manufacturers moving from slight help Vietnam are in a up increase the team, China lot starting to as ramping products operations produce their those people Vietnam. the Chinese of bringing run to

But X than, years typically would say, down par of X%, to China years. about normally time, I would of perhaps then safely, to over that's So That and X.X at. runs level and where China say, period X% a higher come lower.

say, from and normally X%. - current increase China what in see manufacturer to see we X%, that probably that's will suppliers, without slight again, our a our about So as diversify we tariff

for they But have bring our excited a China in of products, on on manufacturing what slightly we XX as we're lower it because be and very the than close new about we've seen been that will for in new actually bringing years. I'm Vietnam new partners to most partner,

Ian Cassel

Thank color. you. that Appreciate Okay.

Frank Manning

Thank you.

Operator

questions. are there time, this additional no At Instructions] [Operator

Frank Manning

good questions. Stephanie, much, participants thanks very you a hear you thank your Well, call. with It's pleasure in for to the all the and speak and

Joseph Wytanis

Appreciate much. that. very you Thank

Frank Manning

then. Goodbye

Joseph Wytanis

Bye.

Operator

This conference. today's Thank you. concludes

disconnect. now may You

Minim (MINM) 9 Nov 192019 Q3 Earnings call transcript