Filed by SR Telecom Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Netro Corporation
Commission File No. 000-26963
The following is a transcription of the First Quarter Telephone
Conference call held by SR Telecom Inc on April 23, 2003
OPERATOR: Good afternoon,
ladies and gentlemen, thank you for
standing by.
Welcome to the SR Telecom
first quarter results conference
call. At this time all
participants are in a listen-only
mode.
Following the presentation
we will conduct a question and
answer session. Instructions will
be provided at that time for you to
queue up for questions.
If anyone has any
difficulties hearing the conference
please press star zero for operator
assistance at any time.
Before turning the meeting
over to management, please be
advised that this conference call
will contain statements that are forward-
looking and subject to a number of
risks and uncertainties that could
cause actual results to differ
materially from those anticipated.
I would like to remind
everyone that this conference call
is being recorded and will now
turn the meeting over to Mr. Pierre
St-Arnaud; he's the president, and
chief executive officer of SR
Telecom.
Please go ahead, Mr.
St-Arnaud.
MR. ST-ARNAUD: Thank you
very much.
Thank you, and good
afternoon, ladies and gentlemen.
Let me first apologize for being
delayed here and thank you for
your patience. We had some
logistic problems after we issued
our press release which has just
been released.
Welcome to our conference
call for the first quarter ended
March 31, 2003. With me is David
Adams, Vice President, Finance
and CFO. We'll provide you with a
brief overview of the release just
being issued today. And afterwards
David and I will be pleased to
answer any question that you may
have.
As we have previously
forecast our revenues in the first
quarter of 2003 were below the
level achieved in the same period
last year. Consolidated revenues,
which include the result of our
CTR subsidiary total 29.6 million
compared to 45.4 million in the
first quarter of 2002.
Revenues from our
core wireless solutions business
accounted for 26 million of this
total, compared to 40.6 million in
the same period last year.
Although, we anticipated lower
revenues in the first two quarters
of this year, the decline in Q1 was
measurably impacted by the conflict
in Iraq. Because of the Iraq
situation the shipment of certain
large orders planned at the end of
the quarter to the Middle East was
delayed. Uncertainty throughout
the region has also temporarily
stalled other projects.
These factors reduced
revenues by approximately $10
million for Q1. However, we expect
the shipment to resume during the
second quarter and combined with
existing backlog will generate
revenue growth Q2 over Q1.
In addition, we anticipate
significant new orders in the
coming quarters from our
traditional markets.
The new class of products we
have introduced should also result
in growth and additional revenue
streams in the second half of the
year. This activity should also
significantly improve our order
book throughout the rest of fiscal
2003. Overall we continue to
expect that our revenues for 2003
will be in line with those achieved
in 2002.
In fact, our company also
made substantial progress on a
number of other fronts in the first
quarter. As you know we signed a
definitive agreement to acquire
Netro Corporation. The deal
solidifies our competitive position
by adding two high capacity
packet date and carrier class
voice product to our portfolio. It
also significantly strengthens
our balance sheet.
At closing, we expect to
have consolidated cash of
approximately 75 million. I am
pleased to report that the U.S.
Hart-Scott-Rodino waiting period
has ended, and we have
received approval from the board of
directors of both companies.
The transaction is now
subject to approval of
Netro shareholders, and we
expect it to close early in July.
During Q1 we also added
CDMA technology to our portfolio by
acquiring certain assets of Mergy
Inc. We actually closed the deal
on March 19th and introduced shift
1xEV-DO standard based broadband
access solution that will serve,
identified opportunities for fixed
application in our existing
customer base. We expect orders for
these products later in this year.
Additionally, we introduced
stride2400 a 2.4 GHz unlicensed
(inaudible) access solution that is
specifically targeted to the U.S.
rural market. We have already
begun and completed some customer
trials and broad commercial sales
of the product are scheduled
starting in the second half of this
year.
All of these products are
the result of successful and
cost-efficient acquisitions. And
they have been driven by
particularly, we have identified
within our existing customer base.
In other words, the markets for
these products and solutions
already exist. So they present us
with real and immediate
opportunities for revenue.
In making these
acquisitions and introducing these
products we have taken advantage of
the opportunities that the consolidation
trend in our industry has
presented. And in so doing we have
assembled the industry's most
comprehensive portfolio of fixed
wireless access solutions.
Our goal is to double the
revenues of the Company in the
coming years. And I am confident
the strategic initiatives we have
undertaken will allow us to realize
this goal.
I will now turn the call to
David Adams, who will provide you
with more detailed financial
information on our first quarter.
David.
MR. ADAMS: Thank you,
Pierre, and good afternoon ladies and
gentlemen.
I would like to elaborate
on some of the financial data that
Pierre has provided, and discuss a
few other developments of note.
As Pierre has said,
consolidated revenues for the frist
quarter 2003, which includes CTR,
total 29.6 million as compared to
45.4 million during Q1 in the prior
year.
The first quarter operating
loss was $7 million, compared to a
gain of 746,000 in the same period
last year.
Consolidated net loss for
the first quarter of was 6.7 versus
the net loss of 2.6 million in the
prior year.
Filling in the numbers in
our wireless solutions core
business revenues in the first
quarter reached 26 million, a
36 percent decrease from the same
period last year.
As Pierre has said, we did
anticipate a drop in Q1 revenues,
but this drop was exacerbated by
the conflict in Iraq. Conflicts in
the Middle East caused delays in
the receipt of letters of credit,
suspension of contracts, and the
disruption of contracts in progress
from the repatriation of staff in
the region.
The cumulative effect of
these factors reduced revenues by
approximately $10 million in the
quarter, which will be realized
later in this fiscal year.
Our operating loss from
continuing operations from the core
wireless business with 5.1 million,
a direct result of the lower
revenues that we had forecasted.
However, we fully expect an
improvement in operating earnings
in the latter half of the year, and
we continue to focus on keeping
costs in line with expected
revenues.
I am pleased to report that
our gross margin remained
relatively healthy at 46 percent, a
drop of only four percentage points
despite the decreased revenue.
Backlog at the end of the first
quarter stood at 65 million, all of
which is expected to be deliverable
in 2003. This is down from
$82 million at the end of fiscal
2002.
The protracted slow down in
the telecommunications industry is
clearly having an effect. However,
we are confident that we will be
receiving significant orders in the
second half of the year which will
be generated both from increased
activity in our traditional markets
and from new business resulting
from the commericial introduction
of our new stride2400 solution.
This activity should result
in growth in the second half of the
year and allow us to achieve
revenues for 2003 commensurate with
those that we realized in 2002.
At our CTR subsidiary
revenues declined slightly from 4.9
million in the first quarter to
3.6 million in the first quarter of
this year. Traffic on the network
has decreased due to a weak local
economy, and revenue figures have
also been effected by a decline in
the value of the Chilean peso
relative to the Canadian dollar.
However, net income from CTR
increased to 1.2 million for the
quarter compared to a loss of
2.8 million at the same time last
year.
Additionally, operating
expenses excluding depreciation
shrank (sic) by 12 percent over the
same quarter last year, reflecting
the focus of our efforts on
increasing EBITDA by reducing
expenses and maximizing the debt
repayment contribution.
The weakness in the global
telecommunications industry and
financial uncertainty in the South
American capital markets makes the
sale of CTR unlikely in the short
term. We are concentrating on
improving its operating performance
and capitalizing on the benefits
associated with the acquisition of
the Gilat network. The integration
of the satellite network with our
core network operations is
complete, and CTR is focused on
generating increased revenues in
part through its high-speed
internet offering.
In terms of SR Telecom's
financial position our cash balance
at the end of the first quarter was
26.9 million compared to
20.8 million in the same period
last year and 41.9 million as of
the year end. A good portion of
this decrease in the cash balance
is due to the $5 million repayment
of our operating line of credit and
a $3 million debt repayment related
to CTR.
As previously reported we
expect that our merger transaction
with Netro which is scheduled to
close in early July, will improve
our consolidated liquidity
considerably, and provide us with
greater access to capital markets.
One of the key benefits of
the Netro acquisition is that it will
add approximately $20 million to our
cash balances, after taking
into consideration transaction
expenses, restructuring costs and
provisioning for assumed liability.
At closing, we expect that our
consolidated cash position will be
approximately $75 million.
I would like to conclude my
remarks by reiterating that we do
not believe that our first quarter
results will be indicative of our
performance for fiscal 2003.
As I said, we continue to
expect that 2003 revenue will be in
line with 2002 levels, and I'm
confident that our recent
technology acquisitions and product
introductions will move us closer
to achieving our goal of doubling
the company's revenues in the
coming few years.
After giving effect to our
Netro acquisition, we
Anticipate that we will generate positive
earnings starting in the first
quarter of 2004.
Thank you for your time and
attention, and I will now turn the
call back to Pierre.
MR. ST-ARNAUD: Thank you,
David.
I would like now to open the
conference to questions.
OPERATOR: Thank you.
Ladies and gentlemen we
will now conduct a question and
answer session. If you have a
question, please press the star key
followed by the one on your touch
tone phone. Your questions will be
pulled in the order they are
received. If you would like to
decline from the pulling process
please press the pound key. Please
ensure you lift the handset if
you are using a speakerphone before
pressing any keys.
One moment, please, for the
first question.
The first question comes
from Mr. Barry Richards from CIBC
World Markets.
Please go ahead with your
question.
MR. RICHARDS: Good
afternoon. First question, I
wondered if you could give us the
subcount on CTR today?
MR. ADAMS: The subcount on
CTR is over 22,500 subscribers.
MR. RICHARDS: And the head
count at SR Telecom?
MR. ADAMS: Head count as
of March 31st, is 780, excluding
staff of CTR which is approximately
220.
MR. RICHARDS: And given
the level of revenues you reported
in the quarter, can you just
quantify for us, maybe split it out
by geographical region?
MR. ADAMS: We, just a
moment I can sort of give you a bit
of a breakdown. In the first
quarter the revenues were primarily
in, come in several areas. We
still have revenues out of the
Middle East, but we were picking
up a considerable amount out of
Australia, the Philippines and in a couple
of areas of Africa.
MR. RICHARDS: Got you. It
looks like you recognized a one
time gain, is that a foreign
exchange gain at CTR?
MR. ADAMS: It's --
effectively it's the effect of the
declining value of the U.S. dollar
on the debt.
MR. RICHARDS: Okay, thank
you.
Last question, again on the
revenue side, can you just help us
understand now that you have got as
many products as you do where the
strength is, is it still the core
products and what are you getting from
some of the newer products?
MR. ST-ARNAUD: Well,
Barry, this is Pierre I would say
that the key evidence that we got
here is we have in our customer base, which is
quite extensive as you know, we
have identified opportunities for
the products we have acquired. So
actually we proceeded from needs
in the marketplace in deciding
which of these products we would go
and acquire. And we see a very
significant opportunity for the
Angel technology of Netro in the
3.5 GHz in different parts of the
world, mostly in Europe, in China, in
some of the countries in South
America. And obviously the 1xEV-DO
technology is for application
others than our traditional
business because it's clearly a
(inaudible) application. It's IP
only and we see that as alternative
to DSL in large, heavily-dense
populations in Asia.
MR. RICHARDS: So I
understand, am I right in saying
that you're currently recognizing
revenues from the SR500, the WL500,
the MetroFlex and the MetroPol
and you'll rule out stride, shift,
Angel and AirStar in 2003.
MR. ST-ARNAUD: Yes.
MR. ADAMS: Yes. Most of
our revenues now, Barry, are Swing
and SR500.
MR. RICHARDS: Thank you.
I forgot the Swing. Thank
you, good quarter.
OPERATOR: Ladies and
gentlemen if there are any
additional questions at this time
please press the star key followed
by the one. As a reminder if you
are using a speakerphone, please
lift the handset before pressing
any keys.
Mr. St-Arnaud, there are no
further questions at this time,
please continue.
MR. ST-ARNAUD: Thank you very
much.
While our revenue Q1 were
down compared to last year this
does not come as a surprise. We
have forecast a drop from the first
half of the year, though the
situation was clearly worsened by
the events in Iraq. However, we
expect that this is a temporary
phenomenon and that certain large
orders that had been scheduled to
ship in Q1 will resume in Q2.
Additionally, we anticipate
increased activity in our
traditional customer base in the
coming quarters. And we also
expect that some of these customers
will have a new class of
products we are introducing. This
should improve on our backlog
significantly going forward and
allow us to achieve revenues in
2003 that are in line with 2002
levels.
The most significant
achievement over the past quarter
involved the strategic initiative
we have carried out, that improve
our competitive positioning and
balance sheet substantially. Chief
among these is the acquisition of
Angel and AirStar technology from Netro, the
CDMA technology from Mergy and
the introduction of stride2400. All of
these technologies answer needs
that have been expressed by our
customers base.
Going forward and based on
the opportunities we have
identified with our customers, I am
convinced that these new products
will contribute significantly to
our goal of doubling the company's
revenues in the coming years. Our
deeper and broader product offering
puts us in the excellent position
to benefit from an eventual
market turnaround.
Thank you for the interest
in the conference call and for
taking the time to be with us
today. Again, I'm sorry for us
being late, and as always please
feel free to contact us if you
would like to discuss any of these
developments in more detail.
Thank you very much.
OPERATOR: Ladies and
gentlemen, that concludes our
conference call, Please note that a
replay of this call can be accessed
as of 6:00 p.m. eastern time today at telephone
number 1(877)289-8525 and entering
pass code 249089. Again that's
telephone number 1(877)289-8525 and
entering past code 249089.
This replay will be
available until midnight on
April 28, 2003. Thank you, you may
now disconnect your line.