IXYS Management Discusses Q3 2013 Results - Earnings Call Transcript

Jan.30.13 | About: IXYS Corporation (IXYS)

IXYS (NASDAQ:IXYS)

Q3 2013 Earnings Call

January 29, 2013 5:00 pm ET

Executives

Nathan Zommer - Founder, Chairman and Chief Executive Officer

Uzi Sasson - President, Chief Operating Officer, Chief Financial Officer, Chief Accounting Officer and Secretary

Analysts

Vernon P. Essi - Needham & Company, LLC, Research Division

Christopher J. Longiaru - Sidoti & Company, LLC

Operator

Good day, and welcome to IXYS Corporation's Third Fiscal Quarter ended December 31, 2012, Earnings Conference. Today's conference is being recorded. At this time, I'd like to turn the call over to Dr. Nathan Zommer, our Chairman and CEO. Please go ahead, sir.

Nathan Zommer

Thank you very much. Good afternoon, and welcome to the IXYS Corporation Third Fiscal Quarter ended December 31, 2012, Earnings Conference Call. I'm joined by Uzi Sasson, our President and CFO. Uzi will lead us through the financial discussion later in the call.

First, we'll review the formalities. Our discussion today contains forward-looking statements, including statements related to potential future revenues and earnings. Any statement in this conference call that are not statements of historical fact may be deemed to be forward-looking statements.

There are a number of important factors that could cause the results of IXYS to differ materially from those indicated by these forward-looking statements, including, among others, risks detailed from time to time in our SEC reports, including our report on Form 10-Q for the fiscal quarter ended September 30, 2012.

IXYS does not undertake any obligation to update forward-looking statements. We would like to take a moment and pay tribute to the memory of Eric Lidow, a pioneer of the modern power semiconductor industry who passed away recently at the age of 100. Eric and his father migrated from Nazi Germany to the U.S.A., founded International Rectifier Corporation. Eric has been a friend and a fellow of the industry. May he rest in peace and our condolences to the Lidow family.

For the third fiscal quarter ended December 31, 2012, we reported net revenues of $63.8 million, which resulted in a net income of $1.2 million and diluted earnings per share of $0.04. It is important to note that the December quarter is seasonally a slow quarter within the power semiconductor sector and also for us. Given that we have also shorter December. In spite of the economical uncertainties in Europe and the U.S.A., we started to see resumption of demand in some of our markets worldwide.

Even within this more difficult macroeconomic condition, IXYS has implemented operational efficiencies [indiscernible] continued profitability, strong generational [indiscernible] even after a [indiscernible] develop new products and technologies. We believe that as the market recovers, we will have stronger financial results by leveraging our cost cutting, outsourcing, and the efficiencies in our operations worldwide.

IXYS has been a leading and very efficient profit generator to our shareholders. Thus, when we return to top line revenue growth, we expect improved gross margins and net profits.

As a percentage of total revenues for the third quarter of fiscal year 2013, North America represented 31.9%; Europe and Middle East, 36.1%; and Asia and the rest of the world, 32%.

As a percentage of total revenues for the 9 months of fiscal year 2013, North America represented 31.4%; Europe and Middle East 35.4%; and Asia and the rest of the world 33.2%. Our revenues by market segment for the December quarter were as follows: Industrial and Commercial, which includes Renewable Energy, 53%; Communication Infrastructure, 15%; Medical Electronics, 10%; Consumer, 6%; Transportation, which includes Auto and Traction, 4%; and other markets, 12%. Our revenues by market segments for the 9 months ended December 31, 2012, were as follows: Industrial and Commercial, 54%; Communication Infrastructure, 16%; Medical Electronics, 10%; Consumer, 5%; Transportation, 3%; others, 12%. Our revenues on product groups for the December quarter were 70.5% for power semiconductors; 21% for integrated circuits, which includes our microcontrollers; and 8.5% for systems and RF.

Our revenues based on product group for the first 9 months of fiscal year 2013 were 71.7% for power semi; 20.7% for integrated circuits; and 7.6% for systems and RF.

We continue with design, and that is a new application with both existing new customers across our product line. The company launched more than a half dozen products during this quarter, including a high power laser diode emulator for testing of high-speed pulsed application. A diode [indiscernible] housing for power supply UPS and inverters to create single Phase III other rectifiers, bridges, a triple stage protection solid state relay for advance power management application for the reduction of vampire power consumption is achieved by turning off the AC power when not needed and embedded security semiconductor offering protection against cyber threats and attacks for products in defense, telecommunication, utilities, transportation, medical and industrial application, an A.C. power for use in motor controls, AC power controls, solar controls, security door and gate latches, lighting, AC power generation distribution, home automation and HVAC control.

I will now turn the call over to Uzi Sasson, President and CFO, who will discuss the financials in more details.

Uzi Sasson

Thank you, Nathan. In the December 2012 quarter, gross profit was $19.1 million or 29.9% of net revenues, as compared to $23.2 million or 28.9% of net revenues for the same quarter in the prior fiscal year. CapEx was $3.5 million for the December quarter.

R&D spending for the quarter was $6.5 million or 10.2% of net sales, as compared to $6.4 million or 8% of net sales in the prior-year quarter. We expect that comparable spending in absolute dollars on R&D will continue in future quarters.

SG&A expenses were $9.5 million or 14.9% of net sales, as compared to $10.8 million or 13.5% of net sales in the prior-year quarter.

It is important to note that our SG&A expenses expressed in dollars during the December quarter were the lowest in the last 6 quarters.

Turning to the balance sheet. The ratio of current assets to current liabilities was 5.4. The company exited the December 2012 quarter with record cash and cash equivalents of approximately $107 million, which is an increase of $1.7 million from the September 2012 quarter, and an increase of $7.8 million from the March 2012 quarter. This increase in cash was achieved even after spending $4.4 million to buy back our common stock and after paying our shareholders $928,000 in cash dividend.

During the quarter, IXYS generated about $9.4 million in cash from operations and our adjusted EBITDA was $5.9 million.

As mentioned earlier, we also continue to execute on our stock buyback programs. And in the quarter, ended December 31, 2012, we purchased about 486,000 shares of our company's common stock for about $4.4 million. We can still purchase approximately 660,000 shares under the current buyback programs.

Net account receivables at December 31, 2012 were $31.8 million and the number of days sales outstanding was about 45 days. As of December 31, 2012, net inventory was $87.4 million and inventory turns were 2.1x during the quarter, reflecting 171 days of inventory on hand at the end of the quarter. It is important to note that our inventory went down by approximately $2.2 million during the quarter.

As referenced in the press release, we are seeing signs that certain markets have started to trend upward. However, the industrial and the telecom sectors are still volatile. Therefore, we expect revenues for the March 2013 quarter to be relatively flat or slightly higher compared to the revenues for the December 2012 quarter. We will now open the floor for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we do have a question from Vernon Essi.

Vernon P. Essi - Needham & Company, LLC, Research Division

I was wondering if you guys could discuss a couple of things. First off, just -- your larger competitor earlier, I guess, yesterday was talking about how there continues to be a lot of capacity out there in the industry. And just in general, orders have been sort of weaker than normal. How would you look at the industry, I guess, going forward, from here? Do you think some of this capacity is going to get taken off-line and do you anticipate you could see some firming up or do you still think you're still sort of a victim of the macroenvironment going forward right now?

Nathan Zommer

Well, we are seeing, especially in Europe and Asia, starting to see the demands coming back. As it relates to capacity, indeed the industry has deployed tremendous capacity. For us it's a blessing because we see more capacity comes online and available to us at lower cost. So if anything, I see it is a blessing. As you know, we have been quite very well balanced with -- using internal capacity and our external capacity and the dynamics show that it's very beneficial in some cases, to use in our external capacity.

Vernon P. Essi - Needham & Company, LLC, Research Division

Well, I guess if you could fold this into sort of your longer-term outlook, and just in general if you could share sort of -- if you look year-over-year just, sort of in general, it seems as though your revenue wasn't tracking strongly as perhaps it could be. I mean, you're down some 10%, 15% probably for the fiscal 2013 time frame, given the guidance that you provided, perhaps even a little bit more. Would you attribute that more to perhaps guys coming in at lower pricing or is it really more of a question of demand? Just -- what are the dynamics there, and how might that change, maybe 6 to 12 months out?

Nathan Zommer

Well, we are holding our own. We did not want to participate in some segments where there's price erosion. Mainly you can see this in the white goods and the consumer market, which is relatively stable. So we were selective. We decided to stay comfortable rather than getting market share for low prices. So you will see a shift, and it's a blessing for us, a shift to more highly value-added product. And as you've seen, our margins held very well, and we are proud of it. So looking forward, you will see more and more penetration into the mixed signal with a world of IXYS products where we'll see higher value-added products. So the revenue growth will be sequentially slow coming up, but extremely profitable.

Vernon P. Essi - Needham & Company, LLC, Research Division

Okay, that makes sense. And I apologize, Uzi, if you said some of this in your prepared remarks, but what were the -- or Nath for that matter. What were the orders for the quarter?

Uzi Sasson

The orders for the quarter were about $54 million.

Vernon P. Essi - Needham & Company, LLC, Research Division

I'm sorry, was that $54 million?

Uzi Sasson

Yes.

Vernon P. Essi - Needham & Company, LLC, Research Division

Okay. And you said your cash flow from operations was about, I think it was $9.4 million, was that the number you provided?

Uzi Sasson

Precisely.

Vernon P. Essi - Needham & Company, LLC, Research Division

Okay. And then just one last question on the P&L. Your other expense line was up a little bit, and I was just curious what prompted that?

Uzi Sasson

That's predominantly, FX impact. That's about almost $400,000 of FX impact.

Vernon P. Essi - Needham & Company, LLC, Research Division

Do you anticipate that to reverse in the March quarter or trend back to sort of 0 level?

Uzi Sasson

I think that it would reverse. I mean, if you look, Vernon, we had about interest income of about $113,000, interest expense of $228,000 and the last number is $392,000, adding up to $507,000 or thereabout.

Operator

And our next question will come from Christopher Longiaru.

Christopher J. Longiaru - Sidoti & Company, LLC

My first question. Is there -- I mean, you guys have stripped out a ton. Is there anything else there or do you think you're done at this point? Are we going to hang out around this operating cost level for a while?

Nathan Zommer

Okay, Chris, I'll take this question. So first, of all, we are very well balanced in the company, and we're also very well prepared to take any measures in order to remain profitable. That being said, certain things we are continuing to invest in, for example, R&D and in our future. We understand that investing in R&D would help us grow the company in the years to come. As with regard to the SG&A, if there are anymore areas where we can cut, we will go ahead and do so, but we're always cognizant of -- at the same time increase in risk. So we will have to look at that on a case-by-case basis and evaluate.

Christopher J. Longiaru - Sidoti & Company, LLC

That's helpful. My other question was, how much of your manufacturing was done in-house this quarter and how much was outsourced to GMHC?

Nathan Zommer

Well, GMCH, you mean?

Christopher J. Longiaru - Sidoti & Company, LLC

Yes, sorry.

Nathan Zommer

Well GMCH is still a small branch outside Hungary. I would say that it's less than 5% of our internal capacity. But this adds to what the comment I wanted to refer to the prior question you have. We had stopped the program of outsourcing more and more activities to our subcontractors. And the full benefits of it was not fully yet deployed or we didn't get yet the full benefit of this. So as time goes forward, we will see more cost-cutting by transferring some production from our European facilities into the Asian subcontractors. We have been quite balanced. We have been always hovering around 50% internally, 50% outsourced.

Christopher J. Longiaru - Sidoti & Company, LLC

And where do you think you'll go?

Nathan Zommer

I think that as time goes on, we might adopt 60% outsourced and 40% internally, which eventually will give us a very good cost advantage.

Operator

[Operator Instructions] And we do have a question from Michael Lamore.

Unknown Analyst

I'm looking to find that, what is your geographical exposure? How are you doing in Europe? I know you're big in Germany, are you still active there?

Nathan Zommer

Yes, we are quite active. And as a matter fact, Europe, as a percentage is quite strong for us, in the range of 34%. As a matter fact, Europe and the Middle East has been 36%.

Operator

[Operator Instructions] And there's no further questions in the queue.

Nathan Zommer

Thank you. As there are no more questions and in closing the conference call, we need to remind you that our discussion contained forward-looking statements and that there are a number of important factors that could cause our results to differ materially from those indicated by these forward-looking statements, including among others, risks detailed from time to time in our SEC reports, including our reports on Form 10-Q for the fiscal quarter ended September 30, 2012. We do not undertake any obligation to update forward-looking statements. Thank you all for your time. We also would like to take this opportunity to thank our suppliers, customers, employees and stockholders for their support of IXYS and condolences to the Lidow family. Thank you very much.

Operator

That concludes our conference for today. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!