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Hittite Microwave Corporation (NASDAQ:HITT)

Succession Plan

March 16, 2013 05:00 PM ET

Executives

Stephen Daly - Chairman, President and CEO

Bill Boecke - Vice President and CEO

Analysts

Tore Svanberg - Stifel Nicolaus

Mark Delaney - Goldman Sachs

Quinn Bolton - Needham & Company

Aalok Shah - D.A. Davidson

Amit Chanda - Wells Fargo

Operator

Good afternoon ladies and gentleman. Thank you for standing by. Welcome to the Hittite Microwave Corporation teleconference. During today's presentation, all participants will be in a listen only mode. Following the presentation, the conference will be open for question. (Operator Instructions).

I’d like to turn the conference over to Mr. Stephen Daly, Chairman, President and CEO. Please go ahead, Sir.

Stephen Daly

Thank you. Ladies and gentleman good afternoon and welcome to the special conference call to discuss the succession plan we announced earlier today. With me today is Bill Boecke, our Vice President and Chief Financial Officer.

Before I begin the discussion, I would like to review the Safe Harbor statement. Please note that statements made in this conference call about Hittite's future expectations, plans, and prospects constitute forward-looking statements for the purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. For information about these factors, I refer you to the news release that we issued earlier today and to our most recent annual report on form 10-K filed with the Securities and Exchange Commission.

The news release and copies of SEC report are available in the investor relation section of our website at www.hittite.com. You may also obtain copies of our SEC reports and a copy of our press release furnished under form 8-K from the SEC's website at www.sec.gov.

Today, we announce board and executive management succession plan which will become effective April 1st specifically I will be stepping down as Chairman, President, and Chief Executive Officer at the end of the month. I am pleased to announce the board of director has selected Rick Hess to be Hittite Microwave Corporation next President and Chief Executive Officer.

On behalf of our board of directors and all Hittite employees I congratulate Rick on being selected for this position. Rick has been a Hittite director since 2005 and is familiar with our strategy, culture, technology, and industry and he already has strong relationship with our entire management team.

Additionally, Rick has 30 years of experience in our industry and has successfully grown in Semiconductor Company to more than 500 million in revenue. He has my full endorsement as the right next leader of Hittite and his passion for excellence is a perfect fit to our culture.

I am also pleased to announce that Franklin Weigold has been appointed as non-executive Chairman of our Board of Directors effective April 1st. Frank became a Hittite Director in 2003 and has been our lead Director since 2009.

The Board is taking the opportunity to separate the roles of Chairman and CEO during this transition. As we view this as good governance policy. Frank has been a great lead director and we expect that the transition will be smooth and seamless. I have worked closely with both these gentlemen during my tenure and I have valued their counsel. I know that Hittite is in capable hands.

Last year I began discussing with the Board, my potential interest in moving on and the Board forms a search committee and retained an international and well respected search firm to assist in the succession planning process. I assured the Board that I had no intention of leaving unless the timing was right Hittite and the Board and I were sure, we identified the right next leader for the company. After a thorough search, which included vetting and interviewing many candidates, the committee and the Board unanimously concluded that Rick Hess, our current Hittite Director was the best and most qualified candidate for the CEO position. Rick's April 1st start date allows Rick time for a transition from his current employer and after he starts I will be providing unconditional support to him as needed.

I would like to say a few words on my decision to step down. First, the decision to step down was initiated by me. After 17 years of service to Hittite, I’m ready to start new goals for myself which are outside of Hittite. I want to take on completely different and new challenges. Second, shareholders should view this transition as a natural event in the life of the company. I’m the third president of Hittite, my predecessors being Dr. Yalcin Ayasli who founded the company in 1985 and then Dr. Francis Paik who ran the company as President until he retired.

I’ve been president for nine years and helped transition the company from being New England centric and private to being global and public. I think it is healthy for Hittite to have new leadership for its next states of growth and expansion. Rick Hess has the experience and qualifications to be the fourth leader of Hittite and it is the Board’s hold and expectation that he will lead the company for at least the next decade. Rick brings the appropriate leadership skills, experience and perspectives to the position and I’m confident he will be successful.

I would like to emphasis that my decision to leave Hittite and today’s announcement has nothing to do with the company’s past or future financial performance. Hittite's business model and financial condition are stronger than ever before which makes this an opportune time to execute a succession plan. I’ll highlight that I will be staying on the Board until May to finish out my term and to assist Rick and the Board in the coming months to help ensure a smooth transition.

I will now turn it over to Bill Boecke to comment on our guidance.

Bill Boecke

Thank you Steve. I would also like to congratulate Rick. I think he is an excellent choice as Hittite’s next CEO and I look forward to working with him. As we mentioned in our press release today, we are reaffirming our previously announced guidance. Specifically, we expect net revenue in the first quarter ending March 31st 2013 to be in the range of $66.5 - $68.5 million and net income to be between $16.7 million and $17.7 million, or $0.54 to $0.57 per diluted share. I will now return the discussion back to Steve.

Stephen Daly

Operator, we would now welcome any questions that listeners may have.

Question-and-Answer Session

Operator

(Operator instructions) Our first question is from Tore Svanberg from Stifel Nicolaus.

Tore Svanberg - Stifel Nicolaus

Yes, thank you. A few questions. First of all, Steve, it seems like this succession plan has been in the works for a while, and I think you mentioned you were just waiting for the right time. I was hoping you could just elaborate a little bit on the timing.

Stephen Daly

Right, so as I mentioned in the script Tore, we began the process last year, we hired a search firm to support the process, the Board formed a search committee and then we went through a process of reviewing candidates and then essentially today decisions were made and that' s why the timing for today's announcement.

Tore Svanberg - Stifel Nicolaus

Very good. And a question for both of you and including for Bill, your reaffirming guidance, I don't know if you can comment at all on what you're seeing in some of your end markets. Any recent or new developments from your last call?

Stephen Daly

So exactly right Tore, we are just using tonight's special call to talk about the succession plan. Generally speaking, there is no major update since our last call, it's been what I would consider a very typical quarter and that's why we are comfortable reaffirming the guidance tonight.

Operator

Our next question is from the line Mark Delaney with Goldman Sachs.

Mark Delaney - Goldman Sachs

I was hoping you could talk a little bit about how involved Rick was as a member of the Board in terms of setting strategy and if there's any changes that he's already communicated that you'd like to make.

Stephen Daly

As I mentioned Rick has been on the board since 2005, he is very familiar with the industry, having worked in it in his past. So, he has been very actively involved. We have either generally one or two major strategic sessions a year with the full board participation and I would characterize his involvement as very strong and very active. With that said I wouldn’t necessarily want you to think that there is a new strategy coming down and that this change isn’t necessarily about changing strategies.

Mark Delaney - Goldman Sachs

Steve, can you provide us with any color on what your future plans may include?

Stephen Daly

Well, the short answer is I don’t know yet. I have not made any of those plans and I am 150% focused on executing a very strong and smooth transition and making sure that when Rick arrives on April 1, that he has not only my support but the total support of the company so that Hittite and its stakeholders are seeing a very smooth and successful transition. So, my focus right now is the company.

Operator

Our next question is from the line of Quinn Bolton from Needham & Company.

Quinn Bolton - Needham & Company

Steve, for me, I just reiterate the comment. It's been a pleasure to work with you, and best of luck in your future endeavors. Just along those lines, certainly I understand the succession plan in place, but I was wondering if you might be able to comment on while stepping down from the Board of Directors, do you intend that potential future plans might prevent you from being able to dedicate time as a Director of the Company? Or do you have any thoughts on why the decision to step down as both CEO and a Director?

Stephen Daly

Yes, and I also give that as a careful thought so what I wanted to do with my next project is provide a 150% dedication to those works and so for me it’s very much a time management and even over the years I have had the opportunities to join other boards and due to my personality and work habits, I have to focus on one thing, so I feel I would be more effective in the future if I was focused on new projects.

Quinn Bolton - Needham & Company

And it's just a question, is there any non-compete that's been put in place as part of this succession plan or could your potential endeavors potentially bring you back into the semiconductor and specifically the analog semiconductor space?

Stephen Daly

So myself as well as all of our executives do have non competes in place, so yes we do have those in place as part of our standard good governance and good business practices.

Operator

Thank you ladies and gentlemen. (Operator Instructions) And our next question is from the line of Aalok Shah with D.A. Davidson, please go ahead.

Aalok Shah - D.A. Davidson

Hi, Steve. Best of luck to you. A couple of quick questions. How much time and how much effort did you put into finding your successor? Can you walk us through how you were involved in this process? And then the second question is, I know that you've been involved with the Company for a number of years, and I'm curious is there something about this space that maybe you're finding no more challenges? Is there something else that is more appealing to you? Can you walk us through the decision at this point today?

Stephen Daly

So I was certainly very involved in the process, the board established a search committee as well as some other sub committees to support the process and we're very focused on having good control over process, and I was involved with meeting all the other candidates and are pleased to announce that at the end of that process there was absolutely unanimous support across the Board from all directors that Rick was the right candidate for Hittite. He has all the qualifications that we wanted that we set out at the beginning of the process, including leading large organizations, growing semiconductor companies, he understood Hittite so in many ways because of his relationships with the management he has a huge advantage. He's a detailed oriented manager, extremely intelligent, so from my point of view and all of the directors' point of view he's a perfect fit for this division. I'm not quite sure I understood your second question. Could you reiterate your question there?

Aalok Shah - D.A. Davidson

Well, I'm curious. Are you not finding a challenge in this space anymore? Is that why you're leaving at this point? Or is there something else in this area that doesn't appeal to you within the sector? I guess I'm just trying to think of your thinking at this point as to why, why now, why at this point.

Stephen Daly

Okay, thank you, so you know this has been the most challenging job I ever had and every day is always the challenge and so it will continue to be challenging and I’ve always been challenged, so I don’t think that this notion that it’s not challenging anymore is really the issue here; from my point of view it’s simply a fact that I’m looking to do something very different and very new from what I have been doing over the past 17 years here at Hittite.

Operator

(Operator Instructions) And our next question from the line of Amit Chanda with Wells Fargo. Please go ahead.

Amit Chanda - Wells Fargo

This is Amit Chanda calling in for David Wong. Steve, congratulations on your tenure, and wish you best of luck in the future. Can you maybe comment on your current acquisition strategy and whether that might change with the upcoming change in leadership?

Stephen Daly

So, our acquisition strategy has been to focus on looking at companies or design teams or technology that, number one, has passed the test of time; and number two, would be synergistic with our strategic plan and those have been the core elements of our M&A strategy and what you’ve typically seen is Hittite acquire small teams or licensed IP to support some of our R&D activities and so that’s been the history.

You know, Rick has been very involved in that as well and so to the extent that that change in the future I really let him comment on that but that’s been the past.

Operator

Thank you, and at this time, there are no future questions. I would like to turn the conference back over to Mr. Daly for any closing remarks.

Stephen Daly

Thank you. In closing, I would like to express my gratitude and thanks to the employees, management team, and the board of directors for their support and loyalty that they have been provided me over the years. The company’s technical achievements and financial performance clearly indicate that Hittite is a very special company with extremely talented directors, managers, and employees. The board and I also congratulate Rick on his appointment and we have total confidence that he will continue the Hittite tradition of achieving best in class performance. Thank you very much.

Operator

Thank you, Sir. Ladies and gentlemen that does conclude our conference for today. Thank you very much for your participation. You may now disconnect.

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