IXYS Management Discusses Q4 2013 Results - Earnings Call Transcript

May.29.13 | About: IXYS Corporation (IXYS)

IXYS (NASDAQ:IXYS)

Q4 2013 Earnings Call

May 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 the IXYS Corporation's Fourth Quarter and Fiscal Year Ended March 31, 2013 Earnings Conference Call. Just a reminder, today's conference is being recorded. At this time, I'd like to turn the conference over to Dr. Nathan Zommer, Chairman and CEO. Please go ahead, sir.

Nathan Zommer

Thank you very much. Good afternoon, and welcome to the IXYS Corporation fourth quarter and fiscal year ended March 31, 2013 earnings conference call. I'm joined by Uzi Sasson, our President and CFO. Uzi will lead us through the financial discussions later in the call.

First, to review the formalities, our discussion today contains forward-looking statements, including statements related to potential future revenues and earnings. Any statements 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 quarterly report on Form 10-Q for the period ended December 31, 2012.

IXYS does not undertake any obligation to update forward-looking statements. Also, please be reminded that the financial data related to the days -- to today's conference call is on our website www.ixys.com. Click on Corporate, and then click on News and Events.

For the quarter ended March 31, 2013, we reported net revenues of $66.9 million, which was $3.1 million or 4.8% above the net revenues in the quarter ended December 31, 2012. For the fiscal year ended March 31, 2013, we posted net revenues of $280 million, which is lower than the record net revenues of the prior fiscal year. Net loss for the fourth quarter of fiscal year 2013 was $1.9 million or $0.06 loss per diluted share as compared to net income of $3.7 million or $0.11 per diluted share for the same quarter in the prior fiscal year. Non-GAAP net income for the quarter ended March 31, 2013, defined as set forth in yesterday's press release, was $862,000 or $0.03 per diluted share.

As a percentage of total revenues for the fourth quarter of fiscal year 2013, North America represented 31.1%; Europe and Middle East, 34.6%; and Asia and the Rest of the World, 34.3%. As a percentage of total revenue for the whole fiscal year ended March 31, 2013, North America represented 31.3%; Europe and Middle East, 35.2%; and Asia and the Rest of the World, 33.5%.

Our revenues by market segment for the fourth quarter of fiscal year 2013 were as follows: industrial and commercial, 52%, which includes renewable energy; communication infrastructure, 17%; medical electronics, 10%; consumer, 5%; transportation, which is auto and traction, 3%; and others, 13%. Our revenues by market segment for the fiscal year ended March 13, 2013 (sic) [March 31, 2013], were as follows: industrial and commercial, which includes renewable energy, 53%; communication infrastructure, 16%; medical electronics, 10%; consumer, 5%; transportation, auto and traction, 4%; and others, 12%.

Our revenue based on product groups for the fourth quarter fiscal year 2013 were 71.9% for power semiconductors; 20.8% for integrated circuits, which includes microcontrollers; and 7.3% for systems and RF. Our revenues based on product groups for the fiscal year ended March 31, 2013, were: 71.8% for power semiconductors; 20.7% for integrated circuits, which includes microcontrollers; and 7.5% for system and RF.

The company launched 10 new products during the quarter ended March 31, 2013, culminating with more than 30 products commercialized during the fiscal year. The book-to-bill ratio for the March quarter was 0.98, was the highest in the last 7 quarters, and bookings were the highest in the last 6 quarters.

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

Uzi Sasson

Thank you, Nathan. In the March 2013 quarter, gross profit was $18.1 million or 27.1% of net revenues as compared to $29.8 million or 34.2% of net revenues for the same quarter in the prior fiscal year. Gross profit for the fiscal year ended March 31, 2013, was approximately $84.9 million or 30.3% of net revenues as compared to gross profit of $119.2 million or 32.4% of net revenues for the prior fiscal year.

CapEx was about $900,000 for the March quarter. R&D spending for the quarter was $8.1 million or 12.1% of net sales as compared to $8.4 million or 9.6% of net sales in the prior-year quarter. The R&D spending remains fairly constant, allowing us to design and engineer many marketable technologies and products during the year. SG&A expenses were $8.7 million or 13% of net sales as compared to -- with $10.8 million or 12.4% of net sales in the prior-year quarter.

Turning to the balance sheet. The ratio of current assets to current liabilities was 5.0. Cash and cash equivalents totaled $107.4 million at March 31, 2013, an increase of $8.3 million as compared to March 2012. We announced our eighth consecutive quarter ending in record cash. This cash level was achieved even after we purchased about 706,800 shares of IXYS common stock for about $6.5 million during the fiscal year and after paying shareholder dividends.

Net accounts receivable at March 31, 2013, were $37.8 million. DSO was about 61 days at March 31, 2013. As of March 31, 2013, net inventories was $83.8 million and inventory turns were 2.3x during the quarter.

On the operations front, we improved our production efficiencies and increased our outsourcing of non-core operations to lower costs jurisdictions. We are beginning to see signs of recovery in the marketplace, and we expect revenues in the June 2013 quarter to be slightly higher than revenues for the March 2013 quarter.

We will now open the floor for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Vernon Essi.

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

Just want to understand, Uzi and Nathan, on this conference call. Are you going to be discussing at all the Samsung transaction in any way, shape, or form?

Nathan Zommer

Sure.

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

Okay. Well, I just -- there was not very much prepared commentary on that. I was wondering if you could give us an idea of what sort of revenue range Samsung is, or at least the 8 and 4 bit MCU products that you purchased. What sort of revenue range and maybe gross margin levels roughly that, that business is running at right now?

Nathan Zommer

Well, let me just say first, we announced the signing of the Letter of Intent of doing the deal, and we will release more information after closing. But generally speaking, historically, that has been a small business for Samsung, but for us it means a lot because it adds to the scale. As to the margins, the margins are significantly higher than our traditional margins and again, we will provide more information after we close the deal. But as it looks now, as Uzi made in the statement, we expect it to be very accretive, very strong in contributing to our upside margins.

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

Okay. So we'll have to stay tuned, obviously, to get more of a read on that. I guess, switching back then to your base business. If I were to look year-over-year, you lost traction in some of your core products, at least fiscal year to fiscal year. In retrospect, how much of that do you think is attributable to sort of just the macroeconomic climate relative to maybe where you are in some of the certain product cycles in industrial? And then also, do you believe you're losing any market share given that, that you've seen sort of a reasonable decline in revenue, although it looks like you're bottoming right now?

Nathan Zommer

Yes. So well, we analyze that as best as we can. We don't believe we lost market share. It was mainly the macroeconomics in the markets we are. And as you can look -- you can see, we have been very little in consumer and automotive, which have been a little more stable for -- when you compare it to the industrial market. The pace of the resurgence of revenues that we see indicates to us that it was a macroeconomic scenario. And we are seeing all across very strong book-to-bill ratios, which indicates to us that as soon as the market is back, we are doing very well. And from some information we have from our competitors, we realize some of them had book-to-bill ratio down to 0.5, which was not the case for us. So we believe we actually held back and gained market share on our competition in the segments that we participate.

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

Okay. And if I were to dive a little bit into your gross margin in the fourth quarter, Uzi, can you just dissect a little bit of what some of the moving pieces were to that? I mean, it's a pretty low gross margin. I mean, obviously, your revenue is much lower than where it's been historically. But even on a sequential basis, it looks to be a little bit lower than it probably should have come in on that same revenue level. Any commentary around that would be helpful.

Uzi Sasson

Sure. So with regard to specifically the gross margin during the quarter, as we indicated, the book-to-bill ratio is about 0.98%, which is the highest book-to-bill we've seen in a long time. Hence, at the beginning of the quarter, we made a deliberate decision to take some businesses or market at lower margin, traditional lower margin, which was really boiled down to the mix of the product. And I think that, that was a smart decision on our part because at the end of the day, we still have our own manufacturing and unabsorbed manufacturing to absorb. So that was the predominant factor for the margin reduction. It was essentially a product mix throughout the markets that we participate in.

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

Okay. So it was mixture then. And then how should we think about the June quarter in terms of that mix? Are you able to regain some of the healthier margin businesses? Or it's still going to be driven by some of these more opportunistic toward downstream items?

Uzi Sasson

I believe that we're going to see improvement to margins.

Operator

[Operator Instructions] Our next question comes from Christopher Longiaru.

Christopher J. Longiaru - Sidoti & Company, LLC

So my first question has to do with the operating expenses. They were up a little bit in March. And so what should we expect going into June?

Uzi Sasson

Chris, I'll take that question. With regard to operating expense, you know, that the March 31 is our -- the end of the fiscal year for us, which inherently carries a little higher operating expenses. I would suspect and my answer to your question would be that we would be going down to traditional IXYS operating expenses with regards to SG&A for sure. One thing I should mention to you is as I stated earlier in the call, we're still spending on R&D and investing in R&D, and we were able to put 30 products during the year in the market. The last quarter, we publicized about 10 products. But nonetheless, I would suspect that the R&D and SG&A in terms of operating expenses would be a little lower than what you've seen in the March quarter.

Christopher J. Longiaru - Sidoti & Company, LLC

Got you. Okay. And then just in terms of the tax rate and the tax planning that you're doing, so obviously the tax rate was really, really high. I know that you said you spent some money on tax planning. Can you give us some insight into that and what we're going to see going forward?

Uzi Sasson

Yes, I believe that as we go into the future, you're going to see a huge reduction in the tax rates, and I would suspect that the good rate that I could come up with right now would be between 32% to 34%. Going forward, it would decline. Our goal is to reduce it below 30%, and we're taking measurable actions to do to accomplish that.

Christopher J. Longiaru - Sidoti & Company, LLC

Okay. And it's all the expense associated with that as most of it -- did most of that come through in the March quarter, or should we expect to see a little more of that in the beginning of F '14?

Uzi Sasson

The majority of it is already behind us in the March quarter and preceding quarters, actually.

Operator

[Operator Instructions] And at this time, there are no further questions, sir.

Nathan Zommer

Thank you. As there are no more questions and in closing the conference call, we need to remind you that our discussions contain 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 quarterly report on form 10-Q for the period ended December 31, 2012. We do not undertake any obligation to update forward-looking statement.

Thank you all for your time. We also would like to take this opportunity to thank our suppliers, customers, employees and stockholders for the support of IXYS.

Uzi Sasson

Thank you very much.

Nathan Zommer

Thank you.

Operator

Thank you. And that does conclude today's conference. We do thank you for your participation today.

Nathan Zommer

Thank you.

Operator

Thank you, sir.

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IXYS (IXYS): FQ4 EPS of $0.03 misses by $0.07. Revenue of $66.9M beats by $1.9M. (PR)