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SemiLEDs Corporation (NASDAQ:LEDS)

F1Q14 Earnings Call

January 14, 2014 08:00 AM ET

Executives

Erica Mannion - IR

Trung Doan - President and CEO

Timothy Lin - Interim CFO

Analysts

Operator

Good day will and welcome to the SemiLEDs’ Fiscal First Quarter financial results conference call for the quarter ended November 30, 2013. This call is being webcast live on the Events and Presentation page of the investor sections of SemiLEDs’ website at www.semileds.com. This call is property of SemiLEDs and with that and any recording, reproduction or transmission of this call without the expressed written consent of SemiLEDs is strictly prohibited.

As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the Investors section of SemiLEDs' website, and visiting the Events and Presentations page. I would now like to turn the call over to Erica Mannion of Sapphire Investor Relations, Investor Relations for SemiLEDs', please go ahead.

Erica Mannion

Good morning. Thank you for joining us to discuss SemiLEDs' financial and operating results for the fiscal first quarter 2014. With me today are, Trung Doan, Chairman, President and CEO and Timothy Lin, Interim Chief Financial Officer. Today, Trung will begin with a brief overview of the industry dynamics and details of the first quarter and Tim will review fiscal Q1 financial results. We will not be taking questions in today’s call.

On the call today, you may hear our forward-looking statements about events and circumstances that have not yet occurred. Actual outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties. Please refer to the Company's recent SEC filings at the SEC's website at www.sec.gov for detailed discussions of the relevant risks and uncertainties.

The Company undertakes no responsibility to update the information in this conference call under any circumstance. The press release distributed today that announced the Company's results is available on the Company's website at www.semileds.com in the Investor section under financial press releases.

The current report on Form 8-K furnished with respect to our Press release is available on the Company's website in the Investors section under SEC Filings and on the SEC's website. You'll also hear discussions of non-GAAP financial measures. Reconciliation of these non-GAAP measures to the most comparable GAAP financial measures are contained in the press release distributed today, and available on the Company's website.

Now, I will turn the call over to Trung Doan, Chairman, President and CEO. Trung, please go ahead.

Operator

One moment, he did disconnect his line. We are going to just try get him back on. Ladies and gentlemen, you are on hold for today’s SemiLEDs’ call. We are attempting to reconnect our speakers of the call. Please continue to hold.

Ladies and gentlemen, you are on hold for today’s SemiLEDs’ call. And at this time we are just attempting to reconnect to our speaker. Thank you for your patience. Please continue to hold.

Please go ahead and you can continue with the conference.

Trung Doan

So did the conference started yet?

Operator

Yes sir you may go ahead, you may continue with your statement.

Trung Doan

Erica, isn't in yet.

Operator

You are online with your audience, sir, you may continue with your conference.

Trung Doan

Yes but the thing is we need Erica to start.

Erica Mannion

Trung, I’m all done. The conference is live. Can you start with your part of the script please.

Trung Doan

Okay we got cut off. Sorry for that.

Erica Mannion

Please go ahead.

Trung Doan

Okay. Good morning and thank you for joining our call today to discuss our first fiscal quarter 2014 results. As we have discussed on previous call, starting almost a year ago we make a conscious decision to refocus our business on profitable six months within niche LED markets such as UV and specialty lighting such as architectural given the level of chip commoditization in high-volume markets such as backlight, back lighting and general illumination, we have chosen to focus our effort on selected markets where we can also differentiate solutions and generate a higher margin. As a part of this strategy we are also focused on developing greater value added products such as components and lighting solutions. While we are still in the midst of executing on our strategy we believe the combination of focusing on niche market opportunities and the greater value add products will allow us to substantially improve our gross margins and bottom line.

As you saw in the press release, we disclosed early this morning our revenue came in at 3.4 million which is relatively flat compared to last quarter, however our Q1 2014 gross margin improved to negative 58% versus negative 102% for Q4 2013, resulting in a $1.2 million decrease in gross profit on our nominal top line growth. We believe the trend will continue for our Q2 2014 for both revenue and gross margin.

Tim will give you our expectations for fiscal Q2 2014, as we continue the interaction in our target markets with both our existing and new product offerings, we remain optimistic about opportunities in the market. I thank you for your time today and your interest in SemiLEDs. Now I will turn the call over to Tim so he can review the financial results in more details.

Timothy Lin

Thank you Trung, and thanks to everyone for joining us today. As a reminder, I am referring to our fiscal quarter as I walk through the financials.

For the first quarter of 2014, revenue was 3.4 million which is approximately flat from the fourth quarter of 2013. Revenues attributable to the sales of our LED chips increased by 6% sequentially and represented approximately 29% of our total revenues in the quarter. Revenues attributable to the sales of our LED components increased by 4% sequentially and represented approximately 34% of our revenues in the quarter. Revenues from our lighting products increased by 25% sequentially and represented approximately 36% of our revenues in the quarter. GAAP net loss attributable to some of the stockholders was 6.3 million for the quarter compared to a loss of 17.9 million in the previous quarter. GAAP diluted net loss per share was $0.23.

On a non GAAP basis net loss attributable to SemiLEDs stockholders was 5.8 million compared to a loss of 7.3 million in the previous quarter. Non-GAAP diluted net loss per share for the first quarter of 2014 was $0.21. Non-GAAP net loss for the first quarter of 2014 excludes stock based compensation expense of 533,000 net of related taxes. SG&A expenses were 2.6 million, which represents a 279,000 sequential decrease. R&D expenses were 1.1 million an approximately 63,000 decrease compared with Q4 2013.

Gross margin for the third quarter was negative 68% which compares to a negative 103% in the previous quarter.

Moving to the balance sheet, days sales outstanding were 65 days as compared to 59 days for the prior quarter, inventory days on hand were 177 days up 40 days compared to 137 days at the end of the prior quarter. Inventory was 11.3 million at the end of the first quarter of 2014, a sequential increase of 842,000 from Q4 2013.

As of November 30, 2013, working capital was 32.6 million; cash and cash equivalents were 28.1 million, compared to cash and cash equivalent of 36.3 million in Q4 2013. Cash using operations during the first quarter was 5.4 million compared to 4.7 million in the previous quarter. We spent approximately 483,000 on capital expenditures in Q1. This resulted in free cash flow of negative 5.9 million. We define free cash flow as cash provided by operations plus capital expenditure. In addition to our ongoing CapEx investment as previously mentioned, during the quarter we paid approximately 1.6 million as a partial payment for an LED component production line and related products and technology we acquired in Q4 2013. In December we made an additional payment of 450,000. For the next quarter, fiscal Q2 2014 we expect Q2 revenue to be in the range of 4 million to 5 million and GAAP gross margin to continue to be negative for the quarter as we will not fully utilize our production capacity.

GAAP net loss attributable to some of the stockholders for Q2 is expected to be 5.4 million to 6.2 million; GAAP EPS is expected to be negative $0.20 to $0.22 per diluted share. The diluted shares outstanding account is estimated at 27.9 million.

This concludes our formal comments. Thank you everyone for your continued interest and taking the time to join the call today. I will now hand the call over to the operator for closing. Operator?

Operator

And this does conclude today’s conference call. Thank you all for your participation.

Question-and-Answer Session

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