Update: InvenSense Earnings

Jul.29.14 | About: InvenSense (INVN)

Summary

InvenSense has reported mixed Q1 '15 earnings.

As predicted in my preview article, Apple clearly did not emerge as a current customer but continues to be anticipated.

The impact of acquisitions is yet to be fully recognized, and further disappointment for the coming quarter remains a distinct possibility.

InvenSense (NYSE:INVN) has just reported Q1 '15 earnings of 8 cents per share, which is in line with the average analyst estimate. On a GAAP basis, the company lost 5 cents per share ($4.8 million) in the quarter. Revenue was $66.7M, beating consensus by $2.13M. Management provided Q2 '15 guidance of 15-16 cents per share, missing analyst projections by 3 to 4 cents. However, revenue projection was $86-91M, exceeding the analyst average of $83.3M. The stock fell after-hours as predicted in my preview article.

Using the methodology described in my most recent INVN article, earnings value per share can be calculated as follows:

(3Q14 + 4Q14 + 1Q15 + 2Q15) = 1yr Revenue x PE ratio = Earnings Share Price
$0.15 $0.07 $0.08 $0.16 $0.46 30 $13.80
Click to enlarge
Total Assets - Total Liabilities = Net Assets / Shares Outstanding = Assets per Share
$415,816 $182,369 $233447 88,302 $2.64
Click to enlarge

(all values in thousands)

resulting in a current fair value of $16.44. However, these figures, from the 8-K, clearly do not reflect the impact of recent purchases of TPI and Movea. The clearest clue to this is the projection of 93M outstanding shares in the next quarter. The increased share count alone would decrease assets per share by 13 cents, and if we simply subtract out the $75M cash portion of the purchase price, INVN's fair value drops to $15.50. To my mind, management did not deliver on its promise to detail the impact of these acquisitions with this report.

On the other hand, we did hear continued promises for new design wins including for customers in North America - read Apple (NASDAQ:AAPL), and perhaps BlackBerry (NASDAQ:BBRY). The lack of such revenue in this report, but ability to guide for partial inclusion of it in the next one exactly matches the predictions from my preview article. Thus, we can expect the stock to continue to trade partially on expectations, and the short interest situation discussed there may also cushion declines. Nonetheless, this was not an especially positive quarterly report. Management refused to commit to timing on many promises and margins dropped sharply to 13%, with continued pressure expected in the near term. More importantly, given the predictions of Ming-Chi Kuo and expected changes to the balance sheet next quarter, there is plenty of potential for an even more extreme disappointment in the next quarterly report. I maintain my $24 1-year price target, but warn that the stock is currently overvalued. As always, I will publish updates to that outlook and answer any questions in the comments here.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.