IXYS's (IXYS) CEO Nathan Zommer on Q1 2015 Results - Earnings Call Transcript

Aug. 6.14 | About: IXYS Corporation (IXYS)

IXYS (NASDAQ:IXYS)

Q1 2015 Earnings Call

August 06, 2014 5:00 pm ET

Executives

Nathan Zommer - Founder, Chairman and Chief Executive Officer

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

Analysts

Christopher J. Longiaru - Sidoti & Company, LLC

Operator

Good day, and welcome to the IXYS Corporation's First Fiscal Quarter Ended June 30, 2014, Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Dr. Nathan Zommer, Chairman and CEO. Please go ahead.

Nathan Zommer

Thank you. Good afternoon, and welcome to the IXYS Corporation's First Fiscal Quarter Ended June 30, 2014 Earning 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, to review the formalities. Our discussion today contains forward-looking statements, including statements related to potential future revenues and earning. 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 reports on Form 10-K for the fiscal year ended March 31, 2014. IXYS does not undertake any obligation to update forward-looking statements.

Also please be advised that the financial data related to today's conference call is available on our website, www.ixys.com. Click on Corporate and then click on News & Events.

In the June 2014 quarter, IXYS revenues have remained relatively stable and sales are beginning to ramp up, especially in the industrial, medical and renewable energy markets. I would like to take this opportunity to point out a few highlights from this quarter.

Net revenues were $88.1 million, an increase of $16.9 million or 23.7% from the June 2013 quarter.

Net income increased $1.6 million over June 2013 quarter.

Gross profit was $25 million, an increase of $3.9 million from the same quarter in the prior fiscal year.

The book-to-bill ratio was 1.08. Most IXYS division are reporting healthy bookings and backlog, benefiting from firming European and U.S. markets.

IXYS declared a $0.03 per share dividends, marking the seventh consecutive quarter of dividends. The dividend continuation reflects our commitment to increasing return to shareholders while demonstrating our confidence in IXYS' business opportunities ahead.

As a percentage of total revenues for the first quarter of fiscal year 2015, North America represented 26.1%; Europe and Middle East, 29.8%; and Asia and the rest of the world, 44.1%.

Our revenues by market segment for the first quarter of fiscal year 2015 were as follows: industrial and commercial, including renewable energy, 47%; communication infrastructure, 14%; medical electronics, 10%; consumer, 14%; transportation, which includes auto and traction, 3%; and other, 12%.

It is worth noting that our focus on traditional end markets, industrial communication and medical, continues to yield strong results. Our investment in fast-growing end markets, such as consumer and the renewable energy, have also proven fruitful. Our design win momentum is going strong, and we continue to gain traction in our targeted growth segments.

Our revenues based on product groups for the first quarter of fiscal year 2015 were: 65.8% for power semiconductors; 27.1% for integrated circuits, which includes microcontrollers; and 7.1% for systems and RF.

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

Uzi Sasson

Thank you, Nathan. Net income for the quarter ended June 30, 2014, was $3.6 million or $0.11 per diluted share, an increase of $1.6 million over the net income of $2 million or $0.06 per diluted share in the prior year's quarter. Sequentially, net income in the quarter ended June 30, 2014, increased by $3.4 million from net income of $132,000 in the March 31, 2014, quarter.

The June 2014 quarter non-GAAP net income, which excludes the impact of charges for amortization of acquired intangible assets and stock compensation was $5.7 million or $0.17 per diluted share. This was an increase of $3.1 million as compared to the non-GAAP net income of $2.7 million or $0.08 per diluted share for the same period in the prior fiscal year.

Gross profit for the quarter ended June 30, 2014, was $25 million, or 28.4% of net revenues, as compared to gross profit of $21.1 million or 29.7% of net revenues for the same quarter in the prior fiscal year. Sequentially, gross profit margin percentage rose slightly from 28.2% in the March 2014 quarter to 28.4% in the June 2014 quarter.

IXYS continues to focus on this metric with expectations of achieving growth in gross margins in the quarters ahead.

R&D spending for the quarter was $7.3 million or 8.2% of net sales, as compared to $7.7 million, or 10.8% of net sales in the prior year quarter.

SG&A expenses were $10.8 million or 12.2% of net sales, as compared with $10 million or 14.1% of net sales in the prior year quarter.

CapEx was approximately $3.4 million for the June quarter.

Turning to the balance sheet. The ratio of current assets to current liabilities was 4.3.

The company exited the June 2014 quarter with cash and cash equivalents totaling approximately $91.1 million. The decrease in cash reflects the $15 million partial payment for IXYS' acquisition of the Samsung's 4-bit and 8-bit microcontroller business in the calendar year 2013. Normal cash generation is expected to fund the remainder of this acquisition.

During the quarter, IXYS generated about $14.2 million of cash from operations.

Adjusted EBITDA, which excludes stock-based compensation expense, was $11 million for the quarter.

Net accounts receivable at June 30, 2014, was $46.3 million, and DSO was about 47 days.

As of June 30, 2014, net inventory was $96.2 million and inventory turns were 2.6x during the quarter.

We are pleased by the positive trend in IXYS' business as evidenced by the healthy book-to-bill ratio of 1.08. While many of our customers have expressed optimism about future business prospects, purchasing trends have yet to resume in full force.

Additionally, the summer months are cyclically slow for the overall semiconductor industry. Therefore, we expect our revenues for the September 2014 quarter to be relatively flat as compared with the June 2014 quarter.

We will now open the floor for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We will take our first question from Christopher Longiaru.

Christopher J. Longiaru - Sidoti & Company, LLC

My first question has to do with you had 2 European customers that you were negotiating new terms with. Can you comment on those negotiations and how they're going and how that should impact you going forward?

Uzi Sasson

I'll speak to that, Chris. We are basically asking our customers for -- to pay higher pricing for our devices. There is a possibility that as a consequence we might see a reduction in revenue, but our goal, as we indicated in prior calls, is to improve gross margin and we're going at it very hard.

Christopher J. Longiaru - Sidoti & Company, LLC

Okay. And those 2 customers are still around -- are around 10% of revenue in the June quarter?

Uzi Sasson

I would say yes, a little less.

Nathan Zommer

Chris, let me just add. We made it very clear to the customers that they were getting historically very good prices from IXYS. It's still sustainable. It's part of the reason that we were hurting on margins, so it's a blessing for us that they got the message. And as time goes on, well, we noticed one customer started to place orders with new prices. But as Uzi said, I prefer less revenues, but high profits.

Christopher J. Longiaru - Sidoti & Company, LLC

Real smart. So one customer is basically accepting the price increases and the other customer is -- it has not ordered as of yet. Is that how it's shaping up so far?

Uzi Sasson

Let me speak to that, Chris. It's not quite true because many of those customers are -- all of our customers and the life cycle of our devices is a long-life cycle. Therefore, this is not an overnight situation. This would take time and I think that many of our customers, especially those 2 you were speaking to, cannot just turn off the light and not purchase devices. I think that they're asking us to come to the table to work with them, which we are. And I think that, at the end of the day, they will continue to buy from us, but there is always a risk. So we're working with them and many of those customers that we have are the large customers and we're working with them.

Christopher J. Longiaru - Sidoti & Company, LLC

That makes sense. And so what are some of the areas where you're seeing higher gross margin products being designed? And can you comment to that, maybe specifically some automotive or some of the energy areas. Can you comment there?

Nathan Zommer

Yes, Chris. The industrial market, except those 2 European customers, which was a historical relationship, but the industrial market, the medical market and we have in the integrated circuits, some pockets in alternative energy and power management that we see very good margins.

Operator

[Operator Instructions] I will turn the call back to our moderator.

Nathan Zommer

Okay. As there are no more questions, and in closing the conference call, we need to remind you that our discussion contain forward-looking statements and that there are a number of important factors that could cause our results to differ materially from these -- from those indicated by these forward-looking statements, including, among others, risks detailed from time-to-time in our SEC reports, including our quarterly reports on Form 10-K for the fiscal year ended March 31, 2014. 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. Thank you.

Operator

And this does conclude today's conference call. Thank you again for your participation, and have a wonderful day.

Uzi Sasson

Thank you.

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