IXYS's (IXYS) CEO Nathan Zommer on Q1 2017 Results - Earnings Call Transcript

| About: IXYS Corporation (IXYS)
This article is now exclusive for PRO subscribers.

IXYS Corporation (NASDAQ:IXYS) Q1 2017 Earnings Conference Call July 28, 2016 5:00 PM ET

Executives

Nathan Zommer - Chief Executive Officer

Uzi Sasson - Chief Financial Officer

Analysts

Christopher Longiaru - Sidoti & Company

Operator

Good day and welcome to the IXYS Corporation’s First Fiscal Quarter Ended June 30, 2016 Earnings Conference. 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, sir.

Nathan Zommer

Thank you. Good afternoon and welcome to IXYS Corporation’s first fiscal quarter ended June 30, 2016 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 we'll 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 reports on Form 10-Q for the fiscal year ended March 31, 2016. 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 at www.ixys.com. Click on ‘Corporate’ and then click on ‘News & Events’.

Net revenues for the quarter were $80.6 million versus the $82 million in net revenues for the same period in the prior fiscal year. Sequentially, June 2016 quarter net revenues were up $866,000 from $79.8 million in the March 2016 quarter. This marks the second consecutive quarter net revenue increase. Overall we are pleased by the upward trend in backlog and booking metrics, which may potent future revenue increases for IXYS.

World of IXYS marketing initiative have proved fruitful as our sales efforts now reach nearly 3,500 industrial telecom medical consumer and transport customers. Customers continue to rely on us for our core products portfolio of power semis. IC's and RF power with cutting edge technologies that surpass our competitors.

Our recent product launches including 30 over the 2016 fiscal years are gaining adoption. We're working diligently to achieve our organic growth goals while opportunistically reviewing acquisitive strategies.

Now we’ll turn to revenue data by regions, market segments and product group. As a percentage of total revenues for the first quarter fiscal year 2017 North America represented 25%, Europe and Middle East 30% and Asia and rest of the world 45%. Our revenues by market segment for the first quarter of fiscal year 2017 were as follows. Industrial and commercial including Renewable Energy 43%, Communication Infrastructure 14%, Medical Electronics 11%, Consumer 12%, Transportation including Auto and Traction 6%, Others 14%.

Our revenues based on product groups for the first quarter fiscal year 2017 were 70% for power semiconductors, 25% for integrated circuits which includes microcontrollers, and 5% for systems and RF. This revenue data outlined by region, market segment and product group has proven to be fairly constant quarter-over-quarter, year-over-year.

This indicates consistency in our product portfolio, our sales and marketing effort, and our customer base. We're also branching into Internet of Things, electric vehicles, and alternative energy, thereby stay on pace with the evolving market trends.

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. Now, to turn to the financials. GAAP net income for the quarter ended June 30, 2016 was $3 million, or $0.09 per diluted share, as compared to net income of $3 million, or $0.09 per diluted share, in the June 2015 quarter.

The June 2016 quarter non-GAAP net income, which excludes the impact of charges for amortization of acquired intangible assets and stock compensation, was $4.5 million, or $0.14 per diluted share, as compared to non-GAAP net income of $5.2 million, or $0.16 per diluted share, for the same period in the prior fiscal year.

Gross profit for the quarter ended June 30, 2016 was $24 million, or 29.8% of net revenues, as compared to gross profit of $25.6 million, or 31.2% of net revenues, for the same quarter in the prior fiscal year. This metrics continue to hover around 30% and we are working diligently to increase gross margin through higher sales, better fab utilization and cost reductions.

R&D spending for the quarter was $7.9 million or 9.8% of net sales as compared to $7.7 million or 9.4% of net sales in the prior year quarter. SG&A expenses were $10 million or 12.4% of net sales as compared with $10.6 million or 13% of net sales in the prior year quarter. On a year-over-year comparison, the decrease in SG&A expenses – we decreased the SG&A expenses and we continue to focus on reducing these costs. CapEx was approximately $4 million for the June 30, 2016 quarter, the vast majority of capital expenditure for our internal manufacturing facilities.

Turning to the balance sheet. The ratio of current assets to current liabilities was 7.6. The Company exited the June 30, 2016 quarter with cash and cash equivalents totaling approximately $151.4 million. IXYS generated about $7.5 million in cash from operations during the quarter. It is important to note, that IXYS retired approximately $7 million of debt in connection with our revolving line of credits.

The Company declared a $0.04 per share dividend highlighting the 15th consecutive quarter of dividends. We appreciate our long standing shareholders and actively seek to engage in investor friendly initiatives like dividend and stock buyback.

Adjusted EBITDA which excludes stock-based compensation expense was $9.6 million for the quarter ended June 30, 2016. Net accounts receivables at June 30, 2016 were about $41 million and DSO was approximately 46 days.

As of June 30, 2016, net inventory was $85.7 million and inventory returns were 2.6 times during the quarter. We are optimistic about the growth prospect as IXYS financial metrics referenced by Nathan look promising. However, we must consider ongoing volatile macroeconomic conditions and the cyclical slowdown in the summer months. Despite these adverse factors, we expect revenue in the September 2016 quarter to increase slightly from the June 2016 quarter.

We will now open the floor for questions.

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Christopher Longiaru with Sidoti & Company. Please go ahead.

Christopher Longiaru

Hey, guys. Thanks for taking my question.

Nathan Zommer

Thank you. Hi, Chris.

Christopher Longiaru

How are you doing? So my first question has - just to do with how gross margins kind of shake out from here and also just looking in June, how much of – it was a little bit down from March, right. So how much of that is mix? How much of that is maybe utilization caused by moving away to some more outsourced products. Can you give us an idea of all the little pieces that delve into the gross margin?

Uzi Sasson

Chris, I’ll take that. So pretty much the story was the gross margin is an issue of mix, as you know 50% of our products we manufacture in-house and the other 50% we outsource. During the quarter, we manufacture more in the outsourcing facilities and less in our internal house that bounce back to your utilization question and utilization was between 60% to 65% overall. Therefore, we had a little reduction in margins, but we believe that will come back and work towards as I mentioned increases our gross margins. We believe that this is a matter of timing issue.

Christopher Longiaru

How does it look as you guide to September I know that we're only maybe a month in, but is your visibility there that it shifts back to more north of 65% in terms of utilization?

Uzi Sasson

I believe in terms of utilization for the September quarter it's kind of hard to gauge, but I can you that I’m very optimistic about the upcoming months and that is because of the fact that. If you think about it quarter-over-quarter, our bookings increased by $8.2 million or 11%. Our book-to-bill ratio was increased from 0.93 to 1.02, during the quarter our backlog increased. So overall I'm very optimistic about where we are going and the direction we're taking.

Christopher Longiaru

That’s 12 months bookings and backlog, is that correct?

Uzi Sasson

Yes. It’s correct. Affirmative.

Christopher Longiaru

Great. Thank you, guys. I appreciate it.

Nathan Zommer

Thank you.

Uzi Sasson

Thank you.

End of Q&A

Operator

[Operator Instructions] Gentlemen, I’m showing no further questions at this time. Please continue.

Nathan Zommer

Thank you. If there are no more question and in closing the conference call, we need to remind you that our discussions contain forward-looking statements and there are number of important factors that could cause our results to differ materially from those indicated by these forward-looking statements including, among others, risks detail from time-to-time in our SEC reports, including our reports on Form 10-K for the fiscal year ended March 31, 2015. We do not undertake any obligation to update forward-looking statements.

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

Operator

Thank you, sir. Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!