SLAB

Silicon Laboratories, Inc. (SLAB)

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Silicon Laboratories (SLAB)

Q1 2011 Earnings Call

April 27, 2011 8:30 am ET

Executives

Necip Sayiner - Chief Executive Officer, President and Director

William Bock - Chief Financial Officer and Senior Vice President of Administration & Finance

Shannon Pleasant - Director Corporate Communications

Analysts

Craig Berger - FBR Capital Markets & Co.

Ian Ing - Gleacher & Company, Inc.

Terence Whalen - Citigroup Inc

Anil Doradla - William Blair & Company L.L.C.

William Harrison - Signal Hill Capital Group LLC

Tore Svanberg - Stifel, Nicolaus & Co., Inc.

Srini Pajjuri - Credit Agricole Securities (USA) Inc.

Craig Ellis - Caris & Company

Arnab Chanda - Roth Capital Partners, LLC

Brendan Furlong - Miller Tabak + Co., LLC

Presentation

Operator

Good morning. My name is Celeste, and I will be your conference operator today. At this time, I would like to welcome everyone to Silicon Lab's First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn today's call over to Ms. Shannon Pleasant. Please go ahead, ma'am.

Shannon Pleasant

Thank you, and good morning. This is Shannon Pleasant, Director of Corporate Communications for Silicon Laboratories. Thank you for joining us today to discuss the company's financial results. This call is being simulcast and will be archived on our website. The financial press release, reconciliation of GAAP to non-GAAP financial measures and other financial measurement tables are now available on the Investor Page of our website at www.silabs.com.

I'm joined today by Necip Sayiner, President and Chief Executive Officer; Bill Bock, Chief Financial Officer; and Paul Walsh, Chief Accounting Officer. We will discuss our financial results and review our

business activities for the quarter. We will have a

question-and-answer session following the presentation.

Our comments and presentation today will include forward-looking statements or projections that involve substantial risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call. This information will likely change over time.

By discussing our current perception of our market and the future performance of Silicon Labs and our products with you today, we are not undertaking an obligation to provide updates in the future. There are a variety of factors that we may not be able to accurately predict or control that could have an a material adverse effect on our business, operating results and financial conditions. We encourage you to review our SEC filings including the Form 10-Q that we anticipate will be filed shortly, that identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements.

Also, the non-GAAP financial measurements, which are discussed today, are not intended to replace the presentation of Silicon Lab's GAAP financial results. We are providing this information because it may enable investors to perform meaningful comparisons of operating results and more clearly highlight the results of core ongoing operations.

I would now like to turn the call over to Silicon Laboratories' Chief Financial Officer, Bill Bock.

William Bock

Good morning, everyone. I'm pleased to report first quarter revenue was up 7% sequentially to $119.6 million. This return to sequential revenue growth sets us up with a good start to the year and is a better-than-typical seasonal result. While GAAP earnings are in a loss position due to acquisition-related charges, our non-GAAP earnings exceeded the high-end of our guidance range at $0.40.

During the quarter, we successfully completed the acquisition and integration of SpectraLinear, a transaction we announced in January. Our GAAP results include approximately $11.7 million in charges related to the deal, as well as typical non-cash stock compensation charges, which totaled about $9.5 million in the quarter. GAAP gross margin was 60.3% for the first quarter, lower than usual due to a combination of product mix and $1.1 million of the acquisition-specific charges I just mentioned.

R&D investment was up in the first quarter to $35.4 million, and SG&A increased to $31.9 million. These operating expenses are inclusive of $5.1 million in 1x charges for SpectraLinear. Our GAAP tax provision was also impacted by an acquisition-related charge of $5.4 million. This resulted in a fully diluted GAAP loss of $0.04 per share.

Turning to our non-GAAP results. The revenue increase was due to sequential growth in all 3 of our main businesses that was led primarily as expected by our video ramp. Gross margin, therefore, was 61.6%, reflecting the greater mix of video products, which represented more than 10% of revenue in Q1.

As I mentioned last quarter, we fully expect margins to improve throughout the year, and we are forecasting an increase of approximately 100 basis points in Q2 as we benefit from cost reductions in the video product as well as mix improvements as our Broad-based business growth accelerates. We continue to expect to be back to the midpoint of our target range of 62% to 65% in the second half of the year.

We were able to make adjustments to our operating expenses during the quarter to reduce the total spend from our initial forecast. Operating expenses increased, therefore, by only about 1/2 the amount we originally suggested. Specifically, R&D increased to $29.7 million, and SG&A was about flat at $23.2 million. The result was a reduction in operating expenses as a percentage of revenue in the quarter that would typically exhibit a much more notable seasonal increase. Some of these expenses will roll over into the second quarter, and we will experience a full quarter of operating expenses associated with the acquisition. But in total, we now expect Q2 operating expenses to be approximately $55 million, well below what we had predicted previously and with all of the growth coming in R&D. We are working hard to return to model profitability, and we'll be seeking to get above 20% operating margins in the second half.

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