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Linear Technology Corporation (LLTC)

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Linear Technology (LLTC)

Q2 2013 Earnings Call

January 16, 2013 11:30 am ET

Executives

Paul Coghlan - Chief Financial Officer, Principal Accounting Officer, Vice President of Finance and Secretary

Lothar Maier - Chief Executive Officer and Director

Robert H. Swanson - Co-Founder and Executive Chairman

Analysts

John W. Pitzer - Crédit Suisse AG, Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

JoAnne Feeney - Longbow Research LLC

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

James Covello - Goldman Sachs Group Inc., Research Division

Joe Moore

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Shawn R. Webster - Macquarie Research

Steven Eliscu - UBS Investment Bank, Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Aashish Rao - BofA Merrill Lynch, Research Division

Ross Seymore - Deutsche Bank AG, Research Division

Craig Berger - FBR Capital Markets & Co., Research Division

Sumit Dhanda - ISI Group Inc., Research Division

Elizabeth Howell

Sanil V. Daptardar - Sentinel Asset Management, Inc.

Phillip Marriott - First Eagle Investment Management, LLC

Presentation

Operator

Good day, everyone, and welcome to the Linear Technology Corporation Fiscal 2013 Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Paul Coghlan, Chief Financial Officer of Linear Technology.

Paul Coghlan

Hello. Good morning. Welcome to the Linear Technology conference call. I'm joined this morning by Bob Swanson, our Executive Chairman; and Lothar Maier, our Chief Executive Officer. I will give you a brief overview of our recently completed second quarter and then address the current business climate. We will then open up the conference call to questions to be directed at Bob, Lothar or myself.

I trust you've all seen copies of our press release, which was published last night. First, however, I'd like to remind you that except for historical information, the matters that we will be describing this morning will be forward-looking statements that are dependent on certain risks and uncertainties, including such factors, among others, as new orders received and shipped during the quarter, timely introduction of new processes and products and general conditions in the world economy and financial markets.

In addition to these risks, which we described in our press release issued yesterday, we refer you to the risk factors listed in the company's Form 10-Q for the quarter ended September 30, 2012, particularly management discussion and analysis of financial condition and results of operations. Secondly, SEC Regulation FD regarding selective disclosure influences our interaction with investors. We've opened up this conference call to enable all interested investors to listen in. The press release and this conference call will be our forum to respond to questions regarding our estimated financial performance going forward.

Consequently, should you have any questions regarding our estimates of sales and profits or other financial matters for the upcoming quarter, as well as how they might impact our income statement model and our balance sheet, this is a good time to ask them since we are free to respond to these questions.

As you can tell from our press release, the December quarter was difficult for us, with sales down 8.9%. Although within our guidance, it was at the low end. We believe our business will improve in the upcoming March quarter. Going into the December quarter, our expectations were low. We did not expect any pick up until the new calendar year. Following that guidance, bookings were down in October and November. However, that changed, and as December progressed, bookings became stronger than we were expecting. Generally throughout this quarter, customers continued to be very cautious and concerned over general, global macroeconomic conditions. They acknowledged in-demand opportunities, but were in a wait-and-see mode and running tight inventories. However, after the pickup in December, bookings activity has continued improving in January. We didn't see many cancellations or push-outs, but did experience some pull-ins late in the quarter, which is atypical for a December quarter. In summary, our bookings were down from the prior quarter, and we did have a negative book-to-bill ratio, although relatively close to parity. Sales decreased by 9%. Gross margin decreased from 75% to 74.4%. We again had shutdowns in all our factories, and this coupled with absorbing fixed cost over a lower sales base subtracted from gross margin. ASP improved modestly from $1.80 to $1.85, largely due to overall mix. Operating expenses decreased by 2% or $1.9 million as we reduced some variable spending, particularly in the labor area by having shutdowns in the holiday weeks and by reducing profit sharing.

Operating income at 43.5% of sales, down from 46.3% last quarter, was in our forecasted range, having been impacted mostly by the decrease in sales. Below the line, interest income and expense were unchanged. Finally, income taxes decreased due to lower profits resulting from decreased sales. Our effective tax rate of 27% was similar to the prior quarter. Resulting net income of $88.8 million is a 29% return on sales. Although down from last quarter, still very strong especially in these economic times. Headcount was similar to last quarter.

In summary, the effect of the items I just listed on the published quarterly results was that revenue was $305.3 million in the second quarter of fiscal year 2013, compared to the previous quarter's revenue of $335.1 million and $294.3 million reported in the second quarter of fiscal 2012. GAAP earnings per share of $0.38 decreased $0.07 from the previous quarter's earnings per share and was similar to the $0.38 per share reported in the second quarter of fiscal 2012. GAAP net income was $88.8 million compared with $105.2 million last quarter and $87.9 million reported in the second quarter of last year.

Earnings per share would be $0.44 on a pro forma basis, which excludes the impact of stock option accounting and the amortization of debt discount, which is the theoretical difference between the company's convertible debt actual interest and the interest it would potentially have had to pay if it had used straight bank debt.

During the second quarter, the company's cash and cash equivalents and marketable securities decreased by $20.6 million to $1,299,000,000 from the first quarter of fiscal year 2013. The company's cash, cash equivalents and marketable securities balance decreased primarily due to the company accelerating the payment of its March quarterly dividend payment into the December quarter to benefit shareholders due to fiscal cliff tax uncertainties. Concurrent with the December payout, the company's Board of Directors approved an increase in the company's quarterly dividend, from $0.25 per share to $0.26 per share. This marked the 21st consecutive year the company has increased its dividend. At the current stock price, the company's dividend yield is approximately 3%. The company's commitment to increase its dividend despite various economic cycles underscores its belief in the strength of its business model and a strong financial position. The cash dividend was paid on December 28 to stockholders of record on December 17.

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