International Rectifier Corporation (IRF)

IRF 
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International Rectifier Corporation (IRF)

F2Q 2013 Earnings Conference Call

January 28, 2013 17:00 ET

Executives

Chris Toth - Investor Relations

Oleg Khaykin - Chief Executive Officer

Ilan Daskal - Chief Financial Officer

Analysts

Amit Chanda - Wells Fargo

Alex Gauna - JMP Securities

Terence Whalen - Citi

Craig Berger - FBR Capital Markets

Stephen Chin - UBS

James Schneider - Goldman Sachs

Steve Smigie - Raymond James

Presentation

Operator

Good afternoon. My name is Jessica and I will be your conference operator today. At this time, I would like to welcome everyone to the investors at International Rectifier’s Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Mr. Chris Toth, you may begin your call.

Chris Toth

Thank you, operator. Hello and good afternoon. We all welcome you to the International Rectifier conference call. On the call today are Chief Executive Officer, Oleg Khaykin and Chief Financial Officer, Ilan Daskal. I trust you’ve all seen copies of our press release, which was published about an hour ago. If not, the press release can be found on our website at investor.irf.com in the Investor Relations section.

Before we begin, I would like to remind you that except for historical information the matters that we will be describing this afternoon will be forward-looking statements that are dependent upon certain risks and uncertainties, including factors such as orders shipped and received during the quarter, the timing and introduction of new technologies and products, general semiconductor industry conditions, and the overall economy and financial markets. In addition to these risks, we refer you to the risk factors included in our press release that we issued about an hour ago and in our most recent SEC filings.

I would also like to mention that in addition to reporting our GAAP financial results, we are presenting supplemental non-GAAP financial data. A reconciliation of the non-GAAP to GAAP measures set out in our release and discussion today can be found on the website and in our press release. We believe providing non-GAAP measures combined with our GAAP results provides a more meaningful representation regarding the company’s operational performance. Our non-GAAP presentation and EPS calculations exclude certain items such as accelerated depreciation, restructuring and severance charges, amortization of acquisition-related intangibles, and certain discrete tax items, among others.

Lastly, I would like to highlight the following upcoming events. On Wednesday, February 13, we will be attending the 2013 Goldman Sachs Technology Conference in San Francisco; Tuesday, February 26, we will be attending the UBS Small-Mid Cap One-on-One Symposium in Boston; and Wednesday, February 27, we will be attending the Morgan Stanley Technology Conference in San Francisco.

Now, Ilan will discuss our most recent financials. Ilan?

Ilan Daskal

Thank you, Chris. Good afternoon and thank you all for joining us. For the second quarter of fiscal 2013, IR reported a revenue of $223.8 million, which was 11.4% decrease from the prior quarter and a 2.7% decrease from the year ago quarter.

Gross margin on a GAAP basis was 21.9%. Non-GAAP gross margin was 22.2% and excluded $551,000 of accelerated depreciation primarily associated with the closure of our El Segundo facility. The gross margin decline from the prior quarter was primarily due to absorption and underutilization as we significantly reduced inventory in the quarter. Overall, the GAAP net loss was $32.7 million or $0.47 per share for the quarter. This compares with a GAAP net loss of $28.8 million, or $0.42 per share in the prior quarter, and a GAAP net loss of $6.3 million, or $0.09 per share in the prior year quarter.

Non-GAAP net loss was $30.3 million or $0.44 per share for the quarter. The non-GAAP net loss excluded $551,000 of accelerated depreciation, $4.9 million of asset impairment, restructuring and other charges, amortization of intangibles of $1.7 million, and a net tax benefit of $4.7 million. This compares with a non-GAAP net loss of $13.9 million or $0.20 per share in the September quarter, and a non-GAAP net loss of $2.9 million or $0.04 per share in the December quarter of last year.

Moving on to operating expenses, for the December quarter R&D expenses declined to $32.1 million, which represented 14.4% of revenue. SG&A expenses declined to $45.1 million and represented 20.1% of revenue. The reduction in SG&A and R&D expenses from the prior quarter was a result of actions to reduce cost. Amortization of acquisition-related intangibles was $1.7 million.

During the quarter we recorded $4.9 million in asset impairment restructuring and other charges. GAAP tax for the quarter was a $2.4 million benefit, excluding a net tax benefit of $4.7 million, mainly due to one-time release of tax reserve and adjusting for net tax effects on one-time items, our non-GAAP tax expense for the quarter was $2.3 million.

Turning to the balance sheet, total cash, cash equivalent, and investments increased $16 million to $383.3 million at the end of the second quarter, which included $1.6 million of restricted cash. During the quarter we decrease inventory by about $23 million to $260.7 million. Weeks of inventory decreased about one week and are now about 19 weeks.

In the December quarter, we generated $41.9 million in cash from operating activities, mainly due to improved working capital. Cash capital expenditures for the quarter was $26.1 million or about 11.6% of revenue. Free cash flow was $15.9 million. Depreciation and amortization expense was $23.1 million, and stock-based compensation was $5.4 million.

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