Silicon Laboratories, Inc. (SLAB)

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Silicon Laboratories (SLAB)

Q4 2012 Earnings Call

January 30, 2013 8:30 am ET


Shannon Pleasant

G. Tyson Tuttle - Chief Executive Officer, President and Director

Paul V. Walsh - Chief Financial Officer and Senior Vice President


Craig A. Ellis - B. Riley & Co., LLC, Research Division

Ian Ing - Lazard Capital Markets LLC, Research Division

William Harrison - Wunderlich Securities Inc., Research Division

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Vernon P. Essi - Needham & Company, LLC, Research Division

Steven Eliscu - UBS Investment Bank, Research Division

Blayne Curtis - Barclays Capital, Research Division

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

Cody G. Acree - Williams Financial Group, Inc., Research Division

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

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

Terence R. Whalen - Citigroup Inc, Research Division

Srini Pajjuri - CLSA Asia-Pacific Markets, Research Division

Auguste P. Richard - Piper Jaffray Companies, Research Division



Good morning. My name is Wendy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Silicon Labs Earnings Conference Call. [Operator Instructions] Thank you. Ms. Pleasant, you may begin your conference.

Shannon Pleasant

Thank you, Wendy, and good morning. This is Shannon Pleasant, Vice President of Corporate Communications for Silicon Laboratories. Thank you for joining us today to discuss the company's financial results.

This call is being webcast-ed and will be archived for 2 weeks. 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

I am joined today by Tyson Tuttle, President and Chief Executive Officer; and Paul Walsh, Chief Financial Officer. We will discuss our financial results and review our business activities for the quarter. We will have a question-and-answer session following our prepared remarks.

Our comments 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 a material adverse effect on our business, operating results and financial conditions. We encourage you to review our SEC filings 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 Labs' Chief Executive Officer, Tyson Tuttle.

G. Tyson Tuttle

Good morning, everyone. I'm pleased to report Q4 revenue of $152.5 million, our third consecutive record quarter.

While a difficult year for the industry, Silicon Labs delivered record revenue of $563 million in 2012, representing 15% growth over 2011. Fourth quarter results were better than anticipated due to strength in our video and access products. The broad-based products were also up due to continued market share gains as well as seasonally strong orders in our legacy touch business. I'll talk more about the trends for the quarter after Paul reviews the financial results. Paul?

Paul V. Walsh

Thank you, Tyson.

Fourth quarter revenue of $152.5 million was up 2% sequentially and 20% year-over-year.

On a GAAP basis, fourth quarter gross margin was up meaningfully to 61.4%. R&D investment increased to $36 million and SG&A expense increased to $32.3 million, resulting in GAAP operating income of 16.6% or $25.3 million. GAAP earnings of $0.44 was slightly above our guidance and included charges related to executive separation agreements, credits associated with the Ember acquisition and $7.4 million of stock compensation expense.

Turning to our non-GAAP results. Gross margin improved to 61.6%, driven by growth in our Broad-based business, particularly Timing. Mix continues to influence our gross margins in the near term, and we expect gross margin to be in the range of 60% to 61% in Q1.

Operating expenses increased to $60.2 million due to additional R&D and sales activity as well as higher variable compensation tied to the strong performance in the quarter. R&D increased to $32.7 million and SG&A increased to $27.5 million. We expect operating expenses will be up seasonally $1 million to $2 million in Q1. We will endeavor to hold G&A expenses relatively flat beginning in Q2.

Operating income in Q4 continued to improve, ending at 22.1% of revenue. Other expense of $900,000 included a full quarter of interest payments resulting from the debt service on our credit facility. Net income in Q4 decreased slightly to $25.9 million or 17% of revenue.

The Q4 tax rate was 20.7%. We expect a significant tax benefit in Q1 from the 2012 U.S. R&D tax credit catch-up, resulting in an unusually low tax rate in the low to mid single digits for Q1 and a reduced tax rate of about 17% for Q2 and beyond.

Strong growth in gross margin enabled solid earnings performance. The company delivered earnings per share of $0.61 in Q4. For the full year, Silicon Labs' earnings of $2.16 were up 20%, demonstrating good leverage on the 15% top line growth.

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