Silicon Laboratories, Inc. (SLAB)

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Silicon Laboratories (SLAB)

Q3 2013 Earnings Call

October 24, 2013 8:30 am ET


Deborah Stapleton

G. Tyson Tuttle - Chief Executive Officer, Director and Member of Equity Award Committee

John Hollister - Chief Financial Officer and Senior Vice President

William G. Bock - President and Director


Srini Pajjuri - CLSA Limited, Research Division

Craig A. Ellis - B. Riley Caris, Research Division

Craig A. Ellis - Caris & Company, Inc., Research Division

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

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



Good morning. My name is Roshira, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Silicon Labs Earning Conference Call. [Operator Instructions] Thank you. Ms. Stapleton, you may begin your conference.

Deborah Stapleton

Thank you, Roshira, and good morning, everyone. As a reminder, this call is being webcast 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'm joined today by Tyson Tuttle, Chief Executive Officer; Bill Bock, President; and John Hollister, Chief Financial Officer. We will discuss our financial results and review our business activities for the quarter, then 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 risk 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 markets, 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, our operating results and financial condition. 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 statement.

Also the non-GAAP financial measurements which are discussed today are not intended to replace the presentation of Silicon Labs' 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

Thanks, Deb, and morning, everyone.

We completed our first quarter with Energy Micro as a key part of the company and are very pleased with our progress. The teams and operational systems are fully integrated and the product development roadmaps are aligned to enable the next generation of energy-friendly microcontrollers and radios. I'm also pleased to report that we delivered solid results in the third quarter including record revenue in broadcast video. However, we are seeing declines in Q4 due to weakness in end customer demand. I will talk more about third quarter results and our fourth quarter guidance later in the call.

For now, I'd like to turn the call over to John, who will review our financial results in detail. John?

John Hollister

Thank you, Tyson. Third quarter revenue of $146.9 million was above the midpoint of our guidance range, reflecting a 3.8% increase sequentially. The increase in revenue was driven by strength in our MCU, video and timing products, partially offset by expected declines in access products. On a GAAP basis, third quarter gross margins ended at 60%. R&D investment increased to $40.7 million, and SG&A expense increased to $37 million, resulting in GAAP operating income of $10.5 million or 7.1% of sales. GAAP EPS was $0.15, which was slightly above our guidance range.

On a non-GAAP basis, gross margin ended at 61.1%, which represents a decline from the prior quarter due to product mix and sales of acquired products that were below our corporate average. As expected, non-GAAP operating expenses increased in the quarter to $63.5 million. Non-GAAP R&D investment increased to $33.7 million, due to the addition of the Energy Micro team and higher investments in new product tape-outs. Non-GAAP SG&A expenses increased to $29.8 million based on increased headcount, significant travel spending in the quarter for sales and integration activities and higher legal spending.

The combination of stable gross margin results and in-line operating expenses resulted in non-GAAP operating margin of 17.9%. Net other expenses were slightly higher than last quarter at $700,000 due to the reduced interest income from the acquisition cash outflow.

Our effective tax rate was 22.6% in Q3, slightly better than expected. Non-GAAP net income for the quarter ended at $19.8 million or $0.45 per share, which is at the top of our Q3 guidance range. On a sequential basis, this represents a decline of $0.09 per share from last quarter, primarily due to the dilutive effects of the Energy Micro acquisition.

Turning now to the balance sheet. Accounts receivable were $68.5 million or 42 days sales outstanding, which is consistent with our historical performance. We continue to have no known collection or bad debt issues.

Inventory levels improved significantly in the quarter, decreasing to $44.8 million, resulting in improved turns of 5.1. This represents a stable turns level that we expect to sustain through year end. Channel inventory was stable in the quarter.

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