MSCC

Microsemi Corporation (MSCC)

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Microsemi Corporation (MSCC)

F1Q10 (Qtr End 12/27/09) Earnings Call Transcript

January 21, 2009 4:45 pm ET

Executives

Terri Donnelly – IR

John Hohener – VP, CFO, Secretary & Treasurer

Jim Peterson – President & CEO

Analysts

Rick Schafer – Oppenheimer

Robert Pikover – FBR Capital Markets

Steve Smigie – Raymond James

Quinn Bolton – Needham & Co.

Patrick Wang – Wedbush Morgan

Tore Svanberg – Thomas Weisel Partners

Andrew Huang – GC Research

Romit Shah – Barclays Capital

Christopher Longiaru – Sidoti & Company

Nicholas Aberle – Caris & Company

Presentation

Operator

Good afternoon. My name is Lynn and I will be your conference operator today. At this time, I would like to welcome to the Microsemi’s first quarter earnings 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. I would now like to turn the call over to Terri Donnelly to begin. Please go ahead.

Terri Donnelly

Good afternoon and welcome to Microsemi’s first quarter 2010 earnings conference call. I’m Terri Donnelly, Coordinator of this call. In a few moments, you will hear from and have an opportunity to ask questions of Jim Peterson, our President and Chief Executive Officer; and of John Hohener, our Vice President and Chief Financial Officer.

A recording of this conference call will be available on the Microsemi website under the Investor section. Our website is located at www.microsemi.com. Microsemi issued guidance in the form of a limited business outlook on our expectations for the next quarter.

This business outlook reflects our expectations as of January 21, 2010 and is continually subject to reassessment due to changing market conditions and other factors and therefore must be considered only as management’s present opinion, and actual results may be materially different.

However, management undertakes no obligation to update these or any forward-looking statements, whether as a result of new information, future events, or otherwise. If an update to our business outlook is provided, the information will be in the form of a news release. We wish to caution you that all of our statements, except the company’s past financial results, are just our current opinions, predictions and expectations.

Actual future events or results may differ materially. For a review of risk factors, please refer to Microsemi’s report on Form 10-K for the fiscal year ended September 27, 2009, which was filed with the SEC on November 24, 2009.

That said, I’m going to turn the call over to John to discuss our financial results and then Jim will address our end markets and overall business strategy. Here is John Hohener.

John Hohener

Hey, thank you, Terri. Net sales for the quarter ended December 27, 2009 were $112.8 million, down 13.6% from the $130.6 million reported in the year-ago first quarter, but up 2.8% from $109.7 million in the fourth quarter of 2009. As a reminder, this quarter revenue does not include any contribution from SEMICOA, which was recently sold.

Non-GAAP gross margin for the quarter was 49.6% compared to 51.8% in the year-ago first quarter and up from 48.6% in the fourth quarter of 2009, an increase of 100 basis points. Our improvement in gross margin was primarily attributable to more shipments originating from our high reliability facility in Ireland as well as strong increases in our analog mixed signal markets. This quarter, non-GAAP selling, general and administrative expenses were $18.2 million or 16.2% of sales compared to $21.7 million or 16.6% of sales in the first quarter of last year and $18.1 million or 16.5% of sales in the prior year fourth quarter.

Research and development costs were $11.8 million or 10.5% of sales for the quarter compared to $10.8 million or 8.2% of sales in the year-ago first quarter and $10.4 million or 9.5% of sales in the fourth quarter of 2009. The sequential increase in R&D was primarily due to purchases of masks and other supplies related to new product development for both high reliability and analog mixed signal products. We expected our operating expenses will be relatively flat next quarter.

Our non-GAAP operating margin was 23% for the quarter compared to 26.9% in the prior year first quarter and compared to 22.6% in the fourth quarter. Non-GAAP net income for the quarter was $21.1 million or $0.26 per diluted share compared to $28.7 million and $0.35 per diluted share in the year-ago first quarter and up $1.8 million and $0.02 from the $19.3 million and $0.24 per diluted share reported in the fourth quarter.

Our non-GAAP effective tax rate was 18.2% in the first quarter. Our GAAP gross margin was 46.3%, the same as the year-ago first quarter and compared to 38.4% in the fourth quarter, an increase of 790 basis points. We expect our GAAP gross margin to improve 100 to 200 basis points in our second quarter. As a reminder, this will be the only gross margin number we will present in the future.

Our first quarter operating results included $3.7 million for transitional idle capacity and $1.1 million in restructuring, exceptional legal matters and other charges. Also included were non-cash charges of $6.7 million related to stock-based compensation and $3.9 million in amortization of acquisition-related intangibles.

Read the rest of this transcript for free on seekingalpha.com