International Rectifier Corporation (IRF)

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International Rectifier Corporation (IRF)

F2Q12 Earnings Call

February 2, 2012 5:00 PM ET

Executives

Chris Toth – Executive Director, IR

Ilan Daskal – EVP and CFO

Oleg Khaykin – President and CEO

Analysts

Gabriela Borges – Goldman Sachs

Brian Piccioni – BMO Capital Markets

Terence Whalen – Citi

Stephen Chin – UBS

Craig Berger – FBR Capital Markets

Ramesh Misra – Brigantine Advisors

Steve Smigie – Raymond James

Presentation

Operator

My name is Kerry and I will be your conference operator today. At this time, I would like to welcome everyone to the International Rectifier second quarter fiscal year 2012 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)

I would now like to turn the conference over to Mr. Chris Toth with International Rectifier. Thank you Mr. Toth, you may begin your conference.

Chris Toth

Thank you Kerry and good afternoon. If you have not already read through our press release issued earlier today it can be found on our website at investor.irf.com in the Investor Relations section. Our quarterly report on Form 10-Q is expected to be filed with the SEC tomorrow, Friday, February 3rd, 2012 and can be accessed using the same web address. A conference call replay will also be available through February 9th, 2012.

After our prepared comments, we will open the line for questions. Our discussion today will include some forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We caution that such statements are subject to a number of uncertainties and actual results may differ materially. Risk factors that could affect the company’s actual results are included in our press release issued today and the company’s filings with the SEC, including the most recent Forms 10-K and 10-Q.

Before we begin, I would like to mention the following upcoming events. On Tuesday, February 7th, we will be attending the Stifel, Nicolaus 2012 Technology and Telecom conference in Dana Point California. Then on February 15th, we’ll be attending the Goldman Sachs Technology Conference in San Francisco, and on Tuesday February 28th, we’ll be attending the UBS one-on-one Symposium in Boston.

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 2012, IR reported revenue of $230.1 million which was a 24% decrease from the prior quarter and an 18.3% decrease from the second quarter of fiscal year 2011.

Revenue over the last quarter significantly decreased due to economic uncertainty and macroeconomic concerns that resulted in broad market inventory reductions across nearly all of our end markets.

Further, we reduced our channel inventory as our shipments to distributors were well below their self achievement. The largest percentage revenue decrease among our end market segments within our power management devices business unit, which felt the most impact from the channel inventory reduction.

During the December quarter, our IP segment revenue decreased to a negative $900,000, the negative royalty revenue was due to a $1.5 million over reporting and overpayment in prior periods by our largest licensee. Excluding these effects are IP revenue would have been a positive $500,000.

Gross margin for the December quarter was 35.4%, down 2.5 percentage points from the prior quarter, mainly due to lower factory utilization during the quarter. We reported a net loss of $6.3 million or $0.09 per fully diluted share for the quarter. Excluding the effect of the prior period royalty revenue over reporting and overpayment of $1.5 million and an investment impairment charge of $1.5 million, net loss would have been $3.3 million or $0.05 per share.

This compares with a net income of $22 million or $0.31 per fully diluted share in the September quarter. Our R&D expenses were $32.2 million compared with $33 million in the prior quarter. R&D expenses represent at 14% of revenue for the quarter.

SG&A expenses were $50.6 million, up from $49 million in the prior quarter due to ERP implementation cost primarily depreciation of about $2 million. SG&A expenses represented 22% of revenue for the quarter. Amortization of acquisition related intangibles was $1.9 million.

Operating loss was $3.3 million for the quarter. Other expense net was $2 million in the December quarter, primarily due to an investment impairment charge of $1.5 million. Income tax for the December quarter was at $1.1 million expense primarily due to tax accruals in our foreign jurisdictions.

The total cash, cash equivalence and investments at the end of this quarter was $398.6 million which included $1.4 million of restricted cash. During the quarter, inventory increased $26 million, to $308.9 million. Weeks of inventory increased eight weeks to 27 weeks. We used $19.4 million in cash from operating activities in the quarter, mainly due to changes in working capital. Cash capital expenditures for the quarter were $26.6 million and represented about 11.6% of revenue.

Depreciation and amortization expense was $20.7 million, and stock-based compensation was $4.3 million. During the quarter, we did not purchase any shares of our stock. We’re at about 69 million shares outstanding at the end of the December quarter.

Moving onto our outlook. We currently expect revenue for the March quarter to be between $230 million and $250 million. For this projected revenue range, we currently estimate gross margin in the March quarter to be between 31% to 32% primarily due to lower planned lower factory utilization. Going forward, we’re working to balance utilization and inventory reduction, but overall expect that our gross margin will likely drop in the March quarter through this cycle.

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