International Rectifier Corporation (IRF)

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International Rectifier Corporation (IRF)

F1Q13 Earnings Call

November 1, 2012 5:00 PM ET

Executives

Chris Toth – IR

Ilan Daskal – EVP and CFO

Oleg Khaykin – President and CEO

Analysts

David Wong – Wells Fargo

Bill Ong – B Riley & Company

Mark Delaney – Goldman Sachs

Chris – FBR

Ramesh Misra – National Securities

Terence Whalen – Citi

Stephen Chin – UBS

Steve Smigie – Raymond James

Alex Gauna – JMP Securities

Presentation

Operator

Good afternoon. My name is Madison and I will be your conference operator today. At this time, I would like to welcome everyone to the International Rectifier First Quarter Fiscal Year 2013 Results 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, Madison. 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 received and shipped 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 began presenting supplemental non-GAAP financial data. A reconciliation of the non-GAAP to GAAP measures set out in our release and in our discussion today can be found in our press release and on our website. 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 restructuring and severance charges, amortization of acquisition-related intangibles, and certain discrete tax items, among others.

Our non-GAAP presentation and EPS calculation include stock-based compensation expense. We also began publishing a table that includes our stock-based compensation as allocated to our cost of sales, R&D, and SG&A.

Lastly, I would like to highlight the following upcoming events. On Wednesday, November 7, we are planning to attend the 2012 Wells Fargo Technology, Media and Telecom Conference in New York. And on Tuesday, November 27, we will be attending the 2012 Credit Suisse Technology Conference in Scottsdale, Arizona.

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 first quarter of fiscal 2013, IR reported a revenue of $252.5 million, which was a 6.4% decrease from the prior quarter and a 16.6% decrease from a year ago. IP revenue was $2.1 million in the quarter, and included a one-time patent sale of $1.7 million.

Gross margin on a GAAP basis was 27.9%. Non-GAAP gross margin was 28.3% and excluded $500,000 of accelerated depreciation and $400,000 of inventory write-offs associated with the closure of our El Segundo facility. Overall, the GAAP net loss was $28.8 million, or $0.42 per fully diluted share for the quarter. This compares with a GAAP net loss of $68.2 million, or $0.99 per fully diluted share in the prior quarter, and a GAAP net income of $22 million, or $0.31 per fully diluted share in the prior-year quarter.

Non-GAAP net loss was $13.9 million, or $0.20 per fully diluted share for the quarter. The non-GAAP net loss excluded $500,000 of accelerated depreciation, $400,000 of inventory write-offs associated with the closure of our El Segundo facility, $9 million of severance payments, amortization of intangibles of $1.7 million, and a net tax charge of $3.3 million. This compares with a non-GAAP net loss of $10.5 million, or $0.15 per fully diluted share in the June quarter, and a non-GAAP net income of $25.4 million, or $0.36 per fully diluted share in the September quarter of last year.

Moving on to our operating expenses. For the September quarter, R&D expenses were $33.4 million, which represented 13.2% of revenue. SG&A expenses were $47.3 million and represented 18.7% of revenue. The reduction in SG&A and R&D expenses from the prior quarter was the result of actions to reduce our fixed costs. Amortization of acquisition-related intangibles was $1.7 million.

During the quarter we recorded $9 million in severance charges. These charges appear in the asset impairment restructuring and other charges line item on the income statement. GAAP tax for the quarter was a $7 million expense, partly as a result of a deferred tax provision of $3.3 million. Excluding this discrete item and adjusting for net tax effects on one-time items, our non-GAAP tax expense for the quarter was $3.7 million, mainly due to foreign tax accruals.

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