Wolfson Microelectronics plc (WLFMF.PK)
Q2 2010 Earnings Call
August 04, 2010 10:00 am ET
Mike Hickey - CEO
Mark Cubitt - CFO
Nick James - Panmure
Daniela Ventrone - Piper Jaffray
Anne Crow - W.H. Ireland
Good morning and welcome to Wolfson Microelectronics first half 2010 financial results. My name is Mike Hickey. I'm the CEO of Wolfson, and with me is Mark Cubitt who is the company's Chief Financial Officer. Thank you for taking the time to come see us this morning.
Let me show you what we plan to do this morning. I'll give you a brief introduction to the summary of how things progressed for us in the first half of 2010. Mark will then go through the financial results in detail. And then I'll carry on and give a more general business update and give you a view of how things are progressing for us both in the first half and also how we see things looking for the second half of 2010 and beyond.
In terms of the first half 2010, I'm delighted to say that we've turned in a very strong performance. We're very happy with our results in the first half and also that the strong second half step-up in revenues that we've been talking about now since the end of last year as our design-ins turned into revenue. It's actually looking in very good shape. So we're delighted to have that.
In terms of the first half, again delighted to say that the class of 2009 design-ins has transitioned into volume manufacturing, actually at the top end of our expectations. And this has driven a very strong revenue growth in Q2 over Q1 with about 26% sequential growth and also a very strong backlog into Q3 and Q4 of this year, supporting our expectation of a good solid second half from a revenue perspective.
As Mark will explain in his section later on, our business model means that this step-up in topline should translate into a big improvement in underlying and operating earnings and we expect to get back to profitability in Q3 onwards.
In terms of what actually happened in the first half, from a product development perspective, our portfolio refresh and improved performance of product development teams we saw last year has continued into 2010, and we launched 18 new products in the first half of the year.
The other thing which is particularly pleasing is that our design-in performance has accelerated during the first half of the year, and we're actually around 30% up on the 2009 run rate, which was our previous record. And again, pleasing for us, our audio hubs have shown particularly strong traction.
We also continue to win slots in high tier volume consumer applications. For example, we're in Samsung, Wave and Galaxy smartphones, which are a real hit and selling strongly. We're in a wide range of LG phones across their portfolio, and we're also in an innovative new gaming console and in innovative and new accessory.
So we're winning more design-ins, we're launching more products and we're in the products that we think are winning.
I'll talk a little bit more about this later on in the business update, but for now I'll hand over to Mark who would take you through the first half 2010 financials.
Thanks, Mike. So I'll do a quick run through the numbers. So the highlights, where the revenue was up 10.5% to $64.5 million. The gross margin improved to $51.3 versus $50.4 last year. I mean, we have targeted this year, the gross margin will be between 50% and 51% for the full year, and still pretty confident of that number.
The underlying operating loss was $6.1 million, and that was an increased loss from last year. I'll go into more detail in the next slide, but we did increase our R&D and distribution and selling costs. And the underlying EPS loss was $3.7 cents that came through from that. The cash balance ended up at $88.2 million. We are forecasting that cash balance will grow back towards $100 million by the end of the year.
And we do have no debt, as you know. So, headlines, we're already covered the revenue and the gross margin. R&D came in at 34% of revenues at $21.7 million. That compares to $17.7 million last year, or 30%. We have increased our spend there. We have spent significantly in the last 12 months actually on DSP development to go with our hubs, and also associated software.
So there has been quite a big investment on that line, which is really quite critical to the future solutions that we're developing.
In distribution and selling, we have had in the first half of this year a significant ramp cost to support customers, and we are increasing our application support, particularly as the products get the more complex. Therefore, the customers need more support as they are ramping.
We've held, you can actually see, on the admin cost we actually reduced them. So we have been really, really holding costs as tight as we can, but then as you see in R&D and in application support, we recognize that we need to take up our capability there. So that's why that spend is up.
Others noticeable numbers to pull out is the share based compensation, 2.2 versus 1.3. The anomaly is really in Q1 of last year when we actually had a credit in share based compensation and that was for lapsed share based comp charges. So the anomalies were in last year, the financing comes basically because real interest rates are and some non-cash costs that are coming through on pensions and deferred consideration. So that's the highlights in the half year numbers.