Nu Horizons Electronics Corp. F1Q11 (Qtr End 05/31/10) Earnings Call Transcript

Nu Horizons Electronics Corp. (NUHC)

F1Q11 (Qtr End 05/31/10) Earnings Call Transcript

July 8, 2010 4:30 pm ET

Executives

Richard Schuster – Senior EVP and COO

Kurt Freudenberg – EVP & CFO

Kent Smith – President, Distribution Division

Arthur Nadata – Executive Chairman

Martin Kent – President and CEO

Analysts

Matt Sheerin – Thomas Weisel Partners

Chuck Bennett [ph] – IBC [ph]

Andrew Galligan [ph]

Juan Lopez [ph]

Josh Goldberg – G2

Ted Allocca – Trident Partners

Russ Silvestri – Skiritai Capital

Mike Nery – Nery Asset Management

Presentation

Operator

Good day, and welcome to the Nu Horizons first quarter fiscal year 2011 financial results conference call. Today’s call is being recorded. Please note that for the purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, our statements today may include certain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially.

Such statements are based upon, among other things, assumptions made with information currently available to the management, including management’s own assessment of the Nu Horizons’ industry and competitive landscape. During the presentation, your line will be in listen-only mode. At its conclusion, there will be a question-and-answer session. Instructions on how to signal for a question will be given at that time.

I would now like to turn the call over to Mr. Richard Schuster, Senior Executive Vice President and Chief Operating Officer of Nu Horizons Electronics Corporation. Please go ahead, Mr. Schuster.

Richard Schuster

Thank you, operator. Good afternoon, and welcome to our first quarter of fiscal 2011 financial results conference call. Joining me on the conference call today from Nu Horizons' management are Arthur Nadata, Chairman of the Board; Martin Kent, President and Chief Executive Officer; Kurt Freudenberg, Executive Vice President and Chief Financial Officer; Kent Smith, President of Distribution Division and Executive Vice President; and Chris Winslow, Senior Vice President of Systems Distribution.

Kurt will give an overview of the numbers for the first quarter of fiscal 2011. I will then give a brief market overview and synopsis of the industry and our company’s performance, and then we will open the call to questions you may have.

At this point, I would like to turn the call over to Kurt for a review of the financial results.

Kurt Freudenberg

Thank you, Rich. Good afternoon, everyone. Consolidated net sales for the Q1 of fiscal 2011 were $210,762,000 compared to $147,759,000 in the comparable period last year, a 42.6% increase. Sequential quarterly consolidated sales increased $23,839,000 or 12.8% over the fourth quarter of fiscal 2010.

Compared to Q1 of last year, quarterly sales in the active electronics components segment were up 34.2% in North America, 64.6% in Asia, and 7.4% in Europe. Sequential quarterly sales in the active electronics components segment were up 9.4% in North America, 16% in Asia, and 15.9% in Europe. Sales in our passive components segment for Q1 of fiscal 2011 increased 88.9% compared to Q1 of the prior year and 18.9% sequentially.

We successfully concluded our Xilinx distribution agreement termination on June 5, 2010. All Xilinx inventories have been sold to our customers or returned to Xilinx for cash. Sales of Xilinx products were $60,749,000, $55,228,000, and $49,508,000 for the quarters ended May 31, 2010, February 28, 2010, and May 31, 2009 respectively.

Excluding Xilinx, net sales for Q1 of fiscal 2011 were $150,013,000 compared to $98,251,000 in the comparable period last year, a 52.7% increase. This compares with 42.6% increase, including Xilinx, for the same period. Sequential quarterly sales, excluding Xilinx, increased $18,518,000 or 14.1% over the fourth quarter of fiscal 2010 as compared to 12.8% increase including Xilinx sales. Excluding Xilinx, our book-to-bill ratio was 1.22 to 1 in the first quarter of fiscal 2011. Consolidated gross margin was 14.3% for the quarter ended May 31, 2010 and 15.3% excluding Xilinx for the same period.

First quarter 2011 selling, general and administrative expenses increased $3,224,000 or 14.9% over the prior year first quarter primarily due to higher sales compensation and selling-related costs associated with higher sales, as well as $562,000 severance cost associated with 66% reduction in work force. This severance cost includes $340,000 or 49 employees originally estimated on our year-end earnings call. The incremental SG&A expense was partially offset by foreign exchange income.

Interest expense increased $660,000 for the three months ended May 31, 2010 from $422,000 in the prior period primarily due to higher average borrowings compared to the prior year period related to higher sales. The effective tax rate was a provision of 22% and a benefit of 15% for the three months ended May 31, 2010 and 2009 respectively. Our effective tax rate is lower than the statutory rate of 35% for both periods, primarily due to foreign income earned at tax rates lower than the US tax rate, partially offset by state and local income taxes and an increase in the valuation allowance for net operating losses.

Net income for the three months ended May 31, 2010 was $3,374,000 or $0.18 per diluted share as compared to a net loss of $944,000 or $0.05 per diluted share for the three months ended May 31, 2009. The company has a strong balance sheet. At May 31, 2010, the company had $190,327,000 of working capital, our current ratio was 4.1 to 1, and our bank debt-to-equity ratio was 0.36 to 1.

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