Micrel, Incorporated (MCRL)

Q2 2010 Earnings Call

July 22, 2010 4:30 p.m. ET


Raymond Zinn, President, Chief Executive Officer

Ray Wallin, CFO and VP of Finance

Andrew Cowell, VP Analog Marketing

Christopher Dingley, VP Worldwide Sales


Bowman Torry - Stifel Nicolaus

Doug Freedman - Gleacher & Company

Sumith Danda - Bank of America/Merrill Lynch

Christopher Longiaru - Sidoti & Company



Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the Micrel Incorporated 2010 Second Quarter Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator instructions). This conference is being recorded today, Thursday, July 22, 2010.

I would now like to turn the conference over to Mr. Ray Zinn, President and Chief Executive Officer of Micrel. Please go ahead, sir.

Ray Zinn

Well thank you, Damien. Welcome to our Q2, 2010 conference call. With me today is Ray Wallin, our Vice President of Finance and Chief Financial Officer, as well as Chris Dingley, who is our Vice President of Worldwide Sales and Andy Cowell, who is our Vice President for Analog Marketing Group.

So with that I'd like to turn the time over to Ray Wallin to give you the prepared remarks'. Ray, go ahead please.

Ray Wallin

Thanks a lot Ray. In conjunction with this conference call, a number of supplemental charts will be made available on Micrel's website during the following prepared remarks. To access these charts, go to www.micrel.com and click on the link to the second quarter 2010 conference call slides.

We will begin today's call with the legal disclaimers and Safe Harbor statement. All material contained in the webcast is the sole property and copyright of Micrel Incorporated with all rights reserved. Certain statements in this conference call, which are not historical facts, may be considered forward-looking statements that involve risks and uncertainties. Forward-looking statements include statements regarding future business results, future levels of sales and profitability, future customer demand and economic and industry projections. Various factors could cause actual results to differ materially from what is set forth in such forward-looking statements. Some of the factors that could affect the company's results have been set forth in our press release dated July 22, 2010 and are also described in detail in the company's SEC filings, including but not limited to our Annual Report on Form 10-K for the year ended December 31, 2009.

Listeners who do not have a copy of the second quarter earnings press release may view the press release on the company's website at www.micrel.com. We will review the financial results for the second quarter ending June 30, 2010 and then discuss our outlook for the third quarter of 2010. Our prepared remarks will then be followed by a question-and-answer session with the financial community.

Let's begin with Micrel second quarter financial and operational highlights. Second quarter revenues increased by 10% on a sequential quarter basis but fell slightly short of our expected sequential quarter growth range of 12% to 15%. A major reasons for this short fall was supply chain delinquencies at right from of our scheduled product shipments in the quarter. However, we currently expect these supply chain issues will be resolved during the third quarter and will not impact our results in the second half of 2010.

Despite a short-term challenge, our second quarter results was solid and we are pleased with our operational execution. Finance from customer serving the communication, computer and industrial end-markets was strong, resulting in a book-to-bill ratio well above one along with a robust ending backlog. In addition, our second quarter gross margin was better than expected, an increase on sequential quarter basis for the fifth quarter in a row.

Overall, we believe we are doing good job controlling operating expenses while managing the significant growth we have achieved during the past several quarters. As the result, our second quarter operating margin expanded to 25.8%.

In addition, our share focus on working capital management continues to result an improvement in many of the key balance sheet metrics. During the second quarter, cash and short-term investments increased by nearly 21 millions to a balance of $104 million. Our second quarter cash flow from operations increased to nearly 27 million up significantly from approximately 18 million in the prior quarter.

Given our strong financial position, we are aggressively reinvesting in our business. R&D activates have resulted in the significant number of new products introductions that has significantly expanded our sales addressable market to include high growth opportunities in digital televisions, display backlight drivers, 3G and 4G communication network, computing and automotive, the named other few. We also remain focused on enhancing shareholder value and we announced in the press release this afternoon, we maintain our quarterly $0.035 cent per share dividend and continue to by back stocks through stock repurchases which more than offset dilution of stock option purchases.

With that let's now move on to closer look at Micrel second quarter financial details. Revenue in quarter totaled 73.9 million compared to 67.2 million in first quarter of 2010 and 51.8 million in the year ago period. To reiterate, the 10% sequential growth in the quarter was slightly below expectations primarily due to delinquencies within our supply chain had delayed some of our product shipments in the quarter, compared to the same period last year, revenues were higher by 22.1 million or 42.7% due to over -- high overall demands from customers in all geographies and end market as a result and the global recovery from the recent world wide economic slow down.

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