Linear Technology's CEO Discusses Q3 2012 Results - Earnings Call Transcript

Linear Technology (LLTC)

Q3 2012 Earnings Call

April 18, 2012 11:30 am ET

Executives

Paul Coghlan - Chief Financial Officer, Principal Accounting Officer, Vice President of Finance and Secretary

Lothar Maier - Chief Executive Officer and Director

Robert H. Swanson - Co-Founder and Executive Chairman

Analysts

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

James Covello - Goldman Sachs Group Inc., Research Division

John Pitzer - Crédit Suisse AG, Research Division

Auguste Gus Richard - Piper Jaffray Companies, Research Division

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Ross Seymore - Deutsche Bank AG, Research Division

JoAnne Feeney - Longbow Research LLC

Uche X. Orji - UBS Investment Bank, Research Division

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Craig A. Ellis - Caris & Company, Inc., Research Division

Shawn R. Webster - Macquarie Research

Amit Chanda - Wells Fargo Securities, LLC, Research Division

Joe Moore

Christopher J. Muse - Barclays Capital, Research Division

Presentation

Operator

Good day, everyone, and welcome to the Linear Technology Corp. Fiscal 2012 Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Paul Coghlan. Please go ahead, sir.

Paul Coghlan

Hello. Good morning. I'm joined this morning by Bob Swanson, our Executive Chairman; and Lothar Maier, our CEO. We all welcome you to the Linear Technology Conference Call. I will give you a brief overview of our recently completed third quarter and then address the current business climate. We'll then open up the conference call to questions to be directed at Bob, Lothar or myself.

I trust you've all seen copies of our press release, which was published last night. First, however, I'd like to remind you that except for historical information, the matters that we will be describing this morning will be forward-looking statements that are dependent on certain risks and uncertainties including such factors, among others, as new orders received and shipped during the quarter, the timely introduction of new processes and products and the general conditions in the world economy and financial markets.

In addition to these risks, which we described in our press release issued yesterday, we refer you to the risk factors listed in the company's Form 10-Q for the quarter ended January 1, 2012, particularly management discussion and analysis of financial condition and the results of operations.

Secondly, SEC Regulation FD regarding selective disclosure influences our interaction with investors. We have opened up this conference call to enable all interested investors to listen in. The press release and this conference call will be our forum to respond to questions regarding our estimated financial performance going forward.

Consequently, should you have any questions regarding our estimates of sales and profits or other financial matters for the upcoming quarter, as well as how they might impact our income statement model and our balance sheet, this is the time we're free to respond to those questions.

As you can tell from our press release, we returned to growth for the quarter and believe our business will continue to improve in the upcoming June quarter. Going into the quarter, we forecasted that our business was at an inflection point, and we believe the business would improve going forward. The quarter unfolded as we expected, and we reported revenue results for the quarter at the midpoint of our guidance.

We saw a growth across almost all of our end markets. Our bookings grew over last quarter, cancellations were minor and we had a positive book-to-bill ratio for the quarter. Sales increased by 6%. Gross margin improved from 74.9% to 75.1%. We had similar shutdowns in our factories compared with last quarter, therefore not impacting gross margin positively or negatively.

ASP, average selling price, at $1.81 versus $1.83 last quarter was relatively constant. A slight improvement in gross margin percentage was due to absorbing certain fixed costs over a larger sales base.

Operating expenses increased $7.3 million, of which roughly $5 million was due to operating expenses of Dust Networks, which we acquired at the end of last quarter, and also due to additional labor costs in the R&D and SG&A areas in Linear's base business. We had a shutdown in these operating expense areas last quarter but not this quarter, thereby increasing the March quarter labor expenses.

Operating income at 44.8% of sales, down from 45.2% last quarter, was in our forecasted range, having been impacted by the increased costs just discussed. Below the line, interest income and expense were unchanged. Finally, income taxes decreased due to a one-time discrete tax benefit. Our quarterly effective tax rate was 23.75% compared with 26.25% last quarter. The resulting net income of $98,499,000, an improvement of $10.6 million over last quarter, is due mostly to the increase in sales.

Our return on sales was 32% versus 30% last quarter. Headcount decreased marginally through the reductions in our overseas manufacturing plants.

In summary, the effects of the items I just listed on the published quarterly results was that revenue was $312.4 million for the quarter, the third quarter of fiscal year 2012, compared to the previous quarter's revenue of $294.3 million and compared to $353.2 million reported in the third quarter of fiscal 2011.

GAAP diluted earnings per share of $0.42 increased $0.04 from the previous quarter's earnings per share and decreased $0.19 from the $0.61 per share reported in the third quarter of fiscal 2011, which had benefited from higher sales and a low quarterly effective tax rate of 17%.

GAAP net income was $98.5 million compared with $87.9 million last quarter and $141.6 million reported in the third quarter of last year. Earnings per share would be $0.49 on a pro forma basis, which excludes the impact of stock option accounting and the amortization of debt discount, which is the theoretical difference between the company's convertible debt, actual interest and the interest it would potentially have had to pay if it had used straight bank debt.

During the December quarter, the company's cash and short-term investments balance increased by $74.3 million to $1,111.8 million. The company announced that it would again pay a quarterly dividend of $0.25 per share, which is the per share rate that the dividend was raised to in the previous quarter. That marks the 20th consecutive year the company had increased its dividend. This cash dividend will be paid on May 30 to stockholders of record on May 18.

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