International Rectifier's CEO Discusses Q3 2012 Results - Earnings Call Transcript

International Rectifier Corporation (IRF)

Q3 2012 Earnings Call

May 3, 2012 5:00 p.m. ET

Executives

Christopher Toth – Executive Director, Investor Relations

Oleg Khaykin – President, Chief Executive Officer

Ilan Daskal – EVP, Chief Financial Officer

Analysts

Gabriela Borges – Goldman Sachs

Ramesh Misra – National Security

Stephen Chin – UBS

Craig Berger – FBR Capital Markets

Terence Whalen – Citi

Steven Smigie – Raymond James

Presentation

Operator

Good afternoon. My name is Ally and I will be your conference operator today. At this time, I would like to welcome everyone to the International Rectifier Third Quarter Fiscal Year 2012 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to your host for today Mr. Chris Toth, Investor Relations at International Rectifier. Sir, you may begin your conference.

Christopher Toth

Thank you, operator, hello, and good afternoon. We all welcome you to the International Rectifier conference call. On the call today is Chief Executive Officer, Oleg Khaykin, and Chief Financial Officer, Ilan Daskal.

I trust you 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 among others as orders received, and shift 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 issued today, and the company’s filings with the SEC. Including the most recent Form 10-K and 10-Q.

Before I hand the call off Ilan, I would like to mention the following upcoming events. On Monday, May 14, we will be attending the JMP Securities Research Conference in San Francisco, and on Tuesday, June 5, we will be attending the Raymond James Spring Investors Conference in Boston.

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 third quarter of fiscal 2012 IR reported revenue of $248.1 million, which was a 7.8% increase from the prior quarter, and a 16.4% decrease from the third quarter of fiscal year 2011.

Revenue over the last quarter increased as the market started to show initial signs that demand is recovering. Automotive was strong and we saw solid traction in the consumer and computing end markets.

Gross margin for the March quarter was 29.8%, about 1.5 percentage points lower than our guidance, mainly due to mix as a higher margin industrial and appliance end markets were weaker than expected, and lower margin consumer and computing products rebounded stronger than expected.

We reported a net loss of $2.5 million, or $0.04 per fully diluted share for the quarter. Excluding the discrete tax benefit of $6.2 million, a gain on the property sale of $5.4 million in amortization of intangibles of $2.1 million, net loss would’ve been $12 million, or $0.17 per share.

R&D expenses were $34.8 million, compared with $32.2 million in the prior quarter. The higher R&D was the result of increased engineering bills to accelerate new product introductions, during the quarter, as we took advantage of a lower fab utilization. R&D expenses represented 14% of revenue for the quarter.

SG&A expenses were $49.6 million, down from $50.6 million in the prior quarter as we work to reduce our fixed cost structure. SG&A expenses represented 20% of revenue for the quarter. Amortization of acquisition related intangibles was $2.1 million.

During the March quarter, we had a $5.4 million gain on disposition of property from the sale of a vacant site of an old R&D facility located in Oxford, England. Operating loss was $7.1 million for the quarter.

Income tax was a $4.5 million benefit due primarily to discrete tax benefit of $6.2 million, which was partially offset by $1.7 million in tax accrual in our foreign jurisdictions. The discrete tax benefit was mainly due to our release of tax reserve. The total cash, cash equivalents and investments at the end of the quarter were $366.2 million, which included $1.4 million of restricted cash.

During the quarter, inventory remained about flat at $307 million. Weeks of inventory decreased four weeks to 23, as a result of increasing revenue. We used $14.5 million in cash from operating activities in the quarter, mainly due to changes in working capital.

Cash capital expenditures for the quarter were $24.7 million and represented 9.9% of revenue. Depreciation and amortization expense was $21.9 million and stock-based compensation was $4.1 million. During the quarter, we did not purchase any shares of our stock. We have about 69 million shares outstanding at the end of the March quarter.

Moving onto our outlook. We currently expect revenue for the June quarter to be between $265 million and $270 million. For this projected revenue range, we currently estimate gross margin in the June quarter to be about 30%, primarily due to under absorption and lower margin in consumer and computing product mix.

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