Power-One Management Discusses Q2 2012 Results - Earnings Call Transcript

Power-One (PWER)

Q2 2012 Earnings Call

July 26, 2012 5:00 pm ET

Executives

Larry Clark

Richard J. Thompson - Chief Executive Officer, President and Director

Gary R. Larsen - Chief Financial Officer, Principal Accounting Officer, Senior Vice President of Finance, and Treasurer

Analysts

Amir Rozwadowski - Barclays Capital, Research Division

Zach Larkin - Stephens Inc., Research Division

Jesse Pichel - Jefferies & Company, Inc., Research Division

Colin W. Rusch - ThinkEquity LLC, Research Division

Shawn E. Lockman - Piper Jaffray Companies, Research Division

Kelly A. Dougherty - Macquarie Research

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Power-One Inc. Second Quarter 2012 Earnings Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. Larry Clark, Investor Relations for Power-One. Mr. Clark, please go ahead, sir.

Larry Clark

Good afternoon, everyone. Thank you for joining us today to discuss Power-One's 2012 second quarter results. Joining me today are Richard Thompson, Chief Executive Officer; and Gary Larsen, Chief Financial Officer. By now, you should have received a copy of today's press release. If not, it is available on the company's website at www.power-one.com.

In addition, this quarter, we are including an accompanying slide presentation that you can refer to during the call. You can access these slides in the Investor Relations section of the website.

Before we begin, I would like to remind you that this conference call may contain forward-looking statements, reflecting Power-One's views of future events, projections or expectations. Any such forward-looking statements may deal with or include matters which involve risks and uncertainties. Power-One's actual results may differ materially from those results as discussed or information provided in the forward-looking statements. We refer you to the company's reporting documents as filed with the SEC for a discussion of the risk factors that may have a material impact on results. Today's call may also contain historical non-GAAP financial measures.

Additionally, in adherence with Regulation FD, we have opened up this call so that all interested investors are free to listen in. The press release and this conference call will be our only forum to answer your questions regarding our estimated 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 may affect our income statement models and balance sheet, this is the time that we are able to respond to those questions.

I will now turn the call over to Richard Thompson, Power-One's Chief Executive Officer. Please go ahead, Rich.

Richard J. Thompson

Thank you, Larry. Good afternoon. I'll begin today's call with a recap of our exceptional second quarter performance and a review of our progress on a recent initiatives, as well as industry dynamics. I will then discuss key operating metrics and drivers for our Renewable Energy and Power Solution business units. After my remarks, Gary Larsen, our Chief Financial Officer, will provide greater detail on the financial statements, including results for the quarter in third quarter guidance. After our prepared remarks, we will answer your questions.

In the second quarter, we've recorded total revenue of $322 million, up 24% year-over-year. Our Renewable Energy business achieve record performance in shipping 1.3 gigawatts of inverters in the quarter and we moved quickly to take advantage to higher demand in Europe based on anticipated changes in feed-in tariffs in both Germany and Italy. Our Renewable Energy business generated $255 million or 79% of total revenues and our Power Solutions business shipped $67 million or 21% of total revenue. We also generated strong cash flow and earnings per share in the quarter, higher revenue, coupled with reduction in material cost, results in operating income of $60 million or 19% of revenue. And net income of $47 million or $0.30 per share, which includes an after-tax gain of $0.06 per share on foreign currency remeasurement.

Now I'd like to share some operational highlights for the second quarter. First, we gained market share in the global PV market. Based on preliminary figures from IMS, we estimate that our worldwide market share increased to over 14% in the second quarter, up from 11% for the full year 2011. Second, our new product introductions are continuing to gain traction. Our recently introduced TRIO line of 20KW and 27.5KW inverters, that address rooftop applications, are being extremely well received in the marketplace. TRIO has already become our largest-selling product line representing 1/3 of our RE revenue in the second quarter and demand continues to be robust. Third, we experienced stable pricing in the second quarter as strong demand in Europe moderated industry pricing pressures. The average revenue per watt decreased in the quarter due to a shift towards higher-wattage products in the Commercial segment. These products contributed to our margin improvement in the quarter as they have a correspondingly lower cost. Lastly, we continue to reduce cost and improve our manufacturing operation, lower material cost and increased absorption on higher production volumes in Europe also contributed to higher margins this quarter. In addition, we have recently recruited new operations management in the U.S., where we have been capacity constrained.

Now for some more details on each of our SBUs. Our Renewable Energy SBU earned $55 million in operating profit on sales of $255 million. Record shipments of 1.3 gigawatts of inverters were up 88% sequentially and 76% year-over-year, driven by the strength in the Italian and German markets. As mentioned, the large part of our first half success is due to the phenomenal market acceptance of our TRIO 20KW and 27.5KW inverters designed specifically for rooftop commercial applications. TRIO provides our customers with a cost competitive product that delivers higher performance while meeting the increasingly more-stringent grid standards. The higher wattage of the TRIO results in fewer inverters versus our competitors' offerings, and at a lower cost per watt. In addition, installers appreciate the built-in combiner box that is also detachable, allowing easy installation and servicing, along with dual MPPT channels that allow maximum optimization of the strings. In fact, installers are finding that TRIO's futures can make this product the more economical solution than using central units on installations of up to several megawatts.

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