Atmel Management Discusses Q2 2012 Results - Earnings Call Transcript

Atmel (ATML)

Q2 2012 Earnings Call

July 31, 2012 5:00 pm ET

Executives

Peter Schuman

Stephen Cumming - Chief Financial Officer and Vice President of Finance

Steven A. Laub - Chief Executive Officer, President and Executive Director

Analysts

James Schneider - Goldman Sachs Group Inc., Research Division

Blayne Curtis - Barclays Capital, Research Division

Steven Eliscu - UBS Investment Bank, Research Division

Craig Berger - FBR Capital Markets & Co., Research Division

John Nguyen Vinh - Collins Stewart plc, Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Brian C. Peterson - Raymond James & Associates, Inc., Research Division

Jeffrey A. Schreiner - Capstone Investments, Research Division

Sujeeva De Silva - ThinkEquity LLC, Research Division

Rajvindra S. Gill - Needham & Company, LLC, Research Division

Anthony J. Stoss - Craig-Hallum Capital Group LLC, Research Division

Presentation

Operator

Good afternoon. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Atmel Second Quarter 2012 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Peter Schuman, Director of Investor Relations. Please go ahead.

Peter Schuman

Thank you, Christy. Good afternoon and thank you for joining us for Atmel's Second Quarter 2012 Earnings Conference Call. A copy of the press release issued today is available on our Investor Relations website. A replay of this call will be available after 5:00 p.m. Pacific today and will be archived for 48 hours. The webcast will be archived on the company's website for 1 year. Access information is provided in today's press release.

Joining us for the call today are Steve Laub, Atmel's President and CEO; and Stephen Cumming, Vice President of Finance and Chief Financial Officer. Stephen will begin the call with a review of our second quarter financial results, and Steve will then provide additional information on the business. At the conclusion of Steve's remarks, Stephen will discuss our financial guidance for the third quarter of 2012 and then open the call for questions.

During the course of this conference call, we may make forward-looking statements about Atmel's business outlook, including statements regarding our expectations for market growth, litigation matters and the anticipated course of patent litigation, revenue, target gross and operating margins, product introductions and cost savings for 2012 and beyond. Our forward-looking statements and all other statements that are not historical facts reflect our expectations and beliefs as of today, and therefore are subject to risks and uncertainties as described in the safe harbor discussion found in today's press release.

During the call, we will also discuss non-GAAP financial measures. The non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release. I would now like to turn the call over to Stephen Cumming for a discussion of our second quarter financial results. Stephen?

Stephen Cumming

Thank you, Peter. Let me provide some details of our statement of operations. The second quarter revenue of $368 million increased 3% as compared to our guidance of up 2% to 6%. This was primarily due to strong returns and improving revenue across most business segments during the quarter. As anticipated, second quarter marked the recovery in our core Microcontroller business. Second quarter 2012 gross margin was 44%. The second quarter gross margin was at the higher end of our guidance of between 43% to 44%. The non-GAAP gross margin was 44.6%. The majority of the sequential increase in gross margin was due primarily to higher factory utilization as a result of increased business levels versus the prior quarter. Our operating expenses of $137 million were at the lower end of our guidance of $139 million, plus or minus $2 million. This compares to operating expenses of $136 million in Q1 2012 and $136 million in the second quarter of 2011.

We continue to maintain strong discipline managing our operating expenses during the last quarter and the past quarters and with some recent restructuring activity as referenced in our press release, we expect greater operating margin leverage in the future. R&D expense of $66 million in the second quarter was flat compared to the prior quarter compared to $65 million reported in the same period last year. SG&A expense was $71 million for the second quarter of 2012 compared with $70 million in both the prior quarter and in the same period last year. Stock compensation for Q2 was $18 million and allocated as follows: $2 million to manufacturing, $6 million to R&D and $10 million to SG&A. Stock compensation decreased by $1 million compared to the first quarter of 2012.

Income from operations was $8 million in the second quarter of 2012. Second quarter income was reduced by $14.4 million for charges related to restructuring activities. The restructuring is primarily headcount reductions in Europe and in the U.S. that will result in annual savings of over $10 million in 2013. GAAP operating margin was 2.2%. This compares with income from operations of $25 million or GAAP operating margin of 7% in the prior quarter, which included a benefit of approximately $11 million from the release of reserves related to a previously established foreign government grant and income from operations of $111 million in the same period last year.

Non-GAAP operating income for the second quarter of 2012 was $43 million or 11.7% of revenue and excludes acquisition-related charges, restructuring charges and stock-based compensation, and represented an improvement from non-GAAP income from operations of $36 million in the prior quarter. Non-GAAP net income from operations was $126 million from the same period last year. GAAP income tax provision totaled $3.7 million in the second quarter of 2012, which is lower than our guidance of approximately $7 million to $8 million. The second quarter 2012 GAAP tax provision of $3.7 million compared to a tax provision of $4.3 million in the first quarter of 2012 and an income tax position of $18.8 million for the second quarter of 2011. During the second quarter of 2012, our non-GAAP income tax provision was approximately $1.8 million, which compares to $71,000 in the prior quarter. We expect to have non-GAAP or a cash tax effective rate in the mid- to upper single-digit percentages for the remainder of 2012.

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