ON Semiconductor Management Discusses Q2 2012 Results - Earnings Call Transcript

ON Semiconductor (ONNN)

Q2 2012 Earnings Call

August 02, 2012 4:30 pm ET

Executives

Ken Rizvi - Vice President of M&A, Real Estate & Investor Relations and Treasurer

Donald A. Colvin - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Chief Financial Officer of SCI LLC and Executive Vice President of SCI LLC

Keith D. Jackson - Chief Executive Officer, President, Director, Member of Executive Committee, Chief Executive Officer of Semiconductor Components Industries LLC and President of Semiconductor Components Industries LLC

Analysts

John W. Pitzer - Crédit Suisse AG, Research Division

Ross Seymore - Deutsche Bank AG, Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

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

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

Parag Agarwal - UBS Investment Bank, Research Division

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

Mark Lipacis - Jefferies & Company, Inc., Research Division

Terence R. Whalen - Citigroup Inc, Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Patrick Wang - Evercore Partners Inc., Research Division

Presentation

Operator

Good afternoon. My name is Holly, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the second quarter 2012 earnings conference call. [Operator Instructions] I would now like to turn the conference over to Ken Rizvi. Please go ahead, sir.

Ken Rizvi

Thank you, Holly. Good afternoon, and thank you for joining ON Semiconductor Corporation's Second Quarter 2012 Conference Call. I'm joined today by Keith Jackson, our President and CEO; and Donald Colvin, our CFO. This call is being webcast on the Investor Relations section of our website at onsemi.com, and a replay will be available for approximately 30 days following this conference call, along with our earnings release for the second quarter of 2012. The script for today's call is also posted on our website.

Our earnings release in this presentation includes certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most direct comparables under GAAP are in our earnings release and posted separately on our website in the Investor Relations section.

In the upcoming quarter, we will be attending the Pacific Crest Technology Forum on August 13 and the Citi Annual Technology Conference on September 6, as well as the Deutsche Bank Technology Conference on September 11.

During the course of this conference call, we will make projections or other forward-looking statements regarding the future events or the future financial performance of the company. The words believe, estimate, anticipate, intend, expect, plan or similar expressions are intended to identify forward-looking statements. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially. Important factors relating to our business, including factors that could cause actual results to differ from our forward-looking statements, are described in our Form 10-K, Form 10-Qs and other filings with the SEC. Additional factors are described in our earnings release for the second quarter of 2012.

Our estimates may change, and the company assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions or other factors.

Now let's hear from Donald Colvin, who will provide an overview of second quarter 2012 results. Donald?

Donald A. Colvin

Thank you, Ken, and thanks to everyone joining us today.

ON Semiconductor Corporation today announced that total revenues in the second quarter of 2012 were approximately $744.8 million or approximately flat compared to the first quarter of 2012. If the legacy ON Semiconductor business recorded revenues on a sell-in basis, similar to many of our industry peers, revenues in the second quarter would've grown by approximately 6% compared to the first quarter.

During the second quarter of 2012, the company reported GAAP net income of $6.9 million or $0.02 per fully diluted share. The second quarter 2012 GAAP net income includes net charges of $58.1 million from special items, which are detailed in schedules included in our earnings press release.

GAAP gross margin in the second quarter was 34.7% and non-GAAP gross margin, 35.7%. Gross margin in the second quarter benefited from approximately $3.4 million of insurance proceeds received during the quarter. Second quarter 2012 non-GAAP net income was $65 million or $0.14 per share on a fully diluted basis.

We exited the second quarter of 2012 with cash, cash equivalents and short-term investments of approximately $756.4 million. During the quarter, we also reduced our total debt by approximately $119 million, which included the retirement of $96.2 million of 0 coupon convertible senior subordinated notes.

At the end of the first quarter, total day sales outstanding were approximately 54 days, up approximately 2 days compared with the first quarter of 2012. ON Semiconductor's internal inventories were at approximately 123 days, up approximately $26 million. Included in our total internal inventory is approximately $70 million of bridge inventory, approximately 13 days, primarily related to the consolidation of certain factories.

Distribution inventories were up sequentially by approximately 1% on a dollar basis in the second quarter and were at approximately 10.5 weeks exiting the quarter.

Cash capital expenditures during the second quarter of 2012 were approximately $64 million.

Now I would like to turn it over to Keith Jackson for additional comments on the business environment.

Keith D. Jackson

Thanks, Don. Now for an overview of our end markets.

During the second quarter of 2012, our end-market splits were as follows: the automotive end market represented approximately 26% of sales; the consumer electronics end market represented approximately 22% of sales; the industrial, military, aerospace and medical end markets represented approximately 19% of sales; the computing end market represented approximately 20% of sales; and the communications end market, which includes both wireless and networking, represented approximately 13% of sales.

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