International Rectifier Corporation's CEO Discusses Fourth Quarter Results - Earnings Call Transcript

International Rectifier Corporation (IRF)

Q4 2012 Earnings Call

August 22, 2012, 05:00 pm ET

Executives

Chris Toth – IR

Ilan Daskal – CFO

Oleg Khaykin – CEO, President

Analysts

Terence Whalen – Citigroup

Alex Gauna – JMP Securities

Craig Berger – Friedman, Billings and Ramsey

David Huang – Wells Fargo

Steve Smigie – Raymond James

Gabriela Borges – Goldman Sachs

Ramesh Misra – National Security

Stephen Chin - UBS

Presentation

Operator

Good afternoon. My name is (Shamaria) and I will be your conference operator today. At this time, I would like to welcome everyone to the International Rectifier fourth quarter and fiscal year 2012 conference call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer-session. (Operator Instructions) Thank you. I would now like to turn the conference over to Mr. Chris Toth, Investor Relationsr International Rectifier. Sir, you may begin your call.

Chris Toth

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

I trust you've al 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'll be describing this afternoon will be forward-looking statements that are dependent upon certain risks and uncertainties including factors such as orders received and shipped 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 our filings with the SEC, including the most recent forms 10-K and 10-Q.

Before I hand the call off to Ilan, I would like to mention that starting in the September quarter in addition to reporting our GAAP financial results, we will begin presenting supplemental non-GAAP financial data.

Our non-GAAP presentation and EPS calculations are expected to include certain items such as restructuring and severance charges, amortization of acquisition-related intangibles and certain discrete tax items.

Our non-GAAP presentation and EPS calculation will include stock-based compensation expense. However, we plan to publish a table in our future press releases that includes our total stock-based compensation as allocated to our cost of sales, R&D and SG&A.

For those that work with and rely on Thompson, First Call, Fact Set, Capital IQ and other financial service platform non-GAAP estimates, we ask that starting with the September quarter of 2012 you exclude any restructuring and severance charges and amortization of acquisition related intangibles from your non-GAAP estimates.

As always, we'll continue to publish and maintain our primary focus on GAAP financial results.

Lastly, I would like to highlight the following upcoming events. On Wednesday, September 5th, we will be attending the 2012 Citi Global Technology conference in New York and on Wednesday, September 12th, we will be attending the 2012 Deutsche Bank Technology conference in Las Vegas.

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 fourth quarter of fiscal 2012, IR reported a revenue of $269.7 million, which was an 8.7% increase from the prior quarter and a 15% decrease from the fourth quarter of fiscal year 2011.

Gross margin was 25.9%, lower than our guidance mainly due to an asset impairment and inventory write-off associated with our El Segundo fab closure that impacted gross margin by 1.6 percentage points.

Mix also impacted gross margin PMD revenue increased sharply and HiRel gross margin increased due to a change in mix within the June quarter.

We reported a net loss of $68.2 million or $0.88 per fully diluted share for the quarter. Excluding an asset impairment and inventory write-off associated with the El Segundo fab closure of $4.4 million, $1.7 million in severance payments, amortization of intangibles of $1.7 million, a goodwill impairment of $69.4 million and a discrete tax benefit of $21.2 million, net loss would have been $12.2 million or $0.18 per share.

For the June quarter, R&D expense were $35.1 million which represented 13% of revenue. SG&A expenses were $51.3 million which represented 19% of revenue. Excluding $1.7 million in severance payments associated with the reduction of our fixed cost structure, SG&A expenses were $49.6 million. Amortization of acquisition related intangibles was $1.7 million.

In the June quarter, we reported a goodwill impairment charge of $69.4 million within the Enterprise Power business unit. This charge was based upon the recent trading value of our stock coupled with a higher computing mix within the Enterprise Power business unit that resulted in the write-down of goodwill, including the goodwill from the CHiL acquisition. We continue to see CHiL as an integral part of our success in the transition to digital power management in the server and computing end market segments.

Operating loss for the quarter was $87.7 million. Income tax for the June quarter was a $19.6 million benefit due primarily to a net release of tax reserves and deferred assets and other discrete items totaling $21.2 million. This was partially offset by $1.6 million in foreign tax accruals.

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