SemiLEDs Corp (LEDS) 2013 Q2 法說會逐字稿

Welcome to the SemiLEDs Fiscal Second Quarter Financial Results Conference Call for the quarter ended February 28, 2013. This call is being webcast live on the events and presentations page of the investor section of SemiLEDs website at www.semileds.com.

This call is property of SemiLEDs, and any recording, reproduction, or transmission of this call, without the express written consent of SemiLEDs, is strictly prohibited. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the investor section of SemiLEDs website and visiting the events and presentation page. I would now like to turn the call over to Erica Mannion of Sapphire Investor Relations, investor relations for SemiLEDs.

Good morning. Thank you for joining us to discuss SemiLEDs' financial and operating results for the fiscal second quarter 2013. With me today are Trung Doan, Chief Executive Officer and President, and Timothy Lin, Interim Chief Financial Officer. Today, Trung will begin with a brief overview of industry dynamics and details of the second quarter. Tim will review fiscal Q2 financial results and then open up the call for questions.

On the call today, you may hear forward-looking statements about events and circumstances that have not yet occurred. Actual outcomes and results may differ materially from these expectations contained in these statements, due to a number of risks and uncertainties. Please refer to the Company's recent SEC filings at the SEC's website at www.sec.gov for detailed discussions of the relevant risks and uncertainties. The Company undertakes no responsibility to update this information in this conference call under any circumstance.

The press release distributed today that announced the Company's results is available on the Company's website at www.semileds.com in the investor section under financial press releases. The current report on Form 8-K, furnished with respect to our press release, is available on the Company's website in the investor section under SEC filings and on the SEC's website.

You will also hear discussions of non-GAAP financial measures. Reconciliation of these non-GAAP measures to the most comparable GAAP financial measures are contained in the press release distributed today - excuse - distributed today and available on the Company's website. Now, I will turn the call over to Trung Doan, Chairman and CEO. Trung, please go ahead.

Good morning, and thank you for joining our call today. In the call today, I also have Dr. Ilkan Cokgor, our Executive VP of Sales and Marketing. So, just want to let you know that, too.

Through the combination of managing our cost structure and our focus on engaging in profitable business, we have achieved a net loss of $6 million in the second fiscal quarter, a significant improvement compared to a loss of $8.9 million in the first fiscal quarter. Revenue for Q2 2013 came in at $4.8 million. As a reminder, last quarter we guided revenue down, sequentially, in anticipation of revenue softening due to the Chinese holidays and given our keen focus on securing profitable business.

With that said, today I'm happy to say that the LED market seems to be improving, specifically, within our target markets. In particular, our UV products are doing very well. I am more optimistic today, compared to last call, but optimism is based on what we are currently experiencing in the market and where we are in the qualification process with several customers.

As you may recall, we began qualifying our EV and C35 products back in October of last year. The evaluation process typically takes, unfortunately, six to nine months. We are expecting our revenue not only to stabilize, but to gradually increase over the next few quarters, as more customers complete their qualification process, and, as a result, we experience higher demand for our C35 and EV products.

The pricing environment remains challenging and is more challenging in certain parts of the market, and differs across product groups. For example, we are still working down some of our older chip inventory at lower pricing. However, I would like to reiterate that our strategy is to focus on the profitable areas of the market to drive profitable and sustainable growth. We believe industrials and UV specialty applications will be the drivers of that growth.

While our margins remain negative today, due to our revenue level, the industrial and UV specialty markets command higher margins overall. For China's streetlight market, the market is improving, and we have received orders from our China customer and expect this market to resume growth.

In summary, based on what we are experiencing in the market and hearing from our customer, I believe that we are on the right track, and this is a turning point for SemiLEDs. From an execution standpoint, we need to focus on profitable markets to drive long-term growth and continue to control costs. Now, I will turn the call over to Tim, who will take through our financial results. Tim?

Thank you, Trung, and thanks, everyone, for joining us today. As a reminder, I am referring to our fiscal quarter as I walk through the financials. For the second quarter of 2013, revenue was $4.8 million. This is an approximately 22% sequential decrease from the first quarter of 2013. The sequential decrease in total revenue was primarily due to the negative impact of Christmas, New Year, and Chinese holidays.

Revenue attributable to the sales of our LED chips decreased by 4%, sequentially, and represented approximately 36% of our total revenues in the quarter. Revenues attributable to the sales of our LED components decreased by 24%, sequentially, and represented approximately 38% of our revenues in the quarter. Revenues from our lighting products decreased by 27%, sequentially, and represented approximately 20% of our revenues in the quarter.

GAAP net loss attributable to SemiLEDs' stockholders was $6 million for the quarter compared to a loss of $7.1 million for the second quarter of 2012 and a loss of $8.9 million in the previous quarter. GAAP diluted net loss per share was $0.22.

On a non-GAAP basis, net loss attributable to SemiLEDs' stockholders was $5.4 million compared to a loss of $6.1 million for the second quarter of 2012 and a loss of $8.6 million in the previous quarter. Non-GAAP diluted net loss per share for the second quarter of 2013 was $0.19 and excludes stock-based compensation expense of $641,000, net of related taxes.

In line with our expectations, SG&A expenses were $2.6 million, which represents a $1.043 million sequential decrease. Next quarter, we expect SG&A to be approximately $2.9 million. R&D expenses were $1 million, an approximately $200,000 decrease, compared with Q1 2013.

Gross margin for the second quarter was negative 69%, which compares to negative 9% in Q2 2012 and negative 53% in the previous quarter.

Moving to the balance sheet, as of February 28, 2013, working capital was $49.9 million. Cash and cash equivalents were $43.9 million compared to cash and cash equivalents and short-term investments of $47.7 million in Q1 2013, including $8.3 million of short-term investments.

Day sales outstanding were 64 days as compared to 59 days for the prior quarter. Inventory days on hand were 112 days, essentially flat compared to 111 days at the end of the prior quarter.

Cash used in operations during the second quarter was $4.2 million compared to $3.3 million in the previous quarter. We spent approximately $374,000 on capital expenditures in Q2. This resulted in free cash flow of negative $4.6 million. We define free cash flow as cash provided by operations less capital expenditures.

Now, I will provide guidance for our fiscal third quarter. We expect revenues to be in the range of $5 million to $5.5 million and GAAP gross margin to continue to be negative for the quarter, as we will not fully utilize our production capacity.

GAAP net loss attributable to SemiLEDs' stockholders for Q3 is expected to be $6.5 million to $6.9 million. GAAP EPS is expected to be negative $0.23 to $0.25 per diluted share. The diluted shares outstanding count is estimated at 27.7 million.

This concludes our formal comments. I will now ask the operator to please open up the line for questions. Operator?

Thank you. (Operator Instructions). Andrew Huang, Sterne Agee.

Thank you. Can you just do me a favor and quickly go through the revenue contribution from chips, components, other, because they didn't seem to add up to 100%.

Yes, of course. Chips is 36%, components is 38%, and we have other, 20%.

Okay. But that doesn't add up to 100%.

Yes. For the rest, it's miscellaneous, [and it] belongs to the other category.

Okay. And maybe you could talk a little bit about why you feel like the LED market seems to be improving. What gives you that conviction and what you're seeing that makes you get to that positive outlook?

The LED market is - this is Ilkan?

Yes. This is Ilkan Cokgor, Sales and Marketing Vice President. Overall, we see LED lighting adoption increase, and, as a result, demand for LED lighting increased. Our focus is industrial, commercial, and UV applications, and, in these areas, we see demand increasing as system price is coming down; hence, adoption increasing in all these segments.

Okay. And maybe - you talk a lot about UV. Maybe you can share with us what your UV LEDs are used for and what percentage of revenue that represents right now.

Our UV LEDs are used for two types of applications. We can classify them as consumer and industrial. Consumer applications are such as cosmetics. Industrial applications are applications such as commercial printing and coating, and these applications are adopting LED lighting, because of its lifetime and other advantages. As a result, we see UV demand increase. Our UV revenue - UV portion of the product revenue is about 36%.

Okay.

And it's growing.

And it's growing. Okay. And for some reason, you gave guidance for SG&A, but you didn't give guidance for R&D or gross margin. Can you kind of complete the picture for us?

We did give - did you get bonding?

Not yet. Yes.

We -

Sure.

Projection. Oh, okay, projection -

It's about flat.

Yes.

About flat, Andrew.

R&D flat in dollars?

Yes. It's pretty much flat. Say, flattish side - decrease or increase a bit. Not much.

Okay. And then, since your revenue guidance is a little bit higher for the Q3, should I assume that there's going to be some improvement in the gross margin?

Yes.

Okay.

I think margin is flat. No - as I mentioned before is that we moving to the market with a higher for profitability. We refocused more on bottom line than on the top line. Okay? So, we - you will start seeing that we work on our gross margin and work down our older inventory - still, we have - we working down. But we focus more for the higher margin products, and we driving the Company that way, because, as I said in my - that we are focused on profitable business.

Right. Okay. And lastly, if you wouldn't mind, you talked about getting some traction with China street lighting. Are you selling chips or components into China street lighting? And what could the revenue opportunity be for this calendar year?

This is Ilkan. We are primarily supplying components to the China street lighting market, and the contribution of that we haven't disclosed yet.

Okay. But the product - or the projects seem to be ramping right now? Is that --?

Yes. Our - as we mentioned, we started customer trials last quarter, and we have started to see pilot orders, so it is progressing. As Trung mentioned, this area takes six to nine months for qualification, but so far, the qualification process is on track. Yes.

But soon we start receiving orders for street light.

Okay. Thanks very much.

Thank you, Andrew.

(Operator Instructions). Ben Pang, B. Riley and Company.

Thanks for taking my question. First, when you look at your revenue - your emphasis to get the more profitable business, can you rank those for me, in terms of, like, what are your top three priorities, and how do - how should I think about it - application, (technical difficulty), or however.

Ben, your voice breaking up, so couldn't see - hear very well your question - the last few sentences. Would you please repeat that for me?

So, when you guys are looking for higher profitable revenues, right - more profitable revenues --

Yes.

Is Chinese street light - your Chinese street light - is that included in, like, the top three priorities for this higher profitability? I want to understand which markets to look at, or should I really just look at some of the industrial (technical difficulty) - or those will be coming up as a part of the mix now? What exactly - how do you exactly transform the structure, in terms of the products that get higher profitability? What's that going to look like?

Yes, this Ilkan again. Our main focus is UV - on UV applications, and both consumer segments for UV applications and industrial segments are good margin business for us today. Our second priority is on commercial and industrial lighting segments. For example, street lighting, lighting for warehouse applications are in these two segments. And the third application we are focusing on is for camera flash for mobile phone. These three segments are our main focus, where our product is a good match, where margins are highest.

So, if you look at the industrial segment, what - in which revenue bucket will that show up for you guys? I mean, is it components, or it's [vinyl] products? How do you - does that mix also change when you target in different markets?

Yes. For industrial lighting application that you mentioned, the products that we provide are mainly components, but we also work with the customers to provide more integrated modules as well. These are the products, primarily.

Okay. And you talked about a six to nine month qualification time for a lot of these products, and particularly, the street lighting. If you go to the end of your fiscal year, what do you - how do you target what the mix should be between the components, the modules, and the other [good things]?

Yes, we - this is Trung. So, we depend on - very much depend on product specific. If you talk about UV market, actually, as we grow from components, we start seeing that a lot of our customers need our support to provide them with a more integrated solution. So we are assisting them, and that has really driven buying the need after Christmas, and we see - so far, we see - we still very much a component.

So, I guess - I mean, is there a certain mix that can significantly improve the profitability here? That's kind of what I'm looking at.

Yes.

I mean, if you're still at the same mix at the end of the year, I mean, does the margin stay the same?

You will see our mix up. Our component will increase. That's still the plan that we have said before that the chip become a lower percentage and the component become higher percentage.

Okay. And then, what are the top - are there any different CapEx requirements for some of the market that you're targeting? Can you give a guidance for the full year CapEx?

As I mentioned in the last conference call, we start spending some money in expanding our component capacity, and that's still on plan.

Yes. What's that number for the full year?

As I mentioned, that number is, so far, about $1 million plus.

Okay, okay. Thank you very much.

Thank you, Ben.

(Operator Instructions). And we have no further questions at this time. That does conclude today's conference. We appreciate your participation. You may now disconnect.