O2micro International Ltd (OIIM) 2013 Q1 法說會逐字稿

Good day and thank you for joining us today to discuss O2 Micro's financial results for the first quarter of fiscal year 2013. If you'd like a copy of the press release we issued this morning, please call Pamela Campbell at 1-408-987-5920 extension 8095 and we will fax you a copy immediately.

It is also posted on the O2 Micro website at www.O2micro.com under the heading Investors. There will be a replay available through May 8, 2013 at nine AM Pacific Time by calling 1-888-203-1112 or 1-719-457-0820 pass code 9442190.

Following the presentation, our management and conference will be open for questions and answers as time permits. Gentlemen, you may begin.

Good morning and thank you for dialing into O2 Micro's financial results conference call for the first quarter of 2013 ending March 31st, 2013. This is Scott Anderson, Director of Investor Relations.

I'd like to remind listeners that the discussion of business outlooks for O2 Micro contains forward-looking-statements. Statements made in this release that are not historical facts are forward-looking-statements within the meaning of the Federal Securities Laws. Actual results may differ materially due to numerous risk factors. Such risk factors are enumerated in the Company's 20-F annual fillings, our annual reports and other documents filed with the SEC from time to time.

Listeners are referred to the 02 Micro's earnings press release and the documents filed with the SEC to understand these forward-looking statements and the associated risk factors.

The statements made herein are dated information. The Company assumes no responsibility to provide updates to this information.

With me today are Perry Kuo, our CFO and Director; our Head of Marketing and Sales and Director, Jim Keim, and Sterling Du, O2 Micro's Founder, CEO and Chairman.

After the prepared remarks from these gentlemen the floor will be open to your questions. Now I'd like to introduce Perry Kuo, CFO of 02 Micro, for a discussion of the financial highlights of the first quarter ending March 31st, 2013. Perry?

Thanks, Scott. We will now review our financial results for Q1, 2013. Please note financial results will be presented on a non-GAAP basis unless we tell you otherwise.

The non-GAAP results exclude stock-based compensation expense, one time charges, nonrecurring gains and notice from discontinued operations. Our full GAAP results are available in our press release that was issued earlier today.

GAAP revenue in the first quarter of 2013 was $17.3 million. GAAP net loss in the first quarter of 2013 was $5.1 million. If we exclude stock-based compensation of $682,000 the non-GAAP net loss will be $4.4 million.

GAAP net loss per ADS in the first quarter of 2013 was $0.17. Non-GAAP net loss per ADS was $0.15.

Gross margin was 50% in Q1. The gross margin reflects the current revenue level and the product mix.

R&D expense was $6.4 million or 36.8% of revenue. This amount excludes stock-based compensation expense of $183,000 in the quarter.

SG&A expense was $7.0 million or 40.5% of revenue. This amount excludes stock-based compensation expense of $499,000 in this quarter.

Income tax was $230,000 in the first quarter and it is mainly based on the effective tax rate of each taxable location for the prior year.

In Q1, 2013 we repurchased 775,927 ADS units at a cost of $2.47 million.

Q1, 2013 revenue by end market breaks down into the following percentages; consumer was 35% to 40% of revenue; computer was 35% to 40% of revenue; industrial was 20% to 25% of revenue; communications was less than 5% of revenue.

At this time I would like to provide some additional information. O2 Micro finished the finished the first quarter with more than $88.8 million in our restricted cash and short-term investments. This represents cash and cash equivalent of $3.01 per ADS. In addition, O2 Micro has no debt.

Accounts receivable at the end of Q1 was $9.3 million. Our DSO is 47 days. This is in our target range of 40 to 60 days.

Inventory was $7.1 million at the end of the first quarter. This represents 78 days of inventory and inventory turnover was 4.6 times in Q1.

From a cash flow perspective, we generated $5.9 million cash outflow from operating activities in Q1.

Capital expenditures were about $101,000 in the first quarter for IT and R&D equipment.

Depreciation and amortization was $1.2 million in Q1.

At the end of the first quarter of 2013 O2 Micro had 613 employees, 55% of which are engineers.

At this time I would like to provide our financial guidance for the second quarter of fiscal year 2013. This guidance reflects our best estimate for the current environment and is subject to change. This is the only official guidance we will provide unless we update it with a public announcement in the future.

O2 Micro expects total revenue to be up 6% to 12% sequentially. I would like to remind investors that Q1 revenue included revenue related to our former E-Commerce business of approximately $1.3 million. Product revenue from its E-Commerce is measurable in our Q2 guidance.

We are guiding the Q2 gross margin to be 50% plus or minus two percentage points. R&D expense excluding stock-based compensation should be $6 million to $7 million in Q2. SG&A should be $7 million to $8 million in Q2 excluding stock-based compensation expense.

Stock-based compensation should be in the range of $650,000 to $750,000 in the second quarter. Based on the service income of our subsidiaries in different countries we expect our tax amount to be in the range of $200,000 to $300,000 in the second quarter.

In closing, our sequential growth in the first quarter and our outlook for continued growth in the second quarter is a direct result of the investments we have made in our carefully chosen growth drivers, General Lighting, Intelligent Batteries, Intelligent Power and big lighting.

As a whole all this power measurement product segment grew slightly in the first quarter and we expect continued solid growth for all these areas in the second quarter. We are confident that our renewed focus of our core competency high performance area of integrated circuits will drive continued growth and lead to profitability in the near future.

Given the uncertain demand and macro environment, we continue to aggressively manage cost. Our previously announced cost and expense reduction initiatives are trending ahead of plan and we are actively sizing our organization to much anticipated revenue levels. We are also very confident in our ability to control cost further that may be required.

Lastly, regarding our share repurchase program, we have been active in this program historically and we plan to be active going forward. At the end of Q1 we had 24.1 million remaining in our share buyback authorization. Returns to shareholders are very much on our mind and we will continue to be a focus in the future.

I would like to thank everyone for participating and turn the call over to Jim Keim to talk more about our business. Jim.

Thank you, Perry. Good morning, everyone. Last quarter we stated that we see significant growth opportunities in 2013 and onward as a result of our 2012 design win momentum from our array of new analog power management products. In fact our new power management products enabled our growth in Q1 from the prior quarter and we are projecting a second quarter growth of 15% to 21% in our power management products.

This growth is a direct result of our spending approximately 50% of our R&D on new innovative products in 2011 and 2012. We expect to continue to see ongoing growth from new products directly resulting from these major R&D investments in General Lighting, Intelligent Lighting, Intelligent Battery and Intelligent Power products.

Let's quickly review highlights of each of these areas. First let's discuss General Lighting. In our last update we announced that we accumulatively shipped over 10 million General Lighting units. Our rapid growth continues, as does our industry-leading patent portfolio.

Our expanding work with most of the world's largest lighting companies, as well as many new technology-based companies, makes us confident that O2 Micro is rapidly emerging as a major supplier in the high-growth LED-based General Lighting market.

These achievements in General Lighting were accomplished by a dedicated team of engineers and support staff. Their innovative R&D activity is backed by intellectual property with our lighting group having been granted 52 patents with 967 claims in 2012 and an additional 15 patents with 279 claims in Q1, 2013.

Our Free Dimming Technology is now recognized worldwide. It is already going into volume production with industry-leading suppliers. As announced in our press releases, our Free Dimming product line now includes three-step dimming as well as continuous dimming products.

The product line features include integrated MOSFETs, 110/220 volt universal line input power factor correction circuitry for both isolated and non-isolated designs involving customers worldwide. As a result, new General Lighting products are continuing to ramp into higher production levels for LED lighting applications including AC to DC products for LED bulbs, the T5 and T8 tubes, DC to DC for MR16 bulbs and street lighting products.

Besides General Lighting our other Intelligent Lighting product line has positioned our LED products for TVs and monitors from low-end single stream LED applications to high end multi-stream 3D TV and high contrast ratio TV.

We continue to be the industry leader in TV backlight applications with the legacy CCFL business being a minor part of our business. We remain confident that we will continue to grow revenue in LED based products in our traditional markets as these markets continue to expand.

Our intellectual property in both Asian and Western Counties continues to strengthen our market leadership position in all lighting areas. We're continuing to file additional patents to extend this lead.

Intelligent Battery design activity continues to gain momentum based on our creative design methodology by growing revenue base is the result of increasing design wins in tablets as well as industrial applications for power tools, for product vacuum cleaners, UPS systems and light electric vehicles.

We also continue to see growing opportunities in communications devices with our patented coulomb counter technology. Although the outer moneyed market will be slow to ramp into high volume, smaller e-vehicles continue to gain market momentum and our technology leadership is enjoying revenue growth.

Intelligent Power products are also continuing to show increasing design wins and revenue growth opportunities despite the decreasing market for notebooks.

Our platform design momentum remains intact as the market shifts toward ultra-books and tablets where we are investing heavily in new power management chip sets.

At the same time, we're continuing to expand our market position in power for traditional notebooks as design activity on next generation notebooks and ultra-book platforms remains strong.

Our Intelligent Power products also continue to enjoy thriving marketing acceptance in both Intel and AMD based platforms. This includes our highly integrated SMBus programmable multi-chemistry battery charger controller providing complete battery charging control for single battery portable computer systems. It also features the hybrid power boost features to support the turbo-boost mode of Intel CPUs.

To summarize our overall market activity, we continue to see a rapid expansion of design activity into new markets that includes all product areas, notably Intelligent Battery, Intelligent Lighting and Intelligent Power.

O2 Micro is executing on a growth and diversification strategy built on product and technology leadership deliverable to the world's leading manufacturers.

At this time I will turn the call over to Sterling Du for some additional remarks.

Thanks, James. Today we are pleased to report the improved revenue levels that led to the sequential growth in our first quarter of 2013. We generated revenue of [$17.3] million in the first quarter of 2013, an increase of approximately 3% from $16.8 million in the fourth quarter of last year.

We reported a GAAP loss of $5.1 million in the first quarter of 2013 compared to the GAAP net loss of $10.6 million in the last quarter of the 2012.

We are encouraged that fiscal conditions have stabilized and have begun to improve since the beginning of 2013. We saw a meaningful number of recent design wins, new start-up ramps and market share gains of which we believe will support our top-line guidance growth for the second quarter.

I am very pleased with the growth in all our core Power Management product lines in Q1 and we'll continue to innovate and are carefully investing in order to spur the adoption of our advanced Power Management products in the market we serve through the clear competitive advantages. One of our greatest strengths as a Company is that we have built a strong international presence in the infrastructure system to support our large and growing customer base.

O2 Micro is the global leader in the market we serve. We have a strong presence in Asia, which is (inaudible) of the global electronics manufacturing industries. Due to the close proximity of our customer base, we're able to provide timely and comprehensive engineering and customer support. We have invested heavily to emerge as an international supplier to many of the world's largest consumer computer and electronics companies.

Our management team is diversified and experienced and we believe we have one of the strong international infrastructure support structures in the industry today to support the future growth. We are very proud of our dedicated international sales and support teams and we believe our strong presence in China and Asia will help foster our growth in the near future.

In 2013 we plan to focus the majority of development resources on [broadly] chosen growth drivers include LED General Lighting, backlighting, Battery Management and Power Management by implementing our strategies. We are confident in our ability to drive significant growth in the future. We remain focused on using new product innovation to drive our growth through significant design win activity, and market share gains.

As we move into second half of 2013 we will continue to develop new innovations to attract adoption for LED General Lighting applications, address our market for increased power consumption in tablets, notebooks and ultra notebooks and lastly, continue to penetrate into large addressable Battery Management addressable market for power tools, digital and hybrid vehicle among others.

Our Company is well positioned with capital efficient business model, strong cyclical growth drivers and proven strategy in place to return to profitability in the near future. We are also in process of conducting detailed review of our entire supply chain with particular focus on vendor consolidation, the use of enhanced testing methods in order to streamline our entire design and test process. We believe these measures will lead to further cost reductions going forward.

We believe that all our core Power Management product line, especially the [supply chain] market for TV, will improve in 2013. Revenue from previous generation technology now represents a minimum portion of our overall business and revenue from our new products is exceeding the decline from the previous generation technology in 2012.

As we enter the June quarter our expectations are playing out. All the activities and design wins momentum swings (inaudible) has been [strength]. However, we will continue to remain cautious due to low visibility in customer [regarding] to hold inventory.

In closing, I am excited about our O2's demonstrated growth across all our core Power Management products lines, including General Lighting, backlighting, Intelligent Power and Intelligent Battery and our new financial model based on the high performance analog. We look forward to providing you updates for our progress throughout the remainder of the year.

At this time, I'd like to thank you for listening to our conference call and turn back to Scott. Scott, please.

Thank you, Sterling. Operator, at this point we'd like to open the call to questions.

Thank you. (Operator Instructions). We'll take our first question from Tore Svanberg with Stifel.

Yes thank you very much. Two questions, first of all it sounds like you're having a pretty solid momentum in LED lighting. Can you tell us approximately how big this business is at this point or how big as a percentage of revenue it could be this year?

We're really not disclosing that figure at this point in time but it is beginning to continue while -- it is continuing to grow quickly and I think as we move out the end of this year and into next year it will become a growing factor in our growth going forward.

Very good and it also sounds that you're seeing some design win tractions, especially in the ultra book market. Could you maybe comment a little bit on the timing of those design wins? I mean is this going to be sort of at the second half ramp, given the market ramping there or is this something that may even come earlier?

The ultra book, the previous generation of ultra book we already have several positions in DC/DC and charger and the new ultra book going to be released and we continue to secure our one in DC/DC second charger and number two we also have LED backlighting positioning in the new ultra, new ultra book.

Very good and a question for Perry, Perry, do you have an estimate of what the cash outflow is going to be in Q2? Is it going to be about the same as Q1 or slightly lower?

Yes you are right. Cash outflow in Q2 could be lower and could be in the area of $3 million to $3.5 million level.

Very good and as far as the linearity of bookings that you've seen lately, can you talk a little bit about that and maybe how you feel about your backlog going into the June quarter?

We've seen good linearity of bookings coming out of the tail end of Q1. We're in a very reasonable backlog position and that's one of the reasons we feel comfortable with the guidance that we've given.

Very good and last question on gross margin, as far as gross margin coming back to your long-term model, is that going to be revenue level dependent, meaning do you have to get to a certain revenue level to get back there or could you even get back there on mix?

Yes I think you have at least two of the important factors to our gross margin. One is revenue level and the second also the consolidation of the vendors, improvement in the architectures and also some (inaudible) means as Sterling just mentioned. We believe that in the second half of this year we'll continue to improve our cost factor so that also we will improve our product mix through the cross strategy improvement.

So for the two factors with the increasing revenue and also our product mix cost reduction improvement I can speculate that the gross margin will continue to improve from 50% level up to certain point between 50% to 55% area.

Very good. Thank you very much.

Vernon Essi, Needham & Company.

Thank you very much for taking my questions. I was wondering, Perry, if -- and I think you had had some of this commentary in your prepared remarks and I don't see anything in the release specifically but could you go over the details again of the share repurchases you made in the first quarter and how much is outstanding or remaining in the buyback?

In the Q1 2013 we repurchased 775,927 ADS and our remaining authorization is 24.1 million.

That is helpful and in terms of follow on Tore's questions in terms of the LED side it sounds like you're not going to give us too much granularity on the numbers there but where are you outlining this in your revenue segmentation, just so we know what to look for in terms of growth? Is it in your industrial or is that in the consumer segment?

You know, lighting, currently one-fourth is in the industrial area and there's three-fourths is in the consumer area.

Okay and then one other thing and I know you may have discussed this but there was a lot of information on the prepared comments but the computing area grew sequentially and we've sort of in the midpoint of what you usually give as your range. You saw some strength in the first quarter and could you dive into that a little bit more? And I apologize if you had mentioned that already. What was the reasoning for why there was strength there because it seems a lot of your peers have not been performing well in that segment?

All right thanks. There are several factors in that, Vern. First of all, as we've mentioned in the past, we've had a more complete product portfolio to sell into the notebook tablet area. We've been diligently working very hard with both AMD and Intel to basically better position ourselves going into the designs so we have captured more designs and we have grown market share there.

Okay so this is the result obviously just simple share gains so to speak.

That is correct and we feel we're much better positioned as well going into the tablet market, which is growing and we think we should have growing revenue base there.

Okay and then lastly, Perry, sort of more of a strategic question, I know you owe -- you have made for about I guess what, 18 months now, commentary about your flexibility on the cost front. You've started to dial cost down so to speak and right size the Company for sort of a different revenue footprint.

How should we look about -- look at that sort of going forward and the extent that you can give us any comfort level if you know, you aren't seeing much revenue growth or say you wind up having kind of a flattish situation going forward, what might the expense structure look like and sort of what are you prepared to do I guess? And I know it's not an easy question to answer but any color on that would be appreciated.

Okay I -- first of all, well thank you. That's we like to focus on the growth first and we like to continue to support our growth drivers, as I mentioned. We have several different growth drivers. We are not only single product; our Company we have several product, different areas, different -- working with globally with different key brands, so we need a different supporting team to support global companies from the headquarters to the OEM chains to the ODM chains so the list, we need a lot of infrastructure support so we like to focus on the growth in the future.

So at this moment for the short-term we like to keep our OpEx in the area of [$14 million] plus/minus and we will focus on the priority of the aligned projects to support the customer demands, key customers' demands.

And also, we like to monitor and then to adjust ourselves to the right revenue sight based on the future macroeconomic environment, which we cannot control. But however, we like to control. We like to maintain, keep this level to achieve the breakeven point as soon as when the market comes back. So I will at least answer you, your question and add some color to you.

It does. I think so I guess if I were to kind of revisit and restate sort of some of the things you said there. Obviously you're looking to achieve a breakeven at some point but I guess if I look at your guidance and you're still looking for a negative cash flow next quarter, you're obviously anticipating some level of market lift, if you will, in the back half of 2013 aside from your share gains. I mean I assume that presumptions what you're working on right now.

Right, right.

Okay, okay. All right thank you. That is helpful.

Thanks, Vern.

Andrew Huang, Sterne, Agee.

Hi this is John Shen in for Andrew. Thanks for taking the question. I was wondering how many weeks of inventory are currently in the channel.

Let's -- seeing our different applications, I would probably estimate at least in the area of the four to six weeks to our (inaudible) area.

Okay and for the breakeven point is it still in the $23 million range for revenue?

In the cash breakeven, cash breakeven based on current Q2 stated, the cash breakeven point will be in the area of $25 million to $26 million and the breakeven point will be in the area of $28 million to $29 million. Our (inaudible) as I reported last quarter.

Got it. So there was -- was there a change from the cash breakeven point from after the divesture?

Yes we are -- we have lower down from the Q4, down from the $30 million level down to $25 million level.

Got it. Thank you very much.

(Operator Instructions). And there are no further questions in the queue. I'd like to turn the call back over to Scott Anderson for any closing remarks at this time.

Thank you all for your attention this morning. Please feel free to contact me at area code 408 987-5920, extension 8888 with any follow-up questions, so have a good day and thank you again for your attention. Goodbye.

That does conclude today's conference. There will be a replay available until nine AM Pacific Time on May 8th, 2013 by calling 1 888 203-1112 or 1 719 457-0820, pass code 9442190. Thank you for your participation.