Dialog Semiconductor Reports Record Third Quarter 2015 Results.

Third Quarter Year on Year Revenue Growth of 18%, Increasing Profitability and Cash Flow Generation

LONDON--()--Dialog Semiconductor plc (XETRA: DLG), a provider of highly integrated power management, AC/DC power conversion, solid state lighting and Bluetooth(R) Smart wireless technology, today reports results for its third quarter ending 2 October 2015

Q3 2015 financial highlights

- IFRS revenue up 18% over Q3 2014 at $330 million and up 4% over Q2 2015

- IFRS gross margin increased year on year to 46.3%

- Underlying (*) EBITDA (**) at $80.8 million or 24.5% of revenue

- IFRS operating profit (EBIT) up 44% over Q3 2014 to $60.4 million or 18.3% of revenue

- Underlying (*) basic and diluted EPS up 27% and 28% respectively over Q3 2014. IFRS basic and diluted EPS up 50% and 53% respectively over Q3 2014

- $52 million of cash generated from operations, up 76% over Q3 2014

Q3 2015 operational highlights

- Dialog announced entry into a conditional agreement to acquire Atmel(R) Corporation (NASDAQ :ATML) a leader in Microcontrollers (MCUs).

- Atmel will release today Q3 2015 results ending 30 September 2015. Dialog shareholders are encouraged to read those results.

- Acquisition to transform Dialog into a global leader in both power management and embedded processing with $2.7 billion of combined revenues(1)

- Increasing design-win momentum in Power Management with custom and standard products in leading smartphone OEMs

- Additional design-wins for our Bluetooth(R) Smart increasing penetration in Smart Home and gaming markets

- Established early leadership with deployment of Rapid ChargeTM power conversion products for smartphone power adapters in China

- Continued success in China smartphone market with sub-PMIC technology through platform integration with MediaTek

- Last twelve months revenues

Commenting on the results, Dialog Chief Executive Dr Jalal Bagherli, said:

"I am delighted to report a successful third quarter for Dialog with strong revenue growth, increasing year-on-year profitability and even faster earnings growth. We remain focused on successfully delivering the next phase of the steep ramp of new high volume products in Power Management, Bluetooth(R) Smart and Rapid ChargeTM technologies for market leading customers."

"We are now awaiting shareholder and regulatory approval for the Atmel acquisition, which we expect to close in the first quarter of 2016. The combined company will significantly broaden our customer base, leveraging the combined world class technologies, talent and distribution channels to offer more complete solutions for the high growth mobility and smart connected devices; a combined market opportunity worth approximately $20 billion by 2019."

Outlook

Given our current visibility we estimate Q4 2015 revenue in the range of $430 million to $460 million. At the mid-point, this will result in full year revenue of $1,402 million, delivering 21 percent revenue growth over 2014.

We anticipate that underlying gross margin for the full year will be consistent with the level achieved year to date. This will result in significant gross margin improvement for the full year 2015 over 2014.

Financial overview

IFRS

 

Third Quarter

   

US$ million

2015 2014 Var.

Revenue

330,4 281,0 +18%

Gross Margin

46,3% 44,8% +150bps

R&D %

18,0% 19,6% (160)bps

SG&A % (1)

10,0% 10,4% (40)bps

EBIT

60,4 41,9 +44%

EBIT %

18,3% 14,9% +340bps

Net income   (2)

43,0 25,6 +68%

Basic EPS $ (2)

0,57 0,38 +50%

Diluted EPS $ (2)

0,55 0,36 +53%

Cash from operations

51,6 29,3 +76%
 

Underlying

Third Quarter

US$ million

2015 2014 Var.

Gross Margin

47,1% 45,4% +170bps
EBITDA 80,8 60,8 +33%
EBITDA % 24,5% 21,6% +290bps
EBIT 70,4 51,7 +36%
EBIT % 21,3% 18,4% +290bps

Net Income

53,2 37,6 +41%

Basic EPS $

0,71 0,56 +27%

Diluted EPS $

0,68 0,53 +28%

See underlying definition on page 4.

(1) Including other operating expenses/income

(2) 2014 IFRS amounts have been adjusted. Please refer to Note 2 of the Q3 2015 Interim Report

Revenue in Q3 2015 was up 18% to $330 million with strong revenue performance in Mobile Systems, up 18% on Q3 2014, and Connectivity, up 31% on Q3 2014. Power Conversion revenue was up 3% over Q3 2014 with strong performance in the AC/DC converters segment being offset by softness in the Solid State Lighting LED business.

Q3 2015 IFRS gross margin was 150bps above Q3 2014 and broadly in line with the previous quarter. The year-on-year increase was the result of the following items:

- Higher revenue achieved in the quarter and the subsequent lower allocation per unit of the fixed component of Cost of Goods Sold;

- Positive product mix contribution from the Connectivity Segment and new products in Mobile Systems; and

- Benefits of the ongoing manufacturing cost optimisation, yield and test time improvements in high volume products.

In Q3 2015 underlying (*) net OPEX as a percentage of revenue was 25.8%, 110bps below Q3 2014 and 120bps above Q2 2015.

Investments in R&D increased through the third quarter as expected. Underlying (*) R&D investment in Q3 2015 stood at 17.6% of revenue, 100bps below Q3 2014 and 60bps above Q2 2015. We have accelerated several R&Dprogrammes in both, existing product initiatives as well as new initiatives that have the potential to support profitable growth and the diversification of our business.

Underlying (*) SG&A in Q3 2015 stood at 8.2% of revenue, 20bps below Q3 2014 and 40bps above the previous quarter. We continued to manage our SG&Acosts effectively and achieved further year-on-year leverage. Acquisition costs of US$2.9 million have been expensed in connection with the proposed acquisition of Atmel in the Q3 2015 income statement. These costs are excluded in the calculation of underlying expenses.

In Q3 2015 we achieved IFRS and underlying EBIT of $60.4 million and $70.4 million respectively, 44% and 36% over Q3 2014. Underlying EBIT margin in the quarter was 21.3%. The Q3 2015 underlying EBIT increase of 36% was primarily driven by the solid performance of Mobile Systems and the turnaround in the Connectivity segment. On an underlying basis, Connectivity contributed $1.4 million EBIT profit in Q3 2015 (Q3 2014 EBIT loss: $1.5 million)

In total, a net tax charge of $17.1 million was recorded in Q3 2015, resulting from applying an effective tax rate of 28.5% (adjusted Q3 2014: 31.1%). The effective tax rate of 28.5% represents the expected full year effective tax rate excluding any one-off impact of costs relating to the proposed acquisition of Atmel . Such costs may increase the actual IFRS reported tax rate for the full year. The effective tax rate for the year ending 31 December 2014 was 29.0% (excluding one-off non-cash deferred tax credit). The decrease in our group effective tax rate is driven by the on-going exercise to align our Intellectual Property with the commercial structure of the group. This has allowed Dialog to fully recognise previously unrecognised UK trading loss carry forwards and to benefit from the favourable UK tax regime for technology companies. We believe this gradual decrease is sustainable and will now accelerate from 2016, thus continuing to drive further reductions in our effective tax rate in the years to come.

In Q3 2015, underlying net income increased 41% year on year. Underlying diluted EPS in Q3 2015 was 28% higher than in the same quarter of 2014.

At the end of Q3 2015, our total inventory level was $139 million (or ~71 days), an increase of $19 million over the prior quarter. This represents a 7 day increase in our days of inventory. We are managing our inventory levels tightly and we feel this level is appropriate in order to service our current customer backlog. During Q4 2015 we expect inventory value and inventory days to decrease from Q3 2015 as we service a number of high volume product launches in the quarter.

At the end of Q3 2015, we had cash and cash equivalents balance of $478 million. In the third quarter we generated $52 million of cash from operations, an increase of 76% over the same quarter of 2014. Free cash flow generated in Q3 2015 was $15.6 million (***).

Atmel will release Q3 2015 financial results on Wednesday, 28 October 2015 after the market close. (http://ir.atmel.com/index.cfm)

(*) Underlying results (net of tax) in Q3-2015 are based on IFRS, adjusted to exclude share-based compensation charges and related charges for National Insurance of US$4.0 million, excluding US$0.2 million of amortisation of intangibles associated with the acquisition of SiTel (now Dialog B.V.), excluding US$ 0.06 million non-cash effective interest expense related to a licensing agreement, , excluding US$0.2 million acquisition and integration expenses in connection with the purchase of iWatt, excluding US$2.9 million acquisition expenses in connection with the proposed acquisition of Atmel Corporation and excluding US$3.2 million of amortisation and depreciation expenses associated with the acquisition of iWatt.

(*) Underlying results (net of tax) in Q3-2014 are based on IFRS, adjusted to exclude share-based compensation charges and related charges for National Insurance of US$4.4 million, excluding US$0.2 million of amortisation of intangibles associated with the acquisition of SiTel (now Dialog B.V.), excluding US$2.1 million non-cash effective interest expense in connection with the convertible bond, excluding US$0.2 million non-cash effective interest expense related to a licensing agreement, US$0.4 million of expenses associated with the merger discussions with ams AG, excluding US$1.4 million acquisition and integration expenses in connection with the purchase of iWatt, and excluding US$3.3 million of amortisation and depreciation expenses associated with the acquisition of iWatt

The term "underlying" is not defined in IFRS and therefore may not be comparable with similarly titled measures reported by other companies. Underlying measures are not intended as a substitute for, or a superior measure to, IFRS measures. Underlying results (net of tax) have been fully reconciled to IFRS results (net of tax) above. All other underlying measures disclosed within this report are a component of this measure and adjustments between IFRS and underlying measures for each of these measures are a component of those disclosed above.

(**) EBITDA in Q3 2015 is defined as operating profit excluding depreciation for property, plant and equipment, (Q3 2015: US$6.4 million, Q3 2014: US$5.4 million), amortisation of intangible assets (Q3 2015: US$7.6 million, Q3 2014:US$7.4 million) and losses on disposals and impairment of fixed assets (Q3 2015: US$0.2 million, Q3 2014:US$0.0 million).

(***) Free Cash Flow in Q3 2015 is defined as net income of US$43.0 million plus amortisation and depreciation of US$14.0 million, minus net interest income of US$0.2 million, minus change in working capital of US$27.8 million and minus capital expenditure of US$13.4 million.

Operational overview

On 20 September 2015, Dialog announced that it had entered into a conditional agreement to acquire Atmel in a cash and stock transaction. Based on the closing price of EUR 37.19 per Dialog share as of 14 October 2015 and a Euro to U.S. Dollar exchange ratio of 1.114, the value of the consideration to be received by Atmel shareholders for each Atmel share would be the economic equivalent of $9.41 per Atmel share and would imply a total equity value for Atmel of approximately $4.1 billion. This acquisition will create a global leader in Power Management and Embedded Processing solutions and the directors believe that the combined company's sellable addressable market has the potential to grow from $11 billion to $20 billion in 2019. The transaction is expected to close in the first quarter of calendar year 2016. Dialog intends to fund the transaction with a combination of existing cash, $2.1 billion of new debt and the issuance to Atmel shareholders of approximately 51 million American Depositary Shares ("ADSs") expected to be listed on The NASDAQ Stock Exchange. The transaction would result in a capital structure with a leverage of approximately 3x Net Debt/Estimated LTM EBITDA at closing. Dialog expects to continue to have a strong cash flow generation profile and have the ability to substantially pay down the transaction debt approximately three years after closing.

Completion of the acquisition is subject, among other things, to the approval by a majority of shareholders of a resolution to authorise the directors to allot new Dialog shares in connection with the acquisition ("The Resolution"). A circular which gives details of the acquisition and which contains a Notice of General Meeting in respect of the the general meeting of shareholders (the "General Meeting") has been sent to all our shareholders as defined in Dialog's articles of association. The General Meeting will be held at Reynolds Porter Chamberlain LLP, Tower Bridge House, St Katharine's Way, London E1W 1AA on 19 November 2015 at 12.00 noon GMT.

During the quarter we successfully delivered our latest highly integrated Power Management IC for tier 1 customers. In several next generation mobile projects our technology is gaining traction beyond classic Power Management and this will allow us to increase our content share for smartphones and tablets, primarily for products entering production in 2017.

Our sub-PMIC MediaTek companion products continue to win China based customers in smartphone and more recently multiple tablet products. Revenues are expected to ramp by Q1 2016.

Further progress was made in successfully penetrating the Smart Home market segment with our Bluetooth(R) Smart technology providing full support for Apple(R) HomeKit accelerating the development of Smart Home internet connected accessories. The Smart Home market is expected to grow at an annual rate of 67% between now and 2019, resulting in 1.8 billion2 accessories shipping annually by the end of that period.

This development is a key part of our strategy to capture opportunities within the high growth segment of smart connected IoT devices. Our recently announced strategic collaboration with Bosch Sensortec is a prime example where together we created an ultra-low power smart sensor platform combining Bosch Sensortec's 12 Degrees-of Freedom (DoF) sensors with Dialog's low power Bluetooth(R) Smart technology. Together we bring leading Bluetooth(R) Smart, power management and sensor technologies that enable our customers to develop high-performance, innovative products with exceptionally long battery life.

Our growing range of Bluetooth(R) Smart products continue to gain market penetration throughout Q3 with success in a range of exciting new customers in growing market segments including smart watches and fitness bands, smart home applications, advanced TV remote controls and wireless gaming accessories which are scheduled to start production over the next six months. Dialog continues to lead the industry in Rapid ChargeTM power conversion IC's in the worldwide smartphone market enjoying increased market shares estimated at 70 percent. During the quarter we announced two additional wins:

- Huawei's new Honor 7 smartphones use Dialog's Rapid charge adapter chipset to enable Huawei's Fast Charger Protocol (FCP).

- LeTV & Information Technology (Beijing) an emerging trend-setting Chinese Smartphone manufacturer recently launched smartphones, the Le Max and Le 1 Pro.

(2) BI Intelligence Home Automation report October 2014

* * * * *

Dialog Semiconductor invites you today at 09.00 am (London) / 10.00 am (Frankfurt) to take part in a live conference call and to listen to management's discussion of the Company's Q3 2015 performance, as well as guidance for Q4 2015. Participants will need to register using the link below labelled 'Online Registration'. A full list of dial in numbers will also be available.

Online registration:

http://members.meetingzone.com/selfregistration/registration.aspx?booking=hgjbWbbUktQwcXbBq3f9DLPhIy8bm8CYbXThCKd4Nqc=&b=d58ae4ab-80e5-47f2-8295-e04d92bbba83

Conference Number: +44 (0) 20 7073 8804

Conference ID: 3579145#

In synchronicity with the call, the analyst presentation will be webcasted on our website at: http://www.dialog-semiconductor.com/investor-relations. A replay will be posted at the same address four hours after the conclusion of the presentation and will be available for 30 days.

Note to editors

Dialog Semiconductor provides highly integrated standard (ASSP) and custom (ASIC) mixed-signal integrated circuits (ICs), optimised for smartphone, tablet, IoT, LED Solid State Lighting (SSL) and Smart Home applications. Dialog brings decades of experience to the rapid development of ICs while providing flexible and dynamic support, world-class innovation and the assurance of dealing with an established business partner. With world-class manufacturing partners, Dialog operates a fabless business model and is a socially responsible employer pursuing many programs to benefit the employees, community, other stakeholders and the environment we operate in.

Dialog's power saving technologies including DC-DC configurable system power management deliver high efficiency and enhance the consumer's user experience by extending battery lifetime and enabling faster charging of their portable devices. Its technology portfolio also includes audio, Bluetooth(R) Smart, Rapid Charge(TM) AC/DC power conversion and multi-touch.

Dialog Semiconductor plc is headquartered in London with a global sales, R&D and marketing organisation. In 2014, it had $1.16 billion in revenue and was one of the fastest growing European public semiconductor companies. It currently has approximately 1,500 employees worldwide. The company is listed on the Frankfurt (FWB: DLG) stock exchange (Regulated Market, Prime Standard, ISIN GB0059822006) and is a member of the German TecDax index.

Forward Looking Statements

This press release contains "forward-looking statements" that reflect management's current views with respect to future events. The words "anticipate," "believe," "estimate", "expect," "intend," "may," "plan," "project" and "should" and similar expressions identify forward-looking statements. Such statements are subject to risks and uncertainties, including, but not limited to: an economic downturn in the semiconductor and telecommunications markets; changes in currency exchange rates and interest rates, the timing of customer orders and manufacturing lead times, insufficient, excess or obsolete inventory, the impact of competing products and their pricing, political risks in the countries in which we operate or sale and supply constraints. If any of these or other risks and uncertainties occur (some of which are described under the heading "Risks and their management" in Dialog Semiconductor's most recent Annual Report) or if the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by such statements. We do not intend or assume any obligation to update any forward-looking statement which speaks only as of the date on which it is made, however, any subsequent statement will supersede any previous statement.

Language:   English
Company:   Dialog Semiconductor Plc.
    Tower Bridge House, St. Katharine's Way
    E1W 1AA London
    United Kingdom
Phone:   +49 7021 805-412
Fax:   +49 7021 805-200
E-mail:  

jose.cano@diasemi.com

Internet:  

www.dialog-semiconductor.com

ISIN:   GB0059822006, XS0757015606
WKN:   927200
Indices:   TecDAX
Listed:   Regulated Market in Frankfurt (Prime Standard); Regulated
    Unofficial Market in Berlin, Dusseldorf, Hamburg, Munich,
    Stuttgart; Luxemburg

Contacts

Dialog Semiconductor
Jose Cano, Head of Investor Relations
T: +44 (0)1793 756 961
jose.cano@diasemi.com
or
FTI Consulting London
Matt Dixon
T: +44 (0)20 7269 7214
matt.dixon@fticonsulting.com
or
FTI Consulting Frankfurt
Anja Meusel
T: +49 (0) 69 9203 7120
Anja.Meusel@fticonsulting.com

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