Dialog Semiconductor Reports Third Quarter Results Ended 26 September 2014. Third Quarter Year on Year Revenue Growth of 28% and Increasing Profitability

LONDON--()--Dialog Semiconductor plc (FWB: DLG), a provider of highly integrated power management, AC/DC, solid state lighting and Bluetooth(R) Smart wireless technology, today reports results for its third quarter ending 26 September 2014.

“We continue to be excited by the interest and activity in our Bluetooth Smart product segment, look forward to making further progress here and building momentum in our Asia strategy in the months ahead.”

Q3 2014 financial highlights

- IFRS Revenue up 28% over Q3 2013 at $281 million

- IFRS gross margin increased sequentially and year on year to 44.8%

- Underlying (*) EBITDA (**) at $60.8 million or 21.6% of revenue

- IFRS operating profit (EBIT) increased year on year to $41.9 million or 14.9% of revenue

- Underlying (*) basic and diluted EPS up 70% and 66% respectively over Q3 2013. IFRS basic and diluted EPS up 680% and 660% respectively over Q3 2013

- $29 million of cash generated from operations

Q3 2014 operational highlights

- Successfully delivered a steep ramp of new products to meet our customers demand

- Design win momentum continued for Power Management smartphone and tablet designs

- Design win success from our collaboration with MediaTek , powering Lenovo and Meizu latest smartphones

- New design wins for our Bluetooth Smart SoC across multiple verticals

- Brought further innovation to the AC/DC market with new products in Power Conversion

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

"I am delighted to report on a successful third quarter for Dialog which has seen us match strong operational progress with further, tangible improvements in profitability. We have successfully delivered the first phase of the steep ramp of new products for our customers. Now the focus turns to pushing ahead with completing that ramp in what will be a very busy end of the year for us and our customers."

"We continue to be excited by the interest and activity in our Bluetooth Smart product segment, look forward to making further progress here and building momentum in our Asia strategy in the months ahead."

Outlook

In line with our expectation of a stronger second half of the year and given our current visibility, we expect Q4 2014 revenue in the range of $390 million to $430 million. This will result in a full year revenue range of $1,111 million to $1,151 million.

We anticipate that underlying gross margin for the full year will be consistent with the level achieved year to date. This will result in gross margin improvement for the full year 2014 over 2013.

Financial overview

IFRS

 

Third Quarter

   

US$ million

2014

2013

Var.

Revenue

281.0 219.1 +28%

Gross Margin

44.8% 35.5% +930bps

R&D %

19.6% 18.1% +150bps

SG&A %

10.4% 13.3% (290)bps

EBIT

41.9 9.5 +342%

EBIT %

14.9% 4.3% +1,060bps

Net income

26.6 3.6 +638%

Basic EPS $

0.39 0.05 +680%

Diluted EPS $

0.38 0.05 +660%

Cash from operations

29.3 18.4 +59%

Underlying

 

Third Quarter

   

US$ million

2014

2013

Var.

Gross Margin

45.4% 40.1% +530bps

EBITDA

60.8 41.0 +48%

EBITDA %

21.6% 18.3% +330bps

EBIT

51.7 32.2 +61%

EBIT %

18.4% 14.3% +410bps

Net Income

37.6 21.8 +72%

Basic EPS $

0.56 0.33 +70%

Diluted EPS $

0.53 0.32 +66%

See underlying definition on pages 3-4.

The presentation of income and related expenses from customer specific research and development costs has changed. Please see note 2 of the Q3 2014 Interim Report.

Revenue in Q3 2014 was up 28% at $281 million with strong revenue performance in Mobile Systems, up 31% on Q3 2013, and in Power Conversion up 61% over Q3 2013.

Q3 2014 IFRS gross margin was 930bps above Q3 2013 and 160bps above the previous quarter. This 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

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

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

- Positive $1.1 million impact from the partial release of an excess inventory reserve. Excluding this release, Q3 2014 IFRS gross margin was 44.4%

In Q3 2014 underlying (*) net OPEX as a percentage of revenue was 27.0%, 460bps below Q2 2014 and 120bps above Q3 2013.

Underlying (*) R&D investment in Q3 2014 stood at 18.6% of revenue, 320bps below Q2 2014 and 160bps above Q3 2013. We have accelerated our R&Dinvestments 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 2014 stood at 8.4% of revenue, 160bps below Q2 2014 and 40bps below Q3 2013. We continued to manage our SG&A costs effectively and achieved further leverage.

In Q3 2014 we achieved IFRS and underlying EBIT of $41.9 million and $51.7 million respectively, 342% and 61% over Q3 2013. Underlying EBIT margin in the quarter was 18.4%. The Q3 2014 underlying EBIT increase of 61% was primarily driven by the solid performance of the Mobile Systems segment.

In total, a net tax charge of $10.6 million was recorded in Q3 2014. This represents an effective year to date tax rate of 28.5% (Q3 YTD 2013: 33.0%). 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 should allow Dialog to utilise as yet unrecognised UK loss carry forwards and to benefit from the favourable UK Tax regime towards R&D. We believe this gradual decrease is sustainable and will continue to drive further reductions in our effective tax rate in the years to come.

In Q3 2014, underlying net income increased 72% year on year. Underlying diluted EPS in Q3 2014 was 66% higher than in the same quarter of 2013.

At the end of Q3 2014, our total inventory level was $148 million (or ~88 days), an increase of $29 million over the prior quarter. This represents a 2 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 2014 we expect inventory value and inventory days to decrease from Q3 2014 as we service the high level of demand expected in the quarter.

At the end of Q3 2014, we had cash and cash equivalents balance of $257 million which included $25 million debt repayment. In the third quarter we generated $29 million of cash from operations (***), an increase of 59% over the same quarter of 2013. At the end of Q3 2014, the balance of our Term Loan (put in place to acquire iWatt) was $40 million. We intend to do further early debt repayments during the course of Q4 2014.

(*) 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$2.3 million of amortisation and depreciation expenses associated with the acquisition of iWatt.

(*)Underlying results (net of tax) in Q3-2013 are based on IFRS, adjusted to exclude share-based compensation charges and related charges for National Insurance of US$2.8 million, excluding US$1.0 million of amortisation of intangibles associated with the acquisition of SiTel (now Dialog B.V.), excluding US$2.0 million non-cash effective interest expense in connection with the convertible bond, excluding US$ 0.2 million non-cash effective interest expense related to a licensing agreement entered into in Q3-2012, excluding US$2.9 million acquisition and integration expenses in connection with the purchase of iWatt and US$7.5 million of amortisation and depreciation expenses associated with the acquisition of iWatt. Furthermore, sales of US$ 3.5 million that were reversed in connection with the iWatt business integration and related cost of sales of $1.6 million were brought back in the calculation of underlying results.

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 2014 is defined as operating profit excluding depreciation for property, plant and equipment, (Q3 2014:US$5.4 million, Q3 2013:US$5.1 million), amortisation of intangible assets (Q3 2014:US$7.4 million, Q3 2013:US$9.6 million) and losses on disposals and impairment of fixed assets (Q3 2014:US$0.0 million, Q3 2013:US$0.2 million).

(***) Free Cash Flow in Q3 2014 is defined as net income of US$26.6 million plus amortisation and depreciation of US$12.8 million, plus net interest expense of US$3.3 million, minus change in working capital of US$28.9 million and minus capital expenditure of US$12.7 million.

Operational overview

During the quarter we successfully delivered the beginning of a steep ramp of new products launched by our customers.

As part of our initiatives to expand our business footprint in Asia, we are partnering with MediaTek to power the fast growing China LTE smartphone market with our highly integrated power management solutions. Lenovo and Meizu have selected the DA9210 power management IC (PMIC) to deliver precision power to MediaTek MT6595 SoC and improve the user experience of their latest smartphones - the Lenovo Vibe X2 and Meizu MX4 -.

Bluetooth(R) Smart connectivity is being rapidly adopted across multiple vertical segments, such as wireless charging, wearables, health and fitness, smart home and human interface devices, including computer peripherals and remote controls. During the quarter our leading product SmartBondTM SoC was selected by several customers and ramping into production by the following two:

- Xiaomi, one of China's fastest growing companies included SmartBondTM in its new Mi Band fitness tracking wrist band, delivering up to thirty days of battery power from a single charge.

- SMK Corporation, a leading manufacturer of remote controls and consumer electronics selected our Bluetooth Smart SoC for two of their new remote control models; one of which was selected by a tier one set-top box manufacturer.

Bringing innovation to the IoT and wearables market in a joint collaboration with Energous Corporation (NASDAQ: WATT). Dialog and Energous will engage customers and further evaluate the market for wire-free charging technology that provides power at a distance with complete mobility under full software control. Both companies plan to demonstrate in a proof-of-concept reference design the ability to charge wearable CE devices without the need for power connectors or charging mats, bringing together our leading Bluetooth Smart IC with its energy harvesting support and Energous' over the air wireless charging technology.

SmartWaveTM Multi-Touch Integrated Circuit (MTICTM) is in volume production with products anticipated in-store before year end from a major PC OEM. Touch modules featuring Dialog's SmartWave MTICs are now available in a range of sizes from 15" to 65" featuring both flat and curved screens. These low-cost, optically superior, Windows 8-certified touch modules will feature in a range of PCs, with the first products anticipated to hit stores before the end of the year.

Power Conversion Business Group brought leading innovation to the power adapters market with the launch of two new products:

- iW671 synchronous rectifier designed to enable small, higher power adapters for mobile devices

- iW1770 PrimAccurate(TM) primary-side controller offering a 60W peak power mode from a 40W supply, enabling compact, light-weight, high power density adapters for Ultrabooks(TM), network devices and other home electronics products.

* * * * *

Dialog Semiconductor invites you today at 09.30 am (London) / 10.30 am (Frankfurt) to take part in a live conference call and to listen to management's discussion of the Company's Q3 2014 performance, as well as guidance for Q4 2014. Participants will need to register using the link below labelled 'Online Registration'. Participants will then receive an email with the list of regional dial-in numbers and the passcode.

Webcast & Telephone Registration: http://wcc.webeventservices.com/r.htm?e=864368&s=1&k=3644AE70BE92C5BAC2632629DB9DB91F

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. An instant replay facility will be available for 30 days after the call and can be accessed at +44 (0)1452 550 000 with access code #18264559.

Full release including the Company's consolidated income statement, consolidated balance sheet, consolidated statements of cash flows and selected notes for the period ending 26 September 2014 is available under the investor relations section of the Company's website at: http://www.dialog-semiconductor.com/investor-relations

Note to editors

Dialog Semiconductor creates highly integrated, mixed-signal integrated circuits (ICs), optimised for personal portable, low energy short-range wireless, LED solid state lighting and automotive applications. The company provides flexible and dynamic support, world-class innovation and the assurance of dealing with an established business partner.

With its focus and expertise in energy-efficient system power management and a technology portfolio that also includes audio, short-range wireless, AC/DC power conversion and multi-touch, Dialog brings decades of experience to the rapid development of ICs for personal portable and digital consumer applications, including smartphones, tablets, Ultrabooks(TM) and emerging wearable type devices. Dialog's power management processor companion chips increase the performance of portable devices by extending battery lifetime, enabling faster charging and enhancing the consumer's experience. With world-class manufacturing partners, Dialog operates a fabless business model.

Dialog Semiconductor plc is headquartered in London with a global sales, R&D and marketing organisation. In 2013, it had approximately $910 million in revenue and was one of the fastest growing European public semiconductor companies. It currently has approximately 1,200 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. It also has convertible bonds listed on the Euro MTF Market on the Luxemburg Stock Exchange (ISIN XS0757015606).

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.diasemi.com

ISIN: GB0059822006, XS0757015606
WKN: 927200
Indices: TecDAX
Listed: Regulierter Markt in Frankfurt (Prime Standard); Freiverkehr in Berlin, Düsseldorf, Hamburg, München, Stuttgart

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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