IXYS

Moderator: Dr. Nathan Zommer
May 19, 2011
7:30 am CT

Please go ahead, sir.

First to review the formalities. Our discussion today contains forward-looking statements, including statements related to potential future revenues and earnings. Any statements in this conference call that are not statement of historical fact may be deemed to be forward-looking statements. There are a number of important factors that could cause the results of IXYS to differ materially from those indicated by these forward-looking statements, including, among others, the risks detailed from time to time in our SEC reports including our quarterly report on Form 10-Q for the period ended December 31, 2010. IXYS does not undertake any obligation to update forward-looking statements. As a reminder, IXYS fiscal year ends March 31. Therefore, this quarter marks the fourth quarter and fiscal year end of 2011.

To announce our highlights for the March 2011 quarter, we marked our seventh consecutive quarter of revenue growth with another record for quarterly revenues of $96.8 million, an increase of 5.5% sequentially and up 26.4% from the same quarter in the period fiscal year - in the prior fiscal year. Net income was $16.6 million or 51 cents per diluted share. We experienced record backlog of $178.7 million.

This is fiscal year-end 2011. We would also like to summarize annual highlights. We posted record yearly revenues of $363.3 million, an increase of 49.4% on the year ended March 31, 2010. Net income was $37.3 million or $1.16 per diluted share. We had $76 million in cash at fiscal year end.

Without question, we are pleased with the quarterly and full year-end results as they indicate strong demand for our diverse product portfolio across many industries and geographies. Despite the past global recession, we continued our investment strategy, which included continued R&D investment and expansion of our capacities worldwide.

Importantly, we ended this quarter with the highest backlog in our history, $178.7 million, which is 42% — 42.4% above the March 2010 backlog. As evidenced by this record, IXYS products are essential for power and energy control across our markets in industrial, telecom, medical, transportation and cleantech applications.

For the full year, revenues by market segment were as follows. Industrial and commercial, which includes renewable energy, 52%; communication infrastructure, 18%; medical electronics, 9%; consumer, 8%; transportation, which includes auto and traction, 4%; and other markets, 9%.

On the fiscal year basis, revenues by product group were 69.6% for power semiconductors, 22% — 22.9% for integrated circuits and 7.5% for systems and RF. The company launched more than 30 new products during the year, spread across our various divisions and targeted to our core and developing application. For the quarter — for the fourth quarter that ended March 31, 2011, we introduced 10 new products including microcontroller-based modules, IGBTs, AC power solid state relays and input power bridge rectifiers.

I will now turn the call over to Uzi Sasson, President and CFO, who will discuss the financial in more detail.

Net income for the fiscal year ended March 31, 2011, was $36.6 million or $1.14 per diluted share as compared to net loss of $677,000 or 2 cents loss per share in the prior fiscal year. Included in the results for the quarter ended March 31, 2011 are additions to income caused by adjustment to release the valuation allowance applied against domestic deferred tax assets and other tax adjustments and reductions to income caused by impairment of goodwill and intangible assets and by write-off of nonperforming assets.

Excluding the impact of the foregoing, non-GAAP net income for the quarter ended March 31, 2011 would have been $8 million or 25 cents per diluted share, an increase of 9.5% over net income of $7.3 million or 23 cents per diluted share in the immediately preceding quarter. Again, excluding the impact of the foregoing, non-GAAP net income for the fiscal year ended March 31, 2011 would have been $29.2 million or 91 cents per diluted share.

Gross profit was $31.7 million or 32.8% of net revenues for the quarter ended March 31, 2011 as compared to gross profit of $24.8 million or 32.4% of net revenues for the same quarter in the prior fiscal year. Importantly, gross profit percentage increased by 1.1 percentage points from the prior quarter. Gross profit for the fiscal year ended March 31, 2011 was $122.1 million or 33.6% of net revenues as compared to the gross profit of $63.4 million or 26.1% of net revenues for the prior fiscal year.

This fiscal year saw gross profit rise by $58.7 million or 92.5% increase from the prior fiscal year. We had a record backlog of $178.7 million at March 31, 2011 as compared to $125.5 million in March 31 of last year.

Bookings were $111.4 million for the March quarter as compared to $98.6 million for the comparable quarter of last year, a 13% increase. Bookings in the March 2011 quarter were also 16.3% higher than the December 2010 quarter’s bookings of $95.8 million.

Backlog and bookings represent existing customer order that, by their terms, can be shipped within 12 months.

CAPEX was $3.3 million for the March quarter and about $16 million for the fiscal year with expenses mainly due to our continuing expansion of our capacity. R&D spending for the March 2011 quarter was $7.2 million or 7.5% of net sales as compared to $5.9 million or 7.7% of net sales in the prior year quarter. For the full year, R&D spending was $27.5 million or 7.6% of net sales as compared to the $20.1 million or 8.3% of net sales in the prior fiscal year.

In the March 2011 quarter, SG&A expenses were $11.4 million or 11.8% of net sales as compared with $11.5 million or 15% of net sales in the prior year quarter. For the 2011 fiscal year, SG&A expenses were $42.9 million or 11.8% of net sales as compared to $36.2 million or 14.9% of net sales in the prior fiscal year.

On a dollar basis, annual SG&A expenses rose primarily due to the inclusion of a full year of SG&A expenses on the Zilog acquisition. More importantly, SG&A expenses were lesser percentage of net sales in the fiscal year 2011 than fiscal year 2010. Because of higher revenues, net account receivables at March 31, 2011 were $55.2 million, which is higher than net account receivable of $50.6 million at December 31, 2010.

DSO was about 51 days at March 31, 2011. As of March 31, 2011, net inventory was $75.8 million, a $2.2 million decrease from net inventory at December 31, 2010. Inventory turns were 3.4 times during the quarter.

Turning to the balance sheet. The ratio of current asset to current liabilities was 5.1. We generated approximately $13.5 million of cash from operations for the quarter and about $34 million for the fiscal year. The company exited fiscal year 2011 with approximately $76 million of cash and cash equivalents, an increase of $6.2 million from December 2010. This appreciable increase existed even after paying off the $7.1 million loan on our headquarters building, which we now own free and clear.

As outlined in the press release, IXYS remains highly profitable, and we expect to continue to generate strong cash from operations. Additionally, we have strong backlog position for the June quarter, but global economic uncertainty remains. We expect revenue for the June 2011 quarter to be slightly higher than March 2011 quarter.

We will now open the floor for questions.

We’ll take our first question from Zach Larkin, Stephens Inc.

There’s still capacity to increase. And as I said before, our planning department is guided to be in the situation not to go crazy in expanding capacity especially internally. We are using a nice combination, as we said in our press release, of internal and external foundries. We are elated that we had all of these great relationships with the world-class foundries that we’re able to take the extra demand.

And strategically, we see the horizons with a strong book-to-bill ratio we have that is again a compliment to IXYS that GMCH decided that one of the first customers they will have in a foundry basis is IXYS. So we have an immediate deployment of products into the wafer fab in Kokomo. And it’s basically addressing the products that are in the highest demand. And as we know from GMCH, they have an outstanding factory, and we are just jumping in with both hands and feet to take as much as we can given the case that we start from ground zero.

We expect margin to increase sequentially. But bear in mind that the demand is going up significantly, and sometimes we have to add expensive capacity. So until we’ll be having a cost-effective capacity like the GMCH kicking in, I expect a similar increase sequentially of gross margin that you’ve seen before. And the key items to remember with IXYS that the game is not only in the margins area, but also in the fact that we are classically a much reduced operating cost operation.

Uzi, you might follow up on that.

Kokomo, Indiana, has been, I would say, up to a decade ago, one of the largest wafer fab manufacturing in North America. For that matter, maybe in the world. Definitely in 1989, it was one of the largest fabs in the world.

So we believe that knowing the excellent history that General Motors has in producing especially on some power semiconductors in this facility that they will — and they only started running from day one. So we owe the reporting to our Board of Directors that there are all of these — some products in pilot production there. And this is also a tribute to our technology team that is worldwide, including the scientists in Germany, that we were able to implement, and we saw for our silicon several — I would say, more than a month ago, and everything looks good.

And knowing that, that is one of the largest fabs, leaps and bounds bigger than our internal fabs, we believe it’s in our hand, basically, any amount of wafer we need, we might be able to get. It will be all depending on getting the starting material.

So we are running very fast, Vernon. And hopefully, we’ll be able to add similar nice surprises on revenue growth with a little caveat that we have excellent capacity, thanks to the Kokomo factory.

The only weakness that we’ve seen and was reported was in the photovoltaic, the solar energy market, due to the fact that some subsidies in some countries are basically being eliminated. But nonetheless, that slack was taken immediately by the strong markets that grew, I would say, year-to-year by amazing numbers.

I can tell you that our segments in spite of that little hiccup in the solar industry, what we were able to track in the renewable energy year-to-year, the growth has been by 67.8%, the fastest-growing sector that we have in our market segment, roughly 68% growth in the cleantech, the alternative energy.

Next to that, of course, is the industrial sector that grew year-to-year by 55%. The telecom market was also a shining star, up 77% year-to-year. And that is the number for the fiscal year, and we believe that, that’s reflected also in the backlog. Even if you take some double bookings that might appear in the backlog, it’s a strong backlog. And also I will add to that, we still see that typical distributor’s gun shy from adding inventory. So it’s mainly the real demand in the market.

So — and I’m sure, as we speak, customers are looking for second sources, which is, you know, the coup d’état in the industry, and this is the time where I’m sure that my competitors are getting some business that I cannot deliver. But it’s a good problem to have, let me tell you, that demand is higher than supply.

So I have just a couple of questions. First, you said, you know, you’re continuously adding capacity. You’re running in the high 80%. How much capacity did you add this quarter outside of the GM contract just internally?

So indeed Europe was a little stronger, and that’s why you’ve seen this — the gold medal and the silver medal kind of switching between Europe and Asia. But let me just stress, these are phenomenal growth rates in those markets; 56.7% in Europe, 51.5% in Asia Pacific in revenues.

They need product for electricity, for UPSs, for the networks, for the telecom infrastructure. Where will they get it? So they are buying from my customers, from our customers, and that might explain why we’ve seen towards the end of the quarter an extra surge in bookings.

Initially, they produced the best world-class power transistor in Darlington. Then, of course, they transitioned with our help in the late ‘80s for the EV1 with IGBT and Power MOSFETs.

And I’m glad to report that, that is a world-class fab in the United States, and it’s a great story that it will be the major power semiconductor fab in the United States. It mainly will be supporting us for our outside customers. And obviously, we hope that this will be also a penetration opportunity for us to supply one of the fastest-growing car companies in the world, General Motors. They are back.

Thank you all for your time. We also would like to take this opportunity to thank our suppliers, customers, employees and stockholders for the support of IXYS. Thank you all.

END