Dialog Semiconductor Plc.: Reports First Quarter Results Ended 1 April 2016.Company Delivers First Quarter Revenue at the High-End of Guidance

(2) Other operating income includes $137.3 million Atmel termination fee.

Revenue in Q1 2016 was down 22% to $241 million. The revenue performance was the result of the year-on-year revenue decline in Mobile Systems (-26%), Connectivity (-25%) and Automotive & Industrial (-32%), partially offset by 28% growth in Power Conversion.

Q1 2016 Underlying gross margin was 45.5%, 40bps below Q4 2015, in line with our March guidance. The anticipated decline was driven by the lower revenue in the quarter and the subsequent higher allocation per unit of the fixed component of Cost of Goods Sold.

Underlying (*) net OPEX (comprising SG&A and R&D expenses, and other operating income) in Q1 2016 was $80.0 million, or 33.1% of revenue. On a trailing twelve month basis, underlying net OPEX in Q1 2016 was 24.9% of revenue (Q1 2015: 24.4%).

On an underlying (*) basis, R&D expense was up 6.7% from Q4 2015. As a percentage of revenue, underlying R&D in Q1 2016 was up 630bps to 22.3% (Q1 2015:16.0 %). This increase was predominantly the result of the lower revenue in Q1 2016 and the on-going investment in large customer opportunities. On a trailing twelve month basis, underlying R&D was 16.8% of revenue, broadly flat on Q1 2015 (Q1 2015: 16.7%).

Underlying (*) SG&A in Q1 2016 was 10.9% of revenue, 290bps above Q1 2015. This increase was predominantly as a result of the lower revenue in Q1 2016.

Other operating items include $137.3 million termination fee received upon termination of the merger agreement with Atmel.

In Q1 2016 we achieved IFRS and underlying (*) operating profit of $151.2 million and $29.9 million, respectively. Underlying operating profit in the quarter was down 58% over Q1 2015. This decrease was mainly the result of the year-on-year revenue decline and higher R&D expenses.

The underlying effective tax rate in Q1 2016 was 22%, 80bps lower than the Q1 2015 rate. The Company has obtained advice that the $137.3 million termination fee received upon the termination of the merger agreement with Atmel should not be taxable in the UK. The resulting IFRS effective tax rate in Q1 2016 was 2.7%.

In Q1 2016, underlying (*) net income decreased 61% over Q1 2015. Underlying diluted EPS in Q1 2016 was 61% lower than in the same quarter of 2015.

As indicated in March, at the end of Q1 2016, our total inventory level was up $18 million over the prior quarter to $153million (or ~103 days), representing a 47 day increase in our days of inventory over the prior quarter. The increase in the inventory value was mostly due to the increase in raw materials in anticipation of a number of product launches starting in Q2 2016. During Q2 2016 we expect inventory value and inventory days to decrease from Q1 2016 as we serve our customers backlog.

At the end of Q1 2016, we had cash and cash equivalents balance of $662 million. In the first quarter we generated $110 million (Q1 2015: $98 million) of free cash flow (***).

(*)Underlying adjustments $000

Q1 2016       IFRS      

Share-based comp. and related payroll taxes

      Amort. acquired
Intangible
assets
      Aborted merger with Atmel       Effective interest       Underlying    
 
 
Revenue 241,408 - - - - 241,408
Gross profit 107,661 519 1,751 - - 109,931
SG&A exp. -36,430 4,513 1,900 3,606 - -26,411
R&D exp. -57,524 3,743 - - - -53,781
Other op. income 137,478 - - -137,300 - 178
Operating profit 151,185 8,775 3,651 -133,694 - 29,917
Net finance exp. -4,279 - - 1,913 153 -2,213
Income tax exp. -4,015 -1,451 -215 -383 -31 -6,095
Net income 142,891 7,324 3,436 -132,164 122 21,609
Adjusted EBITDA 165,931 8,775 - -133,694 - 41,012

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