Dialog Semiconductor Reports Second Quarter Results Ended 1 July 2016.

1. R&D and SG&A as a percentage of revenue.

2. First Half Other operating income includes $137.3 million Atmel termination fee.

Revenue in Q2 2016 was down 22% to $246 million. The revenue performance was the result of the anticipated year-on-year volume decline in Mobile Systems (31%) partially offset by 46% growth in Power Conversion. Revenue performance improved sequentially in Connectivity 38%, Power Conversion 19% and Automotive and Industrial 14%. Q2 2016 gross margin was 46.3%, 20bps below Q2 2015. Q2 2016. Underlying* gross margin was 47.1%, 160bps above Q1 2016 and in line with Q2 2015. Excluding $2.7 million manufacturing costs credit, underlying gross margin in Q2 2016 was 46.0%, 50bps above Q1 2016.

Net OPEX (comprising SG&A and R&D expenses, and other operating income) in Q2 2016 was $90.8 million, or 37.0%. Underlying* net OPEX (comprising SG&Aand R&D expenses, and other operating income) in Q2 2016 was $82.6 million, or 33.6% of revenue. On a trailing twelve month basis, underlying* net OPEX in Q2 2016 was 26.8% of revenue (Q2 2015: 23.3%).

R&D expense in Q2 2016 was up 7% from Q2 2015. As a percentage of revenue R&D in Q2 2016 was up 660bps year-on-year to 24.3%. As a percentage of revenue, underlying* R&D in Q2 2016 was up 610bps year-on-year to 23.1% (Q2 2015:17.0%). This increase was predominantly the result of the lower revenue in Q2 2016 and the on-going investment in large application- specific customer opportunities. On a trailing twelve month basis, underlying* R&D was 18.0% of revenue (Q2 2015: 15.9%). On an underlying* basis, R&D expense was up 6% from Q1 2016.

SG&A expense in Q2 2016 was 12.7% of revenue, 340bps above Q2 2015. This increase was predominantly the result of the lower revenue in Q2 2016 and the scaling up of our support functions in 2016. Underlying* SG&A in Q2 2016 was 10.6% of revenue, 30bps below Q1 2016.

In Q2 2016 we achieved IFRS and underlying* operating profit of $22.9 million and $33.2 million, respectively. Operating profit in the quarter was down 63% year-on-year. Underlying operating profit in the quarter was up 11% sequentially over Q1 2016 and down 53% over Q2 2015. The year-on- year decrease was mainly the result of the revenue decline and higher OPEX expenses.

The effective tax rate in H1 2016 was 7.4% (H1 2015: 28.5%).The underlying* effective tax rate in Q2 2016 was 25%, which increased slightly sequentially and is in line with the Q2 2015 rate. The underlying* effective tax rate for H1 2016 was 24.0%, which compares with 25.0% for FY 2015.

In Q2 2016, net income was down 61% year-on-year. Underlying* net income was up 24% sequentially over Q1 2016 and down 49% year-on-year. Underlying* diluted EPS in Q2 2016 was up 21% sequentially over Q1 2016 and down 48% year-on-year.

As indicated in May, at the end of Q2 2016, our total inventory level was down 8% over the prior quarter to $141million (or ~98 days), representing a 5-day decrease in our days of inventory. The decrease in the inventory value was mostly due to the decrease in raw materials. During Q3 2016 we expect inventory value to be broadly at the same level as Q2 2016 and inventory days to decrease from Q2 2016 as we serve our customers backlog.

At the end of Q2 2016, we had a cash and cash equivalents balance of $660 million. In the second quarter we generated $33 million of free cash flow*, more than double what the business generated in Q2 2015 (Q2 2015: $15 million).

Subsequent to the quarter end, the first interim (six weeks) settlement of the first tranche of the buyback programme took place. On 5 July 2016 the Company purchased 590,000 ordinary shares at an average price of EUR27.6429. The maximum maturity date for the first tranche shall be 15 September 2016 and the maximum total cost of the shares to be purchased by the Company from Barclays Bank PLC shall be EUR50 million and the minimum cost EUR37.5 million.

* Non-IFRS measures

Underlying measures and free cash flow quoted in this Press Release are non-IFRS measures. Our use of underlying measures is explained on pages 149 to 154 of our 2015 Annual Report. Reconciliations of the underlying measures to the nearest equivalent IFRS measures for Q2 2016, Q2 2015, H1 2016 and H1 2015 are presented in Section 3 of the Q2 2016 Interim Report. For ease of reference, we present below those reconciliations for Q2 2016.

 

Q2 2016

 

IFRS US$000

 

Share-based compensation and related payroll taxes US$000

  Amortisation of acquired intangible assets
US$000
  Aborted merger with Atmel US$000   Effective interest US$000   Underlying US$000
 
 
 
Revenue 245,747 - - - - 245,747
Gross profit 113,737 326 1,755 - - 115,818
SG&A expenses

(31,179)

3,338 1,900

(15)

-

(25,956)

R&D expenses

(59,816)

2,996 - - -

(56,820)

Other operating income 200 - - - - 200
Operating profit 22,942 6,660 3,655

(15)

- 33,242
Net finance income 2,497 - - - 138 2,635
Income tax expense

(8,653)

(250)

(217)

-

(27)

(9,147)

Net income 16,786 6,410 3,438

(15)

111 26,730
EBITDA n/a 44,527
   

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