See underlying definition on pages 3-4.
(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 Corporation. 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 27% 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.
On 20 of September Dialog announced its intention 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 of approximately $4.1 billion. This acquisition will create a global leader in Power Management and Embedded Processing solutions addressing a fast growing market opportunity of approximately $20 billion by 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 (ADS) expected to be listed on the NASDAQ stock market. 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.
Notice of the General Meeting has been sent to all our shareholders as defined in the Company'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 Charge(TM) 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
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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.
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.