DIALOG SEMICONDUCTOR Q3 2017 financial highlights
Revenue of US$363 million, a record Q3 revenue, up 5% year-on-year and 2% above the mid-point of the July guidance range.
Mobile Systems revenue up 54% sequentially.
Gross margin at 46.9% and underlying¹ gross margin at 47.5%, above the July guidance.
Operating profit of US$62.6 million, 2% above Q3 2016. Underlying¹ operating profit of US$76.6 million, 4% above Q3 2016.
All operational business segments were profitable on an underlying basis.
Diluted EPS of US$0.62, up 5% over Q3 2016 and underlying¹ diluted EPS of US$0.81, up 14% over Q3 2016.
Cash flow from operating activities of US$33.5 million (Q3 2016: US$39.3 million). US$636.2 million of cash and cash equivalents, US$12.4 million below 30 September 2016.
On 1 November 2017, the Company completed the acquisition of 100% of the voting equity interests in Silego Technology Inc., a leader in Configurable Mixed-Signal ICs (CMICs) for US$276.0 million, on a cash and debt-free basis, subject to adjustments for cash and working capital, and additional contingent consideration of up to $US30.4 million.
Q3 2017 operational highlights
Continued momentum and design-in engagements for custom Power Management ICs (PMICs) at leading OEMs, for next generation smartphones, tablets, computing and wearable products.
Rapid Charge™ AC/DC power conversion adapter products continue high-volume ramp at top Chinese smartphone OEMs.
Dialog's Bluetooth® low energy products continue to be adopted across a wide range of applications, helping to deliver a record quarterly revenue for the Connectivity segment.
Bluetooth® low energy market success extended to automotive tyre pressure monitoring system with first production shipments.
Early success with first design win of new wireless audio IC for consumer headset application at Asian OEM.
First GaN based WattUp™ RF based wireless charging reference designs, supporting higher power and efficiency, announced with strategic partner Energous.
1 Underlying measures and free cash flow quoted in this Press Release are non-IFRS measures (see page 5).
Commenting on the results, Dialog Chief Executive, Dr Jalal Bagherli, said:"Q3 2017 was a record Q3 quarter, with year-on-year revenue growth and gross margin ahead of our July guidance. Mobile Systems delivered robust sequential revenue growth and Connectivity posted record quarterly revenue, as we continue to capitalise on strong demand for power management and power efficient technologies.
With the acquisition of Silego Technology we now open a new business opportunity built on an innovative and differentiated technology platform. Together, we can increase the value we bring to our customers and establish a new leadership position in a high growth emerging market. Our deep and focused investment in R&D ensures we can establish a differentiated technology portfolio covering a range of markets and add to a strong pipeline of opportunities with Tier 1 customers. As a result, we remain confident in our growth prospects for next year and over the medium term."
Outlook
Based on our current visibility, we anticipate revenue for Q4 2017 to be in the range of US$415 -US$455 million. At the mid-point, this will result in full year 2017 revenue up 11% year-on-year to US$1,324 million. We have a robust order backlog and we expect demand for our new products to remain strong.
In line with the revenue performance, we now expect gross margin for the full year 2017 to be slightly above the full year 2016.
Financial overview
IFRS
US$ millions | Q3 2017 | Q3 2016 | Change | 9M 2017 | 9M 2016 | Change |
Revenue | 362.8 | 345.8 | +5% | 889.3 | 832.9 | +7% |
Gross margin | 46.9% | 46.0% | +90bps | 46.2% | 45.7% | +50bps |
R&D %² | 19.9% | 18.6% | +130bps | 22.5% | 21.8% | +70bps |
SG&A %² | 9.8% | 9.6% | +20bps | 11.2% | 12.1% | -90bps |
Other operating income %² ³ | 0.0% | 0.0% | 0bps | 0.0% | 16.5% | nm |
Operating profit | 62.6 | 61.4 | +2% | 111.6 | 235.6 | -53% |
Operating margin | 17.3% | 17.8% | -50bps | 12.5% | nm | nm |
Net income | 47.3 | 46.3 | +2% | 87.5 | 206.0 | -58% |
Basic EPS $ | 0.65 | 0.62 | +5% | 1.19 | 2.74 | -57% |
Diluted EPS $ | 0.62 | 0.59 | +5% | 1.14 | 2.61 | -56% |
Cash flow from operating activities | 33.5 | 39.3 | -15% | 153.9 | 159.9 | -4% |
US$ millions | Q3 2017 | Q3 2016 | Change | 9M 2017 | 9M 2016 | Change |
Revenue | 362.8 | 345.8 | +5% | 889.3 | 832.9 | +7% |
Gross margin | 47.5% | 46.6% | +90bps | 47.0% | 46.5% | +50bps |
R&D %² | 18.7% | 17.7% | +100bps | 21.1% | 20.6% | +50bps |
SG&A %² | 7.6% | 7.7% | -10bps | 8.9% | 9.5% | -60bps |
EBITDA | 90.5 | 86.6 | +5% | 192.7 | 171.8 | +12% |
EBITDA % | 24.9% | 25.0% | -10bps | 21.7% | 20.6% | +110bps |
Operating profit | 76.6 | 73.4 | +4% | 151.3 | 136.6 | +11% |
Operating margin | 21.1% | 21.2% | -10bps | 17.0% | 16.4% | +60bps |
Net income | 62.4 | 55.5 | +12% | 124.6 | 103.8 | +20% |
Basic EPS $ | 0.85 | 0.74 | +15% | 1.68 | 1.39 | +21% |
Diluted EPS $ | 0.81 | 0.71 | +14% | 1.60 | 1.32 | +21% |
Underlying measures and free cash flow quoted in this Press Release are non-IFRS measures (see page 5).
R&D, SG&A and other operating income as a percentage of revenue.
Other operating income in 2016 includes US$137 million Atmel termination fee.
Revenue in Q3 2017 was up 5% year-on-year to US$362.8 million. On a sequential basis, revenue was up 42%. This was mostly driven by Mobile Systems which delivered record sequential Q3 revenue growth of 54%. Year-on-year, Mobile Systems was up 4% mostly due to higher sales volumes. Power Conversion was 1% below the previous year. Connectivity delivered record quarterly revenue of US$40.3 million, up 21% year-on-year on the solid performance of Bluetooth® low energy and the moderate growth in DECT products. Automotive
& Industrial was up 13% year-on-year due to higher sales volumes.
Q3 2017 gross margin was 46.9%, 90bps above Q3 2016. Q3 2017 underlying¹ gross margin was 47.5%, above the July guidance and 90bps above Q3 2016. The year-on-year increase in gross margin was primarily due to cost saving initiatives and the higher fixed cost absorption resulting from the anticipated inventory build-up.
Operating expenses (OPEX), comprising SG&A and R&D expenses, in Q3 2017 was US$107.5 million, 10% higher than Q3 2016. As a percentage of revenue, OPEX in Q3 2017 was 29.7%, representing a year-on-year increase of 150bps. Underlying¹ OPEX, comprising underlying¹ SG&A and R&D expenses, in Q3 2017 was US$95.7 million, 9% above Q3 2016. As a percentage of revenue, underlying¹ OPEX was 26.3%, representing a year-on-year increase of 90bps. On a trailing twelve month basis, underlying¹ OPEX was 27.9% of revenue, 20bps above the previous quarter.
R&D expense in Q3 2017 was up 12% from Q3 2016. As a percentage of revenue, R&D in Q3 2017 was up 130bps year-on-year to 19.9%. On an underlying¹ basis, R&D expense was up 11% from Q3 2016. As a percentage of revenue, underlying¹ R&D in Q3 2017 was up 100bps year-on-year to 18.7%. The increase in R&D expense was predominantly driven by the on-going investment in large application-specific customer opportunities as well as in programmes supporting new growth areas and the diversification of the business. The year-on-year increase in R&D as a percentage of revenue was the result of the increase in the number of R&D projects.
SG&A expense in Q3 2017 was up 7% from Q3 2016. As a percentage of revenue, SG&A in Q3 2017 was up 20bps from Q3 2016. Underlying¹ SG&A expense in Q3 2017 was up 5% from Q3 2016. As a percentage of revenue, underlying¹ SG&A was down 10bps year- on-year at 7.6%. The increase in SG&A costs was mostly due to the expansion of our sales network.
Operating profit in Q3 2017 was US$62.6 million, up 2% year-on-year. This was due to the increase in revenue and gross margin, partially offset by higher R&D expenses. Operating profit margin in the quarter was 17.3%, 50bps below Q3 2016. Underlying¹ operating profit was US$76.6 million, an increase of 4% year-on-year. This was also the result of higher underlying¹ revenue and gross margin, partially offset by higher underlying¹ operating expenses. Underlying¹ operating margin in the quarter was 21.1%, broadly in line with Q3 2016. All four operational business segments were profitable on an underlying1basis.
The effective tax rate in 9M 2017 was 22.9% (FY2016: 15.4%). The low effective tax rate in 2016 reflected the tax treatment of the US$137.3 million Atmel termination fee. The effective tax rate in Q3 2017 was 22.6%, including the effect of a credit in respect of prior years of US$1.2 million resulting from the agreement of the Bilateral Advance Pricing Agreement and other prior year items with tax authorities. The underlying¹ effective tax rate in Q3 2017 was 20.5%. Excluding the effect of the US$1.2 million credit in respect of prior years in Q3 2017, the underlying¹ effective tax rate in Q3 2017 was 22.0%, down 200bps on the FY2016 underlying¹ effective tax rate of 24.0%.
In Q3 2017, net income was up 2% year-on-year due to the higher operating profit and the lower income tax expense, partially offset by higher other finance expense. Underlying¹ net income was up 12% year-on-year as a result of higher operating profit combined with higher interest income and the lower underlying¹ income tax expense. Underlying¹ diluted EPS in Q3 2017 was up 14% year-on-year, almost three times more than revenue growth.
In line with our expectations, the inventory value increased during Q3 2017 ahead of the ramp of new products in H2. At the end of Q3 2017, our total inventory was US$187.3 million, 25% above the previous quarter and representing 87 days of inventory, an 11-day decrease from the previous quarter. During Q4 2017, we expect inventory value and days of inventory to decrease from Q3 2017.
At the end of Q3 2017, we had a cash and cash equivalents balance of US$636.2 million. Free cash flow4in Q3 2017 was US$6.7 million (Q3 2016: US$28.3 million).
On 28 July 2017, the Company entered into a US$150 million 3-year revolving credit facility. No amounts have been drawn. The facility contains various provisions, covenants and representations commensurate with such financing, including certain financial covenants. Under certain conditions, the size of the facility can be increased by a further US$75 million, and its maturity can be extended by a further year on both the first and second anniversaries. The facility is committed and available for general corporate purposes.
Free cash flow, which is a non-IFRS measure, is defined as cash flow from operating activities less capital expenditure.
Subsequent to quarter end, on 1 November 2017, the company completed the acquisition of 100% of the voting equity interests in privately-held Silego Technology Inc., the leading provider of Configurable Mixed-signal ICs (CMICs). We acquired Silego for US$276.0 million, on a cash and debt-free basis, subject to adjustments for cash and working capital. Additional consideration of up to US$30.4 million may be payable contingent on Silego's revenue for 2017 and 2018. Headquartered in Santa Clara, California with approximately 235 employees worldwide, Silego is the pioneer and market leader in CMICs which integrate multiple analog, logic, and discrete component functionality into a single chip. The acquisition of Silego Technology Inc. will complement Dialog's market leadership by increasing Dialog's content at existing customers and expanding its customer base. The breadth of the new product portfolio will strengthen the Company's presence in the IoT, computing and automotive markets.
Operational overview
During the quarter we successfully ramped the production of our latest generation of highly-integrated PMICs supporting recently launched trend setting smartphone models. Additionally, we made substantial progress on a number of PMIC designs now sampling to our top customers for products targeting production in H2 2018. These custom IC designs offer significant benefits in efficiency and power savings, encouraging a trend of increasing custom mixed signal power content across future platforms for mobile devices, computing and wearables.
Fast charging technology is a key differentiator in the highly competitive smartphone market. Dialog's Rapid Charge™ solutions for power adapters continue to be increasingly adopted by top Chinese smartphone OEMs. Dialog is leading the market with a range of AC/DC power conversion products that support most fast charging protocols. The combination of our USB-PD IC and market-leading AC/DC controller ICs create a unique complete adapter chipset solution for mobile devices.
Our Connectivity segment delivered a record quarterly revenue in Q3 2017. SmartBond™, our Bluetooth® low energy System-on-Chip (SoC) delivers one of the smallest, most power efficient Bluetooth® low energy solutions ("BLE") available in high volume production today. We continue to invest in BLE innovation to ensure our product portfolio expands and evolves with the market needs. This is helping to drive adoption of the technology across a wide range of new applications, including automotive where during the quarter we entered production with both a European and Chinese automotive OEM for Tyre Pressure Monitoring Systems (TPMS).
Our latest SmartBeat™ wireless Audio IC, DA14195, continues to gain attention in the market achieving the first major OEM design win for a consumer headset application during the quarter. This technology enables a new immersive headset experience and supports both wired USB 3.0 Type-C™ and Bluetooth® based consumer headsets. The DA14195 is being evaluated by a number of leading consumer brands for gaming and USB Type-C™ headsets.
During the quarter, the Company invested an additional US$15.0 million in Energous, a NASDAQ-listed wireless charging technology company. The total amount invested in Energous is now US$25.0 million. As part of the agreement signed in November 2016 with Energous, Dialog became the exclusive component supplier of their WattUp® RF wireless charging ICs with Energous leveraging Dialog's distribution channels and customer relations to accelerate market adoption. During Q3 2017, early customer engagements continued to progress towards commercial production starting next quarter. Additionally, we announced a GaN based reference design enabling increased efficiency and higher output power designs of up to 10 watts.
Dialog Semiconductor plc published this content on 07 November 2017 and is solely responsible for the information contained herein.
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