Earnings Transcript for LEDS - Q4 Fiscal Year 2013

Executives: Erica Mannion – IR Trung Doan – President and CEO Timothy Lin – Interim CFO

Operator: Welcome to the SemiLEDs' Fiscal Fourth Quarter Financial Results Conference Call for the quarter ending August 31, 2013. This call is being webcast live on the Events and Presentations page of the Investors section of SemiLEDs' website at www.semileds.com. This call is a property of SemiLEDs and any recording, reproduction or transmission of this call without the expressed written consent of SemiLEDs is strictly prohibited. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the Investors section of the SemiLEDs' website, and visiting the Events and Presentations page. I would now like to turn the call over to Erica Mannion of Sapphire Investor Relations, Investor Relations for SemiLEDs.

Erica Mannion: Good morning. Thank you for joining us to discuss SemiLEDs' financial and operating results for the fiscal fourth quarter 2013. With me today are, Trung Doan, Chairman, President and CEO and Tim Lin, Interim Chief Financial Officer. Today, Trung will begin with a brief overview of industry dynamics and details of the fourth quarter and Tim will close the call with a review of the fiscal Q4 financial results. We will not be taking questions in today’s call. On the call today, you may hear forward-looking statements about events and circumstances that have not yet occurred. Actual outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties. Please refer to the Company's recent SEC filings at the SEC's website at www.sec.gov for detailed discussions of relevant risks and uncertainties. The Company undertakes no responsibility to update this information in this conference call under any circumstance. The press release distributed today that announced the Company's results is available on the Company's website at www.semileds.com in the Investors section under financial press releases. The current report on Form 8-K furnished with respect to our press release is available on the Company's website in the Investors section under SEC Filings and on the SEC's website. You'll also hear discussions of non-GAAP financial measures. Reconciliation of these non-GAAP measures to the most comparable GAAP financial measures are contained in the press release distributed today, and available on the Company's website. Now, I will turn the call over to Trung Doan, Chairman, President and CEO. Trung, please go ahead.

Trung Doan: Good morning and thank you for joining our call today to discuss our fiscal fourth quarter and full-year 2013 results. As you saw in the press release, we disseminated earlier this morning, our revenues come in at $3.4 million. About a year ago, we made a conscious decision to change our strategy and refocus the business on profitable segments within niche markets such as UV while we still sell chips and components we continue to lower our dependence on general lighting chips. As this market is becoming increasing commoditized - is that, we have focused the business on more profitable segment of the value change such as components and lightings products. We believe this change in strategy will allow us to substantially improve our bottom-line and gross margin. Over the past year, we have been looking on, looking at ensuring on human and financial resources and as such, our focus on achieving this long-term goal. But grow our China distribution channel by adding several new associations and distance ourselves from unprofitable business by focusing on niche market opportunities. With regard to manufacturing resources, as our part of mix evolves, we have and we will continue to invest in our component manufacturing assets in an effort to have a valuable conclusion, we recently acquired an additional LED component production line and added an array of new LED component products and related technology to our existing products and technology portfolios. We believe, with our current LED chip technology together with this new LED component technology will provide an advantage in the niche markets we target. As an example of the steps we are taking to develop new products for these higher value markets, we announced our 10 watts and 63 RGBW integrated 6363 LED, which deliver of a - total lumens of combined red, green, blue and white light output, designed for a wide range of color-changing applications including entertainment, large-scale displays and architectural lighting. The M63 RGBW bring together for the first time SemiLEDs vertical white chip and ceramic packaging technologies with the industry trend through high integration to reduce component count and simplified designs. The M63 RGBW represents a great example of how SemiLEDs is drawing on this technology and system level expertise to create unique products for the market. As we look out to next quarter and the year ahead, we remain optimistic about the opportunity in the market and the prospects that represents. Above all, our strategy remains the same. We are committed to a profitable growth by focusing on niche markets, like UV and architectural lightings where our differentiated products offering enable us to earn higher margins on our products. I thank you for your time today and your interest in SemiLEDs. Now, I will turn the call over to Tim, so he can review the financial results in more detail.

Timothy Lin: Thank you, Trung and thanks everyone who are joining us today. As a reminder, I am referring to our fiscal quarters and fiscal full-year as I walk through the financials. I will begin by walking through the details for our fiscal fourth quarter and provide a summary of the year-end financials. For the fourth quarter of 2013, revenue was $3.4 million, for the full-year 2013, revenues were $18 million. Revenues attributable to the sale of our LED chips decreased 7% sequentially and decreased 30% for the full-year compared to 2012. LED chip revenues represent approximately 27% of our total revenues in the fourth quarter and 30% of our total revenues for the full-year. Revenues attributable to the sale of our LED components decreased 25% sequentially and decreased 53% year-over-year, representing approximately 34% of our revenues in the fourth quarter and 39% of our revenues for the full-year. Revenues from our lighting products increased 13% sequentially, but decreased 5% year-over-year representing approximately 29% of our revenues in the fourth quarter and 23% of our revenues for the full-year. GAAP net loss attributable to SemiLEDs stockholders was $17.9 million for the quarter, which compares to a loss of $11 million in the third quarter of 2013 and a loss of $24.6 million in the fourth quarter of 2012. GAAP diluted net loss per share for the fourth quarter was $0.64, which compares to a loss of $0.40 in the third quarter of 2013 and to a loss of $0.90 in the fourth quarter of 2012. This quarter, GAAP net loss attributable to SemiLEDs stockholders includes an impairment charge on long-lived assets of $10.1 million. The impairment charge was triggered mainly by significant underutilization of our manufacturing facilities for a sustained period of time. This requires us to reassess our long-lived assets for potential further impairments. Taking into consideration a third-party independent valuation, we determined the revised fair value of our long-lived assets. The impairment charge was primarily allocated to machinery and equipment used in the manufacturing of LED epitaxial wafers and chips. GAAP net loss attributable to SemiLEDs stockholders for the full-year of 2013 was $43.7 million, which compares to a loss of $49.5 million for the full-year of 2012. GAAP diluted net loss per share for the full-year was $1.58, compared to a loss of $1.80 for the full-year of 2012. On a non-GAAP basis, net loss attributable to SemiLEDs stockholders was $7.3 million for the quarter, which compares to a loss of $6.6 million in the third quarter of 2013 and a loss of $16.6 million in the fourth quarter of 2012. Non-GAAP diluted net loss per share for the quarter was $0.26, compared to a loss of $0.24 last quarter and a loss of $0.60 for the fourth quarter of 2012. Non-GAAP net loss for the fourth quarter of 2013 exclude stock-based compensation expense of $523,000 and an impairment charge on long-lived assets of $10.1 million net of related taxes. On a non-GAAP basis, net loss attributable to SemiLEDs stockholders for the full-year of 2013 was $27.8 million, which compares to a net loss of $37.8 million for the full-year 2012. Non-GAAP diluted net loss per share for the full-year was $1.01, compared to a loss of $1.38 for the full-year of 2012. Non-GAAP net loss for the full-year of 2013 excludes stock-based compensation expense of $2 million and impairment charges on long-lived assets, goodwill and investments in the aggregate of $13.9 million net of related taxes. SG&A expenses were $2.9 million for the quarter, which represents a $752,000 sequential increase due to the write-off of certain property, plant and equipment and an increase in bad debt expense. SG&A expenses were $11.4 million for the full-year of 2013, which represents a decrease of $2.9 million compared to the full-year of 2012, primarily due to lower professional service expenses for legal and advisory services, a decrease in stock-based compensation expense for our directors and decreases in various other expenses as a result of our cost reduction initiatives. R&D expenses were $1.2 million for the quarter, which is approximately flat compared to the third quarter 2013. R&D expenses were $4.6 million for the full-year of 2013, which represents a decrease of $2.9 million compared to the full-year of 2012. Gross margin for the fourth quarter was negative 103%, which compares to negative 129% in the previous quarters. Gross margin for the full-year was negative 82%, compared to negative 19% for the same time period last year. Moving to the balance sheet, as of August 31, 2013, working capital was $37.4 million, cash and cash equivalents were $36.3 million, compared to the cash and cash equivalents of $41.4 million in the third quarter of 2013. Next quarter we expect cash use to increase due to the recent acquisition of an additional LED component production line and an added array of new LED component products and related technologies as Trung mentioned earlier. Days sales outstanding were 59 days as compared to 66 days for the prior quarter. Inventory days on hand were 137 days, compared to 106 days at the end of the prior quarter. Inventory was $10.5 million at August 31, 2013, a sequential increase of $1 million from the third quarter, primarily as we carry a higher level of component inventories. Cash used in operations during the fourth quarter was $4.7 million, compared to $2.3 million in the previous quarter. We spent approximately $83,000 on capital expenditures in the fourth quarter. This resulted in free cash flow of negative $4.7 million. As a reminder, we define free cash flow as cash provided by operations, less capital expenditure. Cash used in operations during the full-year of 2013 was $14.5 million, compared to $15.8 million for the full-year 2012 including capital expenditures of $2.7 million, the free cash flow for the full-year of 2013 was negative $17.2 million, compared to negative $27.3 million for the full-year 2012. Now I will provide guidance for our fiscal first quarter. We expect revenues to be approximately $3.5 million, plus or minus 10% and GAAP gross margin to continue to be negative for the quarter as we will not fully utilize our production capacity. GAAP net loss attributable to SemiLEDs stockholders for the first quarter is expected to be approximately $7.5 million. GAAP EPS is expected to be approximately negative $0.27 per diluted share. The diluted shares outstanding count is estimated at 27.8 million. This concludes our formal comments. Thank you everyone for your continued interest and taking the time to join the call today. I will now hand the call over to the operator for closing. Operator?

Operator: This does conclude today’s conference. Thank you for your participation.