DGAP-News: Dialog Semiconductor Plc. / Key word(s): Quarter Results
London, UK, 30 July 2019 - Dialog Semiconductor Plc (XETRA: DLG), a provider of highly integrated power management, Configurable Mixed-signal IC, AC/DC, solid state lighting and Bluetooth(R) low energy wireless technology, today reports unaudited results for the second quarter ended 28 June 2019.
Q2 2019 Financial highlights
- Revenue of US$482 million including US$146 million one-off license revenue. Underlying1 revenue of US$336 million, slightly above the high end of the guidance range and 14% above Q2 2018.
- Gross margin at 64.7% (Q2 2018: 48.0%) and underlying1 gross margin at 49.7% (Q2 2018: 48.3%) in line with the May guidance.
- Operating profit of US$217.0 million, over eight times higher than in Q2 2018. Underlying1 operating profit of US$82.1 million, 95% above Q2 2018.
- All segments were profitable.
- Diluted EPS of US$2.20 (Q2 2018: US$0.23) and underlying1 diluted EPS of US$0.86 (Q2 2018: US$0.45).
- Q2 cash flow from operating activities of US$300.1 million (Q2 2018: US$55.6 million). US$290.3 million of free cash flow1 generated in Q2 2019 (Q2 2018: US$36.5 million). US$1,141 million of cash and cash equivalents at 28 June 2019, US$604 million above 29 June 2018.
- On 8 April 2019, the Company completed the transaction with Apple to license certain power management technologies and transfer certain assets and over 300 employees.
- On 31 May 2019, the Company completed the acquisition of Silicon Motion's mobile communications product line ("FCI") including Ultra-Low-Power Wi-Fi, extending its position in IoT connectivity.
- US$112 million returned to shareholders in Q2 2019 through the 2018 Buyback Programme.
- On 5 June 2019, the Company announced a new share buyback tranche under the 2019 Buyback Programme for an amount between EUR125 million and EUR150 million.
- On 22 July 2019, the Company announced an update to its reporting segments, reducing the number from four to three: Custom Mixed Signal, Advanced Mixed Signal and Connectivity & Audio.
Q2 2019 Operational highlights
- Continued design win momentum at our largest customer for the development and supply of mixed-signal integrated circuits. Revenue from the new contracts is expected to be realized over the course of the next three years.
- Maintained a commanding market share in the smartphone rapid charge segment. Adoption of the USB Power Delivery ("USB PD Type-C") standard continues to accelerate in mobile devices. Q2 2019 revenue from our AC/DC charging products was up 52% sequentially, led by growth in rapid charge products.
- Launched the first Configurable Mixed-signal Integrated Circuit (CMIC) incorporating Dialog's differentiated IP, an industry-leading LDO regulator with the lowest noise performance, ideal to power advanced camera and sensor systems.
- Increasing our footprint in the IoT end market with our Bluetooth(R) low energy products, delivering 26% year-on-year revenue growth.
- As part of our IoT connectivity strategy Dialog launched its first Wi-Fi SoC targeted at battery-powered IoT devices enabling direct connectivity to Wi-Fi networks, while typically supporting a battery power lifetime greater than one year.
- Expanded our product portfolio with a family of highly-integrated audio codec chips that deliver best-in-class active noise cancellation ("ANC") to the rapidly-growing wireless headphones market.
- In support of Dialog's growth strategy, on 22 July 2019, the Company communicated an update to its organisational structure including the appointment of Alex McCann as Senior Vice President Global Operations.
Commenting on the results, Dialog Chief Executive, Dr Jalal Bagherli, said:
"This has been an excellent quarter, one where we have delivered revenue growth above the high-end of the guidance range, significantly improved operating profit and strong cash flow generation. Revenue from products in Custom Mixed Signal not covered by the agreement with Apple trebled year-on-year and we continued to increase our footprint in the IoT end-market as our Bluetooth low energy and new audio products delivered another quarter of strong year-on-year growth."
We have a healthy customer design-in pipeline and a robust financial position which is allowing us to make targeted investments to expand our product portfolio and leverage our technology into new markets. These investments are helping to build a vibrant mixed-signal business with a more balanced exposure to fast growing end-markets and create value for shareholders."
1 Underlying measures and free cash flow quoted in this Press Release are non-IFRS measures (see page 5).
In Q3 2019, we anticipate revenue to be in the range of US$360 million to US$400 million. Q3 2019 underlying1 gross margin is expected to be broadly in line with Q2 2019.
As we enter the second half of the year, FY 2019 underlying1 revenue is now expected to decline from FY 2018 by mid-single digit percentage points and to be second half weighted. FY 2019 underlying1 gross margin is expected to be above that achieved in FY 2018.
IFRS basis (unaudited)
1 Underlying measures and free cash flow quoted in this Press Release are non-IFRS measures (see page 5).
Revenue in Q2 2019 was 63% above Q2 2018 at US$482 million, including the license revenue relating to the Apple agreement: a one-off license revenue of US$146 million and US$6 million of ongoing license revenue. The license revenue related to the Apple agreement was reported in Corporate. Underlying1 revenue in Q2 2019 was 14% above Q2 2018 at US$336 million, including the ongoing license revenue. Custom Mixed Signal and Connectivity & Audio were the main drivers of the strong underlying1 revenue performance in the quarter. Custom Mixed Signal underlying1 revenue was US$219 million, up 13% over Q2 2018 due to higher volumes and content per device across multiple platforms, partially offset by the reduced share of volume from Apple for the main PMIC for the 2018 smartphone platform, as announced in May 2018. Underlying1 revenue in Custom Mixed Signal from products not covered by the licensing agreement with Apple trebled year-on-year to US$64 million (Q2 2018: US$21 million). In Q2 2019, Advanced Mixed Signal underlying1 revenue was 1% above Q2 2018. Revenue from AC/DC charging products was up 52% sequentially, led by growth in rapid charge, but below Q2 2018. This was offset by good growth of LED backlighting products. Connectivity & Audio underlying1 revenue was 25% above Q2 2018 as a result of the strong performance of Bluetooth(R) low energy and the new audio products.
Q2 2019 gross margin was 64.7%, significantly above Q2 2018 due to the positive contribution from the license revenue as well as favourable product mix and lower manufacturing costs. Q2 2019 underlying1 gross margin was 49.7%, 140 basis points above Q2 2018, due to the positive contribution from the ongoing license revenue (Q2 2019: US$6 million; Q2 2018: nil) as well as favourable product mix and lower manufacturing costs.
Operating expenses (OPEX) comprising SG&A and R&D expenses, in Q2 2019 were 6% above Q2 2018 at US$123.7 million, or 25.7% of revenue (Q2 2018: 39.5%). The increase in OPEX was mainly due to US$8 million of transaction related costs reported in SG&A and the first time consolidation of FCI into the group. Underlying1 OPEX in Q2 2019 was down 3% year-on-year to US$98.0 million, or 29.2% of revenue (Q2 2018: 34.2%). The year-on-year decrease in underlying1 OPEX was mostly due to lower R&D expenses partially offset by the first time consolidation of FCI into the group.
R&D expenses in Q2 2019 were 3% below Q2 2018 at US$75.6 million (Q2 2018 US$78.3 million). The reduction in R&D expenses were mainly due to the transfer of over 300 employees to Apple on 8 April 2019. As a percentage of revenue, R&D in Q2 2019 was significantly below Q2 2018 at 15.7% (Q2 2018: 26.5%) due to the higher revenue and lower R&D expenses. On an underlying1 basis, R&D expenses were down 5% year-on-year to US$67.5 million (Q2 2018 US$71.0 million). This includes savings from the transfer of employees to Apple. As a percentage of revenue, underlying1 R&D in Q2 2019 was 390bps below Q2 2018 at 20.1% (Q2 2018: 24.0%), as a result of the higher revenue and the lower R&D expenses.
SG&A expenses in Q2 2019 were up 26% from Q2 2018 to US$48.2 million (Q2 2018 US$38.4 million). This increase was mainly due to US$7.6 million of transaction costs relating to the licensing agreement with Apple and the acquisition of FCI. As a percentage of revenue, SG&A in Q2 2019 was 300bps below Q2 2018 at 10.0% (Q2 2018: 13.0%) due to the higher revenue. Underlying1 SG&A in Q2 2019 was 1% above Q2 2018 at US$30.5 million (Q2 2018: US$30.2 million) due to the first time consolidation of FCI into the group. As a percentage of revenue, underlying1 SG&A was 110bps below Q2 2018 at 9.1% (Q2 2018: 10.2%) due to the higher revenue.
Other operating income in Q2 2019 was US$28.9 million (Q2 2018: US$1.0 million), comprised of a one-time US$16.0 million gain on the transfer of assets and US$12.5 million income from engineering contracts, both relating to the Apple license agreement. Underlying1 other operating income in Q2 2019 was US$13.0 million, materially above Q2 2018 (Q2 2018: US$0.5 million) due to the income from engineering contracts relating to the Apple license agreement.
Operating profit in Q2 2019 was US$217.0 million, materially above Q2 2018, mainly reflecting the higher revenue and other operating income partially offset by transaction related costs. Operating profit margin in the quarter was 45.0%, also materially above Q2 2018, mainly due to the higher revenue and gross margin combined with higher other operating income. Underlying1 operating profit was US$82.1 million, 95% above Q2 2018 mainly due to the higher revenue and other operating income, as well as lower OPEX. Underlying1 operating margin in the quarter was 24.4%, 10.2 percentage points higher than Q2 2018 (Q2 2018: 14.2%).
The effective tax rate in H1 2019 was 22.9% (H1 2018: 35.9%) and in Q2 2019 was 22.0% (Q2 2018: 34.5%). The relatively high effective tax rates for H1 2018 and Q2 2018 are principally due to the distorting effect on our income tax expense of the tax and accounting treatments of share-based compensation, business combinations and certain of our strategic investments. The underlying1 effective tax rate in Q2 2019 was 20.5%, down 50bps on the Q2 2018 underlying1 effective tax rate of 21.0%.
In Q2 2019, net income was materially above Q2 2018 to US$170.1 million (Q2 2018: US$18.1 million). This increase was mostly due to the increase in operating profit. The higher interest income in the quarter of US$6.5 million (Q2 2018: US$2.3 million) reflects the higher average cash balance and higher US dollar interest rates. Interest expense of US$3.1 million was also higher than in Q2 2018 (Q2 2018: US$0.7 million) due to the interest on lease liabilities recognised under IFRS 16 and US$1.8 million interest expense recognised in relation to the US$300 million prepayment received from Apple. Other finance expense was US$2.4 million, compared to an income of US$0.3 million in Q2 2018. In Q2 2019, we recognised a net currency translation loss on monetary assets and liabilities of US$1.7 million. Underlying1 net income was up 89% year-on-year. The year-on-year increase in underlying1 net income was mainly driven by the underlying1 operating profit movement. Diluted EPS in Q2 2019 was materially up year-on-year to US$2.20 (Q2 2018: US$0.23). Underlying1 diluted EPS in Q2 2019 was up 91% year-on-year.
At the end of Q2 2019, our total inventory level was US$156 million, broadly in line with the previous quarter (or ~83 days), representing a 11-day decrease in our days of inventory from Q1 2019. This includes approximately US$4 million of inventory from FCI. During Q3 2019, we expect inventory value to increase from Q2 2019 due to seasonality and days of inventory to be below Q2 2019.
On 31 May 2019, the settlement of the 2018 Share Buyback Programme took place. The Company purchased 3,941,852 ordinary shares at an average price of EUR25.37 for a total amount of EUR100 million (US$112 million). On 5 June 2019, the Company announced a new tranche under the 2019 Share Buyback Programme for an amount between EUR125 million and EUR150 million and a latest maturity date of 5 December 2019.
At the end of Q2 2019, we had a cash and cash equivalents balance of US$1,141 million. Cash flow from operating activities in Q2 2019 was US$300.1 million, over five times higher than in Q2 2018 (Q2 2018: US$55.6 million) mainly as a result of the closing of the Apple license agreement on 8 April 2019. Free cash flow in Q2 2019 was US$290.3 million, almost eight times higher than Q2 2018 (Q2 2018: US$36.5 million) mostly due to the higher cash flow from operating activities. Free cash flow margin (as a percentage of revenue) in Q2 2019 was above Q2 2018 at 60.2% (Q2 2018: 12.4%).
On 8 April 2019, the Company completed the agreement with Apple receiving US$300 million in respect of the license arrangement and US$300 million prepayment in relation to future purchase of products.
In support of our IoT connectivity strategy, on 31 May 2019, the Company completed the acquisition of Silicon Motion's mobile communications business ("FCI"). Dialog funded the US$45 million purchase price in an all-cash transaction from its balance sheet.
1 Underlying measures and free cash flow quoted in this Press Release are non-IFRS measures (see page 5).
Dialog is a fabless semiconductor company primarily focused on the development of highly-integrated mixed-signal products for consumer electronics and other high-growth markets. Our highly-skilled engineers, partnership approach, operational flexibility and the quality of our products are sources of competitive advantage. Our primary end markets are consumer markets such as the Internet of Things (IoT) and Mobile. The increasing adoption of standard technologies, such as Bluetooth(R) low energy or LED lighting, and the expansion of high-performance processors into infotainment systems, has contributed to the expansion of our presence in the automotive segment. In line with our strategic goals, we intend to continue with the expansion of our product portfolio through a combination of organic and inorganic initiatives. Our ambition is to build a vibrant mixed-signal business, with a balanced end market exposure, built on innovative low power products which enable our customers to get to market fast.
Custom Mixed Signal
On 8 April 2019, the Company closed the transaction with Apple to license certain power management technologies and transfer certain assets to Apple. Additionally, more than 300 Dialog professionals became Apple employees. According to the agreement signed in October 2018, Dialog received $600 million in total, consisting of a payment from Apple of $300 million in cash for the transaction and a prepayment of $300 million for Dialog products to be delivered over the next three years. Dialog has also been awarded a broad range of new contracts from Apple for the development and supply of other mixed-signal integrated circuits. Revenue from the new contracts is expected to be realized over the course of the next three years.
In parallel, we continue to leverage our power management technology into new markets and geographies through the expansion of our platform reference designs. The collaborations with Renesas and Xilinx strengthen Dialog's presence in the automotive segment. There are currently over 40 automotive customer engagements in place which are expected to go into production over the next three years.
Advanced Mixed Signal
We expect market adoption of new charging technologies, like USB PD Type-C, to continue during the next quarter. In Q2 2019, revenue from our AC/DC charging products grew 52% sequentially, led by growth in rapid charge. Dialog has successfully maintained a commanding market share in the rapid charge market through a combination of differentiated technology, speed of execution and wide support of rapid charge protocols. Our RapidCharge(TM) solutions for power adapters had approximately 60% share2 of the rapid charge adapter market for smartphones at the end of 2018.
Our broad product portfolio, which includes LED backlighting and Solid-State Lighting (SSL) LED driver ICs, and proprietary digital control technology for power conversion, enable high quality solutions at a low cost. LED backlighting performed strongly during Q2 2019, contributing to the expansion of our customer base in the high-end TV market, as well as targeting the mobile and automotive display markets over the medium term. We have started our first engagement to develop a custom chip based on our LED backlight technology for an automotive tier 1 supplier as well complex LED drivers for notebook screens.
With over 4.0 billion CMICs having been shipped since launch, Dialog's configurable technology, including the highly successful GreenPAK(TM) product family, has become established as the leading choice in the market. Low power consumption and in-system programming enables customers to rapidly customise and integrate multiple analog, logic and discrete components into a single chip. In Q2 2019, we launched a new CMIC device with industry-leading LDO regulator with the lowest noise performance, ideal to power advanced camera and sensor systems. This new device is part of our strategic objective of bringing Dialog's low power IP into the CMIC, increasing its use cases and the value it brings to our customers. This product was sampled to major customers, and already has seven mobile phone sockets secured in Japan, Taiwan and the United States. We are looking to release to the broader market and customers in Q3 and expect further design-ins at high end DSLR Cameras as well as smartphones to follow in second half 2019. This technology will contribute to the expansion of our customer base and strengthen our presence in IoT, mobile computing and automotive.
Connectivity and Audio
Revenue from our SmartBond(TM) System-on-Chip (SoC) was 26% above Q2 2018, due to the ramp of new products from customers in Korea and China. The DA1469x family, the latest addition to Dialog's SmartBond line, was adopted by Samsung's Galaxy Fit fitness tracker. Our most advanced SmartBond product enables the Galaxy Fit seamless smartphone connectivity while conserving energy to extend battery life. The Bluetooth(R) low energy market is estimated to grow at 19% CAGR over the 2018-2022 period3, a reflection of the continuing adoption of the technology across a wide range of applications. Our strategy remains focused on targeted verticals, like wearables, proximity tags, smart home, gaming accessories and connected health. Building on our success in fitness trackers, we are extending our market presence into new areas such as new digital watch designs in China incorporating our Bluetooth low energy solutions.
In support of our IoT connectivity strategy and following the closing of the acquisition of FCI we launched the first low-power Wi-Fi device in our new VirtualZero(TM) product line. The FC9000 complements our existing portfolio of leading Bluetooth low energy SoC's for connected devices and is the first in a series solving major pain points for both manufacturers and end-users around IoT network compatibility and power consumption. Venstar, a leading energy management system supplier and one of the largest global thermostat suppliers, is utilizing the FC9000 enabling its customers reliable Wi-Fi sensors and over a year of battery life.
New audio technology performed strongly during Q2 2019, delivering more than twice as much revenue as in Q2 2018. The Connectivity Segment is targeting the consumer headset market with our SmartBeat(TM) wireless Audio IC. This technology enables a new immersive headset experience and supports both wired USB 3.0 Type-C(TM) and Bluetooth(R) based consumer headsets. In Q2 2019, we announced the DA740x, a family of highly-integrated audio codec chips that deliver best-in-class active noise cancellation ("ANC"), providing optimal audio performance in any environment to the rapidly-growing wireless headphones market.
2 Source: Company estimates.
Underlying measures of performance and free cash flow quoted in this press release are non-IFRS measures. Our use of underlying measures and reconciliations of the underlying measures to the nearest equivalent IFRS measures are presented in Section 3 of the Q2 2019 Interim report. For ease of reference, we present below reconciliations for the non-IFRS measures quoted in this press release:
Accounting for business combinations
Free cash flow
On 22 July the Company published an update on organisational structure and segment information. On Table 1, the revenue figures for the year ended 31 December 2017 for Advanced Mixed Signal and Connectivity & Audio were incorrectly placed. Advanced Mixed Signal should have shown (in US$000) US$147,603 and Connectivity & Audio US$137,834.
Dialog Semiconductor invites you today at 09.30 am (London) / 10.30 am (Frankfurt) to take part in a live conference call and to listen to management's discussion of the Company's Q2 2019 performance, as well as guidance for Q3 2019. Participants will need to register using the link below. A full list of dial in numbers will also be available. To register for the webcast and receive dial in numbers, the conference PIN and a unique User ID please click on the link below:
In parallel to the call, the presentation will be available at:
The presentation will also be available under the investor relations section of the Company's website at:
A replay will be posted on the Dialog website four hours after the conclusion of the presentation and will be available at:
The full release including the Company's condensed consolidated income statement, consolidated balance sheet, consolidated statements of cash flows and financial notes for the quarter ended 28 June 2019 is available under the investor relations section of the Company's website at:
Dialog, the Dialog logo, SmartBond(TM), RapidCharge(TM), SmartBeat(TM), VirtualZero(TM) are registered trademarks of Dialog Semiconductor Plc or its subsidiaries. All other product or service names are the property of their respective owners. (c) Copyright 2019 Dialog Semiconductor Plc. All rights reserved.
For further information please contact:
FTI Consulting London
FTI Consulting Frankfurt
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) Low Energy, 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. It currently has approximately 2,000 employees worldwide. In 2018, it had approximately US$ 1.44 billion in revenue. The company is listed on the Frankfurt (XETRA: DLG) stock exchange (Regulated Market, Prime Standard, ISIN GB0059822006) and is a member of the German TecDax and MDAX indices.
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 "Managing risk and uncertainty" 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.
Director, Investor Relations
30.07.2019 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.
|Company:||Dialog Semiconductor Plc.|
|Tower Bridge House, St. Katharine's Way|
|E1W 1AA London|
|Phone:||+49 7021 805-412|
|Fax:||+49 7021 805-200|
|Listed:||Regulated Market in Frankfurt (Prime Standard); Regulated Unofficial Market in Berlin, Dusseldorf, Hamburg, Hanover, Munich, Stuttgart, Tradegate Exchange|
|EQS News ID:||848429|
|End of News||DGAP News Service|