InvenSense, Inc. (INVN) reported first-quarter 2014 earnings per share of 12 cents, in line with the Zacks Consensus Estimate.
Revenues
The company reported revenues of $55.9 million, up 1.3% sequentially, 42.6% year over year and just above management’s guidance of $53–$55 million. The sequential increase was due to strong demand for smartphones and tablets.
In the first quarter, smartphones and tablets represented 77% of the company’s market, gaming accounted for 3% and all other segments, including imaging represented the remaining 20% of the total market.
Margins
Reported gross margin for the quarter was 52.4%, up 240 bps sequentially but down 270 basis points (bps) year over year. Higher-than-expected volumes and an improved mix drove sequential increase in gross margins.
Operating expenses (SG&A and R&D) of $17.3 million were up 45.4% from $11.9 million in the year-ago quarter. The reported operating margin was 21.6%, down 310 bps from the year-ago quarter margin of 24.7%. Selling, general and administrative (SG&A) expenses increased as a percentage of sales, while research and development (R&D) expenses remained flat year over year.
The quarter’s GAAP net income was $10.3 million or earnings per share of 12 cents compared with $7.7 million or 7 cents in the year-ago quarter. As there are no special items other than stock-based compensation expenses, adjusted net income was the same as GAAP income compared with $7.7 million or 9 cents a share in the year-ago quarter.
Balance Sheet
The company ended the first quarter with cash and short-term investments balance of $1.70 billion, down from $1.78 million in the prior quarter. Trade receivables were $31.9 million, up from $30.1 million in the prior quarter.
During the quarter, cash flow from operations was $6.4 million, capex was $4.0 million and free cash flow was $2.4 million.
Guidance
For the second quarter of 2014, InvenSense expects total revenue in the range of $68–$70 million, representing a sequential increase of more than 20% at the mid-point. On a GAAP basis, gross margins are expected in the range of 52%-53%.
The company expects GAAP operating expenses of $17.1 million and non-GAAP operating expenses of $14.4 million. GAAP operating margin is expected in the range of 28%-29% and around 31% on a non-GAAP basis.
GAAP earnings per share are expected to be in the range of 18 cents to 19 cent, while non-GAAP earnings per share are likely to be in the range of 19 cents to 20 cents.
Conclusion
InvenSense, a leading provider of MotionTracking devices reported a decent first quarter, with both revenues and earnings above the prior quarter figures.
Management also gave a strong second quarter guidance, which indicates improving demand visibility. We believe that the company’s new products, design wins with its 2-axis OIS products and strong demand for smartphones and tablets were all positives in the quarter.
Additionally, with technological advancements, demand for smartphones, tablets, console and portable video gaming devices, digital still and video cameras, smart televisions, 3D mice, and navigation devices is growing exponentially. InvenSense’s chips target all these categories of electronic gadgets and hence we believe that it will witness increased product demand.
Currently, InvenSense shares have a Zacks Rank #2 (Buy). Other stocks that are performing well at current levels include SanDisk Corp. (SNDK), Syntel Inc. (SYNT), and Gartner Inc. (IT), all carrying a Zacks Rank #1 (Strong Buy).
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