Exar Corporation Announces First Quarter Fiscal Year 2016 Financial Results

First Quarter Non-GAAP Operating Profit of $5.3 Million and EPS of $0.10

FREMONT, Calif., Aug. 4, 2015 /PRNewswire/ -- Exar Corporation (NYSE: EXAR) a leading supplier of analog mixed-signal semiconductor components and system solutions serving the industrial and embedded, high-end consumer and infrastructure markets, today announced financial results for the Company's first fiscal quarter of 2016, which ended on June 28, 2015.

First Quarter Fiscal Year 2016 Highlights

  • For the first fiscal quarter, the Company reported revenue of $40.4 million, an increase of 24% versus the same quarter in the prior year. Prior year revenue has been adjusted to eliminate the impact of deferred revenue write-down under business combination accounting.
  • On a non-GAAP basis, gross margin was 49.5%, and operating income was $5.3 million, or 13.0% of revenue. Non-GAAP earnings per diluted share (EPS) was $0.10, up from $0.02 in the prior year.
  • GAAP gross margin was 43.1% and net operating loss was $2.3 million. GAAP loss per diluted share was $0.05.

Louis DiNardo, Exar's President and CEO, commented, "Clearly the semiconductor industry was impacted in the June quarter by a weakening demand environment and resulting inventory correction, however we were able to meet our expectations for the quarter." Mr. DiNardo continued, "While the near-term will likely be impacted by global uncertainties, we are confident in what we have achieved with new product development and innovative mixed signal solutions.  This is evident as the new design wins for our advanced products are strong."

In the first quarter of fiscal 2016, the Company continued to introduce innovative new products and win major opportunities, including:

  • Force Sensor Interface – The XR10910 Force Sensor Interface is a highly integrated analog sensor front end (AFE) that provides calibration of sensor outputs designed specifically for industrial, consumer, and Internet of Things (IoT) force sensing applications.  Mr. DiNardo commented, "The XR10910 is a ground-breaking product which puts us firmly ahead of our competition in the force sensing area.  We have developed a healthy pipeline of opportunities and we have our first high profile design wins in the fast moving consumer field which will begin shipping this quarter."
  • Point-of-Load – The XR76203/05/08 are new additions to the PowerBlox family, extending the input voltage of the portfolio to 40V to address industrial and automotive applications. The PowerBlox portfolio of DC-DC regulators offers exceptional line regulation and efficiency, using Exar's proprietary emulated current mode Constant On-Time (COT) control loop and addressing industrial and computing markets. Mr. DiNardo commented, "We have secured our first major server design win with a 15 and 20A PowerBlox solution and expect production to begin during the second half of the year."
  • Display Solutions – The iML2911 GVCOM, common mode voltage amplifier, provides the next generation in performance and energy savings for tablets and notebooks. The device results in a 50% saving of energy for still images and 25% to 30% savings for dynamic display images without affecting the quality.

Mr. DiNardo continued, "While we see modest growth in end customer demand, our outlook in the near term reflects the macro economic uncertainties and resulting inventory correction."

For the second quarter ending September 27, 2015, the Company expects revenue to decline sequentially 5% to 9%, non-GAAP Gross Margin to be in the range of 48% to 50%, and non-GAAP EPS on a fully diluted basis to be in the range of $0.06 to $0.09.  

Conference Call and Prepared Remarks

Exar is providing a copy of prepared remarks in combination with its press release. These remarks are offered to provide stockholders and analysts with additional time and detail for analyzing results in advance of the Company's quarterly conference call. The remarks will be available at Exar's Investor webpage in conjunction with the press release.

As previously scheduled, the conference call will begin today, August 4, 2015 at 4:45 pm EDT (1:45 p.m. PDT). The prepared remarks will not be read on the call. To access the conference call, please dial (719) 325-2308 or (888) 539-3678.  In addition, a live webcast will be available on Exar's Investor webpage.

An archive of the conference call webcast will be available on Exar's Investor webpage after the conference call's conclusion.

About Exar

Exar Corporation designs, develops and markets high performance integrated circuits and system solutions for the industrial & embedded systems communications, high-end consumer and infrastructure markets. Exar's broad product portfolio includes analog, display, LED lighting, mixed-signal, power management, connectivity, data management and video processing solutions. Exar has locations worldwide providing real-time customer support. 

For more information, visit http://www.exar.com.

-Tables follow-

 

FINANCIAL COMPARISON

(In thousands, except per share amounts) (Unaudited)











Non-GAAP Results


THREE MONTHS ENDED



 JUNE 28, 2015 


 MARCH 29, 2015 


 JUNE 29, 2014 

Industrial & Embedded Systems


$  20,575

51%


$  20,021

46%


$   18,867

58%

High-End Consumer


13,536

33%


16,072

36%


5,332

16%

Infrastructure


6,311

16%


7,764

18%


8,428

26%

Net Sales


$  40,422

100%


$  43,857

100%


$   32,627

100%











Gross Profit


$  19,992

49.5%


$  21,348

48.7%


$   15,732

48.2%

Operating Expenses


$  14,723

36.4%


$  15,490

35.3%


$   15,040

46.1%

Income from operations


$    5,269

13.0%


$    5,858

13.4%


$        692

2.1%

Net income


$    5,078

12.6%


$    5,642

12.9%


$        860

2.6%

Net income per share










  Basic 


$      0.11



$      0.12



$       0.02


  Diluted 


$      0.10



$      0.11



$       0.02






















GAAP Results


THREE MONTHS ENDED



 JUNE 28, 2015 


 MARCH 29, 2015 


 JUNE 29, 2014 

Industrial & Embedded Systems


$  20,575

51%


$  20,021

46%


$   18,867

61%

High-End Consumer


13,536

33%


16,072

36%


3,424

11%

Infrastructure


6,311

16%


7,764

18%


8,428

28%

Net Sales


$  40,422

100%


$  43,857

100%


$   30,719

100%











Gross Profit


$   17,437

43.1%


$   17,948

40.9%


$    10,956

35.7%

Operating Expenses


$   19,776

48.9%


$   20,294

46.3%


$    22,308

72.6%

Income (loss) from operations


$   (2,339)

-5.8%


$   (2,346)

-5.3%


$  (11,352)

-37.0%

Net income (loss)


$   (2,510)

-6.2%


$   (2,914)

-6.6%


$  (12,105)

-39.4%

Net income (loss) per share










  Basic 


$     (0.05)



$     (0.06)



$       (0.26)


  Diluted 


$     (0.05)



$     (0.06)



$       (0.26)


Except for historical information contained herein, this press release and matters discussed on the conference call contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. In particular, the statements regarding the demand for our products and the anticipated trends in our sales and profits, future opportunities that are available to the Company, the Company's financial outlook expectations for the second quarter ending September 27, 2015, existence of any viable strategic alternatives and whether any future decisions by the Company will enhance stockholder value, are forward-looking statements. The forward-looking statements are dependent on certain risks and uncertainties. Therefore, actual outcomes and results may differ materially from what is expressed herein. For a discussion of these risks and uncertainties, the Company urges investors to review in detail the risks and uncertainties and other factors described in its Securities and Exchange Commission, or SEC, filings, including, but not limited to, the "Risk Factors", "Forward-Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of our public reports filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended March 29, 2015, which is on file with the SEC and available on our Investor webpage and on the SEC website at www.sec.gov, and the risks and uncertainties of whether any strategic alternative will be identified by the Board of Directors, whether it will be pursued, whether it will receive Board of Directors and stockholder approval if necessary, whether it will be consummated and, if consummated, whether it will enhance value for all stockholders of Exar.  The Company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

There can be no assurance that Exar's review of strategic alternatives will result in any specific action.  Exar does not currently intend to disclose further developments with respect to this process unless and until its Board of Directors approves a specific action or otherwise concludes the review of strategic alternatives.

The Company's non-GAAP measures exclude charges related to stock-based compensation, amortization of acquired intangible assets and inventory step-up, impairment charges, technology licenses, restructuring charges and exit costs which include costs for personnel whose positions have been eliminated as part of a restructuring or are in the process of being eliminated as part of the discontinuation of a product line, provisions for dispute resolutions, merger and acquisition and related integration costs, certain income tax benefits and credits, certain warranty charges, net change in the fair value of contingent consideration, the write-down of deferred revenue under business combination accounting, and related income tax effects on certain excluded items. The Company excludes these items primarily because they are significant special expense and gain estimates, which management separates for consideration when evaluating and managing business operations. The Company's management uses non-GAAP net income and non-GAAP earnings per share to evaluate its current operating results and financial results and to compare them against historical financial results.  Additionally, we disclose below the non-GAAP measure of free cash flow, which is derived from our net cash provided (used) by operations, less purchases of fixed assets and IP, plus proceeds from the sale of IP.  Management believes these non-GAAP measures are useful to investors because they are frequently used by securities analysts, investors and other interested parties in evaluating the Company and provides further clarity on its profitability. 

In addition, the Company believes that providing investors with these non-GAAP measurements enhances their ability to compare the Company's business against that of its many competitors who employ and disclose similar non-GAAP measures.  This financial measure may be different from non-GAAP methods of accounting and reporting used by the Company's competitors to the extent their non-GAAP measures include or exclude other items.  The presentation of this additional information should not be considered a substitute for net income or net income per diluted share or other measures prepared in accordance with GAAP.

EXAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)










THREE MONTHS ENDED



 JUNE 28, 


 MARCH 29, 


 JUNE 29, 



2015


2015


2014








Net sales


$    29,045


$      33,805


$    21,698

Net sales, related party


11,377


10,052


9,021

               Total net sales


40,422


43,857


30,719








Cost of sales:







  Cost of sales (1) 


15,581


19,012


12,353

  Cost of sales, related party


4,916


3,951


3,838

  Amortization of purchased intangible assets and inventory step-up cost


2,468


2,525


3,545

  Restructuring charges and exit costs


-


1,213


27

  Warranty reserve


20


(792)


-

               Total cost of sales


22,985


25,909


19,763

Gross profit


17,437


17,948


10,956

Operating expenses:







  Research and development(2) 


9,477


8,517


8,481

  Selling, general and administrative (3)


10,299


10,845


10,208

  Merger and acquisition costs


-


393


4,050

  Impairment of intangible assets


-


539


-

  Net change in fair value of contingent consideration


-


-


(431)

               Total operating expenses


19,776


20,294


22,308

Loss from operations


(2,339)


(2,346)


(11,352)








Other income and expense, net:







   Interest income and other, net


(14)


16


290

   Interest expense


(52)


(56)


(486)

   Impairment of long term investment


-


(509)


-

              Total other income and expense, net


(66)


(549)


(196)








Loss before income taxes


(2,405)


(2,895)


(11,548)

Provision for income taxes


105


19


692








Net loss before noncontrolling interest


(2,510)


(2,914)


(12,240)








Net loss attributable to noncontrolling interest


-


-


135








Net loss attributable to Exar


$     (2,510)


$      (2,914)


$   (12,105)








Net loss per share:







  Basic


$       (0.05)


$        (0.06)


$       (0.26)

  Diluted


$       (0.05)


$        (0.06)


$       (0.26)








Shares used in the computation of net loss per share:







  Basic


47,927


47,516


47,236

  Diluted


47,927


47,516


47,236








(1) Stock-based compensation included in cost of sales


$           87


$           122


$         260

(2) Stock-based compensation included in R&D


449


537


812

(3) Stock-based compensation included in SG&A


1,401


2,006


2,055

 

EXAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS  

(In thousands)

(Unaudited)










JUNE 28,


MARCH 29,


JUNE 29,



2015


2015


2014

ASSETS














Current assets:







Cash and cash equivalents


$   55,760


$       55,233


$ 123,161

Restricted cash


-


-


26,000

Accounts receivable, net


25,434


27,459


26,596

Accounts receivable, related party, net


541


1,663


2,524

Inventories


33,333


30,767


31,988

Other current assets


3,973


3,090


5,717

Total current assets


119,041


118,212


215,986








Property, plant and equipment, net


24,637


26,077


20,644

Goodwill


44,871


44,871


45,017

Intangible assets, net


82,732


86,102


109,041

Other non-current assets


7,821


7,838


1,448








Total assets


$ 279,102


$     283,100


$ 392,136








LIABILITIES AND STOCKHOLDERS' EQUITY














Current liabilities: 







Accounts payable


$   16,437


$       13,526


$   15,883

Accrued compensation and related benefits


4,736


5,649


6,271

Deferred income and allowances on sales to distributors


3,597


3,362


3,737

Deferred income and allowances on sales to distributors, related party


3,596


6,982


9,962

Short-term debt financing


-


-


65,000

Other current liabilities


20,124


21,287


16,257

       Total current liabilities


48,490


50,806


117,110








Long-term lease financing obligations


4,629


5,069


40

Other non-current obligations 


4,420


4,393


10,651








Total liabilities


57,539


60,268


127,801








Stockholders' equity:







  Exar Corporation stockholders' equity


221,563


222,832


246,598

  Noncontrolling interest


-


-


17,737

         Total stockholders' equity and noncontrolling interest


221,563


222,832


264,335








Total liabilities, stockholders' equity and noncontrolling interest


$ 279,102


$     283,100


$ 392,136

 

EXAR CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL RECONCILIATION OF GAAP TO NON-GAAP RESULTS

(In thousands, except per share amounts)

(Unaudited)










THREE MONTHS ENDED



 JUNE 28, 


 MARCH 29, 


 JUNE 29, 



2015


2015


2014








GAAP net sales


$    40,422


$          43,857


$    30,719

   Deferred revenue write-down


-


-


1,908

Non-GAAP net sales


$    40,422


$          43,857


$    32,627








 GAAP gross profit


$    17,437


$          17,948


$    10,956

 GAAP gross margin


43.1%


40.9%


35.7%

   Stock-based compensation


87


122


260

   Amortization of purchased intangible assets and inventory step-up cost


2,468


2,525


3,545

   Warranty Reserve


-


(460)


-

   Deferred revenue write-down and associated costs


-


-


944

   Restructuring charges and exit costs


-


1,213


27

Non-GAAP gross profit 


$    19,992


$          21,348


$    15,732

Non-GAAP gross margin 


49.5%


48.7%


48.2%








GAAP operating expenses


$    19,776


$          20,294


$    22,308

   Stock-based compensation - R&D


449


537


812

   Stock-based compensation - SG&A


1,401


2,006


2,055

   Amortization of purchased intangible assets 


898


792


413

   Impairment of intangibles


-


539


-

   Restructuring charges and exit costs, net


1,637


537


369

   Merger and acquisition costs


668


393


4,050

   Net change in fair value of contingent consideration


-


-


(431)

Non-GAAP operating expenses


$    14,723


$          15,490


$    15,040








GAAP operating loss


$     (2,339)


$          (2,346)


$   (11,352)

   Stock-based compensation 


1,937


2,665


3,127

   Amortization of purchased intangible assets and inventory step-up cost


3,366


3,317


3,958

   Warranty Reserve


-


(460)


-

   Deferred revenue write-down and associated costs


-


-


944

   Impairment of intangibles


-


539


-

   Restructuring charges and exit costs, net


1,637


1,750


396

   Merger and acquisition costs


668


393


4,050

   Net change in fair value of contingent consideration


-


-


(431)

Non-GAAP operating income 


$       5,269


$             5,858


$          692








GAAP net loss


$     (2,510)


$          (2,914)


$   (12,105)

   Stock-based compensation 


1,937


2,665


3,127

   Amortization of purchased intangible assets and inventory step-up cost


3,366


3,317


3,958

   Warranty Reserve


-


(460)


-

   Deferred revenue write-down and associated costs


-


-


944

   Impairment Charges


-


1,048


-

   Restructuring charges and exit costs, net


1,637


1,750


396

   Merger and acquisition costs


668


393


4,497

   Net change in fair value of contingent consideration


-


-


(431)

   Net loss attributable to noncontrolling interest


-


-


(135)

   Income tax effects


(20)


(157)


609

Non-GAAP net income attributable to Exar


$      5,078


$            5,642


$         860








GAAP net loss per share







  Basic


$       (0.05)


$            (0.06)


$       (0.26)

  Diluted


$       (0.05)


$            (0.06)


$       (0.26)








Non-GAAP net income per share 







  Basic


$         0.11


$               0.12


$         0.02

  Diluted


$         0.10


$               0.11


$         0.02








Shares used in the computation of Non-GAAP net income per share:







  Basic


47,927


47,516


47,236

  Diluted


50,167


49,877


49,826















Net cash provided (used) by operations


$      1,562


$            2,370


$     (8,137)

   Less purchases of fixed assets and IP


(105)


(1,478)


(551)

Free cash flow


$      1,457


$               892


$     (8,688)

 

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SOURCE Exar Corporation