Exar Corporation Announces Fiscal 2017 First Quarter Financial Results

FREMONT, Calif., Aug. 3, 2016 /PRNewswire/ -- Exar Corporation (NYSE: EXAR) a leading supplier of analog mixed-signal application specific technology solutions serving the Industrial, Infrastructure, Automotive, and Audio/Video markets, today announced financial results for the Company's fiscal year 2017 first quarter, which ended on July 3, 2016.  Unless otherwise indicated, all non-GAAP financial results exclude the financial results of the iML Display business, which the Company is in the process of divesting, and are presented in the GAAP results as discontinued operations.

Fiscal 2017 First Quarter Highlights

  • Net sales of $27.1 million, up 7 percent sequentially
  • GAAP gross margin of 49.2% (Non-GAAP gross margin of 51.8%)
  • GAAP operating income of $7.9 million (Non-GAAP operating income of $7.3 million, $4.0 million of which is from continuing operations)
  • GAAP EPS from continuing operations of $0.15 (Non-GAAP EPS of $0.08)
  • GAAP EPS from discontinued operations of $0.03 (Non-GAAP EPS of $0.07)
  • GAAP EPS from continuing and discontinued operations of $0.18 (Non-GAAP EPS of $0.15)

Ryan Benton, Exar's Chief Executive Officer, commented, "We are extremely pleased with our record setting fiscal first quarter results.  The team stayed focused on execution and delivered.  Revenue came in at the high-end of our guidance range, driven by 16% sequential growth in the Industrial market.  As anticipated, the impact of an additional week was offset by a reduction in channel inventory.  Non-GAAP gross margin from continuing operations outperformed our guidance range.  The impact of our on-going strategic shift of the supply chain to China continues to exceed our expectations, and is increasingly being complemented by growth in advanced product sales.  We had strong execution from Exar's core business, as non-GAAP EPS from continuing operations increased sequentially from $0.03 to $0.08."

Mr. Benton added, "We strive to achieve operational excellence.  During the quarter, total non-GAAP operating income, including discontinued operations, of $7.3 million represented a record in Exar's 45-year history, a real testament to the strength of the Company's earnings generation.  We continue to focus and reshape the vision of Exar, and with our continued progress remain upbeat about our prospects."

Fiscal 2017 First Quarter Highlights (Continuing Operations Only):
The following highlights the Company's financial performance on both a GAAP and supplemental non-GAAP basis.  The Company provides supplemental information regarding its operating performance on a non-GAAP basis that excludes certain gains, losses, and charges, which either occur relatively infrequently or which management considers to be outside our core operating results.  Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies.  Non-GAAP information should be considered a supplement to, not a substitute for, financial statements prepared in accordance with GAAP.  A complete reconciliation of GAAP to non-GAAP results is attached to this press release.

Exar's fiscal 2017 first quarter was comprised of fourteen weeks, as opposed to the usual thirteen weeks.

  • Net Sales
    • First quarter net sales of $27.1 million increased $1.8 million or 7% from the previous quarter's $25.3 million.
  • Gross Margin
    • GAAP gross margin of 49.2% increased from 47.2% reported in the previous quarter.
    • Non-GAAP gross margin of 51.8% increased from the 50.0% reported in the previous quarter.
  • Operating Expenses
    • GAAP operating expenses of $5.5 million decreased $7.0 million from the previous quarter's expenses of $12.5 million.  Fiscal 2017 first quarter operating expenses included:
      • Gain of $9.3 million related to the sale-leaseback of our corporate headquarters.
      • Charges of (i) $1.9 million expense related to EDA tool impairment and maintenance, (ii) $1.1 million stock-based compensation expense, (iii) $0.9 million mergers and acquisitions costs, and (iv) $0.7 million purchase amortization.
    • Non-GAAP operating expenses of $10.1 million decreased $1.0 million or 10% from the previous quarter's expenses of $11.1 million.
  • Net Income
    • GAAP net income of $7.5 million, compared to the previous quarter's net loss of $0.4 million.
    • Non-GAAP net income of $3.8 million increased $2.3 million or 152% from the previous quarter's net income of $1.5 million.
  • Earnings Per Share
    • GAAP diluted earnings per share of $0.15, compared to the previous quarter's loss per share of $0.01.
    • Non-GAAP diluted earnings per share of $0.08 increased $0.05 per share from the previous quarter.

Keith Tainsky, Exar's Chief Financial Officer, stated, "We remain committed to our fundamental goal of increasing shareholder value.  We started the fiscal year with solid earnings and strong cash generation.  Increasing advanced product sales and expanding the funnel of cost-down activities is a winning recipe for Exar, as evidenced by the third quarter in a row of increased non-GAAP gross margin for our core business.  This contributed to solid non-GAAP EPS from continuing operations of $0.08."  Mr. Tainsky continued, "Additionally, during the first quarter we closed the sale and leaseback of our corporate facility, netting $24.1 million in cash."

Fiscal 2017 Second Quarter Guidance (Continuing Operations Only):
For the fiscal 2017 second quarter ending October 2, 2016, the Company expects results to be as follows:

  • Net sales: Flat to up 3% sequentially
  • GAAP gross margin: 47% to 49% (Non-GAAP 51% to 53%)
  • GAAP operating expenses: $12.5 million to $13.0 million (Non-GAAP $10.0 million to $10.5 million)
  • GAAP EPS: $0.00 to $0.02 (Non-GAAP $0.07 to $0.09)

Conference Call and Prepared Remarks
Exar is providing a copy of prepared remarks in conjunction 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 this press release.

As previously scheduled, the conference call will begin today, August 3, 2016 at 4:45 p.m. EDT (1:45 p.m. PDT). To access the conference call, please dial (918) 534-8424 or (844) 359-0802.  The passcode for the live call is 48010625.  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's mission is to leverage our extensive analog and mixed-signal portfolio, experience and IP to deliver leading-edge application specific technology solutions to target markets where operational excellence and reliability are valued.  We service the Industrial, Infrastructure, Automotive, and Audio/Video markets by acting as an extension of the customer's own technology organization and singularly focusing on exceeding customer expectations. For more information, visit http://www.exar.com.

Forward-Looking Statements Safe Harbor Disclosure
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, including statements regarding the Company remaining upbeat about its prospects, the Company's financial outlook expectations for the second quarter ending October 2, 2016 and the Company's commitment to its strategy to focus on its core competencies, maximize the Company's operating cash and redeploy assets toward its fundamental goal of increasing shareholder value. 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. 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 (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 filed with the SEC on May 27, 2016, and available on our Investor webpage and on the SEC website at www.sec.gov.

Discussion of Non-GAAP Financial Measures
The Company's non-GAAP measures exclude charges related to stock-based compensation, amortization of acquired intangible assets, impairment charges, initial gain upon closing sale-leaseback of our corporate headquarters, 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, severance costs associated with the former CEO, accruals for and proceeds received from dispute resolutions and patent litigation, merger and acquisition and related integration costs, transition services provided to and reimbursement thereof as part of a disposal group, certain income tax benefits and credits, 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 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 fixed assets and 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.

Unless otherwise indicated, all non-GAAP financial results exclude the financial results of the iML Display business, which the Company is in the process of divesting, and are presented in the GAAP results as discontinued operations.

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 competitors who employ and disclose similar non-GAAP measures.  However, the manner in which we calculate these non-GAAP financial measures 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 material limitation associated with the use of the non-GAAP financial measures is that the non-GAAP measures may not reflect the full economic impact of Exar's activities. Accordingly, investors are cautioned not to place undue reliance on non-GAAP information.  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.

Investors should refer to the reconciliation of Non-GAAP Results to GAAP Results, which is contained in this press release.

For more information, visit http://www.exar.com
For Press Inquiries Contact: press@exar.com

For Investor Relations Contact: 

Keith Tainsky, CFO  

Laura Guerrant-Oiye, Investor Relations

Phone: (510) 668-7201 

Phone: (510) 668-7201

Email: investorrelations@exar.com  

Email: laura.guerrant@exar.com

-Tables follow-

Unless otherwise indicated, all financial results presented in the following tables exclude the financial results of the iML Display business, which the Company is in the process of divesting, and are presented as discontinued operations.

 

 

FINANCIAL COMPARISON (CONTINUING OPERATIONS ONLY)

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

GAAP Results

THREE MONTHS ENDED

 JULY 3, 2016 

 MARCH 27, 2016 

 JUNE 28, 2015 

Industrial

$ 18,436

67%

$ 15,945

63%

$ 19,465

69%

Infrastructure

5,596

21%

5,757

23%

4,474

16%

Audio/Video

1,852

7%

2,102

8%

1,940

7%

Automotive

779

3%

850

3%

946

3%

Other

473

2%

689

3%

1,358

5%

Net sales

$ 27,136

100%

$ 25,343

100%

$ 28,183

100%

Gross profit

$ 13,362

49%

$ 11,973

47%

$ 12,878

46%

Operating expenses

$   5,492

20%

$ 12,467

49%

$ 15,949

57%

Income (loss) from operations

$   7,870

29%

$    (494)

-2%

$ (3,071)

-11%

Net income (loss)

$   7,543

28%

$    (415)

-2%

$ (2,354)

-8%

Net income (loss) per share

  Basic 

$     0.15

$   (0.01)

$   (0.05)

  Diluted 

$     0.15

$   (0.01)

$   (0.05)

Non-GAAP Results

THREE MONTHS ENDED

 JULY 3, 2016 

 MARCH 27, 2016 

 JUNE 28, 2015 

Industrial

$ 18,436

67%

$ 15,945

63%

$ 19,465

69%

Infrastructure

5,596

21%

5,757

23%

4,474

16%

Audio/Video

1,852

7%

2,102

8%

1,940

7%

Automotive

779

3%

850

3%

946

3%

Other

473

2%

689

3%

1,358

5%

Net sales

$ 27,136

100%

$ 25,343

100%

$ 28,183

100%

Gross profit

$ 14,070

52%

$ 12,664

50%

$ 13,572

48%

Operating expenses

$ 10,087

37%

$ 11,147

44%

$ 12,388

44%

Income from operations

$   3,983

15%

$   1,517

6%

$   1,184

4%

Net income

$   3,798

14%

$   1,510

6%

$   1,077

4%

Net income per share

  Basic 

$     0.08

$     0.03

$     0.02

  Diluted 

$     0.08

$     0.03

$     0.02

 

EXAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

THREE MONTHS ENDED

 JULY 3, 

 MARCH 27, 

 JUNE 28, 

2016

2016

2015

Net sales

$   19,636

$           18,060

$      16,806

Net sales, related party

7,500

7,283

11,377

               Total net sales

27,136

25,343

28,183

Cost of sales:

  Cost of sales (1) 

10,411

9,694

9,776

  Cost of sales, related party

2,769

3,082

4,916

  Amortization of purchased intangible assets

594

594

613

               Total cost of sales

13,774

13,370

15,305

Gross profit

13,362

11,973

12,878

Operating expenses:

49.2%

47.2%

45.7%

  Research and development(2) 

4,931

5,173

6,429

  Selling, general and administrative (3)

6,564

7,188

7,746

  Restructuring charges and exit costs

923

106

1,230

  Merger and acquisition costs

855

-

544

  Impairment of design tools

1,519

-

-

  Gain on disposal of property

(9,300)

-

-

               Total operating expenses

5,492

12,467

15,949

Income (loss) from operations

7,870

(494)

(3,071)

Other income and expense, net:

   Interest income and other, net

2

73

(22)

   Interest expense

(38)

(42)

(48)

              Total other income (expense), net

(36)

31

(70)

Income (loss) before income taxes

7,834

(463)

(3,141)

Provision for (benefit from) income taxes

291

(48)

(787)

Net income (loss) from continuing operations

7,543

(415)

(2,354)

Net income (loss) from discontinued operations

1,397

(1,767)

(156)

Net income (loss)

$     8,940

$           (2,182)

$      (2,510)

Income (loss) per share — basic

  From continuing operations 

$       0.15

$             (0.01)

$       (0.05)

  From discontinued operations 

0.03

(0.03)

(0.00)

Income (loss) per share — basic

$       0.18

$             (0.04)

$       (0.05)

Income (loss) per share — diluted

  From continuing operations 

$       0.15

$             (0.01)

$       (0.05)

  From discontinued operations 

0.03

(0.03)

(0.00)

Income (loss) per share — diluted

$       0.18

$             (0.04)

$       (0.05)

Shares used in the computation of net income  (loss) per share:

  Basic

48,680

48,523

47,927

  Diluted

49,058

48,523

47,927

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

$        114

$                 97

$            81

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

246

156

293

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

733

720

1,349

 

EXAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS  

(In thousands)

(Unaudited)

JULY 3,

MARCH 27,

JUNE 28,

2016

2016

2015

ASSETS

Current assets:

Cash and cash equivalents

$   85,276

$       55,070

$   55,760

Accounts receivable, net

15,539

16,130

12,331

Accounts receivable, related party, net

3,184

3,247

541

Inventories

22,104

20,807

26,727

Other current assets

2,179

1,922

3,213

Assets held for sale

92,688

93,911

103,015

Total current assets

220,970

191,087

201,587

Property, plant and equipment, net

5,159

20,299

24,354

Goodwill

31,613

31,613

31,613

Intangible assets, net

11,012

11,735

13,952

Other non-current assets

1,006

639

7,596

Total assets

$ 269,760

$     255,373

$ 279,102

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities: 

Accounts payable

$   11,312

$       11,258

$   13,278

Accrued compensation and related benefits

2,273

2,984

3,764

Deferred income and allowances on sales to distributors

3,213

3,053

2,923

Deferred income and allowances on sales to distributors, related party

5,885

4,683

3,596

Other current liabilities

12,299

10,669

19,195

Liabilities held for sale

2,479

3,470

5,775

       Total current liabilities

37,461

36,117

48,531

Long-term lease financing obligations

856

1,285

4,629

Other non-current obligations 

4,314

3,422

4,379

Total liabilities

42,631

40,824

57,539

Stockholders' equity

227,129

214,549

221,563

Total liabilities and stockholders' equity

$ 269,760

$     255,373

$ 279,102

 

EXAR CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL RECONCILIATION OF GAAP TO NON-GAAP RESULTS

(In thousands, except per share amounts)

(Unaudited)

THREE MONTHS ENDED
JULY 3, 2016

Gross
Margin

Oper.
Expenses

Oper.
Income

Net Income
from Cont.
Operations

Oper. Income
from Disc.
Operations

Net Income
from Disc.
Operations

Net
Income

 GAAP amount

$13,362

$            5,492

$      7,870

$                7,543

$                    1,493

$                1,397

$  8,940

Adjustments to GAAP amounts:

   Amortization of purchased intangible assets

594

(125)

719

719

1,806

1,806

2,525

   Restructuring charges and other non-GAAP exit costs, net

-

(923)

923

923

109

109

1,032

   Stock-based compensation 

114

(979)

1,093

1,093

(52)

(52)

1,041

   Merger and acquisition costs

-

(855)

855

855

-

-

855

   Transition service for disposal group

-

(304)

304

304

-

-

304

   Impairment of design tools

-

(1,519)

1,519

1,519

-

-

1,519

   Gain on disposal of property

-

9,300

(9,300)

(9,300)

-

-

(9,300)

   Income tax effects

-

-

-

142

-

160

302

Non-GAAP amount

$14,070

$          10,087

$      3,983

$                3,798

$                    3,356

$                3,420

$  7,218

% of revenue

51.8%

37.2%

14.7%

14.0%

12.4%

12.6%

N/A

Non-GAAP net income per share 

$                  0.08

$                      0.07

$                  0.07

$    0.15

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

49,281

49,281

49,281

49,281

THREE MONTHS ENDED
MARCH 27, 2016

Gross
Margin

Oper.
Expenses

Oper.
Income

Net Income
from Cont.
Operations

Oper. Income
from Disc.
Operations

Net Income
from Disc.
Operations

Net
Income

 GAAP amount

$11,973

$          12,467

$        (494)

$                  (415)

$                  (1,596)

$               (1,767)

$(2,182)

Adjustments to GAAP amounts:

   Amortization of purchased intangible assets

594

(125)

719

719

2,715

2,715

3,434

   Restructuring charges and other non-GAAP exit costs, net

-

(106)

106

106

245

245

351

   Stock-based compensation 

97

(876)

973

973

177

177

1,150

   Merger and acquisition costs

-

(213)

213

213

-

-

213

   Accruals for legal settlement and associated costs

-

-

-

-

822

822

822

   Income tax effects

-

-

-

(86)

-

117

31

Non-GAAP amount

$12,664

$          11,147

$      1,517

$                1,510

$                    2,363

$                2,309

$  3,819

% of revenue

50.0%

44.0%

6.0%

6.0%

9.3%

9.1%

N/A

Non-GAAP net income per share 

$                  0.03

$                      0.05

$                  0.05

$    0.08

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

49,052

49,052

49,052

49,052

THREE MONTHS ENDED
JUNE 28, 2015

Gross
Margin

Oper.
Expenses

Oper.
Income

Net Income
from Cont.
Operations

Oper. Income
from Disc.
Operations

Net Income
from Disc.
Operations

Net
Income

 GAAP amount

$12,878

$          15,949

$     (3,071)

$               (2,354)

$                       732

$                  (156)

$(2,510)

Adjustments to GAAP amounts:

   Amortization of purchased intangible assets

613

(144)

757

757

2,609

2,609

3,366

   Restructuring charges and other non-GAAP exit costs, net

-

(1,231)

1,231

1,231

406

406

1,637

   Stock-based compensation 

81

(1,642)

1,723

1,723

214

214

1,937

   Merger and acquisition costs

-

(544)

544

544

124

124

668

   Income tax effects

-

-

-

(824)

-

804

(20)

Non-GAAP amount

$13,572

$          12,388

$      1,184

$                1,077

$                    4,085

$                4,001

$  5,078

% of revenue

48.2%

44.0%

4.2%

3.8%

14.5%

14.2%

N/A

Non-GAAP net income per share 

$                  0.02

$                      0.08

$                  0.08

$    0.10

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

50,167

50,167

50,167

50,167

 

THREE MONTHS ENDED

 JULY 3, 

 MARCH 27, 

 JUNE 28, 

2016

2016

2015

Net cash provided by operations

4,144

2,896

1,562

   Less purchases of fixed assets

(125)

(325)

(105)

   Net proceeds from building sale

24,051

-

-

   Payments for legal settlement and associated costs

-

1,728

-

Free cash flow

$28,070

$            4,299

$             1,457

 

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SOURCE Exar Corporation