Exar Corporation Announces Results for Third Quarter Fiscal 2007

FREMONT, Calif., Jan. 23 /PRNewswire-FirstCall/ -- Exar Corporation (Nasdaq: EXAR), a leading provider of high-performance, mixed-signal silicon solutions for the worldwide communications infrastructure, today reported fiscal 2007 third quarter operating results. Revenue for the quarter ended December 31, 2006 was $16.1 million, a decrease of 12.9% sequentially from $18.5 million in the second quarter of fiscal 2007 and down 5.3% from $17.0 million for the same period last year. Year-to-date revenue has increased 6.9% as compared to the same period last year.

Third quarter operating loss was $0.86 million, as compared to operating income of $0.05 million for the prior quarter and operating income of $0.12 million for the same period last year.

Net income for the third fiscal quarter was $3.0 million as compared to $1.8 million for the prior quarter and $1.1 million for the third quarter of fiscal 2006. For the quarter ended December 31, 2006 EPS were $0.08 per diluted share, up from $0.05 per diluted share for the prior quarter and an increase from $0.03 per diluted share for the same period last year. For the quarter ended December 31, 2006, EPS include $0.02 per diluted share related to the extension of federal R&D tax credits.

Gross margin was 66.5% in third fiscal quarter as compared to 68.8% in the prior fiscal quarter and 67.5% for the same period last year.

For the third quarter of fiscal 2007 net income includes stock-based compensation expense of $1.1 million as a result of the Company's compliance with Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payments (SFAS 123R). Excluding this charge, Non-GAAP operating income was $0.2 million and EPS were $0.10 per diluted share. The Company believes that this Non-GAAP information is important and valuable to stockholders to help them compare operating performance across reporting periods, however, this information is in no way a substitution for financial measures derived in accordance with GAAP.

"Effective operating expense controls allowed the Company to maintain Non- GAAP operating profitability in the quarter on lower revenues due to what we believe to be an industry-wide demand slow down and inventory rebalancing," stated Roubik Gregorian, chief executive officer and president. "Though visibility continues to be challenging our growth will be driven by key design wins moving to production and continued market acceptance of our newer solutions, many of which were industry firsts," stated Dr. Gregorian.

Product Summary

Industry Firsts

Continuing the Company's focus on technology innovation, during the quarter ended December 31, 2006 the Company released two serial communications devices: the XR20V2170, an I2C/SPI UART with 64-Byte FIFO and integrated RS-232 transceiver combination UART, plus the XR20M1170 a low voltage 1.8V I2C/SPI UART with 64-Byte FIFO. Both devices target industrial, consumer and battery-powered applications. With these two new offerings, Exar has launched nine industry-first serial communications products in less than two years.

Serial Communications

During the quarter ended December 31, 2006, the Company added the XR16V794. This device is a low power -- 2.25V to 3.6V operation with 5V tolerant inputs -- 64-byte FIFO UART supporting serial data rates of up to 8Mbps. The device is ideal for the higher data speed requirements found in industrial applications including automation/process control, point-of-sale, network management and remote access servers amongst others.

Network and Transmission

Further strengthening its T/E product portfolio, and targeting cost sensitive transport networking applications -- PDH and SDH multiplexers, digital cross-connects, DECT base stations, as well as CSU/DSU equipment -- found in emerging worldwide markets, in the quarter ended December 31, 2006 Exar introduced the XRT59L921. This device is a highly integrated 21-channel E1 solution with reduced power, and is the newest member of one of the industry's most extensive and scalable T/E LIU portfolios.

Regulatory Compliance/Current Business Outlook

The Company is subject to the Securities and Exchange Commission's requirements governing public company reporting obligations. The Company intends to provide its investors, financial analysts, and the general public with guidance each quarter in its earnings news release and its conference calls. The Company will not provide any further guidance or updates on its performance during the quarter unless it does so in a news release, such as this one, or in such other manner that is compliant with Regulation FD and Regulation G, as the case may be, and other applicable laws, rules and regulations.

The Company reports its financial results in accordance with GAAP. Additionally, the Company from time to time supplements reported GAAP financials with Non-GAAP measures which are included in related press releases and Reports furnished to the SEC, copies of which are available at the Company's website: http://www.exar.com or the SEC at: http://www.sec.gov. With respect to the quarter ended December 31, 2006, we are disclosing Non- GAAP operating income and Non-GAAP diluted EPS, which are adjusted to exclude from our GAAP results all stock-based compensation expense. These Non-GAAP measures are presented in part to enhance the understanding of the Company's historical financial performance and comparability between reporting periods. The Company believes the Non-GAAP measures, when shown in conjunction with the corresponding GAAP measures, provide useful information to analysts, investors, management and other interested parties following the semiconductor industry. For its internal purposes, the Company uses GAAP financial statements and Non-GAAP financial statements that do not include stock-based compensation expense, and the related income tax effects of the stock-based compensation expense, in reviewing its financial results. The Company uses the foregoing Non-GAAP measures to compare performance to prior periods and determine certain employee benefits. These Non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with GAAP, and may be different from Non-GAAP measures used by other companies. In addition, these Non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The Company believes that Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP. These measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures.

The Company's statements about its future financial performance are based on current information and expectations and the Company undertakes no duty to update such statements. These statements are forward-looking and actual results could differ materially due to various risks and uncertainties, some of which are described below. For the fourth quarter of fiscal 2007 ending March 31, 2007, the Company is forecasting revenue down approximately 5% as compared with the prior fiscal quarter.

Earnings Conference Call

The Company invites investors, financial analysts, and the general public to listen to its conference call discussing the Company's financial results for the third quarter fiscal 2007, today, Tuesday, January 23, at 1:30 p.m. EST. To access the conference call, please dial (800) 874-8975 by 1:20 p.m. EST and use conference ID number 6187244. In addition, a live webcast will also be available. To access the webcast, please go to Exar's Investors Homepage at: http://www.exar.com . A replay of the call will be available starting at 5:30 p.m. EST today until 8:00 p.m. EST on January 30, 2007. To access the replay, please dial (800) 642-1687 and use conference ID number 6187244.

Safe Harbor Statement

The Company's statements about its future financial performance, market trends, distribution and OEM trends, among others, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include global economic and industry conditions, such as the level of capital spending in the telecommunications and data communications markets; limited visibility associated with customer demand for network and transmission products; the possible loss of, or decrease in orders from, an important customer; adjustments in interest rates and cash balances; vendor capacity or throughput constraints; possible disruption in commercial activities as a consequence of terrorist activity, natural disasters, armed conflict or health issues; successful development, market acceptance and demand for the Company's products, including those for which the Company has achieved design wins; competitive factors, such as pricing or competing solutions; customer ordering patterns; accounting considerations related to option expensing; the level of inventories maintained at the Company's OEMs and distributors; and the Company's successful execution of internal performance plans, as well as the other risks detailed from time to time in the Company's SEC reports, including its Annual Report on Form 10-K for the year ended March 31, 2006 and Form 10-Q for the fiscal quarters ended June 30, 2006 and September 30, 2006.

About Exar

Exar Corporation designs, develops and markets high-performance, analog and mixed-signal silicon solutions for a variety of markets including networking, serial communications, clock and timing, and storage. Leveraging its industry-proven analog design expertise and system-level knowledge, Exar delivers to customers a wide array of technology solutions for their current as well as next generation products. The Company is based in Fremont, CA, had fiscal 2006 revenues of $67.0 million, and employs approximately 260 people worldwide. For more information about the Company visit: http://www.exar.com .

                                (In thousands)

                                          DECEMBER   MARCH
                                             31,       31,
                                            2006      2006

    Current assets:
      Cash, cash equivalents and
       marketable securities              $353,828  $329,528
      Accounts receivable, net               5,410     7,429
      Inventories                            5,279     5,531
      Other current assets                   9,103     7,178
        Total current assets               373,620   349,666

    Property, plant and equipment, net      26,216    27,770
    Other long-term investments              2,523     2,828
    Deferred income taxes, net               9,543     9,361
    Goodwill and intangible assets, net      9,303    10,020
    Other non-current assets                 2,119     1,752

        Total assets                      $423,324  $401,397


    Current liabilities                    $13,293   $13,770
    Long-term obligations                      191       222

        Total liabilities                   13,484    13,992

    Total stockholders' equity             409,840   387,405

        Total liabilities and
         stockholders' equity             $423,324  $401,397

                   (In thousands, except per share amounts)

                                 THREE MONTHS ENDED      NINE MONTHS ENDED
                            DECEMBER SEPTEMBER DECEMBER    DECEMBER 31,
                                31,      30,      31,
                               2006     2006     2005     2006     2005

    Net sales                 $16,108  $18,503  $17,009  $52,842  $49,449

    Cost of sales:
      Product cost of
       sales (a)                5,156    5,530    5,280   15,918   15,634
      Amortization of
       purchased intangible
       assets                     240      240      240      720      680
        Total cost of sales     5,396    5,770    5,520   16,638   16,314

    Gross profit               10,712   12,733   11,489   36,204   33,135

    Operating expenses:
      Research and
       development (a)          6,222    6,677    6,178   19,513   18,432
      Selling, general and
       administrative (a);(b)   5,347    6,010    5,187   18,090   15,816
        Total operating
         expenses              11,569   12,687   11,365   37,603   34,248
    Income (loss) from
     operations                  (857)      46      124   (1,399)  (1,113)

    Interest income and
     other, net
      Interest and other
       income, net              4,289    4,229    2,902   12,231    9,136
      Other than temporary
       loss on long-term
       investments                 --     (957)  (1,215)    (957)  (1,215)
        Total interest
         and other income,
         net                    4,289    3,272    1,687   11,274    7,921

    Income before income
     taxes                      3,432    3,318    1,811    9,875    6,808
    Provision for income
     taxes                        446    1,539      702    3,106    1,885

    Net income                 $2,986   $1,779   $1,109   $6,769   $4,923

    Earnings per share:
      Basic earnings per
       share                    $0.08    $0.05    $0.03    $0.19    $0.13

      Diluted earnings per
       share                    $0.08    $0.05    $0.03    $0.19    $0.12

    Shares used in the
     computation of earnings
     per share:

      Basic                    36,642   36,315   35,202   36,255   39,045

      Diluted                  36,790   36,506   35,347   36,518   39,466

     (a) Includes stock-based
          compensation expense
          as follows (fiscal
          year 2007 increase
          reflects the adoption
          SFAS 123R):
         Cost of sales            $23      $29      $--      $77      $--
         Research and
           development           $285     $352      $--     $963      $--
         Selling, general
           and administrative    $749     $782      $34   $2,246     $102

    (b)  Included in selling, general and administrative expense in the nine
         months ended December 31, 2006 is $664,000 in connection with the
         Company's Chief Financial Officer separation agreement dated
         June 30, 2006.

                   (In thousands, except per share amounts)

                                                     Three months
                                                   December 31, 2006
          Reconciliation of Non-GAAP
           operating income to
           GAAP operating loss
          Non-GAAP operating income                      $200
          Items excluded from non-GAAP
           net income:
            Stock-based compensation                   (1,057)
          Operating loss                                $(857)

           Reconciliation of Non-GAAP
            diluted earnings
            per share to GAAP diluted
             earnings per share
          Non-GAAP diluted earnings per
           share                                         $0.10
          Items excluded from non-GAAP
           diluted earnings
            per share:
            Stock-based compensation                     (0.03)
          Adjustment to provision for
           income taxes                                   0.01
          Diluted earnings per share                     $0.08

SOURCE Exar Corporation