Exar Reports Second Quarter Fiscal 2015 Financial Results

Record Revenue of $43.3 Million Increased 33 Percent Sequentially

FREMONT, Calif., Nov. 5, 2014 /PRNewswire/ -- Exar Corporation (NYSE: EXAR) a leading provider of high-performance integrated circuits and system solutions, today reported financial results for the second quarter of fiscal year 2015, ended September 28, 2014. Non-GAAP revenue for the second quarter of fiscal year 2015 was a record $43.3 million, exceeding the top end of prior expectations, and an increase of 33% from $32.6 million in the prior quarter. Revenue has been adjusted to eliminate the impact of the deferred revenue write-down under business combination accounting.  GAAP revenue for the second quarter fiscal 2015 was $43.2 million.

On a non-GAAP basis, gross margin was 47%; operating income was $2.5 million, or 6%; and net income was $2.5 million, or $0.05 per diluted share.

GAAP results include impairment charges for non-cash write-down of intangibles, restructuring costs, and mergers and acquisition costs.  These charges were offset by a credit for the reduction in the fair value of contingent consideration of $3.9 million.  As a result, GAAP gross margin was 10%; operating loss was $22.8 million; and net loss was $23.4 million, or $0.50 loss per share.

Cash at the end of the quarter was $104 million. The iML merger closed in September; however, payment of the non-controlling interest and repayment of the bridge loan financing occurred in October. Currently, the Company has approximately $55 million in cash and equivalents and no debt. 

Louis DiNardo, Exar president and CEO, commented, "During our fiscal second quarter and early in our fiscal third quarter we completed a restructuring to focus on our core competency as a leading provider of analog mixed-signal and power management components.  Our goal is to provide innovative solutions for the wide markets served by leading high performance analog mixed-signal and power management integrated circuit providers, while driving industry leading revenue growth by focusing on specific vertical markets including video surveillance, enterprise and server power, LCD displays and LED lighting."

Mr. DiNardo continued, "Our recent restructuring was across all disciplines and is estimated to save approximately $6.5 million in operational and other costs.  As a result, these measures will favorably impact COGS in our fiscal year 2016 beginning March 30, 2015.  However, a portion of these savings will be invested in the expansion of our sales force.  We continue to grow organically and through acquisition while containing cost, thereby providing exceptional operating leverage."

On a non-GAAP basis, for the third fiscal quarter of 2015, ending December 28, 2014, the Company is expecting revenue to be in the range of $43.0 million to $45.0 million, and non-GAAP EPS of $0.04 to $0.06.

Webcast and Conference Call Details

Company officials will be discussing these results in greater detail in a conference call today, Wednesday, November 5, 2014 at 1:45 p.m. PST (4:45 p.m. EST).  To access the conference call, please dial (719) 325-2464 or (888) 287-5563.  In addition, a live webcast will be available on Exar's Investor webpage.  An archive of the webcast will be available on Exar's Investor webpage after its conclusion. 

About Exar

Exar Corporation designs, develops and markets high-performance integrated circuits and system solutions for the Industrial & Embedded Systems, 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 about Exar, visit http://www.exar.com.

-Tables follow-

 

FINANCIAL COMPARISON

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

















Non-GAAP Results


THREE MONTHS ENDED


SIX MONTHS ENDED



 September 28, 2014 


 JUNE 29, 2014 


 September 29, 2013 


 September 28, 2014 


 September 29, 2013 

Industrial & Embedded Systems


$   19,656

45%


$   18,867

58%


$  17,943

53%


$   38,523

51%


$   34,441

52%

High-End Consumer


16,362

38%


5,332

16%


105

0%


21,694

29%


351

1%

Infrastructure


7,304

17%


8,428

26%


15,970

47%


15,732

21%


31,853

48%

Net Sales


$   43,322

100%


$   32,627

100%


$  34,018

100%


$   75,949

100%


$   66,645

100%

















Gross Profit


$   20,283

46.8%


$   15,732

48.2%


$  17,703

52.0%


$   36,015

47.4%


$  34,753

52.1%

Operating Expenses


$   17,797

41.1%


$   15,040

46.1%


$  12,854

37.8%


$   32,837

43.2%


$  25,336

38.0%

Income from operations


$     2,486

5.7%


$        692

2.1%


$    4,849

14.3%


$     3,178

4.2%


$    9,417

14.1%

Net income


$     2,496

5.8%


$        860

2.6%


$    5,135

15.1%


$     3,356

4.4%


$    9,932

14.9%

Net income per share
















  Basic 


$       0.05



$       0.02



$      0.11



$       0.07



$      0.21


  Diluted 


$       0.05



$       0.02



$      0.10



$       0.07



$      0.20


































GAAP Results


THREE MONTHS ENDED


SIX MONTHS ENDED



 September 28, 2014 


 JUNE 29, 2014 


 September 29, 2013 


 September 28, 2014 


 September 29, 2013 

Industrial & Embedded Systems


$   19,656

46%


$   18,867

61%


$ 17,943

53%


$   38,523

52%


$ 34,441

52%

High-End Consumer


16,199

38%


$     3,424

11%


$       105

0%


$   19,623

27%


$      351

1%

Infrastructure


7,304

17%


$     8,428

27%


15,970

47%


$   15,732

21%


$ 31,853

48%

Net Sales


$   43,159

100%


$   30,719

100%


$ 34,018

100%


$   73,878

100%


$ 66,645

100%

















Gross Profit


$     4,132

9.6%


$   10,956

35.7%


$ 13,929

40.9%


$   15,088

20.4%


$ 29,406

44.1%

Operating Expenses


$   26,962

62.5%


$   22,308

72.6%


$ 14,545

42.8%


$   49,270

66.7%


$ 29,475

44.2%

Income (loss) from operations


$ (22,830)

-52.9%


$ (11,352)

-37.0%


$     (616)

-1.8%


$ (34,182)

-46.3%


$       (69)

-0.1%

Net income (loss)


$ (23,352)

-54.1%


$ (12,105)

-39.4%


$    6,482

19.1%


$ (35,457)

-48.0%


$    7,288

10.9%

Net income (loss) per share
















  Basic 


$     (0.50)



$     (0.26)



$      0.14



$     (0.75)



$      0.15


  Diluted 


$     (0.50)



$     (0.26)



$      0.13



$     (0.75)



$      0.15


 

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 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. 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, under the captions "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 30, 2014 and the Quarterly Report on Form 10-Q for the quarter ended June 29, 2014 which are on file with the SEC and are available on our Investor webpage and on the SEC website at www.sec.gov.  The Company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

The Company's non-GAAP measures exclude charges related to stock-based compensation, amortization of acquired intangible assets and inventory step-up, impairment charges, restructuring charges and exit costs, 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


SIX MONTHS ENDED



 SEPTEMBER 28, 


 JUNE 29, 


 SEPTEMBER 29, 


 SEPTEMBER 28, 


 SEPTEMBER 29, 



2014


2014


2013


2014


2013












Net sales


$                  34,369


$   21,698


$                  24,978


$                  56,067


$                  48,836

Net sales, related party


8,790


9,021


9,040


17,811


17,809

               Total net sales


43,159


30,719


34,018


73,878


66,645












Cost of sales:











  Cost of sales (1) 


19,747


12,353


12,371


32,100


24,183

  Cost of sales, related party


3,471


3,838


4,156


7,309


8,063

  Impairment of Intangibles


8,367


-


-


8,367


-

  Amortization of purchased intangible assets and inventory step-up cost


3,137


3,545


2,098


6,682


3,448

  Warranty Reserve


-


-


1,440


-


1,440

  Restructuring charges and exit costs


4,305


27


24


4,332


105

               Total cost of sales


39,027


19,763


20,089


58,790


37,239

Gross profit


4,132


10,956


13,929


15,088


29,406

Operating expenses:











  Research and development(2) 


10,369


8,243


7,136


18,612


13,316

  Selling, general and administrative (3)


11,597


10,077


9,376


21,674


16,730

  Impairment of Intangibles


3,917


-


-


3,917


-

  Merger and acquisition costs


2,726


4,050


144


6,776


609

  Restructuring charges and exit costs


2,265


369


384


2,634


1,315

  Net change in fair value of contingent consideration


(3,912)


(431)


(2,495)


(4,343)


(2,495)

               Total operating expenses


26,962


22,308


14,545


49,270


29,475

Income (loss) from operations


(22,830)


(11,352)


(616)


(34,182)


(69)












Other income and expense, net:











   Interest income and other, net


177


290


372


467


659

   Interest expense


(494)


(486)


(41)


(980)


(78)

              Total other income and expense, net


(317)


(196)


331


(513)


581












Income (loss) before income taxes


(23,147)


(11,548)


(285)


(34,695)


512

Provision for (benefit from) income taxes


107


692


(6,767)


799


(6,776)












Net income (loss) before noncontrolling interests


(23,254)


(12,240)


6,482


(35,494)


7,288












Net income (loss) attributable to noncontrolling interests


98


(135)


-


(37)


-












Net income (loss) attributable to Exar


$                (23,352)


$ (12,105)


$                    6,482


$                (35,457)


$                    7,288












Net income (loss) per share:











  Basic


$                    (0.50)


$      (0.26)


$                      0.14


$                    (0.75)


$                      0.15

  Diluted


$                    (0.50)


$      (0.26)


$                      0.13


$                    (0.75)


$                      0.15












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











  Basic


47,139


47,236


47,496


47,188


47,151

  Diluted


47,139


47,236


49,150


47,188


48,647












(1)Equity compensation included in cost of sales


$                       227


$         260


$                       212


$                       487


$                       354

(2)Equity compensation included in R&D


870


812


689


1,682


829

(3)  Equity compensation included in SG&A


2,503


2,055


2,722


4,558


3,527

 

 

EXAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS  

(In thousands, except share amounts)

(Unaudited)











SEPTEMBER 28,


JUNE 29,


MARCH 30,




2014


2014


2014


ASSETS
















Current assets:








Cash and cash equivalents


$              78,377


$ 123,161


$     14,614


Restricted cash


26,000


26,000


-


Short-term marketable securities


-


-


152,420


Accounts receivable, net


25,828


26,596


15,023


Accounts receivable, net related party


2,108


2,524


3,309


Inventories


31,223


31,988


28,982


Assets held for sale


-


-


-


Other current assets


5,323


5,717


3,549


Total current assets


168,859


215,986


217,897










Property, plant and equipment, net


17,212


20,644


21,280


Goodwill


45,106


45,017


30,410


Intangible assets, net


93,136


109,041


31,390


Other non-current assets


1,408


1,448


1,240










Total assets


$            325,721


$ 392,136


$   302,217










LIABILITIES AND STOCKHOLDERS' EQUITY
















Current liabilities: 








Accounts payable


$              17,737


$    15,883


$     15,488


Accrued compensation and related benefits


5,175


6,271


4,174


Deferred income to distributors


4,052


3,737


1,765


Deferred income to distributors, related party


10,342


9,962


9,349


Short-term debt financing


26,000


65,000


-


Liability for acquisition of non-controlling interest


18,883


-


-


Other current liabilities


14,798


16,257


11,370


             Total current liabilities


96,987


117,110


42,146










Long-term lease financing obligations


19


40


70


Other non-current obligations 


5,476


10,651


6,626










Total liabilities


102,482


127,801


48,842










Stockholders' equity








  Exar Corporation stockholders' equity


223,239


246,598


253,375


  Noncontrolling interests


-


17,737


-


             Total stockholders' equity


223,239


264,335


253,375










Total liabilities and stockholders' equity


$            325,721


$ 392,136


$   302,217


 

 

EXAR CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL RECONCILIATION OF GAAP TO NON-GAAP RESULTS

(In thousands, except per share amounts)

(Unaudited)














THREE MONTHS ENDED


SIX MONTHS ENDED



 SEPTEMBER 28, 


 JUNE 29, 


 SEPTEMBER 29, 


 SEPTEMBER 28, 


 SEPTEMBER 29, 



2014


2014


2013


2014


2013












GAAP net sales


$                  43,159


$   30,719


$                  34,018


$                  73,878


$                  66,645

   Deferred revenue write-down


163


1,908


$                            -


2,071


-

Non-GAAP net sales


$                  43,322


$   32,627


$                  34,018


$                  75,949


$                  66,645












 GAAP gross profit


$                    4,132


$   10,956


$                  13,929


$                  15,088


$                  29,406

 GAAP gross margin


9.6%


35.7%


40.9%


20.4%


44.1%

   Stock-based compensation


227


260


212


487


354

   Amortization of purchased intangible assets and
   inventory step-up


3,137


3,545


2,098


6,682


3,448

   Warranty Reserve


-


-


1,440


-


1,440

   Deferred revenue write-down and associated costs


115


944


-


1,059


-

   Impairment of Intangibles


8,367


-


-


8,367


-

   Restructuring charges and exit costs


4,305


27


24


4,332


105

Non-GAAP gross profit 


$                  20,283


$   15,732


$                  17,703


$                  36,015


$                  34,753

Non-GAAP gross margin 


46.8%


48.2%


52.0%


47.4%


52.1%












GAAP operating expenses


$                  26,962


$   22,308


$                  14,545


$                  49,270


$                  29,475

   Stock-based compensation - R&D


870


812


689


1,682


829

   Stock-based compensation - SG&A


2,503


2,055


2,722


4,558


3,527

   Amortization of purchased intangible assets 


796


413


247


1,209


354

   Impairment of Intangibles


3,917


-


-


3,917


-

   Restructuring charges and exit costs, net


2,265


369


384


2,634


1,315

   Merger and acquisition costs


2,726


4,050


144


6,776


609

   Net change in fair value of contingent consideration


(3,912)


(431)


(2,495)


(4,343)


(2,495)

Non-GAAP operating expenses


$                  17,797


$   15,040


$                  12,854


$                  32,837


$                  25,336












GAAP operating income (loss)


$                (22,830)


$ (11,352)


$                     (616)


$                (34,182)


$                       (69)

   Stock-based compensation 


3,600


3,127


3,623


6,727


4,710

   Amortization of purchased intangible assets and
   inventory step-up


3,933


3,958


2,345


7,891


3,802

   Warranty Reserve


-


-


1,440


-


1,440

   Deferred revenue write-down and associated costs


115


944


-


1,059


-

   Impairment of Intangibles


12,284


-


-


12,284


-

   Restructuring charges and exit costs, net


6,570


396


408


6,966


1,420

   Merger and acquisition costs


2,726


4,050


144


6,776


609

   Net change in fair value of contingent consideration


(3,912)


(431)


(2,495)


(4,343)


(2,495)

Non-GAAP operating income 


$                    2,486


$         692


$                    4,849


$                    3,178


$                    9,417












GAAP net income (loss)


$                (23,352)


$ (12,105)


$                    6,482


$                (35,457)


$                    7,288

   Stock-based compensation 


3,600


3,127


3,623


6,727


4,710

   Amortization of purchased intangible assets and
   inventory step-up


3,933


3,958


2,345


7,891


3,802

   Warranty Reserve


-


-


1,440


-


1,440

   Deferred revenue write-down and associated costs


115


944


-


1,059


-

   Impairment of Intangibles


12,284


-


-


12,284


-

   Restructuring charges and exit costs, net


6,570


396


408


6,966


1,420

   Merger and acquisition costs


3,181


4,497


144


7,678


609

   Net change in fair value of contingent consideration


(3,912)


(431)


(2,495)


(4,343)


(2,495)

   Net income attributable to nocontrolling interest


98


(135)


-


(37)


-

   Income tax effects


(21)


609


(6,812)


588


(6,842)

Non-GAAP net income attribute to Exar


$                    2,496


$         860


$                    5,135


$                    3,356


$                    9,932












GAAP net income (loss) per share











  Basic


$                    (0.50)


$      (0.26)


$                      0.14


$                    (0.75)


$                      0.15

  Diluted


$                    (0.50)


$      (0.26)


$                      0.13


$                    (0.75)


$                      0.15












Non-GAAP net income (loss) per share 











  Basic


$                      0.05


$        0.02


$                      0.11


$                      0.07


$                      0.21

  Diluted


$                      0.05


$        0.02


$                      0.10


$                      0.07


$                      0.20












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











  Basic


47,139


47,236


47,496


47,188


47,151

  Diluted


49,520


49,826


50,548


49,850


49,965












Net cash provided (used) by operations


$                  (1,960)


$    (8,137)


$                    3,569


$                (10,097)


$                    4,552

   Less purchases of fixed assets and IP


(105)


(551)


(400)


(656)


(749)

   Add proceeds from sale of IP


-


-


-


-


125

Free cash flow


$                  (2,065)


$    (8,688)


$                    3,169


$                (10,753)


$                    3,928

 

SOURCE Exar Corporation