Exar Announces Third Quarter Fiscal 2015 Financial Results

Company Reports Sequential Revenue Growth and Exceeds Profitability Expectations

FREMONT, Calif., Feb. 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 third fiscal quarter, ended on December 28, 2014.

Summary of Results

Revenue for the quarter was a record $44.3 million, up 2% from the prior quarter and an increase of 44% from the same quarter in the prior year.

On a non-GAAP basis gross margin was 50%, an increase of 280 basis points, operating income was $5.6 million, or 13% of revenue.  Earnings Per Share ("EPS") was $0.11, up from $0.05, or 120% from the prior quarter.

GAAP gross margin was 38%. Net operating loss was $6.5 million, or a loss per share of $0.14. The accompanying table provides a complete reconciliation of GAAP and non-GAAP results.

"It is clear that our advanced products are meeting the demanding requirements of our customers and that we are operating in an environment that rewards innovation. As we realize the revenue impact of these advanced products, we expect improved operating leverage and increased profitability," commented Exar President and CEO Louis DiNardo. 

"While we serve thousands of customers in our broad based business, we provide high performance analog mixed-signal, power management, connectivity and system solutions that serve five targeted vertical segments; Flat Panel Displays for LCD TVs and Tablets, LED Lighting Solutions, Video Surveillance, Industrial Internet of Things Connectivity ("Industrial IoT") and Data Center Storage Solutions. This unique combination of a stable industrial business coupled with success in select high growth vertical markets will allow us to deliver consistent profitable growth," concluded Mr. DiNardo.

Market Update

Industrial and Embedded: including Video Surveillance, Industrial Process Control, Industrial IoT and Medical Electronics accounted for 46% of revenue.

The Company announced a broad licensing and collaboration agreement with Dahua Technology, in Hangzhou, China, highlighting Exar's position as a leader in the emerging High Definition Composite Video Interface (HDCVI) standard for Video Surveillance.

High-End Consumer: including Flat Panel Displays for large screen LCD TVs, Tablets, Set Top Boxes and LED Lighting solutions accounted for 37% of revenue.  The Company's iML8683 and iML8684, AC step drivers, for LED lighting applications continue to register meaningful design wins in Korea, China, Taiwan and Europe. Additionally, recently introduced integrated Power Management ICs ("PMIC") are driving new design wins in China, Taiwan, and Japan.

Infrastructure: including servers and enterprise networking, as well as carrier class communications equipment, accounted for 17% of revenue.  Power Management and Data Compression design activity at top-tier OEMs remains robust.  The Company's recently introduced fully integrated Power Modules, with digital or analog controllers, offer the industry's smallest package and highest performance solutions. The DX2040 compression card has demonstrated a 40% performance improvement in Hadoop benchmarking with a corresponding 7 to 1 decrease in the amount of storage required for large Hadoop clusters.

Outlook

For the fourth quarter ending March 29, 2015, the Company expects revenue to increase 2% to 5% sequentially, or in the range of $45.2 million to $46.5 million, and Non-GAAP EPS on a fully diluted basis to be in the range of $0.09 to $0.12.

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 shareholders 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, February 4, 2015 at 4:45 pm EST (1:45 p.m. PST). The prepared remarks will not be read on the call. To access the conference call, please dial (719) 457-2689 or (888) 510-1785.  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


NINE MONTHS ENDED



 DECEMBER 28, 2014 


 SEPTEMBER 28, 2014 


 DECEMBER 29, 2013 


 DECEMBER 28, 2014 


 DECEMBER 29, 2013 

Industrial & Embedded Systems


$ 20,506

46%


$   19,656

45%


$ 18,429

60%


$    59,029

49%


$ 52,870

55%

High-End Consumer


16,202

37%


16,362

38%


68

- %


37,896

32%


419

- %

Infrastructure


7,607

17%


7,304

17%


12,193

40%


23,339

19%


44,046

45%

Net Sales


$ 44,315

100%


$   43,322

100%


$ 30,690

100%


$ 120,264

100%


$ 97,335

100%

















Gross Profit


$ 21,971

49.6%


$   20,283

46.8%


$ 14,906

48.6%


$    57,986

48.2%


$ 49,659

51.0%

Operating Expenses


$ 16,403

37.0%


$   17,797

41.1%


$ 13,158

42.9%


$    49,240

40.9%


$ 38,494

39.5%

Income from operations


$    5,568

12.6%


$     2,486

5.7%


$    1,748

5.7%


$      8,746

7.3%


$ 11,165

11.5%

Net income


$    5,415

12.2%


$     2,496

5.8%


$    1,977

6.4%


$      8,771

7.3%


$ 11,909

12.2%

Net income per share
















  Basic 


$      0.11



$       0.05



$      0.04



$        0.19



$      0.25


  Diluted 


$      0.11



$       0.05



$      0.04



$        0.18



$      0.24


































GAAP Results


THREE MONTHS ENDED


NINE MONTHS ENDED



 DECEMBER 28, 2014 


 SEPTEMBER 28, 2014 


 DECEMBER 29, 2013 


 DECEMBER 28, 2014 


 DECEMBER 29, 2013 

Industrial & Embedded Systems


$ 20,506

46%


$   19,656

46%


$ 18,429

60%


$    59,029

50%


$ 52,870

55%

High-End Consumer


16,202

37%


16,199

38%


68

- %


35,825

30%


419

- %

Infrastructure


7,607

17%


7,304

17%


12,193

40%


23,339

20%


44,046

45%

Net Sales


$ 44,315

100%


$   43,159

100%


$ 30,690

100%


$ 118,193

100%


$ 97,335

100%

















Gross Profit


$ 16,890

38.1%


$     4,132

9.6%


$ 12,826

41.8%


$    31,978

27.1%


$ 42,232

43.4%

Operating Expenses


$ 23,425

52.9%


$   26,962

62.5%


$ 16,147

52.6%


$    72,695

61.5%


$ 45,622

46.9%

Income (loss) from operations


$  (6,535)

-14.7%


$ (22,830)

-52.9%


$  (3,321)

-10.8%


$  (40,717)

-34.4%


$  (3,390)

-3.5%

Net income (loss)


$  (6,599)

-14.9%


$ (23,352)

-54.1%


$  (1,634)

-5.3%


$  (42,056)

-35.6%


$    5,654

5.8%

Net income (loss) per share
















  Basic 


$    (0.14)



$     (0.50)



$    (0.03)



$      (0.89)



$      0.12


  Diluted 


$    (0.14)



$     (0.50)



$    (0.03)



$      (0.89)



$      0.12


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,  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 30, 2014 and the Quarterly Reports on Form 10-Q for the quarter ended June 29, 2014 and September 28, 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


NINE MONTHS ENDED



 DECEMBER 28, 


 SEPTEMBER 28, 


 DECEMBER 29, 


 DECEMBER 28, 


 DECEMBER 29, 



2014


2014


2013


2014


2013












Net sales


$                35,919


$                  34,369


$                21,846


$                91,986


$                70,682

Net sales, related party


8,396


8,790


8,844


26,207


26,653

               Total net sales


44,315


43,159


30,690


118,193


97,335












Cost of sales:











  Cost of sales (1) 


20,113


19,747


12,393


52,127


36,576

  Cost of sales, related party


3,099


3,471


3,556


10,408


11,619

  Amortization of purchased intangible assets and inventory

  step-up cost


2,533


3,137


1,898


9,215


5,346

  Restructuring charges and exit costs


2,052


4,305


17


6,384


122

  Impairment of Intangibles


-


8,367


-


8,367


-

  Warranty Reserve


(372)


-


-


(286)


1,440

               Total cost of sales


27,425


39,027


17,864


86,215


55,103

Gross profit


16,890


4,132


12,826


31,978


42,232

Operating expenses:











  Research and development(2) 


10,035


10,369


6,929


28,647


20,245

  Selling, general and administrative (3)


11,793


11,597


8,829


33,467


25,559

  Impairment of Intangibles


-


3,917


-


3,917


-

  Merger and acquisition costs


179


2,726


257


6,955


866

  Restructuring charges and exit costs


1,418


2,265


74


4,052


1,389

  Net change in fair value of contingent consideration


-


(3,912)


58


(4,343)


(2,437)

               Total operating expenses


23,425


26,962


16,147


72,695


45,622

Loss from operations


(6,535)


(22,830)


(3,321)


(40,717)


(3,390)












Other income and expense, net:











   Interest income and other, net


53


177


321


520


980

   Interest expense


(46)


(494)


(39)


(1,026)


(117)

              Total other income and expense, net


7


(317)


282


(506)


863












Loss before income taxes


(6,528)


(23,147)


(3,039)


(41,223)


(2,527)

Provision for (benefit from) income taxes


71


107


(1,405)


870


(8,181)












Net income (loss) before noncontrolling interests


(6,599)


(23,254)


(1,634)


(42,093)


5,654












Net income (loss) attributable to noncontrolling interests


-


98


-


(37)


-












Net income (loss) attributable to Exar


$                (6,599)


$                (23,352)


$                (1,634)


$              (42,056)


$                  5,654












Net income (loss) per share:











  Basic


$                  (0.14)


$                    (0.50)


$                  (0.03)


$                  (0.89)


$                    0.12

  Diluted


$                  (0.14)


$                    (0.50)


$                  (0.03)


$                  (0.89)


$                    0.12












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











  Basic


47,119


47,139


47,529


47,165


47,277

  Diluted


47,119


47,139


47,529


47,165


48,815












(1)Stock based compensation included in Cost of sales


$                     496


$                       227


$                     165


$                     983


$                     519

(2)Stock based compensation included in R&D


442


870


566


2,124


1,395

(3)Stock based compensation included in SG&A


3,284


2,503


1,826


7,842


5,353

 


EXAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)











DECEMBER 28,


SEPTEMBER 28,


MARCH 30,




2014


2014


2014


ASSETS
















Current assets:








Cash and cash equivalents


$ 52,622


$ 78,377


$ 14,614


Restricted cash


-


26,000


-


Short-term marketable securities


-


-


152,420


Accounts receivable, net


28,688


25,828


15,023


Accounts receivable, net related party


865


2,108


3,309


Inventories


33,066


31,223


28,982


Other current assets


5,487


5,323


3,549


Total current assets


120,728


168,859


217,897










Property, plant and equipment, net


20,673


17,212


21,280


Goodwill


44,871


45,106


30,410


Intangible assets, net


89,888


93,136


31,390


Other non-current assets


1,306


1,408


1,240










Total assets


$ 277,466


$ 325,721


$ 302,217










LIABILITIES AND STOCKHOLDERS' EQUITY
















Current liabilities:








Accounts payable


$ 17,504


$ 17,737


$ 15,488


Accrued compensation and related benefits


6,283


5,175


4,174


Deferred income and allowances on sales to distributors


3,585


4,052


1,765


Deferred income and allowances on sales to distributors, related party

8,110


10,342


9,349


Short-term debt financing


-


26,000


-


Liability for acquisition of non-controlling interest


-


18,883


-


Other current liabilities


14,387


14,798


11,370


Total current liabilities


49,869


96,987


42,146










Long-term lease financing obligations


1,479


19


70


Other non-current obligations


5,405


5,476


6,626










Total liabilities


56,753


102,482


48,842










Stockholders' equity


220,713


223,239


253,375


Total liabilities and stockholders' equity


$ 277,466


$ 325,721


$ 302,217


 

EXAR CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL RECONCILIATION OF GAAP TO NON-GAAP RESULTS

(In thousands, except per share amounts)

(Unaudited)














THREE MONTHS ENDED


NINE MONTHS ENDED



 DECEMBER 28, 


 SEPTEMBER 28, 


 DECEMBER 29, 


 DECEMBER 28, 


 DECEMBER 29, 



2014


2014


2013


2014


2013












GAAP net sales


$                44,315


$                  43,159


$                30,690


$             118,193


$                97,335

   Deferred revenue write-down


-


163


$                          -


2,071


-

Non-GAAP net sales


$                44,315


$                  43,322


$                30,690


$             120,264


$                97,335












 GAAP gross profit


$                16,890


$                    4,132


$                12,826


$                31,978


$                42,232

 GAAP gross margin


38.1%


9.6%


41.8%


27.1%


43.4%

   Stock-based compensation


496


227


165


983


519

   Amortization of purchased intangible assets and

   inventory step-up


2,533


3,137


1,898


9,215


5,346

   Warranty Reserve


-


-


-


-


1,440

   Deferred revenue write-down and associated costs


-


115


-


1,059


-

   Impairment of Intangibles


-


8,367


-


8,367


-

   Restructuring charges and exit costs 


2,052


4,305


17


6,384


122

Non-GAAP gross profit 


$                21,971


$                  20,283


$                14,906


$                57,986


$                49,659

Non-GAAP gross margin 


49.6%


46.8%


48.6%


48.2%


51.0%












GAAP operating expenses


$                23,425


$                  26,962


$                16,147


$                72,695


$                45,622

   Stock-based compensation - R&D


442


870


566


2,124


1,395

   Stock-based compensation - SG&A


3,284


2,503


1,826


7,842


5,353

   Amortization of purchased intangible assets,

   technology license and inventory step-up 


1,699


796


208


2,908


562

   Impairment of Intangibles


-


3,917


-


3,917


-

   Restructuring charges and exit costs, net


1,418


2,265


74


4,052


1,389

   Merger and acquisition costs


179


2,726


257


6,955


866

   Net change in fair value of contingent consideration


-


(3,912)


58


(4,343)


(2,437)

Non-GAAP operating expenses


$                16,403


$                  17,797


$                13,158


$                49,240


$                38,494












GAAP operating income (loss)


$                (6,535)


$                (22,830)


$                (3,321)


$              (40,717)


$                (3,390)

   Stock-based compensation 


4,222


3,600


2,557


10,949


7,267

   Amortization of purchased intangible assets,

   technology license and inventory step-up 


4,232


3,933


2,106


12,123


5,908

   Warranty Reserve


-


-


-


-


1,440

   Deferred revenue write-down and associated costs


-


115


-


1,059


-

   Impairment of Intangibles


-


12,284


-


12,284


-

   Restructuring charges and exit costs


3,470


6,570


91


10,436


1,511

   Merger and acquisition costs


179


2,726


257


6,955


866

   Net change in fair value of contingent consideration


-


(3,912)


58


(4,343)


(2,437)

Non-GAAP operating income 


$                  5,568


$                    2,486


$                  1,748


$                  8,746


$                11,165












GAAP net income (loss)


$                (6,599)


$                (23,352)


$                (1,634)


$              (42,056)


$                  5,654

   Stock-based compensation 


4,222


3,600


2,557


10,949


7,267

   Amortization of purchased intangible assets,

   technology license and inventory step-up 


4,232


3,933


2,106


12,123


5,908

   Warranty Reserve


-


-


-


-


1,440

   Deferred revenue write-down and associated costs


-


115


-


1,059


-

   Impairment Charges


28


12,284


-


12,312


-

   Restructuring charges, exit costs 


3,470


6,570


91


10,436


1,511

   Merger and acquisition costs


189


3,181


257


7,867


866

   Net change in fair value of contingent consideration


-


(3,912)


58


(4,343)


(2,437)

   Net income attributable to nocontrolling interest


-


98


-


(37)


-

   Income tax effects


(127)


(21)


(1,458)


461


(8,300)

Non-GAAP net income attribute to Exar


$                  5,415


$                    2,496


$                  1,977


$                  8,771


$                11,909












GAAP net income (loss) per share











  Basic


$                  (0.14)


$                    (0.50)


$                  (0.03)


$                  (0.89)


$                    0.12

  Diluted


$                  (0.14)


$                    (0.50)


$                  (0.03)


$                  (0.89)


$                    0.12












Non-GAAP net income (loss) per share 











  Basic


$                    0.11


$                      0.05


$                    0.04


$                    0.19


$                    0.25

  Diluted


$                    0.11


$                      0.05


$                    0.04


$                    0.18


$                    0.24












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











  Basic


47,119


47,139


47,529


47,165


47,277

  Diluted


49,180


49,520


50,400


49,646


50,096












Net cash provided (used) by operations


$                (5,914)


$                  (1,960)


$                (5,409)


$              (16,011)


$                   (857)

   Less purchases of fixed assets and IP


(1,791)


(105)


(926)


(2,447)


(1,675)

   Add proceeds from sale of IP


-


-


-


-


125

Free cash flow


$                (7,705)


$                  (2,065)


$                (6,335)


$              (18,458)


$                (2,407)

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/exar-announces-third-quarter-fiscal-2015-financial-results-300031012.html

SOURCE Exar Corporation