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Exar Reports First Quarter Fiscal 2015 Financial Results

Company Reports Revenue of $32.6 Million, an Increase of 17% Sequentially

FREMONT, Calif., Aug. 6, 2014 /PRNewswire/ -- Exar Corporation (NYSE: EXAR) a leading provider of high-performance integrated circuits and system solutions, today reported financial results for the first quarter of fiscal year 2015, ended June 29, 2014. Non-GAAP revenue for the first quarter of fiscal year 2015 was $32.6 million, an increase of 17% from $28.0 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 first quarter was $30.7 million.

Non-GAAP gross margin for the quarter was 48%; and Non-GAAP net income for the quarter was $0.9 million, or $0.02 per diluted share, up from $0.7 million in the prior quarter. GAAP gross margin for the quarter was 36% and GAAP net income for the quarter was a loss of $0.26 per share.  GAAP results for the quarter include the impact of consolidating Integrated Memory Logic Limited (iML) as of June 4, 2014, including substantial one-time costs associated with the acquisition, amortization of intangibles, and the elimination of minority interest pending completion of the second-step merger.

"Our focus during the past twenty-four months has been on restructuring our business and developing new products through organic and inorganic means. This quarter marks a transformative point, as our sales and marketing team is demonstrating meaningful traction with both our Component Products and our System Solutions," commented Exar President and CEO, Louis DiNardo.

"Additionally, as we build an enduring business within our traditional product areas serving the industrial, networking, and communications infrastructure markets, we have augmented our offering with high-end consumer products through the recent acquisition of iML.  The high-performance analog and mixed-signal products provided by iML are a logical extension of our business. iML gives us a great team, immediate scale, further diversity, with enhanced profitability," concluded Mr. DiNardo.

In the first quarter of fiscal 2015 the Company continued its aggressive introductions of new products, including:

  • XRP7720 – A quad output programmable universal power management IC (PMIC).
  • XRP7725 – A universal power management IC compatible with Intel Node Manager server power management technology.
  • XRP3303x – The industry's widest operation range RS-485 transceivers.
  • XR761xx – A new family of PowerBlox DC-DC regulators offering exceptional line regulation.
  • XR811xx – A new family of universal clocks with ultra-low phase jitter for communications, audio-video, and industrial applications.

On a Non-GAAP basis, for the second fiscal quarter of 2015, ending September 28, 2014, the Company is expecting revenue to be in the range of $40 million to $43 million, gross margin between 47% to 50%, and operating expenses of between $18 million and $20 million.

Company officials will be discussing these results in greater detail in a conference call today, Wednesday, August 6, 2014 at 1:45 p.m. PDT (4:45 p.m. EDT).  To access the conference call, please dial (719) 457-2628 or (888) 505-4368.  In addition, a live webcast will be available on Exar's Investor webpage.  An archive of the webcast will be available Exar's Investor webpage after its conclusion. 

Exar Corporation designs, develops and markets high-performance integrated circuits and system solutions for the Communications, High-End Consumer, Industrial & Embedded Systems, and Networking & Storage 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.

Integrated Memory Logic (iML), a subsidiary of Exar Corporation, is a fabless semiconductor company, which develops and markets application specific analog, power management, and mixed-signal integrated circuits. iML ICs are optimized primarily for the display, mobile systems and lighting markets.  iML is an industry leader in the field of color control management, and has an extensive portfolio of products in power management and LED drivers.  iML maintains a strong footprint close to its customers and supply chain in Asia, and markets extensively to OEMs and system manufacturing houses in China, Taiwan, Korea and Japan.  Founded in 1996, iML has offices in the US and Asia.  

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




 JUNE 29, 2014 


 MARCH 30, 2014 


 JUNE 30, 2013 


Industrial & Embedded Systems


$      18,867

58%


$      19,588

70%


$      16,498

51%


Consumer


5,332

16%


43

0%


246

1%


Communications Infrastructure


5,090

16%


5,046

18%


5,976

18%


Networking & Storage


3,338

10%


3,310

12%


9,907

30%


Net Sales


$      32,627

100%


$      27,987

100%


$      32,627

100%













Gross Profit


$      15,732

48.2%


$      12,837

45.9%


$      17,050

52.3%


Operating Expenses


$      15,040

46.1%


$      12,671

45.3%


$      12,482

38.3%


Income from operations


$           692

2.1%


$           166

0.6%


$        4,568

14.0%


Net income


$           860

2.6%


$           676

2.4%


$        4,797

14.7%


Net income per share











  Basic 


$          0.02



$          0.01



$          0.10



  Diluted 


$          0.02



$          0.01



$          0.10

























GAAP Results


THREE MONTHS ENDED




 JUNE 29, 2014 


 MARCH 30, 2014 


 JUNE 30, 2013 


Industrial & Embedded Systems


$      18,867

61%


$      19,588

70%


$      16,498

51%


Consumer


3,424

11%


43

0%


246

1%


Communications Infrastructure


5,090

17%


5,046

18%


5,976

18%


Networking & Storage


3,338

11%


3,310

12%


9,907

30%


Net Sales


$      30,719

100%


$      27,987

100%


$      32,627

100%













Gross Profit


$      10,956

35.7%


$        8,422

30.1%


$      15,477

47.4%


Operating Expenses


$      22,308

72.6%


$        8,733

31.2%


$      14,930

45.8%


Income (loss) from operations


$     (11,352)

-37.0%


$         (311)

-1.1%


$           547

1.7%


Net income (loss)


$     (12,105)

-39.4%


$           147

0.5%


$           806

2.5%


Net income (loss) per share











  Basic 


$        (0.26)



$          0.00



$          0.02



  Diluted 


$        (0.26)



$          0.00



$          0.02



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 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





 JUNE 29, 


 MARCH 30, 


 JUNE 30, 





2014


2014


2013






























Net sales


$    21,698


$    18,913


$    23,858



Net sales, related party


9,021


9,074


8,769



               Total net sales


30,719


27,987


32,627












Cost of sales:









  Cost of sales (1) 


12,353


11,491


11,812



  Cost of sales, related party


3,838


4,119


3,907



  Amortization of purchased intangible assets and inventory step-up cost


3,545


2,254


1,350



  Impairment of intangible assets


-


1,636


-



  Restructuring charges and exit costs


27


65


81



               Total cost of sales


19,763


19,565


17,150



Gross profit


10,956


8,422


15,477



Operating expenses:









  Research and development(2) 


8,243


6,803


6,180



  Selling, general and administrative (3)


10,077


7,496


7,354



  Restructuring charges and exit costs, net


369


1,438


931



  Merger and acquisition costs


4,050


1,014


465



  Net change in fair value of contingent consideration


(431)


(8,018)


-



               Total operating expenses


22,308


8,733


14,930



Income (loss) from operations


(11,352)


(311)


547












Other income and expense, net:









   Interest income and other, net


290


523


287



   Interest expense


(486)


(39)


(37)



   Impairment of long term investment


-


(323)


-



              Total other income and expense, net


(196)


161


250












Income (loss) before income taxes


(11,548)


(150)


797



Provision for (benefit from) income taxes


692


(297)


(9)












Net income (loss) before noncontrolling interest


(12,240)


147


806












Net loss attributable to noncontrolling interest


135


-


-












Net income (loss) attributable to Exar


$   (12,105)


$         147


$         806












Net income (loss) per share:









  Basic


$       (0.26)


$        0.00


$        0.02



  Diluted


$       (0.26)


$        0.00


$        0.02












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









  Basic


47,236


47,328


46,805



  Diluted


47,236


48,778


48,085












(1) Equity compensation included in cost of sales


$         260


$         195


$         142



(2) Equity compensation included in R&D


812


579


140



(3) Equity compensation included in SG&A


2,055


811


805


 

EXAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS  

(In thousands)

(Unaudited)










JUNE 29,


MARCH 30,


JUNE 30,



2014


2014


2013

ASSETS














Current assets:







Cash and cash equivalents


$     149,161


$       14,614


$       36,458

Short-term marketable securities


-


152,420


169,333

Accounts receivable (net of allowances of $1,029, $1,178 and $673)


26,596


15,023


15,811

Accounts receivable, related party (net of allowances of $599, $608 and $318)


2,524


3,309


3,203

Inventories


31,988


28,982


19,391

Other current assets


5,717


3,549


2,853

Total current assets


215,986


217,897


247,049








Property, plant and equipment, net


20,644


21,280


22,953

Goodwill


45,017


30,410


10,356

Intangible assets, net


109,041


31,390


11,804

Other non-current assets


1,448


1,240


1,489








Total assets


$     392,136


$     302,217


$     293,651








LIABILITIES AND STOCKHOLDERS' EQUITY














Current liabilities: 







Accounts payable


$       15,883


$       15,488


$       12,556

Accrued compensation and related benefits


6,271


4,174


3,765

Deferred income and allowances on sales to distributors


3,737


1,765


2,040

Deferred income and allowances on sales to distributors, related party


9,962


9,349


10,282

Short-term debt financing


65,000


-


-

Other current liabilities


16,257


11,370


10,642

       Total current liabilities


117,110


42,146


39,285








Long-term lease financing obligations


40


70


1,012

Other non-current obligations 


10,651


6,626


11,130








Total liabilities


127,801


48,842


51,427








Stockholders' equity:







  Exar Corporation stockholders' equity


246,598


253,375


242,224

  Noncontrolling interest


17,737


-


-

         Total stockholders' equity


264,335


253,375


242,224








Total liabilities and stockholders' equity


$     392,136


$     302,217


$     293,651

 

EXAR CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL RECONCILIATION OF GAAP TO NON-GAAP RESULTS

(In thousands, except per share amounts)

(Unaudited)











THREE MONTHS ENDED




 JUNE 29, 


 MARCH 30, 


 JUNE 30, 




2014


2014


2013










GAAP net sales


$         30,719


$         27,987


$         32,627


   Deferred revenue write-down


1,908


-


-


Non-GAAP net sales


$         32,627


$         27,987


$         32,627










 GAAP gross profit


$         10,956


$           8,422


$         15,477


 GAAP gross margin


35.7%


30.1%


47.4%


   Stock-based compensation


260


195


142


   Amortization of purchased intangible assets and inventory step-up cost


3,545


2,254


1,350


   Deferred revenue write-down and associated costs


944


-


-


   Impairment Charges


-


1,901


-


   Restructuring charges and exit costs


27


65


81


Non-GAAP gross profit 


$         15,732


$         12,837


$         17,050


Non-GAAP gross margin 


48.2%


45.9%


52.3%










GAAP operating expenses


$         22,308


$           8,733


$         14,930


   Stock-based compensation - R&D


812


579


140


   Stock-based compensation - SG&A


2,055


811


805


   Amortization of purchased intangible assets 


413


238


107


   Restructuring charges and exit costs, net


369


1,438


931


   Merger and acquisition costs


4,050


1,014


465


   Net change in fair value of contingent consideration


(431)


(8,018)


-


Non-GAAP operating expenses


$         15,040


$         12,671


$         12,482










GAAP operating income (loss)


$        (11,352)


$             (311)


$              547


   Stock-based compensation 


3,127


1,585


1,087


   Amortization of purchased intangible assets and inventory step-up cost


3,958


2,492


1,457


   Deferred revenue write-down and associated costs


944


-


-


   Impairment Charges


-


1,901


-


   Restructuring charges and exit costs, net


396


1,503


1,012


   Merger and acquisition costs


4,050


1,014


465


   Net change in fair value of contingent consideration


(431)


(8,018)


-


Non-GAAP operating income 


$              692


$              166


$           4,568










GAAP net income (loss)


$        (12,105)


$              147


$              806


   Stock-based compensation 


3,127


1,585


1,087


   Amortization of purchased intangible assets and inventory step-up cost


3,958


2,492


1,457


   Deferred revenue write-down and associated costs


944


-


-


   Impairment Charges


-


2,224


-


   Restructuring charges and exit costs, net


396


1,503


1,012


   Merger and acquisition costs


4,497


1,014


465


   Net change in fair value of contingent consideration


(431)


(8,018)


-


   Net loss attributable to noncontrolling interest


(135)


-


-


   Income tax effects


609


(271)


(30)


Non-GAAP net income attributable to Exar


$              860


$              676


$           4,797










GAAP net income (loss) per share








  Basic


$            (0.26)


$             0.00


$             0.02


  Diluted


$            (0.26)


$             0.00


$             0.02










Non-GAAP net income (loss) per share 








  Basic


$             0.02


$             0.01


$             0.10


  Diluted


$             0.02


$             0.01


$             0.10










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








  Basic


47,236


47,328


46,805


  Diluted


49,826


50,220


48,557


















Net cash provided (used) by operations


$          (8,137)


$           1,708


$              983


   Less purchases of fixed assets and IP


(551)


(983)


(349)


   Add proceeds from sale of IP


-


-


125


Free cash flow


$          (8,688)


$              725


$              759


 

SOURCE Exar Corporation

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