UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
August 3, 2016
Date of Report (Date of earliest event reported)
Commission File No. 0-14225
EXAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
|
94-1741481 |
(State or other jurisdiction of incorporation) |
|
(I.R.S. Employer Identification Number) |
48720 Kato Road, Fremont, CA 94538
(Address of principal executive offices, zip code)
(510) 668-7000
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results of Operations and Financial Condition
On August 3, 2016, Exar Corporation (the “Company”) issued a press release announcing its financial results for the first fiscal quarter ended July 3, 2016 and intends to present additional information during a related conference call to be held on August 3, 2016. A copy of each of the press release and the supplemental financial information and commentary by Keith Tainsky, Chief Financial Officer of the Company regarding the Company’s first fiscal quarter ended July 3, 2016, is attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and is incorporated herein by reference.
The information in this Current Report on Form 8-K and the Exhibits attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01. Financial Statements and Exhibits
|
(d) |
Exhibits. |
|
99.1 |
Press Release of Exar Corporation dated August 3, 2016. |
|
99.2 |
Supplemental Financial Information and Commentary. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
EXAR CORPORATION |
|
(Registrant) |
Date: August 3, 2016 |
/s/ Keith Tainsky |
|
Keith Tainsky
Chief Financial Officer |
EXHIBIT INDEX
Exhibit No. |
|
Description |
99.1 |
|
Press Release of Exar Corporation dated August 3, 2016. |
99.2 |
Supplemental Financial Information and Commentary. |
Exhibit 99.1
Press Release
Exar Corporation Announces Fiscal 2017 First Quarter Financial Results
Fremont, CA – August 3, 2016 - 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 |
o |
First quarter net sales of $27.1 million increased $1.8 million or 7% from the previous quarter’s $25.3 million. |
● |
Gross Margin |
o |
GAAP gross margin of 49.2% increased from 47.2% reported in the previous quarter. |
o |
Non-GAAP gross margin of 51.8% increased from the 50.0% reported in the previous quarter. |
● |
Operating Expenses |
o |
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. |
o |
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 |
o |
GAAP net income of $7.5 million, compared to the previous quarter’s net loss of $0.4 million. |
o |
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 |
o |
GAAP diluted earnings per share of $0.15, compared to the previous quarter’s loss per share of $0.01. |
o |
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 |
###
Exhibit 99.2
EXAR CORPORATION
FIRST QUARTER FISCAL YEAR 2017 EARNINGS ANNOUNCEMENT
PREPARED CONFERENCE CALL REMARKS
Exar Corporation is providing a copy of these prepared remarks in conjunction with our fiscal year 2017 first quarter press release in order to provide shareholders and analysts with additional time and detail for analyzing our financial results in advance of our quarterly conference call. 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 and an archive of the conference call webcast will be available after the conclusion of the conference call.
Please see the section “Discussion of Non-GAAP Financial Measures” later in this document for more details on non-GAAP data. Investors should also refer to the reconciliation of Non-GAAP Results to GAAP Results, which is contained in our press release. Unless otherwise indicated, all non-GAAP financial results presented 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.
Discussion of GAAP Operating Results
Today we reported the following GAAP results for our first quarter fiscal 2017 (comprised of fourteen weeks, as opposed to the usual thirteen weeks).
THREE MONTHS ENDED |
||||||||||||||||||||||||
JULY 3, 2016 |
MARCH 27, 2016 |
JUNE 28, 2015 |
||||||||||||||||||||||
Net Sales |
$ | 27,136 | 100 | % | $ | 25,343 | 100 | % | $ | 28,183 | 100 | % | ||||||||||||
Cost of Sales |
13,774 | 51 | % | 13,370 | 53 | % | 15,305 | 54 | % | |||||||||||||||
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 | % |
First quarter net sales increased $1.8 million or 7% sequentially. First quarter net sales were positively impacted by the Chinese New Year rebound and 14th week, driven by advanced products growth and offset by channel inventory reduction. First quarter net sales decreased $1.0 million or 4% from the first quarter a year ago which was a result of $1.0 million in Intellectual Property license sales in the prior period. For additional commentary on net sales, see comments regarding sales by end markets below.
On a GAAP basis, first quarter gross margin of 49.2% increased from the fourth quarter gross margin of 47.2% and 45.7% reported in the same period a year ago, largely as a result of our strategic initiative to lower our cost of goods sold and increased advanced product sales, which generally sell at high margins.
In the first quarter, on a GAAP basis, operating expenses were $5.5 million, compared with $12.5 million reported in the previous fourth quarter and $15.9 million a year ago. We recorded a gain of $9.3 million related to the sale-leaseback of our corporate headquarters, and 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.
First quarter GAAP net income from continuing operations was $7.5 million, or $0.15 per diluted share, compared with GAAP net loss of $0.4 million reported in the previous fourth quarter, or a loss of $0.01 per share.
First quarter GAAP net income from discontinued operations was $1.4 million, or $0.03 per diluted share, compared with GAAP net loss of $1.8 million reported in the previous fourth quarter, or a loss of $0.03 per share. First quarter discontinued operations included charges of $1.8 million of purchase amortization.
Discussion of Business and Non-GAAP Financial Highlights (Continuing Operations Only)
The Company’s non-GAAP measures exclude certain recurring charges, such as stock-based compensation, amortization and impairment of acquired intangible assets, as well as certain one-time or non-recurring charges, such as charges from restructuring. Please see the section “Discussion of Non-GAAP Financial Measures” later in this document for more details on non-GAAP data.
We reported the following non-GAAP results for our first quarter fiscal 2017:
● |
Net sales were $27.1 million, up 7 percent sequentially. |
● |
Gross margin was 51.8%, a 188 basis points improvement from the previous quarter. |
● |
Operating expenses of $10.1 million decreased $1.1 million or 10% from the previous quarter’s expenses of $11.1 million. |
● |
Operating income was $4.0 million, up $2.5 million and $2.8 million from fiscal 2016 fourth quarter and the same period a year ago, respectively. |
● |
Net income of $3.8 million increased $2.3 million or 152% from the previous quarter’s net income of $1.5 million. |
● |
EPS was $0.08, up from the $0.03 reported in the fiscal 2016 fourth quarter and from the $0.02 reported for the same period a year ago. |
Our net sales by end market in dollars and as a percentage of total net sales were as follows for the periods presented (in thousands, except percentages):
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 | % |
In light of the pending divestiture of the iML Display business, we are taking this opportunity to supply additional transparency with respect to the key markets that Exar targets and serves. Accordingly, we are reporting on two new additional markets: Audio/Video and Automotive.
Industrial. Fiscal 2017 first quarter Industrial revenue was $18.4 million, which represented 67% of sales, an increase of 16% when compared to the $15.9 million reported in the fiscal 2016 fourth quarter. As anticipated, the first quarter was seasonally stronger, benefitting from an additional week, and was offset in part by reduction of channel inventory.
Infrastructure. Fiscal 2017 first quarter Infrastructure revenue was $5.6 million, which represented 21% of sales, a decrease of 3% when compared to the $5.8 million reported in the fiscal 2016 fourth quarter. This decrease was consistent with expectations and was attributable to a reduction in legacy telecommunications product sales.
Audio/Video. Fiscal 2017 first quarter Audio/Video revenue was $1.9 million, which represented 7% of sales, a decrease of 12% when compared to the $2.1 million reported in the fiscal 2016 fourth quarter. This decrease was consistent with expectations and was attributable to a soft demand environment for the video processor business.
Automotive. Fiscal 2017 first quarter Automotive revenue was $779 thousand, which represented 3% of sales, a decrease of 8% when compared to the $850 thousand reported in the fiscal 2016 fourth quarter.
Discussion of Non-GAAP Gross Margins, Operating Expenses and Operating Margins (Continuing Operations Only)
On a non-GAAP basis, our net sales and operating results as a percentage of net sales were as follows for the periods presented (in thousands, except percentages):
THREE MONTHS ENDED |
||||||||||||||||||||||||
JULY 3, 2016 |
MARCH 27, 2016 |
JUNE 28, 2015 |
||||||||||||||||||||||
Net Sales |
$ | 27,136 | 100 | % | $ | 25,343 | 100 | % | $ | 28,183 | 100 | % | ||||||||||||
Cost of Sales |
13,066 | 48 | % | 12,679 | 50 | % | 14,611 | 52 | % | |||||||||||||||
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 | % |
Gross Margin
On a non-GAAP basis, first quarter gross margin was 52%, a 188 basis point improvement over the fiscal 2016 fourth quarter gross margin of 50%. This equates to a non-GAAP gross profit of $14.1 million for the first quarter, compared with $12.7 million last quarter. This sequential increase was attributable to an increase in advanced product sales, as well as the results from continued cost reduction initiatives. First quarter gross margin of 52% is also higher than the 48% gross margin reported in the same quarter a year ago, largely due to the results of cost reduction efforts.
Operating Expenses
First quarter operating expenses on a non-GAAP basis of $10.1 million declined 10% sequentially from $11.1 million reported in the previous fourth quarter and 19% from the $12.4 million reported in the first quarter a year ago. First quarter R&D expenses were $4.4 million, a 12% sequential decrease as compared with the $5.0 million reported in the fourth quarter and a 28% decrease from the $6.1 million reported a year ago. R&D expenses were lower as a result of lower headcount and associated costs after a restructuring completed in April 2016. SG&A expenses were $5.7 million, down 7% sequentially as compared with the $6.1 million reported in the fourth quarter, and down 10% from the $6.3 million reported a year ago. These expenses were slightly lower due to a $0.2 million gain recognized during the first quarter upon the sale-leaseback of our Fremont corporate facility.
Operating Margin
In the first quarter, operating income and operating margin on a non-GAAP basis were $4.0 million and 15%, respectively, compared to $1.5 million and 6% in the previous fourth quarter, and $1.2 million or 4% from the same quarter a year ago.
EBITDA
In the first quarter, non-GAAP EBITDA and EBITDA margin were $4.9 million and 18%, respectively, compared with $2.4 million and 9% in the previous fourth quarter, and $2.8 million and 10% from the same quarter a year ago.
Discussion of Non-GAAP Net Income/EPS (Continuing Operations Only)
Net Income
First quarter non-GAAP net income of $3.8 million increased $2.3 million and $2.7 million sequentially and on a year-over-year basis, respectively.
EPS
First quarter non-GAAP earnings per fully diluted share of $0.08 increased $0.05 per share and $0.06 per share sequentially and on a year-over-year basis, respectively.
Consolidated Balance Sheet and Cash Flow Highlights
Cash and Equivalents
We ended the fiscal 2017 first quarter with $85.3 million in cash and cash equivalents, up from $55.1 million reported in the previous fourth quarter.
Net Accounts Receivable
First quarter net accounts receivable decreased to $18.7 million from $19.4 million last quarter. First quarter DSO decreased to 68 days, compared to 70 days last quarter.
Net Inventory
Fourth quarter net inventory increased to $22.1 million from $20.8 million in the previous fourth quarter. First quarter days inventory was 153 days, compared to 147 days last quarter.
Fixed Assets
On May 9, 2016, we entered into an agreement with ASUS Computer International in which the parties agreed to consummate a sale and leaseback transaction. Under the terms of the Purchase Agreement, we agreed to sell our corporate headquarters properties in Fremont, California for a total purchase price of $26.0 million. The transaction was closed in May, and during the first quarter we recorded a $9.3 million gain.
Deferred Margin
First quarter deferred margin increased to $9.1 million, compared with $7.7 million in the previous fourth quarter.
Assets and Liabilities Held for Sale
The Company is in the process of divesting its wholly-owned subsidiary Integrated Memory Logic Limited (iML) to Beijing E-Town Chipone Technology Co., Ltd., a consortium comprised of Beijing-based IC design and solutions manufacturer Chipone Technology Co., Ltd and its financial partner Beijing E-Town International Investment & Development Co., Ltd. Accordingly, the assets and liabilities of iML are presented as assets and liabilities held for sale. At the end of fiscal 2017 first quarter, assets held for sale was $92.7 million, and liabilities held for sale was $2.5 million.
Cash Flow
First quarter total depreciation and amortization was $2.1 million, of which $0.9 million was included in the non-GAAP results. Cash flow from operations was $4.1 million. Free cash flow for the first quarter of $28.1 million included net proceeds from the sale-leaseback of the Fremont corporate facility of $24.1 million.
Capital Structure
The number of shares used in the first quarter calculation of non-GAAP results was 49.3 million, consistent with the previous fourth quarter’s 49.1 million. We did not repurchase any shares during the first quarter.
Discussion of Fiscal 2017 Second Quarter Guidance for Continuing Operations
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) |
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 our press release.
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