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PMC-Sierra Reports Second Quarter 2007 ResultsSANTA CLARA, Calif. --(Business Wire)-- PMC-Sierra, Inc. (Nasdaq:PMCS), a leading provider of high-speed broadband communications and storage semiconductors, today reported results for the second quarter ending July 1, 2007. Net revenues in the second quarter of 2007 were $104.7 million compared with $103.7 million in the first quarter of 2007. As announced during the Company's first quarter earnings conference call on April 25th, 2007, PMC-Sierra completed a review of its expanded global distribution arrangement with its largest distributor, Avnet, Inc. As a result of completing this review, PMC-Sierra determined it was appropriate that all future revenues generated through Avnet be reported on a 'sell-through' basis and therefore deferred until inventory is sold to the end customer. The net impact of this adjustment in the second quarter of 2007 was a decrease in reported revenue of $4.2 million, a reduction of $0.8 million in cost of sales, and an increase of $3.4 million in deferred income on the balance sheet. Net loss in the second quarter of 2007 on a GAAP basis was $22.3 million (GAAP diluted loss per share of $0.10) compared with GAAP net loss of $15.8 million (GAAP diluted loss per share of $0.07) in the first quarter of 2007. Non-GAAP net income in the second quarter of 2007 was $7.4 million (non-GAAP diluted earnings per share of $0.03) compared with a non-GAAP net income in the first quarter of 2007 of $4.4 million (non-GAAP diluted earnings per share of $0.02). "In the second quarter, we experienced improvement in our enterprise storage, fiber to the home, and telecom businesses on a sequential basis," said Bob Bailey, chairman and chief executive officer of PMC-Sierra. "We believe the overall business environment is improving as we go into the second half of 2007, and we are executing on our corporate restructuring to improve the Company's operating performance going forward." Non-GAAP net income in the second quarter of 2007 excludes the following items: (i) $9.6 million in stock-based compensation expense; (ii) $2.2 million reversal of a payroll tax accrual in a foreign jurisdiction; (iii) $9.8 million in amortization of purchased intangible assets; (iv) $3.8 million in costs and charges related to the Company's corporate restructuring announced March 29th, 2007; (v) $8.3 million foreign exchange loss on foreign denominated FIN 48 liabilities, and (vi) $0.3 million income tax effect relating to these non-GAAP adjustments. For a full reconciliation of GAAP net income to non-GAAP net income, please refer to the schedule on page 6 of this release. The Company believes the additional non-GAAP measures provided are useful to investors for the purpose of financial analysis. Management uses the non-GAAP measures internally to evaluate its in-period operating performance before gains, losses and other charges that are considered by management to be outside of the Company's core operating results. In addition, the measures are used to plan for the Company's future periods. However, non-GAAP measures are neither stated in accordance with, nor are they a substitute for, GAAP measures. In the second quarter, PMC-Sierra received a prestigious Excellent Partner Award from Hitachi, Ltd., a leading global electronics company. This award, which recognizes superior product technology, service and support provided to Hitachi, was presented to PMC-Sierra at Hitachi's Disk Array System Division in Japan. The Company made the following product announcements in Q2 2007: -- SRC 8x6G: we announced the industry's first 8-port PCI-Express 2.0 6Gbps SAS/SATA RAID Controller targeted at the volume server market. This high-performance SAS 2.0 compliant RAID controller is the newest addition to PMC-Sierra's maxSAS(TM) family of SAS silicon products. The device features include an x8 PCI-Express 2.0 port, eight SAS 2.0 ports, DDR2-800 memory controller, hardware acceleration for RAID 5/6 support and other security features critical to enterprise server applications. All of the device's subsystems are tied together with the RoCstar(TM) non-blocking architecture for maximum performance. -- Gigabit Fiber Access Gateway: we announced the availability of two fiber access gateway solutions, the MSP7150 EPON/GPON gateway SoC for Fiber To The Home (FTTH) and the MSP7140 VDSL2 gateway SoC for Fiber To The Node (FTTN). These SoCs deliver gigabit-per-second line-rate IPV4/V6 routing, Network Address Translation, Quality of Service, encryption and a multi-channel VoIP terminal adaptor, and consume less than 1.5W of power. PMC-Sierra's fiber access gateway solutions provide OEMs and ODMs with a common platform architecture to support multiple high-speed access technologies in various markets. -- Tachyon SPC 8x6G: this device is an 8-port 6Gbps SAS/SATA Protocol Controller targeted at enterprise-class external tiered storage systems. This high performance SAS 2.0 compliant protocol controller is the newest addition to PMC-Sierra's Tachyon(R) controller family. The device supports SSP, SMP, STP and direct attached SATA protocols and supports 1024 end devices for high density storage arrays. Together with the maxSAS product family, the SPC 8x6G enables customers to build complete high-performance, scalable end-to-end native SAS/SATA enterprise system architectures. Second Quarter 2007 Conference Call Management will review the second quarter 2007 results and provide guidance for the third quarter of 2007 during a conference call at 1:30 p.m. Pacific Time/4:30 p.m. Eastern Time on July 19, 2007. The conference call webcast will be accessible under the Financial Events and Calendar section at http://investor.pmc-sierra.com/. To listen to the conference call live by telephone, dial 416-915-8321 approximately ten minutes before the start time. A telephone playback will be available after the completion of the call and can be accessed at 719-457-0820 using the access code 1234034. A replay of the webcast will be available for five business days. Third Quarter 2007 Conference Call PMC-Sierra is planning on releasing its results for the third quarter of 2007 on October 18th. A conference call will be held on the day of the release to review the quarter and provide an outlook for the fourth quarter of 2007. Safe Harbor Statement PMC-Sierra's forward-looking statements are subject to risks and uncertainties. Actual results may differ from these projections. The Company's SEC filings describe more fully the risks associated with the Company's business including PMC-Sierra's limited revenue visibility due to variable customer demands, market segment growth or decline, orders with short delivery lead times, customer concentration, and the uncertain timing of expense reductions associated with corporate restructurings and their related impact on PMC's business. The Company does not undertake any obligation to update the forward-looking statements. About PMC-Sierra PMC-Sierra(TM) is a leading provider of broadband communications and storage semiconductors for metro, access, fiber to the home, wireless infrastructure, storage, laser printers, and fiber access gateway equipment. PMC-Sierra offers worldwide technical and sales support, including a network of offices throughout North America, Europe, Israel and Asia. The company is publicly traded on the NASDAQ Stock Market under the PMCS symbol. For more information, visit www.pmc-sierra.com. (C) Copyright PMC-Sierra, Inc. 2007. All rights reserved. PMC and Tachyon are registered trademarks of PMC-Sierra, Inc. in the United States and other countries. PMC-SIERRA, PMCS, maxSAS, RoCstar and "Enabling connectivity. Empowering people." are trademarks of PMC-Sierra, Inc. Other product and company names mentioned herein may be trademarks of their respective owners.
PMC-Sierra, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
(unaudited)
Three Months Ended Six Months Ended
----------------------------- -------------------
Jul 1, Apr 1, Jul 2, Jul 1, Jul 2,
2007 2007 2006 2007 2006
Net revenues $104,692 $103,665 $118,780 $208,357 $206,561
Cost of revenues 37,650 37,571 43,560 75,221 70,185
--------- --------- --------- --------- ---------
Gross profit 67,042 66,094 75,220 133,136 136,376
Other costs and
expenses:
Research and
development 41,635 44,524 41,587 86,159 75,336
Selling, general
and administrative 25,171 26,698 27,174 51,869 46,767
Amortization of
purchased
intangible assets 9,836 9,835 9,934 19,671 12,044
In-process research
and development - - 20,500 - 35,300
Restructuring costs
and other charges 3,786 6,894 - 10,681 (738)
--------- --------- --------- --------- ---------
Loss from operations (13,386) (21,857) (23,975) (35,244) (32,333)
Other income
(expense):
Interest income,
net 2,472 1,837 1,267 4,309 4,833
Foreign exchange
loss (7,926) (996) (3,378) (8,922) (3,365)
Amortization of
debt issue costs (242) (242) (242) (484) (484)
Loss on
investments, net - - (3,118) - (1,269)
--------- --------- --------- --------- ---------
Loss before
(provision for)
recovery of income
taxes (19,082) (21,258) (29,446) (40,341) (32,618)
(Provision for)
recovery of income
taxes (3,177) 5,435 (2,388) 2,258 (13,549)
--------- --------- --------- --------- ---------
Net loss $(22,259) $(15,823) $(31,834) $(38,083) $(46,167)
========= ========= ========= ========= =========
Net loss per common
share - basic and
diluted $ (0.10) $ (0.07) $ (0.16) $ (0.18) $ (0.24)
Shares used in per
share calculation -
basic and diluted 215,688 213,881 203,067 214,785 195,143
As a supplement to the Company's consolidated financial statements
presented on a generally accepted accounting principles (GAAP) basis,
the Company provides additional non-GAAP measures for net income and
net income per share in its press release.
A non-GAAP financial measure is a numerical measure of a company's
performance, financial position, or cash flows that either excludes
or includes amounts that are not normally excluded or included in the
most directly comparable measure calculated and presented in
accordance with GAAP. The Company believes that the additional non-
GAAP measures are useful to investors for the purpose of financial
analysis. Management uses these measures internally to evaluate the
Company's in-period operating performance before gains, losses and
other charges that are considered by management to be outside of the
Company's core operating results. In addition, the measures are used
for planning and forecasting of the Company's future periods.
However, non-GAAP measures are not in accordance with, nor are they a
substitute for, GAAP measures. Other companies may use different non-
GAAP measures and presentation of results.
PMC-Sierra, Inc.
Reconciliation of GAAP net loss to Non-GAAP net income
(in thousands, except for per share amounts)
(unaudited)
Three Months Ended
July 1, 2007
Non-
GAAP
Reported Items Non-GAAP
------------------------------
Net revenues 104,692 - 104,692
Cost of revenues 37,650 (532)(1) 37,118
--------- ------- ---------
Gross profit 67,042 (532) 67,574
Operating expenses:
Research and development 41,635 (4,400)(1) 37,235
Selling, general and administrative 25,171 (2,500)(3) 22,671
Amortization of purchased intangible
assets 9,836 (9,836) -
In-process research and development - - -
Restructuring costs and other charges 3,786 (3,786)(4) -
--------- ------- ---------
-
(Loss) income from operations (13,386) 21,054 7,668
Other income (expense):
Interest income, net 2,472 - 2,472
Foreign exchange gain (loss) (7,926) 8,307 (5) 381
Amortization of debt issue costs (242) - (242)
Loss on investments, net - - -
--------- ------- ---------
(Loss) Income before (provision for)
recovery of income taxes (19,082) 29,361 10,279
(Provision for) recovery of income
taxes (3,177) 261 (6) (2,916)
--------- ------- ---------
Net (loss) income (22,259) 29,622 7,363
========= ======= =========
Net (loss) income per common share -
basic $ (0.10) $ 0.03
Net (loss) income per common share -
diluted $ (0.10) $ 0.03
Shares used in per share calculation -
basic 215,688 215,688
Shares used in per share calculation -
diluted 215,688 218,077
Three Months Ended
July 2, 2006
Non-GAAP
Reported Items Non-GAAP
------------------------------
Net revenues 118,780 - 118,780
Cost of revenues 43,560 (6,165)(2) 37,395
--------- -------- ---------
Gross profit 75,220 (6,165) 81,385
Operating expenses:
Research and development 41,587 (4,042)(1) 37,545
Selling, general and administrative 27,174 (5,492)(1) 21,682
Amortization of purchased intangible
assets 9,934 (9,934) -
In-process research and development 20,500 (20,500) -
Restructuring costs and other charges - - -
--------- -------- ---------
(Loss) income from operations (23,975) 46,133 22,158
Other income (expense):
Interest income, net 1,267 - 1,267
Foreign exchange gain (loss) (3,378) 3,295 (5) (83)
Amortization of debt issue costs (242) - (242)
Loss on investments, net (3,118) 3,118 -
--------- -------- ---------
(Loss) Income before (provision for)
recovery of income taxes (29,446) 52,546 23,100
(Provision for) recovery of income taxes (2,388) (1,307)(6) (3,695)
--------- -------- ---------
Net (loss) income (31,834) 51,239 19,405
========= ======== =========
Net (loss) income per common share -
basic $ (0.16) $ 0.10
Net (loss) income per common share -
diluted $ (0.16) $ 0.09
Shares used in per share calculation -
basic 203,067 203,067
Shares used in per share calculation -
diluted 203,067 214,600
(1) Stock based compensation
(2) $5.4 million purchase accounting adjustment related to inventory,
$0.3 million in acquisition-related contractor costs, and $0.5
million stock-based compensation
(3) $4.7 million stock based compensation and $2.2 million reversal of
a payroll tax accrual in a foreign jurisdiction
(4) $3.6 million additional severance and $0.2 million asset write-
downs
(5) Foreign exchange loss on liability for unrecognized tax benefits
(6) Income tax effect of non-GAAP adjustments
PMC-Sierra, Inc.
Reconciliation of GAAP net loss to Non-GAAP net income
(in thousands, except for per share amounts)
(unaudited)
Six Months Ended
July 1, 2007
Non-GAAP
Reported Items Non-GAAP
-----------------------------
Net revenues 208,357 - 208,357
Cost of revenues 75,221 (1,049)(1) 74,172
-------- -------- ---------
Gross profit 133,136 (1,049) 134,185
Operating expenses:
Research and development 86,159 (8,667)(1) 77,492
Selling, general and administrative 51,869 (7,133)(3) 44,736
Amortization of purchased intangible
assets 19,671 (19,671) -
In-process research and development - - -
Restructuring costs and other charges 10,681 (10,681)(5) -
-------- -------- ---------
-
(Loss) income from operations (35,244) 47,201 11,957
Other income (expense):
Interest income, net 4,309 - 4,309
Foreign exchange gain (loss) (8,922) 9,286 (7) 364
Amortization of debt issue costs (484) - (484)
(Loss) Gain on investments - - -
-------- -------- ---------
(Loss) Income before (provision for)
recovery of income taxes (40,341) 56,487 16,146
(Provision for) recovery of income taxes 2,258 (6,641)(9) (4,383)
-------- -------- ---------
Net (loss) income (38,083) 49,846 11,763
======== ======== =========
Net (loss) income per common share -
basic $(0.18) $0.05
Net (loss) income per common share -
diluted $(0.18) $0.05
Shares used in per share calculation -
basic 214,785 214,785
Shares used in per share calculation -
diluted 214,785 216,731
Six Months Ended
July 2, 2006
Non-GAAP
Reported Items Non-GAAP
-------------------------------
Net revenues 206,561 - 206,561
Cost of revenues 70,185 (9,861) (2) 60,324
-------- -------- --------
Gross profit 136,376 (9,861) 146,237
Operating expenses:
Research and development 75,336 (6,536) (1) 68,800
Selling, general and administrative 46,767 (8,698) (4) 38,069
Amortization of purchased intangible
assets 12,044 (12,044) -
In-process research and development 35,300 (35,300) -
Restructuring costs and other charges (738) 738 (6) -
-------- -------- --------
(Loss) income from operations (32,333) 71,701 39,368
Other income (expense):
Interest income, net 4,833 - 4,833
Foreign exchange gain (loss) (3,365) 3,182 (7) (183)
Amortization of debt issue costs (484) - (484)
(Loss) Gain on investments (1,269) 1,269 (8) -
-------- -------- --------
(Loss) Income before (provision for)
recovery of income taxes (32,618) 76,152 43,534
(Provision for) recovery of income
taxes (13,549) 5,767 (10) (7,782)
-------- -------- --------
Net (loss) income (46,167) 81,919 35,752
======== ======== ========
Net (loss) income per common share -
basic $(0.24) $0.18
Net (loss) income per common share -
diluted $(0.24) $0.17
Shares used in per share calculation -
basic 195,143 195,143
Shares used in per share calculation -
diluted 195,143 205,637
Non-GAAP adjustments consist of:
(1) Stock based compensation
(2) $8.2 million purchase accounting adjustment related to inventory,
$0.8 million in acquisition-related contractor costs, and $0.9
million stock-based compensation
(3) $9.3 million stock based compensation and $2.2 million reversal of
a payroll tax accrual in a foreign jurisdiction
(4) $0.2 million relocation expenses and $8.5 million stock-based
compensation
(5) $8.1 million additional severance, $0.6 million writedown of
assets and $2.0 million provision for excess facilities
(6) $0.7 million reduction in restructuring comprised of $2.3 million
reversal of provision for excess facilities and $1.6 million
severance
(7) Foreign exchange loss on liability for unrecognized tax benefits
(8) Net loss on investment includes $3.2 million write-down, offset by
$1.9 million gains on sales of investments.
(9) Provision for income taxes includes $4.0 million additional
recovery of prior years' income taxes and $2.6 million income tax
effect of non-GAAP adjustments
(10) Recovery of income taxes consist of $7.0 million withholding and
other taxes on repatriation of funds; and $1.3 million income tax
effect of these non-GAAP adjustments
PMC-Sierra, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
Jul 1, Dec 31,
2007 2006
ASSETS:
Current assets:
Cash and cash equivalents, and short-
term investments $ 298,274 $ 258,914
Accounts receivable, net 36,865 37,303
Inventories, net 28,511 34,505
Prepaid expenses and other current
assets 17,485 16,186
Deferred tax assets 3,671 978
------------- --------------
Total current assets 384,806 347,886
Goodwill 398,418 395,943
Intangible assets, net 208,143 223,629
Deferred tax assets 41,402 397
Property and equipment, net 18,050 18,904
Investments and other assets 12,964 14,653
Deposits for wafer fabrication capacity 5,145 5,145
------------- --------------
$1,068,928 $1,006,557
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 18,479 $ 19,074
Accrued liabilities 52,969 51,199
Income taxes payable - 722
Deferred income taxes 2,792 2,042
Liability for unrecognized tax benefit 63,044 58,706
Accrued restructuring costs 14,912 12,657
Deferred income 15,467 11,340
------------- --------------
Total current liabilities 167,663 155,740
Long-term obligations 1,065 -
2.25% Senior convertible notes due
October 15, 2025 225,000 225,000
Deferred taxes and other tax liabilities 12,461 10,612
Liability for unrecognized tax benefit 87,683 42,045
PMC special shares convertible into
2,099 (2006 - 2,099) shares of common
stock 2,732 2,732
Stockholders' equity
Capital stock and additional paid in
capital 1,360,479 1,327,808
Accumulated other comprehensive income
(loss) 1,448 (1,127)
Accumulated deficit (789,603) (756,253)
------------- --------------
Total stockholders' equity 572,324 570,428
------------- --------------
$1,068,928 $1,006,557
============= ==============
PMC-Sierra, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
--------------------
Jul 1, Jul 2,
2007 2006
Cash flows from operating activities:
Net loss $(38,083) $ (46,167)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Stock-based compensation 19,062 15,924
Depreciation and amortization 28,557 19,382
In-process research and development - 35,300
Gain on investments - 1,243
Loss on disposal of property and equipment 490 -
Changes in operating assets and liabilities:
Accounts receivable 438 (13,151)
Inventories 5,994 (4,988)
Prepaid expenses and other current assets 327 (16,588)
Accounts payable and accrued liabilities 410 (2,158)
Deferred taxes and income taxes payable 12,218 13,019
Accrued restructuring costs 2,406 (4,428)
Deferred income 4,127 1,483
--------- ----------
Net cash (used in) provided by operating
activities 35,946 (1,129)
--------- ----------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired - (413,781)
Proceeds from sales and maturities of short-
term available-for-sale investments - 181,450
Proceeds from sale of investments and other
assets - 5,440
Purchases of property and equipment (4,436) (5,113)
Purchase of intangible assets (5,759) (1,747)
--------- ----------
Net cash used in investing activities (10,195) (233,751)
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock 13,609 20,793
--------- ----------
Net cash provided by financing activities 13,609 20,793
--------- ----------
Net (decrease) increase in cash and cash
equivalents 39,360 (214,087)
Cash and cash equivalents, beginning of the
period 258,914 405,566
--------- ----------
Cash and cash equivalents, end of the period $298,274 $ 191,479
========= ==========
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