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PMC Reports First Quarter 2014 Results
[May 01, 2014]

PMC Reports First Quarter 2014 Results


SUNNYVALE, Calif. --(Business Wire)--

PMC-Sierra, Inc. (PMC®) (NASDAQ:PMCS), the semiconductor and software solutions innovator transforming networks that connect, move and store big data, today reported results for the first quarter ended March 29, 2014.

Net revenues in the first quarter of 2014 totaled $126.5 million, a decrease of 0.3 percent compared to $126.9 million in the fourth quarter of 2013, and an increase of 1.0 percent compared to $125.2 million in the first quarter of 2013.

GAAP net loss in the first quarter of 2014 totaled $4.2 million, or $0.02 per share, compared to a GAAP net loss in the fourth quarter of 2014 of $15.7 million, or $0.08 per share.

Non-GAAP net income in the first quarter of 2014 totaled $16.0 million, or $0.08 per diluted share, compared to non-GAAP net income of $19.0 million, or $0.09 per diluted share, in the fourth quarter of 2013.

"2014 is off to a solid start as we continue to build momentum in both our storage and server businesses," said Greg Lang, PMC president and chief executive officer. "First quarter revenue and non-GAAP EPS came in above the midpoint of our expectations, driven by strong demand for our Flash and OTN products. We are optimistic about the growing interest in our leading-edge product offerings and believe we are well positioned to capture market share in the year ahead."

Net income on a non-GAAP basis in the first quarter of 2014 excludes the following items: (i) $6.2 million stock-based compensation expense; (ii) $12.3 million amortization of purchased intangible assets, and (iii) $1.7 million of other adjustments as described in the accompanying GAAP to non-GAAP reconciliation table.

For a full reconciliation of each non-GAAP item used herein to the most directly comparable GAAP financial measure, please refer to the schedule included with this release. The Company believes the additional non-GAAP measures 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.

FIRST QUARTER 2014 HIGHLIGHTS

The Company announced the following in the first quarter of 2014:

  • On March 10, PMC announced the successful interoperability of its DIGI 120G OTN processor and Acacia's AC100 100G Coherent module, enabling mass deployment of 100G OTN in metro networks, unlocking a 10-fold increase in fiber capacity and eliminating the need for new fiber. Demonstrating interoperability with Acacia's module is an important step to show that the ecosystem is ready for the 100G transition.
  • On March 6, PMC announced its exhibition at CeBIT in Hannover, Germany. PMC held several demonstrations at CeBIT featuring Adaptec by PMC® Series 8 RAID adapters with maxCache™ Plus Tiering Software and 12Gb/s SAS HBA-based Software Defined Storage.
  • On February 11, it was announced that PMC's Adaptec Series 8 card won the Enterprise RAID Card Innovation Award from ZDNet China.
  • On January 28, PMC announced it was providing high-density storage connectivity support for the Open Compute Project (OCP). PMC's 24-port RAID adapter enables the densest Open Rack storage capacity available today. A common scale-out configuration can now support connectivity for 360 drives per rack, a 33 percent increase in capacity.

First Quarter 2014 Conference Call

Management will review the first quarter 2014 results and share its outlook for the second quarter of 2014 during a conference call at 1:30 pm Pacific Time/4:30 pm Eastern Time on May 1, 2014. The conference call webcast will be accessible under the Financial News and Events section at http://investor.pmcs.com. To listen to the conference call live by telephone, dial 1 (877) 941-2069 with passcode 4679257, approximately 10 minutes before the start time. A telephone playback will be available after the completion of the call and can be accessed at 1 (800) 406-7325 using the access code 4679257. A replay of the webcast will be available through May 30, 2014.

Safe Harbor Statement

This release contains forward-looking statements that involve risks and uncertainties. The Company's SEC filings, including the Company's most recent reports on Form 10-K and Form 10-Q, describe the risks associated with the Company's business, including PMC's limited revenue visibility due to variable customer demands, market segment growth or decline, orders with short delivery lead times, customer concentration, changes in inventory, and other items such as foreign exchange rates and volatility in global financial markets.

About PMC

PMC (NASDAQ:PMCS) is the semiconductor and software solutions innovator transforming networks that connect, move and store big data. Building on a track record of technology leadership, the Company is driving innovation across storage, optical and mobile networks. PMC's highly integrated solutions increase performance and enable next-generation services to accelerate the network transformation. For more information, visit www.pmcs.com. Follow PMC on Facebook, Twitter, LinkedIn and RSS.

© Copyright PMC-Sierra, Inc. 2014. All rights reserved. Adaptec by PMC, PMC and PMC-SIERRA are registered trademarks of PMC-Sierra, Inc. in the United States and other countries, and PMCS and MaxCache are trademarks of PMC-Sierra, Inc. Other product and company names mentioned herein may be trademarks of their respective owners. PMC is the corporate brand of PMC-Sierra, Inc.



     
PMC-Sierra, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
(unaudited)
 
Three Months Ended
March 29, December 28, March 30,
2014 2013 2013
 
Net revenues $ 126,468 $ 126,872 $ 125,161
Cost of revenues   37,564     37,349     37,387  
Gross profit 88,904 89,523 87,774
 
 
Research and development 50,148 54,009 54,624
Selling, general and administrative 29,340 27,768 28,342
Amortization of purchased intangible assets   12,329     13,547     10,784  
Loss from operations (2,913 ) (5,801 ) (5,976 )
 
Other income (expense):
Gain (loss) on investment securities and other investments 29 103 (16 )
Amortization of debt issue costs (97 ) (50 ) -
Foreign exchange gain 532 2,363 1,365
Interest income, net   55     83     264  
Loss before provision for income taxes (2,394 ) (3,302 ) (4,363 )
Provision for income taxes   (1,847 )   (12,377 )   (4,164 )
Net loss $ (4,241 ) $ (15,679 ) $ (8,527 )
 
Net loss per common share - basic $ (0.02 ) $ (0.08 ) $ (0.04 )
Net loss per common share - diluted $ (0.02 ) $ (0.08 ) $ (0.04 )
 
Shares used in per share calculation - basic 195,188 201,615 203,307
Shares used in per share calculation - diluted 195,188 201,615 203,307
 

 

As a supplement to the Company's condensed consolidated financial statements presented in accordance with generally accepted accounting principles ("GAAP"), the Company provides additional non-GAAP measures for cost of revenues, gross profit, gross profit percentage, research and development expense, selling, general and administrative expense, amortization of purchased intangible assets, other income (expense), (provision for) recovery of income taxes, operating expenses, operating income (loss), operating margin percentage, net income (loss), and basic and diluted net income (loss) per share.

 

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.
Adjustments to GAAP Cost of Revenues, Gross Profit, Gross Profit Percentage, Research and Development Expense,
Selling, General and Administrative Expense, Amortization of Purchased Intangible Assets
Other Income (Expense), (Provision for) Recovery of Income Taxes, Operating Expenses, Operating Income (Loss),
Operating Margin Percentage, Net Income (Loss), and Basic and Diluted Net Income (Loss) Per Share
(in thousands, except for per share amounts)
(unaudited)
 
  Three Months Ended
March 29, December 28, March 30,

2014 (1)

2013 (2)

2013 (3)

 
 
GAAP cost of revenues $ 37,564 $ 37,349 $ 37,387
Stock-based compensation (241 ) (256 ) (245 )
Acquisition-related costs - (5 ) -
Termination recoveries (costs)   9     (171 )   -  
Non-GAAP cost of revenues $ 37,332   $ 36,917   $ 37,142  
 
GAAP gross profit $ 88,904 $ 89,523 $ 87,774
Stock-based compensation 241 256 245
Acquisition-related costs - 5 -
Termination (recoveries) costs   (9 )   171     -  
Non-GAAP gross profit $ 89,136   $ 89,955   $ 88,019  
 
Non-GAAP gross profit % 70.5 % 70.9 % 70.3 %
 
GAAP research and development expense $ 50,148 $ 54,009 $ 54,624
Stock-based compensation (2,647 ) (2,854 ) (3,304 )
Acquisition-related costs (800 ) (1,071 ) (273 )
Termination recoveries (costs) 58 (2,690 ) (392 )
Asset impairment   -     (508 )   -  
Non-GAAP research and development expense $ 46,759   $ 46,886   $ 50,655  
 
GAAP selling, general and administrative expense $ 29,340 $ 27,768 $ 28,342
Stock-based compensation (3,303 ) (3,694 ) (3,833 )
Acquisition-related costs (61 ) (39 ) (6 )
Lease exit costs (142 ) (48 ) -
Termination costs (3 ) (1,282 ) (207 )
Reversal of accruals - 1,300 -
Asset impairment (477 ) (639 ) -
Other expenses   (58 )   -     -  
Non-GAAP selling, general and administrative expense $ 25,296   $ 23,366   $ 24,296  
 
GAAP amortization of purchased intangible assets $ 12,329 $ 13,547 $ 10,784
Amortization of purchased intangible assets   (12,329 )   (13,547 )   (10,784 )
Non-GAAP amortization of purchased intangible assets $ -   $ -   $ -  
 
GAAP other income (expense) $ 519 $ 2,499 $ 1,613
Foreign exchange gain on foreign tax liabilities   (879 )   (2,564 )   (1,313 )
Non-GAAP other income (expense) $ (360 ) $ (65 ) $ 300  
 
GAAP provision for (recovery of) income taxes $ 1,847 $ 12,377 $ 4,164
(Provision for) recovery of income tax matters   (1,111 )   (11,760 )   (4,056 )
Non-GAAP provision for (recovery of) income taxes $ 736   $ 617   $ 108  
 
GAAP operating expenses $ 91,817 $ 95,324 $ 93,750
Stock-based compensation (5,950 ) (6,548 ) (7,137 )
Acquisition-related costs (861 ) (1,110 ) (279 )
Asset impairment (477 ) (1,147 ) -
Lease exit costs (142 ) (48 ) -
Termination recoveries (costs) 55 (3,972 ) (599 )
Amortization of purchased intangible assets (12,329 ) (13,547 ) (10,784 )
Reversal of accruals - 1,300 -
Other expenses   (58 )   -     -  
Non-GAAP operating expenses $ 72,055   $ 70,252   $ 74,951  
 
 
March 29,

December 28,

March 30,

2014 2013 2013
 
GAAP operating income (loss) $ (2,913 ) $ (5,801 ) $ (5,976 )
Stock-based compensation 6,191 6,804 7,382
Acquisition-related costs 861 1,115 279
Asset impairment 477 1,147 -
Lease exit costs 142 48 -
Termination (recoveries) costs (64 ) 4,143 599
Amortization of purchased intangible assets 12,329 13,547 10,784
Reversal of accruals - (1,300 ) -
Other expenses   58     -     -  
Non-GAAP operating income $ 17,081   $ 19,703   $ 13,068  
 
Non-GAAP operating margin 14 % 16 % 10 %
 
GAAP net (loss) income $ (4,241 ) $ (15,679 ) $ (8,527 )
Stock-based compensation 6,191 6,804 7,382
Acquisition-related costs 861 1,115 279
Termination (recoveries) costs (64 ) 4,143 599
Reversal of accruals - (1,300 ) -
Asset impairment 477 1,147 -
Lease exit costs 142 48 -
Amortization of purchased intangible assets 12,329 13,547 10,784
Other expenses 58 - -
Foreign exchange gain on foreign tax liabilities (879 ) (2,564 ) (1,313 )
Provision for (recovery of) income tax matters   1,111     11,760     4,056  
Non-GAAP net income $ 15,985   $ 19,021   $ 13,260  
 
Non-GAAP net income per share - basic $ 0.08 $ 0.09 $ 0.07
Non-GAAP net income per share - diluted $ 0.08 $ 0.09 $ 0.06
 
 
Shares used to calculate non-GAAP net income per share - basic 195,188 201,615 203,307
Shares used to calculate non-GAAP net income per share - diluted 198,306 203,047 205,475
 
(1) $6.2 million stock-based compensation expense; $0.9 million acquisition-related costs; $0.1 million recovery of termination costs; $12.3 million amortization of purchased intangible assets; $0.9 million foreign exchange gain on foreign tax liabilities; $0.5 million asset impairment; $0.1 million lease exit costs; $0.1 million other expenses, and $1.1 million provision for income taxes which includes $0.8 million income tax provision related to unrecognized tax benefits, $0.3 million income tax provision related to prepaid tax amortization, $0.4 million tax provision related to certain income tax credits, $0.1 million for adjustments related to prior periods, and $0.5 million deferred income tax benefit related to tax deductible items above.
 

(2) $6.8 million stock-based compensation expense; $1.1 million acquisition-related costs and deferred tax effects; $4.1 million termination costs; $1.1 million asset impairment; $1.3 million reversal of accrual; $0.1 million lease exit costs; $13.5 million amortization of purchased intangible assets; $2.6 million foreign exchange gain on foreign tax liabilities; and $11.8 million provision for income taxes which includes $1.9 million income tax recovery related to intercompany transactions, $2.9 million income tax recovery for adjustments related to prior periods and changes in estimates, $0.9 million income tax provision related to unrecognized tax benefits, $3.3 million provision related to non-deductible intangible asset amortization, $0.7 million income tax provision related to foreign exchange translation of a foreign subsidiary, $10.4 million deferred tax provision related to changes in assessments for certain income tax credits, and $1.3 million income tax provision related to tax deductible goodwill and other items above.

 
(3) $7.4 million stock-based compensation expense; $0.3 million acquisition-related costs; $0.6 million termination costs; $10.8 million amortization of purchased intangible assets; $1.3 million foreign exchange gain on foreign tax liabilities; and $4.1 million provision for income taxes which includes $1.8 million tax provision related to intercompany transactions, $2.6 million income tax provision related to unrecognized tax benefits, $0.5 million deferred tax recovery related to non-deductible intangible asset amortization, $0.1 million tax provision for adjustments related to prior periods, and $0.1 million income tax provision related to tax deductible items above.
 

 
PMC-Sierra, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
   
March 29, December 28,
2014 2013
ASSETS:
Current assets:
Cash and cash equivalents $ 76,928 $ 100,038
Short-term investments   15,526     10,894  
Cash, cash equivalents and short-term investments 92,454 110,932
Accounts receivable, net 56,646 56,112
Inventories, net 30,210 31,074
Prepaid expenses and other current assets 17,991 19,855
Income tax receivable 3,780 2,640
Prepaid tax expense 5,346 5,695
Deferred tax assets (1)   3,170     43,131  
Total current assets 209,597 269,439
 
Investment securities 100,459 103,391
Investments and other assets 8,939 10,750
Prepaid tax expenses 93 93
Property and equipment, net 38,255 39,149
Goodwill and other intangible assets, net 412,051 425,823
Deferred tax assets (1)   1,255     1,306  
$ 770,649   $ 849,951  
 
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 18,027 $ 23,173
Accrued liabilities 54,447 64,257
Credit facility 5,000 30,000
Income taxes payable 2,696 632
Liability for unrecognized tax benefit (1) 19,942 54,127
Deferred income taxes 7 71
Deferred income   5,560     7,481  
Total current liabilities 105,679 179,741
 
Long-term obligations 9,208 11,108
Deferred income taxes 47,529 43,143
Liability for unrecognized tax benefit (1) 18,097 27,947

PMC special shares convertible into 1,019 (2013 - 1,019) shares of common stock

1,188 1,188
Stockholders' equity:
Common stock and additional paid in capital 1,560,907 1,550,385
Accumulated other comprehensive loss (673 ) (526 )
Accumulated deficit   (971,286 )   (963,035 )
Total stockholders' equity   588,948     586,824  
$ 770,649   $ 849,951  
 
(1) Effective from the beginning of the first quarter of 2014, the Company adopted Financial Accounting Standards Board's Accounting Standards Update ("ASU") No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists". Approximately $44 million of deferred tax assets of a foreign subsidiary were derecognized along with the related liability for unrecognized tax benefits as a result of this presentation adoption, with no impact to the Condensed Consolidated Statements of Operations.
 

 
PMC-Sierra, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
  Three Months Ended
 
March 29, December 28, March 30,
2014 2013 2013
 
Cash flows from operating activities:
Net loss $ (4,241 ) $ (15,679 ) $ (8,527 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 17,911 19,701 15,732
Stock-based compensation 6,191 6,803 7,382
Unrealized foreign exchange loss (gain), net 2,551 3,855 (1,406 )
Net amortization of premiums/discounts and accrued interest of investments 275 227 58
Asset impairments 770 2,966 -
Loss on disposal of property and equipment - 6 -
(Gain) loss on investment securities and other (29 ) (29 ) 26
Excess tax benefits from stock option transactions - - (231 )
 
Changes in operating assets and liabilities:
Accounts receivable (546 ) 4,407 4,765
Inventories 864 3,485 (2,024 )
Prepaid expenses and other current assets 2,375 388 174
Accounts payable and accrued liabilities (14,301 ) 3,063 (6,787 )
Deferred taxes and income taxes payable 710 4,780 5,258
Deferred income   (1,921 )   283     (272 )
Net cash provided by operating activities   10,609     34,256     14,148  
 
Cash flows from investing activities:
Purchases of property and equipment (3,732 ) (5,554 ) (4,552 )
Purchase of intangible assets (481 ) (1,931 ) (465 )
Redemption of short-term investments 1,800 - 5,946
Disposals of investment securities and other investments 14,064 16,433 20,518
Purchases of investment securities and other investments   (17,790 )   (7,723 )   (135,318 )
Net cash (used in) provided by investing activities   (6,139 )   1,225     (113,871 )
 
Cash flows from financing activities:
Proceeds from short-term loan and credit facility 30,000 30,000 -
Repayment of credit facility (55,000 ) - -
Proceeds from issuance of common stock 9,348 1,771 14,836
Repurchases of common stock (11,496 ) (53,791 ) -
Excess tax benefits from stock option transactions   -     -     231  
Net cash (used in) provided by financing activities   (27,148 )   (22,020 )   15,067  
 
Effect of exchange rate changes on cash and cash equivalents   (432 )   (442 )   (417 )
Net (decrease) increase in cash and cash equivalents (23,110 ) 13,019 (85,073 )
Cash and cash equivalents, beginning of the period   100,038     87,019     169,970  
Cash and cash equivalents, end of the period $ 76,928   $ 100,038   $ 84,897  
 


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