News Column

PMC Reports Second Quarter 2014 Results

July 31, 2014

PMC Investor Relations Website: http://investor.pmcs.com

Q2 2014 earnings announcement call live on Website at 1:30 p.m. PT

Conference call number 1 (888) 505-4369; passcode 2297888

Replay available shortly after end of conference call through August 30, 2014



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 second quarter ended June 28, 2014.

Net revenues in the second quarter of 2014 totaled $126.8 million, an increase of 0.2 percent from $126.5 million in the first quarter of 2014, and a decrease of 1.0 percent compared to $127.6 million in the second quarter of 2013.

GAAP net loss in the second quarterof 2014 totaled $3.5 million, or $0.02 per share, compared to a GAAP net loss in the first quarter of 2014of $4.2 million, or $0.02 per share.

Non-GAAP net income in the second quarter of 2014 totaled $18.3 million, or $0.09 per diluted share, compared to non-GAAP net income of $16.0 million, or $0.08 per diluted share in the first quarter of 2014.

“We have closed another solid quarter with both revenue and non-GAAP EPS above the midpoint of our expectations. Strength in both our Optical and Mobile products more than offset lower revenue from our Storage products due to inventory consumption at two of our larger customers,” said Greg Lang, PMC president and chief executive officer. “As we look to the balance of 2014, we believe we will see four key areas contribute to growth: 12G SAS, Flash Controllers, OTN and RF products. After years of investment, we are pleased to see these product cycles take hold, fueled by the continued escalation of data traffic.”

Net income on a non-GAAP basis in the second quarter of 2014 excludes the following items: (i) $9.9 million amortization of purchased intangible assets; (ii) $4.9 million stock-based compensation expense, (iii) $1.6 million of termination related expense, and 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.

SECOND QUARTER AND RECENT 2014 HIGHLIGHTS

The Company made the following second quarter and recent announcements:

  • On July 15, PMC joined AT&T, Ciena and Verizon on a panel at the Lightwave Optical Summit in Austin, Texas, to discuss the state of 100G OTN networking and deployment readiness, and what is beyond 100G. The discussion topics included the latest developments in equipment, optics and OTN processing semiconductors, and software-defined networking.
  • On May 22, PMC hosted a Storage and Connectivity Innovation Summit at the China Cloud Computing Conference in Beijing, China. PMC was joined by Alibaba Group, C3, Inspur Group, Wiwynn Corporation and Yttibrium and discussed its scalable and flexible solutions that can be tailored to each of the varied requirements across all of China’s hyperscale data centers. Specific topics discussed included hybrid and pure flash storage to accelerate applications, scalable and flexible architectures geared towards open applications and software-defined storage, and tiering data to deliver efficient and cost-effective storage.
  • On May 21, PMC hosted a panel with China Mobile Research Institute to discuss the State of OTN Network Deployments at the Optinet China Conference. Specific topics discussed were the 100G ecosystem and how PMC’s DIGI 120G enabled the maturity of the ecosystem and facilitated China Mobile Communications Corporation’s (CMCC) network deployment, continued scalability and transmission beyond 100G, and software-defined networking.


    Second Quarter 2014 Conference Call

    Management will review the second quarter 2014 results and share its outlook for the third quarter of 2014 during a conference call at 1:30 p.m. Pacific Time/4:30 p.m. Eastern Time on July 31, 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 (888) 505-4369 with passcode 2297888, 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 (888) 203-1112 using the access code 2297888. A replay of the webcast will be available through August 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 tax rates, 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. PMC and PMC-SIERRA are registered trademarks of PMC-Sierra, Inc. in the United States and other countries, PMCS is a trademark of PMC-Sierra, Inc. PMC disclaims any ownership rights in other product and company names mentioned herein. 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 EndedSix Months Ended
    June 28,March 29,June 29,June 28,June 29,
    20142014201320142013
     
    Net revenues $ 126,822 $ 126,468 $ 127,584 $ 253,290 $ 252,745
    Cost of revenues   36,824     37,564     37,637     74,388     75,024  
    Gross profit 89,998 88,904 89,947 178,902 177,721
     
     
    Research and development 49,388 50,148 51,681 99,536 106,305
    Selling, general and administrative 28,991 29,340 30,277 58,331 58,619
    Amortization of purchased intangible assets   9,948     12,329     10,776     22,277     21,560  
    Income (loss) from operations 1,671 (2,913 ) (2,787 ) (1,242 ) (8,763 )
     
    Other income (expense):
    Gain on investment securities and other investments 46 29 30 75 14
    Amortization of debt issue costs (51 ) (51 ) - (102 ) -
    Foreign exchange (loss) gain (789 ) 532 2,213 (257 ) 3,578
    Interest income, net   114     9     330     123     594  
    Income (loss) before provision for income taxes 991 (2,394 ) (214 ) (1,403 ) (4,577 )
    Provision for income taxes   (4,471 )   (1,847 )   (4,602 )   (6,318 )   (8,766 )
    Net loss $ (3,480 ) $ (4,241 ) $ (4,816 ) $ (7,721 ) $ (13,343 )
     
    Net loss per common share - basic and diluted $ (0.02 ) $ (0.02 ) $ (0.02 ) $ (0.04 ) $ (0.07 )
     
    Shares used in per share calculation - basic and diluted 196,114 195,188 203,307 195,651 204,269
     



     

    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 (Expense) Income, (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 EndedSix Months Ended
    June 28,March 29,June 29,June 28,June 29,

    2014 (1)

    2014 (2)

    2013 (3)

    2014 (4)

    2013 (5)

     
    GAAP cost of revenues $ 36,824 $ 37,564 $ 37,637 $ 74,388 $ 75,024
    Stock-based compensation (214 ) (241 ) (208 ) (455 ) (453 )
    Acquisition-related costs - - (18 ) - (18 )
    Termination recoveries   -     9     -     9     -  
    Non-GAAP cost of revenues $ 36,610   $ 37,332   $ 37,411   $ 73,942   $ 74,553  
     
    GAAP gross profit $ 89,998 $ 88,904 $ 89,947 $ 178,902 $ 177,721
    Stock-based compensation 214 241 208 455 453
    Acquisition-related costs - - 18 - 18
    Termination recoveries   -     (9 )   -     (9 )   -  
    Non-GAAP gross profit $ 90,212   $ 89,136   $ 90,173   $ 179,348   $ 178,192  
     
    Non-GAAP gross profit % 71 % 70 % 71 % 71 % 71 %
     
    GAAP research and development expense $ 49,388 $ 50,148 $ 51,681 $ 99,536 $ 106,305
    Stock-based compensation (1,903 ) (2,647 ) (2,396 ) (4,550 ) (5,700 )
    Acquisition-related costs (794 ) (800 ) (268 ) (1,594 ) (541 )
    Termination (costs) recoveries (342 ) 58 (878 ) (284 ) (1,270 )
    Reversal of accruals   -     -     2,890     -     2,890  
    Non-GAAP research and development expense $ 46,349   $ 46,759   $ 51,029   $ 93,108   $ 101,684  
     

    GAAP selling, general and administrative expense

    $ 28,991 $ 29,340 $ 30,277 $ 58,331 $ 58,619
    Stock-based compensation (2,798 ) (3,303 ) (3,601 ) (6,101 ) (7,434 )
    Acquisition-related costs (3 ) (61 ) (1,072 ) (64 ) (1,078 )
    Lease exit costs (4 ) (142 ) - (146 ) -
    Termination costs (1,295 ) (3 ) (254 ) (1,298 ) (461 )
    Asset impairment - (477 ) (1,575 ) (477 ) (1,575 )
    Other expenses   -     (58 )   -     (58 )   -  
    Non-GAAP selling, general and administrative expense $ 24,891   $ 25,296   $ 23,775   $ 50,187   $ 48,071  
     
    GAAP amortization of purchased intangible assets $ 9,948 $ 12,329 $ 10,776 $ 22,277 $ 21,560
    Amortization of purchased intangible assets   (9,948 )   (12,329 )   (10,776 )   (22,277 )   (21,560 )
    Non-GAAP amortization of purchased intangible assets $ -   $ -   $ -   $ -   $ -  
     
    GAAP other (expense) income $ (680 ) $ 519 $ 2,573 $ (161 ) $ 4,186
    Foreign exchange loss (gain) on foreign tax liabilities   976     (879 )   (2,210 )   97     (3,523 )
    Non-GAAP other income (expense) $ 296   $ (360 ) $ 363   $ (64 ) $ 663  
     
    GAAP provision for income taxes $ 4,471 $ 1,847 $ 4,602 $ 6,318 $ 8,766
    Provision for income tax matters   (3,550 )   (1,111 )   (5,002 )   (4,661 )   (9,058 )
    Non-GAAP provision for (recovery of) income taxes $ 921   $ 736   $ (400 ) $ 1,657   $ (292 )
     
    GAAP operating expenses $ 88,327 $ 91,817 $ 92,734 $ 180,144 $ 186,484
    Stock-based compensation (4,701 ) (5,950 ) (5,997 ) (10,651 ) (13,134 )
    Acquisition-related costs (797 ) (861 ) (1,340 ) (1,658 ) (1,619 )
    Assets impairment - (477 ) (1,575 ) (477 ) (1,575 )
    Lease exit costs (4 ) (142 ) - (146 ) -
    Termination (costs) recoveries (1,637 ) 55 (1,132 ) (1,582 ) (1,731 )
    Amortization of purchased intangible assets (9,948 ) (12,329 ) (10,776 ) (22,277 ) (21,560 )
    Reversal of accruals - - 2,890 - 2,890
    Other expenses   -     (58 )   -     (58 )   -  
    Non-GAAP operating expenses $ 71,240   $ 72,055   $ 74,804   $ 143,295   $ 149,755  
     
    June 28,

    March 29,

    June 29,June 28,June 29,
      2014201420132014   2013
     
    GAAP operating income (loss) $ 1,671 $ (2,913 ) $ (2,787 ) $ (1,242 ) $ (8,763 )
    Stock-based compensation 4,915 6,191 6,205 11,106 13,587
    Acquisition-related costs 797 861 1,358 1,658 1,637
    Assets impairment - 477 1,575 477 1,575
    Lease exit costs 4 142 - 146 -
    Termination costs (recoveries) 1,637 (64 ) 1,132 1,573 1,731
    Amortization of purchased intangible assets 9,948 12,329 10,776 22,277 21,560
    Reversal of accruals - - (2,890 ) - (2,890 )
    Other expenses   -     58     -     58     -  
    Non-GAAP operating income $ 18,972   $ 17,081   $ 15,369   $ 36,053   $ 28,437  
     
    Non-GAAP operating margin 15 % 14 % 12 % 14 % 11 %
     
    GAAP net loss $ (3,480 ) $ (4,241 ) $ (4,816 ) $ (7,721 ) $ (13,343 )
    Stock-based compensation 4,915 6,191 6,205 11,106 13,587
    Acquisition-related costs 797 861 1,358 1,658 1,637
    Termination costs (recoveries) 1,637 (64 ) 1,132 1,573 1,731
    Reversal of accruals - - (2,890 ) - (2,890 )
    Assets impairment - 477 1,575 477 1,575
    Lease exit costs 4 142 - 146 -
    Amortization of purchased intangible assets 9,948 12,329 10,776 22,277 21,560
    Other expenses - 58 - 58 -
    Foreign exchange loss (gain) on foreign tax liabilities 976 (879 ) (2,210 ) 97 (3,523 )
    Provision for income tax matters   3,550     1,111     5,002     4,661     9,058  
    Non-GAAP net income $ 18,347   $ 15,985   $ 16,132   $ 34,332   $ 29,392  
     
    Non-GAAP net income per share - basic $ 0.09 $ 0.08 $ 0.08 $ 0.18 $ 0.14
    Non-GAAP net income per share - diluted $ 0.09 $ 0.08 $ 0.08 $ 0.17 $ 0.14
     
     
    Shares used to calculate non-GAAP net income per share - basic 196,114 195,188 205,230 195,651 204,269
    Shares used to calculate non-GAAP net income per share - diluted 199,594 198,306 207,366 198,950 206,421
     


     
    (1) $4.9 million stock-based compensation expense; $0.8 million acquisition-related costs; $1.6 million of net termination costs; $9.9 million amortization of purchased intangible assets; $1 million foreign exchange loss on foreign tax liabilities; $0.1 million lease exit costs; and $3.6 million provision for income taxes which includes $0.8 million income tax provision related to unrecognized tax benefits, $1.5 million income tax provision related to prepaid tax amortization, $1.5 million income tax provision related to tax deductible goodwill and other items, $0.4 million deferred income tax benefit from adjustments related to prior periods, and $0.2 million income tax provision related to tax deductible items above.
     
    (2) $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 assets 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.
     
    (3) $6.2 million stock-based compensation expense; $1.4 million acquisition-related costs; $1.1 million termination costs; $2.9 million reversal of accruals; $1.6 million assets impairment; $10.8 million amortization of purchased intangible assets; $2.2 million foreign exchange gain on foreign tax liabilities; and $5 million provision for income taxes which includes $2.8 million income tax provision related to non-deductible intangible asset amortization, $1.3 million tax provision for adjustments relating to prior periods, and $0.9 million tax provision relating to foreign exchange translation of a foreign subsidiary.
     
    (4) $11.1 million stock-based compensation expense; $1.7 million acquisition-related costs; $1.6 million net termination costs; $22.3 million amortization of purchased intangible assets; $0.1 million foreign exchange loss on foreign tax liabilities; $0.5 million asset impairment; $0.1 million lease exit costs; $0.1 million other expenses; and $4.7 million provision for income taxes which includes $1.6 million income tax provision related to unrecognized tax benefits, $1.9 million income tax provision related to prepaid tax amortization, $1.9 million income tax provision related to tax deductible goodwill and other items, $0.3 million deferred income tax benefit from adjustments related to prior periods, and $0.4 million deferred income tax benefit related to tax deductible items above.
     
    (5) $13.6 million stock-based compensation expense; $1.6 million acquisition-related costs; $1.7 million termination costs; $2.9 million reversal of accruals; $1.6 million assets impairment; $21.6 million amortization of purchased intangible assets; $3.5 million foreign exchange gain on foreign tax liabilities; and $9.1 million provision for income taxes which includes $6.5 million income tax provision relating to intercompany transactions, $0.9 million income tax provision related to unrecognized tax benefits, $0.9 million deferred tax recovery related to non-deductible intangible asset amortization, $0.9 million income tax provision relating to foreign exchange translation of a foreign subsidiary, $1.9 million tax provision for adjustments relating to prior period, and $0.2 million deferred tax recovery related to tax deductible items above.
     


     
    PMC-Sierra, Inc.
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (in thousands)
    (unaudited)
             
    June 28,December 28,
    20142013
    ASSETS:
    Current assets:
    Cash and cash equivalents $ 86,588 $ 100,038
    Short-term investments   21,018     10,894  
    Cash, cash equivalents and short-term investments 107,606 110,932
    Accounts receivable, net 58,362 56,112
    Inventories, net 31,385 31,074
    Prepaid expenses and other current assets 16,499 19,855
    Income tax receivable 3,770 2,640
    Prepaid tax expense 3,848 5,695

    Deferred tax assets (1)

      2,778     43,131  
    Total current assets 224,248 269,439
     
    Investment securities 105,996 103,391
    Investments and other assets 10,434 10,750
    Prepaid tax expenses 93 93
    Property and equipment, net 38,678 39,149
    Goodwill and other intangible assets, net 400,831 425,823
    Deferred tax assets (1)   1,250     1,306  
    $ 781,530   $ 849,951  
     
    LIABILITIES AND STOCKHOLDERS' EQUITY:
    Current liabilities:
    Accounts payable $ 18,807 $ 23,173
    Accrued liabilities

     

    58,313 64,257
    Credit facility - 30,000
    Income taxes payable 2,199 632
    Liability for unrecognized tax benefit (1) 21,451 54,127
    Deferred income taxes 9 71
    Deferred income   5,189     7,481  
    Total current liabilities 105,968 179,741
     
    Long-term obligations 14,996 11,108
    Deferred income taxes 48,942 43,143
    Liability for unrecognized tax benefit (1) 18,616 27,947

    PMC special shares convertible into 1,016 (2013 - 1,019) shares of common stock

    1,180 1,188
    Stockholders' equity:
    Common stock and additional paid in capital 1,566,495 1,550,385
    Accumulated other comprehensive income (loss) 99 (526 )
    Accumulated deficit   (974,766 )   (963,035 )
    Total stockholders' equity   591,828     586,824  
    $ 781,530   $ 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)
             
    Six Months Ended
     
    June 28,June 29,
    20142013
     
    Cash flows from operating activities:
    Net loss $ (7,721 ) $ (13,343 )
    Adjustments to reconcile net loss to net cash provided by operating activities:
    Depreciation and amortization 33,278 33,185
    Stock-based compensation 11,106 13,587
    Unrealized foreign exchange loss (gain), net 996 (3,775 )
    Net amortization of premiums/discounts and accrued interest of investments 390 595
    Assets impairment 770 -
    Gain on investment securities and other (74 ) (4 )
    Excess tax benefits from stock option transactions - (632 )
     
    Changes in operating assets and liabilities:
    Accounts receivable, net (2,275 ) 4,970
    Inventories, net (311 ) (7,032 )
    Prepaid expenses and other current assets 3,275 610
    Accounts payable and accrued liabilities (4,889 ) 6,328
    Deferred taxes and income taxes payable 6,763 3,429
    Deferred income   (2,292 )   (1,200 )
    Net cash provided by operating activities   39,016     36,718  
     
    Cash flows from investing activities:
    Investment in long term deposits - (1,127 )
    Purchases of property and equipment (8,054 ) (7,500 )
    Purchase of intangible assets (733 ) (2,048 )
    Redemption of short-term investments 3,535 7,966
    Disposals of investment securities and other investments 25,538 38,297
    Purchases of investment securities and other investments   (41,966 )   (154,385 )

    Net cash used in investing activities

      (21,680 )   (118,797 )
     
    Cash flows from financing activities:
    Proceeds from short-term loan and credit facility 30,000 -
    Repayment of credit facility (60,000 ) -
    Proceeds from issuance of common stock 10,615 16,452
    Repurchases of common stock (11,496 ) (5,509 )
    Excess tax benefits from stock option transactions   -     632  
    Net cash (used in) provided by financing activities   (30,881 )   11,575  
     
    Effect of exchange rate changes on cash and cash equivalents   95     (786 )
    Net decrease in cash and cash equivalents (13,450 ) (71,290 )
    Cash and cash equivalents, beginning of the period   100,038     169,970  
    Cash and cash equivalents, end of the period $ 86,588   $ 98,680  





    PMC-Sierra, Inc.

    Hillary Choularton, 1-604-415-6671

    Communications Specialist

    hillary.choularton@pmcs.com

    or

    The Blueshirt Group

    Suzanne Schmidt, 1-415-217-4962

    suzanne@blueshirtgroup.com




    Source: PMC-Sierra, Inc.


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