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PMC Reports Second Quarter 2015 Results

Q2 2015 earnings announcement call live on http://investor.pmcs.com at 1:30 p.m. PT

Conference call: 1 (888) 364-3108 or 1 (719) 325-2458 outside North America; passcode 8830911#

Replay available shortly after end of conference call through August 22, 2015

SUNNYVALE, Calif. — (BUSINESS WIRE) — July 23, 2015 — 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 27, 2015.

Net revenues in the second quarter of 2015 totaled $124.8 million, a decrease of 1.6 percent, compared to $126.8 million in the second quarter of 2014, and a decrease of 6.2 percent from $133.1 million in the first quarter of 2015.

GAAP net loss in the second quarter of 2015 totaled $8.6 million or $0.04 per share, compared to GAAP net loss in the second quarter of 2014 of $3.5 million or $0.02 per share, and GAAP net income in the first quarter of 2015 of $4.7 million or $0.02 per diluted share.

Non-GAAP net income in the second quarter of 2015 totaled $18.0 million or $0.09 per diluted share, compared to non-GAAP net income in the second quarter of 2014 of $18.3 million or $0.09 per diluted share, and to non-GAAP net income in the first quarter of 2015 of $20.9 million or $0.10 per diluted share.

The Company also today initiated steps to reduce spending across the organization by approximately 14 percent. This reorganization involves a reduction in force of approximately 200 employees worldwide and other reductions that are together expected to result in approximately $40 million per year in savings. The full savings resulting from these workforce reductions will not be realized until the fourth quarter of the current year, although some impact from these measures will be noticeable in the Company’s third quarter results.

“2015 has started weaker than expected in the carrier and storage end markets,” said PMC President and Chief Executive Officer, Greg Lang. “Given the tepid growth environment, we are taking immediate action to reduce spending and accelerate our return to target model profitability.”

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 HIGHLIGHTS

The Company announced the following in the second quarter of 2015:

Second Quarter 2015 Conference Call

Management will review second quarter 2015 results, share its outlook for the third quarter of 2015 and discuss the spending reductions described above during a conference call at 1:30 p.m. Pacific Time/4:30 p.m. Eastern Time on July 23, 2015. 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 by telephone, dial 1 (888) 364-3108 or 1 (719) 325-2458 outside North America with passcode 8830911# approximately ten minutes before the start time. A telephone playback will be available until August 22, 2015, and can be accessed at 1 (888) 203-1112 or 1 (719) 457-0820 outside North America using passcode 8830911#.

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. 2015. All rights reserved. PMC and PMC-SIERRA are registered trademarks of PMC-Sierra, Inc. in the United States and other countries, PMCS and Flashtec are trademarks 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 Ended Six Months Ended
June 27, March 28, June 28, June 27, June 28,
  2015     2015     2014     2015     2014  
 
Net revenues $ 124,767 $ 133,071 $ 126,822 $ 257,838 $ 253,290
Cost of revenues   38,434     39,980     36,824   $ 78,414     74,388  
Gross profit 86,333 93,091 89,998 179,424 178,902
 
Research and development, net 55,833 48,866 49,388 104,699 99,536
Selling, general and administrative 30,488 30,051 28,991 60,539 58,331
Amortization of purchased intangible assets   9,269     9,317     9,948     18,586     22,277  
(Loss) income from operations (9,257 ) 4,857 1,671 (4,400 ) (1,242 )
 
Other income (expense):
Gain on investment securities and other investments 25 32 46 57 75
Amortization of debt issuance costs (51 ) (51 ) (51 ) (102 ) (102 )
Accretion of discount on short-term and long-term obligation (180 ) (210 ) - (390 ) -
Foreign exchange (loss) gain (948 ) 2,594 (789 ) 1,646 (257 )
Interest and other financial income, net   317     164     114     481     123  
(Loss) income before recovery of (provision for) income taxes (10,094 ) 7,386 991 (2,708 ) (1,403 )
Recovery of (provision for) income taxes   1,515     (2,731 )   (4,471 )   (1,216 )   (6,318 )
Net (loss) income $ (8,579 ) $ 4,655   $ (3,480 ) $ (3,924 ) $ (7,721 )
 
Net (loss) income per common share - basic and diluted $ (0.04 ) $ 0.02 $ (0.02 ) $ (0.02 ) $ (0.04 )
 
Shares used in per share calculation - basic 195,732 200,249 196,114 197,991 195,651
Shares used in per share calculation - diluted 195,732 205,688 196,114 197,991 195,651
 

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, net, selling, general and administrative expense, amortization of purchased intangible assets, other income (expense), benefit from (provision for) income taxes, operating expenses, operating (loss) income, operating margin, net (loss) income, and net income per share - basic and diluted.

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, net,
Selling, General and Administrative Expense, Amortization of Purchased Intangible Assets
Other Income (Expense), Benefit from (Provision for) Income Taxes, Operating Expenses, Operating (Loss) Income,
Net (Loss) Income, and Net (Loss) Income Per Share - Basic and Diluted
(in thousands, except for per share amounts)
(unaudited)
 
Three Months Ended Six Months Ended
June 27, March 28, June 28, June 27, June 28,
  2015     2015     2014     2015     2014  
 
 
GAAP cost of revenues $ 38,434 $ 39,980 $ 36,824 $ 78,414 $ 74,388
Stock-based compensation (266 ) (271 ) $ (214 ) (537 ) (455 )
Termination (costs) recoveries   (1,215 )   -   $ -     (1,215 )   9  
Non-GAAP cost of revenues $ 36,953   $ 39,709   $ 36,610   $ 76,662   $ 73,942  
 
GAAP gross profit $ 86,333 $ 93,091 $ 89,998 $ 179,424 $ 178,902
Stock-based compensation 266 271 214 537 455
Termination costs (recoveries)   1,215     -     -     1,215     (9 )
Non-GAAP gross profit $ 87,814   $ 93,362   $ 90,212   $ 181,176   $ 179,348  
 
Non-GAAP gross profit % 70.4 % 70.2 % 71.1 % 70.3 % 70.8 %
 
GAAP research and development expense, net $ 55,833 $ 48,866 $ 49,388 $ 104,699 $ 99,536
Stock-based compensation (2,400 ) (2,844 ) (1,903 ) (5,244 ) (4,550 )
Acquisition-related costs (162 ) (106 ) (794 ) (268 ) (1,594 )
Termination (costs) recoveries (7,944 ) 38 (342 ) (7,906 ) (284 )
Asset impairments   (252 )   -     -     (252 )   -  
Non-GAAP research and development expense, net $ 45,075   $ 45,954   $ 46,349   $ 91,029   $ 93,108  
 
GAAP selling, general and administrative expense $ 30,488 $ 30,051 $ 28,991 $ 60,539 $ 58,331
Stock-based compensation (3,445 ) (3,578 ) (2,798 ) (7,023 ) (6,101 )
Acquisition-related costs (34 ) (171 ) (3 ) (205 ) (64 )
Lease exit recoveries (costs) 488 11 (4 ) 499 (146 )
Termination costs (3,867 ) (507 ) (1,295 ) (4,374 ) (1,298 )
Asset impairments - - - - (477 )
Other expenses   -     -     -     -     (58 )
Non-GAAP selling, general and administrative expense $ 23,630   $ 25,806   $ 24,891   $ 49,436   $ 50,187  
 
GAAP amortization of purchased intangible assets $ 9,269 $ 9,317 $ 9,948 $ 18,586 $ 22,277
Amortization of purchased intangible assets   (9,269 )   (9,317 )   (9,948 )   (18,586 )   (22,277 )
Non-GAAP amortization of purchased intangible assets $ -   $ -   $ -   $ -   $ -  
 
GAAP other income $ (837 ) $ 2,529 $ (680 ) $ 1,692 $ (161 )
Foreign exchange loss (gain) on foreign tax liabilities 487 (2,179 ) 976 (1,692 ) 97
Accretion of discount on short-term and long-term obligations   180     210     -     390     -  
Non-GAAP other income (expense) $ (170 ) $ 560   $ 296   $ 390   $ (64 )
 
GAAP benefit from (provision for) income taxes $ 1,515 $ (2,731 ) $ (4,471 ) $ (1,216 ) $ (6,318 )
Benefit from (provision for) income taxes   (2,467 )   1,516     3,550     (951 )   4,661  
Non-GAAP provision for income taxes $ (952 ) $ (1,215 ) $ (921 ) $ (2,167 ) $ (1,657 )
 
GAAP operating expenses $ 95,590 $ 88,234 $ 88,327 $ 183,824 $ 180,144
Stock-based compensation (5,845 ) (6,422 ) (4,701 ) (12,267 ) (10,651 )
Acquisition-related costs (196 ) (277 ) (797 ) (473 ) (1,658 )
Asset impairments (252 ) - - (252 ) (477 )
Lease exit recoveries (costs) 488 11 (4 ) 499 (146 )
Termination costs (11,811 ) (469 ) (1,637 ) (12,280 ) (1,582 )
Amortization of purchased intangible assets (9,269 ) (9,317 ) (9,948 ) (18,586 ) (22,277 )
Other expenses   -     -     -     -     (58 )
Non-GAAP operating expenses $ 68,705   $ 71,760   $ 71,240   $ 140,465   $ 143,295  
 
June 27, March 28, June 28, June 27, June 28,
    2015     2015     2014     2015     2014  
 
GAAP operating (loss) income $ (9,257 ) $ 4,857 $ 1,671 $ (4,400 ) $ (1,242 )
Stock-based compensation 6,111 6,693 4,915 12,804 11,106
Acquisition-related costs 196 277 797 473 1,658
Asset impairments 252 - - 252 477
Lease exit (recoveries) costs (488 ) (11 ) 4 (499 ) 146
Termination costs 13,026 469 1,637 13,495 1,573
Amortization of purchased intangible assets 9,269 9,317 9,948 18,586 22,277
Other expenses   -     -     -     -     58  
Non-GAAP operating income $ 19,109   $ 21,602   $ 18,972   $ 40,711   $ 36,053  
 
Non-GAAP operating margin 15.3 % 16.2 % 15.0 % 15.8 % 14.2 %
 
GAAP net (loss) income $ (8,579 ) $ 4,655 $ (3,480 ) $ (3,924 ) $ (7,721 )
Stock-based compensation 6,111 6,693 4,915 12,804 11,106
Acquisition-related costs 196 277 797 473 1,658
Termination costs 13,026 469 1,637 13,495 1,573
Asset impairments 252 - - 252 477
Lease exit (recoveries) costs (488 ) (11 ) 4 (499 ) 146
Amortization of purchased intangible assets 9,269 9,317 9,948 18,586 22,277
Other expenses - - - - 58
Foreign exchange loss (gain) on foreign tax liabilities 487 (2,179 ) 976 (1,692 ) 97
Accretion of discount on short-term and long-term obligations 180 210 - 390 -
(Provision for) benefit from income taxes   (2,467 )   1,516     3,550     (951 )   4,661  
Non-GAAP net income $ 17,987   $ 20,947   $ 18,347   $ 38,934   $ 34,332  
 
Non-GAAP net income per share - basic $ 0.09 $ 0.10 $ 0.09 $ 0.20 $ 0.18
Non-GAAP net income per share - diluted $ 0.09 $ 0.10 $ 0.09 $ 0.19 $ 0.17
 
Shares used to calculate non-GAAP net income per share - basic 195,732 200,249 196,114 197,991 195,651
Shares used to calculate non-GAAP net income per share - diluted 200,501 205,688 199,594 203,095 198,950
 

PMC-Sierra, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
   
June 27, December 27,
  2015     2014  
ASSETS:
Current assets:
Cash and cash equivalents $ 64,864 $ 112,570
Short-term investments   45,386     45,885  
Cash, cash equivalents and short-term investments 110,250 158,455
Accounts receivable, net 58,141 55,414
Inventories, net 36,165 37,949
Prepaid expenses and other current assets 14,097 16,473
Income taxes receivable 1,554 1,968
Prepaid tax expense - 51
Deferred tax assets   5,008     5,442  
Total current assets 225,215 275,752
 
Investment securities 131,508 107,509
Investments and other assets 7,629 7,683
Prepaid tax expense 93 42
Property and equipment, net 37,413 37,311
Goodwill 283,239 283,239
Intangible assets, net 125,808 143,680
Deferred tax assets 13,186 13,412
Long-term income tax receivable   459     457  
$ 824,550   $ 869,085  
 
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 18,848 $ 23,360
Accrued liabilities 71,108 74,135
Credit facility 37,000 -
Income taxes payable 44 1,062
Liability for unrecognized tax benefit 15,153 16,076
Deferred tax liabilities 7,646 7,644
Deferred income   4,371     4,530  
Total current liabilities 154,170 126,807
 
Long-term obligations 24,718 36,305
Deferred tax liabilities 53,028 53,493
Liability for unrecognized tax benefit 26,036 25,244
PMC special shares convertible into 205 (2014 - 278)
shares of common stock 480 745
Stockholders' equity:
Common stock and additional paid in capital 1,590,565 1,595,809
Accumulated other comprehensive loss (93 ) (2,355 )
Accumulated deficit   (1,024,354 )   (966,963 )
Total stockholders' equity   566,118     626,491  
$ 824,550   $ 869,085  
 

PMC-Sierra, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
   
 
Six Months Ended
June 27, June 28,
  2015     2014  
 
Cash flows from operating activities:
Net loss $ (3,924 ) $ (7,721 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 30,058 33,278
Stock-based compensation 12,804 11,106
Unrealized foreign exchange gain, net (4,328 ) (1,264 )
Net amortization of premiums and accrued interest of investments 390 # 390
Asset impairments 252 770
Gain on investment securities and other investments (57 ) (74 )
Accretion of discount on short-term and long-term obligations 390 -
Amortization of debt issuance costs 102 102
Gain on lease exit, net (696 ) -
 
Changes in operating assets and liabilities:
Accounts receivable, net (2,727 ) (2,249 )
Inventories, net 1,784 (311 )
Prepaid expenses and other current assets 1,055 3,068
Accounts payable and accrued liabilities 5,190 (2,234 )
Deferred taxes and income taxes payable 1,285 6,447
Deferred income   (159 )   (2,292 )
Net cash provided by operating activities   41,419     39,016  
 
Cash flows from investing activities:
Purchases of property and equipment (8,850 ) (8,054 )
Purchase of intangible assets (3,845 ) (733 )
Redemption of short-term investments 13,466 3,535
Disposals of investment securities and other investments 29,973 25,538
Purchases of investment securities and other investments   (67,515 )   (41,966 )
Net cash used in investing activities   (36,771 )   (21,680 )
 
Cash flows from financing activities:
Installment payment in connection with previous business acquisition (18,000 ) -
Proceeds from credit facility 102,000 30,000
Repayment of credit facility (65,000 ) (60,000 )
Proceeds from issuance of common stock 31,342 10,615
Repurchases of common stock   (102,108 )   (11,496 )

Net cash used in financing activities

  (51,766 )   (30,881 )
 
Effect of exchange rate changes on cash and cash equivalents   (588 )   95  
Net decrease in cash and cash equivalents (47,706 ) (13,450 )
Cash and cash equivalents, beginning of the period   112,570     100,038  
Cash and cash equivalents, end of the period $ 64,864   $ 86,588  


Contact:

PMC-Sierra, Inc.
Joel Achramowicz, 1-408-239-8630
Director, Investor Relations
Email Contact
or
Sarah Kuchka, 1-604-415-6671
Senior Communications Specialist
Email Contact