Investors are cautioned that forward-looking statements in this release, including but not limited to statements regarding demand for Company products, anticipated trends in Company sales, expenses and profits, involve a number of risks and uncertainties that could cause actual results to differ materially from current expectations. Risks include, but are not limited to, global business and economic conditions, fluctuations in product demand, manufacturing capacity and costs, inventory management, competition, pricing, patent and other intellectual property rights of third parties, timely development and introduction of new products and manufacturing processes, dependence on one or more customers for a significant portion of sales, successful integration of acquired businesses and technology, availability of capital, cash flow and other risk factors detailed in the Company's Securities and Exchange Commission filings. The Company urges investors to review in detail the risks and uncertainties in the Company's Securities and Exchange Commission filings, including but not limited to the Annual Report on Form 10-K for the fiscal year ended April 3, 2016. All forward-looking statements are made as of the date of this release and the Company disclaims any duty to update such statements.
Non-GAAP Reporting
To supplement its consolidated financial results presented in accordance with GAAP, IDT uses non-GAAP financial measures which are adjusted from the most directly comparable GAAP financial measures to exclude certain items, as described in detail below. Management believes that these non-GAAP financial measures reflect an additional and useful way of viewing aspects of the Company's operations that, when viewed in conjunction with IDT's GAAP results, provide a more comprehensive understanding of the various factors and trends affecting the Company's business and operations. It should also be noted that IDT's non-GAAP information may be different from the non-GAAP information provided by other companies. Non-GAAP financial measures used by IDT include:
-- Cost of revenues; -- Gross profit; -- Research and development expenses; -- Selling, general and administrative expenses; -- Interest and other income (expense); -- Provision for (benefit from) income taxes; -- Operating income; -- Net income; -- Diluted net income per share; and -- Weighted average shares outstanding - dilutedThe Company presents non-GAAP financial measures because the investor community uses non-GAAP results in its analysis and comparison of historical results and projections of the Company's future operating results. These non-GAAP results exclude acquisition related expense, restructuring and divestiture related costs (gain), share-based compensation expense, results from discontinued operations, and certain other expenses and benefits. Management uses these non-GAAP measures to manage and assess the profitability of the business. These non-GAAP results are also consistent with the way management internally analyzes IDT's financial results.
There are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP financial measures. The non-GAAP financial measures supplement, and should be viewed in conjunction with, GAAP financial measures. Investors should review the reconciliations of the non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in the accompanying press release.
As presented in the "Reconciliation of GAAP to Non-GAAP" tables in the accompanying press release, each of the non-GAAP financial measures excludes one or more of the following items:
Acquisition related. Acquisition-related charges are not factored into management's evaluation of potential acquisitions or IDT's performance after completion of acquisitions, because they are not related to the Company's core operating performance. Adjustments of these items provide investors with a basis to compare IDT's performance to other companies without the variability caused by purchase accounting. Acquisition-related expenses primarily include:
-- Amortization of acquisition related intangibles, which include acquired
intangibles such as purchased technology, patents, customer
relationships, trademarks, backlog and non-compete agreements.
-- Acquisition related costs such as legal, accounting and other
professional or consulting fees directly related to an acquisition.
-- Fair market value adjustment to acquired inventory sold.
Restructuring related. Restructuring charges primarily relate to changes in IDT's infrastructure in efforts to reduce costs and expenses (gains) associated with strategic divestitures and restructuring in force actions. Restructuring charges (gains) are excluded from non-GAAP financial measures because they are not considered core operating activities. Although IDT has engaged in various restructuring activities in the past, each has been a discrete event based on a unique set of business objectives. As such, management believes that it is appropriate to exclude restructuring charges (gains) from IDT's non-GAAP financial measures as it enhances the ability of investors to compare the Company's period-over-period operating results. Restructuring-related charges (gains) primarily include:
-- Severance and retention costs directly related to a restructuring
action.
-- Facility closure costs consist of ongoing costs associated with the exit
of our leased and owned facilities.
-- Gain on divestiture consists of gains recognized upon the strategic sale
of business units.
-- Assets impairments including accelerated depreciation of certain assets
no longer in use.
Other adjustments. These items are excluded from non-GAAP financial measures because they are not related to the core operating activities and on-going future operating performance of IDT. Excluding this data allows investors to better compare IDT's period-over-period performance without such expense, which IDT believes may be useful to the investor community.
Other adjustments primarily include:
-- Stock based compensation expense.
-- Compensation expense (benefit) - deferred compensation, consists of
gains and losses on marketable equity securities related to our deferred
compensation arrangements.
-- Non-cash interest expense, consists of amortization of issuance cost and
accretion of discount related to the convertible notes.
-- Loss (gain) on deferred compensation plan securities represents the
changes in the fair value of the assets in a separate trust that is
invested in corporate owned life insurance under our deferred
compensation plan.
-- Unrealized foreign currency gains and losses resulting from
remeasurement of certain non-functional currency account balances.
-- Tax effects of non-GAAP adjustments. Non-GAAP tax calculation is based
on estimated cash tax expense and reserves. The Company forecasts its
annual cash tax liability and allocates the tax to each quarter in
proportion to earnings for that period. This approach is designed to
enhance the ability of investors to understand the impact of the
Company's tax expense on its current operations, provide improved
modeling accuracy, and substantially reduce fluctuations caused by GAAP
to non-GAAP adjustments, which may not reflect actual cash tax expense.
-- Diluted weighted average shares non-GAAP adjustment, for purposes of
calculating non-GAAP diluted net income per share, the GAAP diluted
weighted average shares outstanding is adjusted to exclude the benefits
of stock compensation expense attributable to future services not yet
recognized in the financial statements that are treated as proceeds
assumed to be used to repurchase shares under the GAAP treasury method.
IDT and the IDT logo are trademarks or registered trademarks of Integrated Device Technology, Inc. All other brands, product names and marks are or may be trademarks or registered trademarks used to identify products or services of their respective owners.
INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended
------------------------------------
July 2 April 2 July 3
2017 2017 2016
------------------------------------
Revenues $ 196,713 $ 175,698 $ 192,128
Cost of revenues 86,675 74,026 83,779
------------------------------------
Gross profit 110,038 101,672 108,349
Operating expenses:
Research and development 48,449 35,533 49,648
Selling, general and administrative 41,942 36,225 38,816
------------------------------------
Total operating expenses 90,391 71,758 88,464
------------------------------------
Operating income 19,647 29,914 19,885
Interest and other expense, net (3,915) (2,153) (2,496)
------------------------------------
Income before income taxes 15,732 27,761 17,389
Benefit from income taxes (982) (2,448) (3,558)
------------------------------------
Net income $ 16,714 $ 30,209 $ 20,947
====================================
Basic net income per share $ 0.13 $ 0.23 $ 0.16
====================================
Diluted net income per share $ 0.12 $ 0.22 $ 0.15
====================================
Weighted average shares:
Basic 133,302 133,309 133,934
====================================
Diluted 136,642 136,903 138,109
====================================
INTEGRATED DEVICE TECHNOLOGY, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (a)
(Unaudited)
(In thousands, except per share data)
Three Months Ended
------------------------------------
July 2 April 2 July 3
2017 2017 2016
------------------------------------
GAAP net income $ 16,714 $ 30,209 $ 20,947
====================================
GAAP diluted net income per share $ 0.12 $ 0.22 $ 0.15
====================================
Acquisition related:
Amortization of acquisition related
intangibles 8,876 4,782 5,775
Acquisition related costs 2,225 2,223 -
Amortization of fair market value
adjustment to inventory 4,081 407 2,395
Restructuring related:
Severance and retention costs
(benefit) 653 (387) 11,918
Facility closure costs - - 19
Assets impairment and other 1,965 156 870
Other:
Stock-based compensation expense 11,820 10,266 10,515
Non-cash interest expense 3,892 3,393 3,268
Certain foreign exchange gain (1,675) - -
Compensation expense - deferred
compensation plan 412 486 402
Gain on deferred compensation plan
securities (360) (474) (392)
Non-GAAP tax adjustments (3,341) (2,942) (4,540)
------------------------------------
Non-GAAP net income $ 45,262 $ 48,119 $ 51,177
------------------------------------
GAAP weighted average shares - diluted 136,642 136,903 138,109
Non-GAAP adjustment 2,319 1,596 2,287
------------------------------------
Non-GAAP weighted average shares -
diluted 138,961 138,499 140,396
------------------------------------
Non-GAAP diluted net income per share $ 0.33 $ 0.35 $ 0.36
====================================
GAAP gross profit $ 110,038 $ 101,672 $ 108,349
------------------------------------
Acquisition related:
Amortization of acquisition related
intangibles 5,682 3,116 3,415
Amortization of fair market value
adjustment to inventory 4,081 407 2,395
Restructuring related:
Severance and retention costs
(benefit) 196 (36) 2,430
Assets impairment and other - 156 336
Other:
Compensation expense - deferred
compensation plan 97 114 148
Stock-based compensation expense 632 660 779
------------------------------------
Non-GAAP gross profit $ 120,726 $ 106,089 $ 117,852
------------------------------------
GAAP R&D expenses: $ 48,449 $ 35,533 $ 49,648
------------------------------------
Restructuring related:
Severance and retention costs (45) (44) (7,334)
Assets impairment and other (1,965) - (107)
Other:
Compensation expense - deferred
compensation plan (210) (248) (157)
Stock-based compensation expense (5,963) (4,226) (4,308)
------------------------------------
Non-GAAP R&D expenses $ 40,266 $ 31,015 $ 37,742
------------------------------------
GAAP SG&A expenses: $ 41,942 $ 36,225 $ 38,816
------------------------------------
Acquisition related:
Amortization of acquisition related
intangibles (3,194) (1,666) (2,360)
Acquisition related costs (2,225) (2,223) -
Restructuring related:
Severance and retention benefit
(costs) (412) 395 (2,154)
Facility closure costs - - (18)
Assets impairment and other - - (428)
Other:
Compensation expense - deferred
compensation plan (105) (124) (98)
Stock-based compensation expense (5,225) (5,380) (5,428)
------------------------------------
Non-GAAP SG&A expenses $ 30,781 $ 27,227 $ 28,330
------------------------------------
GAAP interest and other expense, net $ (3,915) $ (2,153) $ (2,496)
Non-cash interest expense 3,892 3,393 3,268
Gain on deferred compensation plan
securities (360) (474) (393)
Certain foreign exchange gain (1,675) - -
------------------------------------
Non-GAAP interest and other income
(expense), net $ (2,058) $ 766 $ 379
------------------------------------
GAAP benefit from income taxes $ (982) $ (2,448) $ (3,558)
Non-GAAP tax adjustments 3,341 2,942 4,540
------------------------------------
Non-GAAP provision for income taxes $ 2,359 $ 494 $ 982
------------------------------------
(a) Refer to the accompanying "Notes to Non-GAAP Financial Measures" for a
detailed discussion of management's use of non-GAAP financial
measures.
INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 2 April 2
(In thousands) 2017 2017
--------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 144,533 $ 214,554
Short-term investments 213,661 191,492
Accounts receivable, net 103,433 89,312
Inventories 71,371 52,288
Prepayments and other current assets 14,157 13,054
--------------------------
Total current assets 547,155 560,700
Property, plant and equipment, net 84,696 80,961
Goodwill 420,117 306,925
Intangible assets, net 195,441 108,818
Deferred tax assets 93,936 85,831
Other assets 42,657 40,399
--------------------------
TOTAL ASSETS $ 1,384,002 $ 1,183,634
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,266 $ 42,020
Accrued compensation and related expenses 23,552 26,624
Deferred income on shipments to distributors 2,218 1,985
Current portion of bank loan 2,000 -
Other accrued liabilities 20,843 20,205
--------------------------
Total current liabilities 89,879 90,834
Deferred tax liabilities 12,160 13,835
Convertible notes 288,978 285,542
Long-term bank loan, net 191,957 -
Other long-term liabilities 25,422 19,760
--------------------------
Total liabilities 608,396 409,971
Stockholders' equity 775,606 773,663
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,384,002 $ 1,183,634
==========================
