PMC-Sierra, Inc. (NASDAQ:PMCS), the premier Internet
infrastructure semiconductor solution provider, today reported
results for the third quarter ended September 26, 2010.
Net revenues in the third quarter of 2010 were $162.3
million, an increase of 24 percent compared to $130.9 million in
the third quarter of 2009. The Company reported net revenues of
$160.7 million in the second quarter of 2010.
Net income in the third quarter of 2010 on a GAAP basis
was $15.2 million (GAAP diluted earnings per share of $0.06),
compared with net income of $27.8 million (GAAP diluted earnings
per share of $0.12) in the third quarter of 2009 and net income of
$30.1 million (GAAP diluted earnings per share of $0.13) in the
second quarter of 2010.
Non-GAAP net income in the third quarter of 2010 was $42.9
million (non-GAAP diluted earnings per share of $0.18), an increase
of 24 percent compared to $34.5 million (non-GAAP diluted earnings
per share of $0.15) reported in the third quarter of 2009. The
Company reported non-GAAP net income of $47.6 million (non-GAAP
diluted earnings per share of $0.20) in the second quarter of
2010.
“In the third quarter of 2010, we benefited from growth in our
microprocessor and storage businesses, which includes a full
quarter of business following the purchase of the Adaptec storage
channel assets in June earlier this year,” said Greg Lang,
president and chief executive officer of PMC-Sierra. “We did,
however, experience sequentially lower activity in our WAN
Infrastructure business as some customers worked down their
inventory levels.”
Net income on a non-GAAP basis in the third quarter of 2010
excludes the following items: (i) $5.3 million stock-based
compensation expense; (ii) $0.8 million costs related to the
acquisition of the channel storage business from Adaptec, Inc.;
(iii) $5.9 million amortization of purchased intangible assets;
(iv) $4.9 million asset impairment; (v) $0.4 million of other
items; (vi) $0.8 million of non-cash interest expense for the
accretion of debt discount related to the senior convertible notes;
and (vii) $9.6 million income tax provision of which $8.0 million
relates to the benefit of stock option-related loss carry-forwards
recognized in equity and other adjustments.
For a full reconciliation of GAAP net income to non-GAAP net
income, 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.
In the third quarter of 2010, the Company announced:
- A collaboration with Incognito Software
to provide FTTx Solutions for cable operators that provide
end-to-end management capabilities and enable FTTx deployments. The
combination of PMC-Sierra’s high-speed standard-compliant EPON and
10G EPON solutions and Incognito Software’s Broadband Command
Center, an industry-leading device provisioning solution, will help
enable EPON deployments at a lower cost, using existing
provisioning standards. The companies demonstrated this solution at
the CableLabs Summer Conference in Keystone, Colorado.
- An end-to-end FTTx and HomePNA
demonstration with Sigma Designs at P&T/ExpoComm China. At the
event, the demonstration showcased PMC-Sierra’s robust, end-to-end
EPON solution based on 1G or 10G EPON technology with Sigma’s
CG3210M Fast EoC™ chipset. This solution offers high-quality video
distribution, easy provisioning, QoS, and high reliability for
multi-dwelling units (MDUs) in the China Cable TV environment.
- The successful interoperability of
Ixia’s timing over packet (ToP) test solution and PMC-Sierra’s
Carrier Ethernet/OTN framer. Ixia’s ToP test solution is an
industry-first test for evaluating the functionality, conformance
and performance of IEEE 1588v2 and Synchronous Ethernet
implementations on telecommunication network components and
equipment. With both of these protocols implemented within the META
20G Carrier Ethernet/OTN Physical Layer Device it provides the
industry’s first truly universal solution for 10 Gb/s
interfaces.
Third Quarter 2010 Conference Call
Management will review the results for the third quarter of 2010
and provide an outlook for the fourth quarter of 2010 during a
conference call at 2:30 p.m. Pacific Time/5:30 p.m. Eastern Time on
October 21, 2010. 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 416-642-5212 approximately ten minutes
before the start time. A telephone playback will be available after
the completion of the call and can be accessed at 647-436-0148
using the access code 8494411. A replay of the webcast will be
available for five business days.
Fourth Quarter 2010 Conference Call
PMC-Sierra is planning to release its results for the fourth
quarter of 2010 during the last week of January 2011. A conference
call will be held that day to review the quarter and provide an
outlook for the first quarter of 2011.
Safe Harbor Statement
The Company’s SEC filings describe 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 other items such as foreign exchange rates. The
Company does not undertake any obligation to update the
forward-looking statements.
About PMC-Sierra
PMC-Sierra®, the premier Internet infrastructure semiconductor
solution provider, offers its customers technical and sales support
worldwide through a network of offices in North America, Europe,
Israel and Asia. PMC-Sierra provides semiconductor solutions for
Enterprise and Channel Storage, Wide Area Network Infrastructure,
Fiber To The Home, and Laser Printer/Enterprise market segments.
The Company is publicly traded on the NASDAQ Stock Market under the
PMCS symbol. For more information, visit www.pmc-sierra.com.
© Copyright PMC-Sierra, Inc. 2010. All rights reserved. PMC and
PMC-SIERRA are registered trademarks of PMC-Sierra, Inc. in the
United States and other countries. 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 Nine Months Ended September
26, June 27, September 27, September 26,
September 27, 2010 2010 2009
2010 2009 Net revenues $ 162,335 $ 160,669 $
130,876 $ 475,830 $ 356,642 Cost of revenues 53,813
50,064 44,432 152,882
120,648 Gross profit 108,522 110,605 86,444 322,948
235,994 Other costs and expenses: Research and development
50,180 43,646 35,823 135,893 110,834 Selling, general and
administrative 25,567 25,196 19,743 73,148 63,854 Amortization of
purchased intangible assets 5,884 6,816 9,836 22,536 29,508
Restructuring costs and other charges 66 -
175 322 813 Income
from operations 26,825 34,947 20,867 91,049 30,985 Other
(expense) income: Gain (loss) on sale of investment securities 220
(429 ) - (79 ) - Amortization of debt issue costs (50 ) (50 ) (50 )
(150 ) (150 ) Loss on subleased facilities - - - - (538 ) Foreign
exchange (loss) gain (707 ) 74 (1,094 ) (1,622 ) 109 Interest
income (expense), net 68 (25 ) (487 )
(78 ) (2,139 ) Income before (provision for) recovery
of income taxes 26,356 34,517 19,236 89,120 28,267 (Provision for)
recovery of income taxes (11,201 ) (4,411 )
8,583 (16,872 ) 3,484 Net income $
15,155 $ 30,106 $ 27,819 $ 72,248 $
31,751 Net income per common share - basic $ 0.07 $
0.13 $ 0.12 $ 0.31 $ 0.14 Net income per common share - diluted $
0.06 $ 0.13 $ 0.12 $ 0.31 $ 0.14 Shares used in per share
calculation - basic 231,966 230,997 227,123 230,922 225,276 Shares
used in per share calculation - diluted 234,292 234,925 231,863
234,290 228,172
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, restructuring costs and other charges,
other (expense) income, provision for (recovery of)
income taxes, operating expenses, operating income, operating
margin percentage, net income, and basic and diluted net income 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, Restructuring
Costs and Other Charges, Other (Expense) Income, Provision
for (Recovery of) Income Taxes, Operating Expenses, Operating
Income, Operating Margin Percentage, Net Income, and Basic
and Diluted Net Income Per Share (in thousands, except for per
share amounts) (unaudited)
Three Months Ended Nine Months Ended
September 26, June 27, September 27,
September 26, September 27,
2010 (1)
2010 (2)
2009 (3)
2010 (4)
2009 (5)
GAAP cost of revenues $ 53,813 $ 50,064 $ 44,432 $
152,882 $ 120,648 Stock-based compensation (162 ) (229 ) (149 )
(609 ) (580 ) Acquisition related costs (72 ) (73 )
- (145 ) -
Non-GAAP cost of
revenues $ 53,579 $ 49,762 $ 44,283 $
152,128 $ 120,068
GAAP gross profit $
108,522 $ 110,605 $ 86,444 $ 322,948 $ 235,994 Stock-based
compensation 162 229 149 609 580 Acquisition related costs
72 73 - 145
-
Non-GAAP gross profit $ 108,756 $ 110,907
$ 86,593 $ 323,702 $ 236,574
Non-GAAP gross profit % 67 % 69 % 66 % 68 % 66 %
GAAP research and development expense $ 50,180 $ 43,646 $
35,823 $ 135,893 $ 110,834 Stock-based compensation (2,283 ) (2,181
) (2,173 ) (6,628 ) (6,566 ) Termination costs - - 129 - (1,039 )
Asset impairment (4,882 ) - -
(4,882 ) -
Non-GAAP research and
development expense $ 43,015 $ 41,465 $ 33,779
$ 124,383 $ 103,229
GAAP selling,
general and administrative expense $ 25,567 $ 25,196 $ 19,743 $
73,148 $ 63,854 Stock-based compensation (2,856 ) (3,253 ) (2,798 )
(9,078 ) (9,066 ) Acquisition related costs (773 ) (1,453 ) -
(2,226 ) - Termination costs - -
147 - (624 )
Non-GAAP selling,
general and administrative expense $ 21,938 $ 20,490
$ 17,092 $ 61,844 $ 54,164
GAAP amortization of purchased intangible assets $ 5,884 $
6,816 $ 9,836 $ 22,536 $ 29,508 Amortization of purchased
intangible assets (5,884 ) (6,816 ) (9,836 )
(22,536 ) (29,508 )
Non-GAAP amortization of
purchased intangible assets $ - $ - $ - $
- $ -
GAAP restructuring costs and other
charges $ 66 $ - $ 175 $ 322 $ 813 Restructuring costs and
other charges (66 ) - (175 )
(322 ) (813 )
Non-GAAP restructuring costs and other
charges $ - $ - $ - $ - $ -
GAAP other expense $ (469 ) $ (430 ) $ (1,631 ) $
(1,929 ) $ (2,718 ) Loss on subleased facilities - - - - 538
Foreign exchange loss on foreign tax liabilities 281 16 978 1,259
291 Accretion of debt discount related to senior convertible notes
820 804 757 2,412
2,227
Non-GAAP other income $ 632
$ 390 $ 104 $ 1,742 $ 338
GAAP provision for (recovery of) income taxes $ 11,201 $
4,411 $ (8,583 ) $ 16,872 $ (3,484 ) (Provision for) recovery of
income taxes (9,636 ) (2,702 ) 9,884
(11,645 ) 6,404
Non-GAAP provision for
income taxes $ 1,565 $ 1,709 $ 1,301 $
5,227 $ 2,920
Three Months Ended
Nine Months Ended
September 26,
June 27, September 27, September 26,
September 27,
2010 (1)
2010 (2)
2009 (3)
2010 (4)
2009 (5)
GAAP operating expenses $ 81,697 $ 75,658 $ 65,577 $
231,899 $ 205,009 Stock-based compensation (5,139 ) (5,434 ) (4,971
) (15,706 ) (15,632 ) Acquisition related costs (773 ) (1,453 ) -
(2,226 ) - Termination costs - - 276 - (1,663 ) Amortization of
purchased intangible assets (5,884 ) (6,816 ) (9,836 ) (22,536 )
(29,508 ) Restructuring costs and other charges (66 ) - (175 ) (322
) (813 ) Asset impairment (4,882 ) - -
(4,882 ) -
Non-GAAP operating
expenses $ 64,953 $ 61,955 $ 50,871 $
186,227 $ 157,393
GAAP operating income
$ 26,825 $ 34,947 $ 20,867 $ 91,049 $ 30,985 Stock-based
compensation 5,301 5,663 5,120 16,315 16,212 Acquisition related
costs 845 1,526 - 2,371 - Termination costs - - (276 ) - 1,663
Amortization of purchased intangible assets 5,884 6,816 9,836
22,536 29,508 Restructuring costs and other charges 66 - 175 322
813 Asset impairment 4,882 - -
4,882 -
Non-GAAP operating
income $ 43,803 $ 48,952 $ 35,722 $
137,475 $ 79,181
Non-GAAP operating margin
% 27 % 30 % 27 % 29 % 22 %
GAAP net income $
15,155 $ 30,106 $ 27,819 $ 72,248 $ 31,751 Stock-based compensation
5,301 5,663 5,120 16,315 16,212 Acquisition related costs 845 1,526
- 2,371 - Termination costs - - (276 ) - 1,663 Amortization of
purchased intangible assets 5,884 6,816 9,836 22,536 29,508
Restructuring costs and other charges 66 - 175 322 813 Asset
impairment 4,882 - - 4,882 - Loss on subleased facilities - - - -
538 Foreign exchange loss on foreign tax liabilities 281 16 978
1,259 291 Accretion of debt discount related to senior convertible
notes 820 804 757 2,412 2,227 Provision for (recovery of) income
taxes 9,636 2,702 (9,884 )
11,645 (6,404 )
Non-GAAP net income $
42,870 $ 47,633 $ 34,525 $ 133,990 $
76,599
Non-GAAP net income per share - basic $
0.18 $ 0.21 $ 0.15 $ 0.58 $ 0.34
Non-GAAP net income per share -
diluted $ 0.18 $ 0.20 $ 0.15 $ 0.57 $ 0.34 Shares used
to calculate non-GAAP net income per share - basic 231,966 230,997
227,123 230,922 225,276 Shares used to calculate non-GAAP net
income per share - diluted 234,292 234,925 231,863 234,290 228,172
(1) $5.3 million stock-based compensation
expense; $0.8 million costs related to the acquisition of the
channel storage business from Adaptec, Inc.; $5.9 million
amortization of purchased intangible assets; $0.1 million
restructuring costs; $4.9 million asset impairment; $0.3 million
foreign exchange loss on foreign tax liabilities; $0.8 million of
non-cash interest expense for the accretion of the debt discount
related to the senior convertible notes; and $9.6 million income
tax provision which includes $8.0 million income tax provision
relating to the benefit of stock option related loss carry-forwards
recognized in equity, $2.6 million tax adjustments relating to
prior periods, $0.7 million tax effect on inter-company
transactions, $0.6 million net deferred tax recovery relating to
foreign exchange translation of a foreign subsidiary, $0.5 million
arrears interest relating to unrecognized tax benefits, and $0.2
million income tax recovery related to adjustments above.
(2) $5.7 million stock-based compensation
expense; $1.5 million costs related to the acquisition of the
channel storage business from Adaptec, Inc.; $6.8 million
amortization of purchased intangible assets; $0.8 million of
non-cash interest expense for the accretion of the debt discount
related to the senior convertible notes; and $2.7 million income
tax provision which includes $2.1 million tax effect on
inter-company transactions, $0.5 million arrears interest relating
to unrecognized tax benefits, $0.3 million net deferred tax expense
relating to foreign exchange translation of a foreign subsidiary,
and $0.2 million income tax recovery related to adjustments
above.
(3) $5.1 million stock-based compensation
expense; $0.3 million recovery of previously accrued termination
costs; $9.8 million amortization of purchased intangible assets;
$0.2 million restructuring costs; $1.0 million foreign exchange
loss on foreign tax liabilities; $0.8 million of non-cash interest
expense for the accretion of the debt discount related to the
senior convertible notes; and $9.9 million income tax recovery
which includes $9.4 million net deferred tax recovery relating to
foreign exchange translation of a foreign subsidiary, $0.3 million
arrears interest relating to unrecognized tax benefits, $1.0
million tax effect on inter-company transactions, $0.8 million tax
adjustments based on completed filings and assessments received
from tax authorities, and $1.0 million income tax recovery related
to the adjustments above.
(4) $16.3 million stock-based compensation
expense; $2.4 million costs related to the acquisition of the
channel storage business from Adaptec, Inc.; $22.5 million
amortization of purchased intangible assets; $0.3 million
restructuring costs; $4.9 million asset impairment; $1.3 million
foreign exchange loss on foreign tax liabilities; $2.4 million of
non-cash interest expense for the accretion of the debt discount
related to the senior convertible notes; and $11.6 million income
tax provision which includes $8.0 million income tax provision
relating to the benefit of stock option related loss carry-forwards
recognized in equity, $2.9 million tax effect on inter-company
transactions, $2.6 million tax adjustments relating to prior
periods, $2.5 million net deferred tax recovery relating to foreign
exchange translation of a foreign subsidiary, $1.5 million arrears
interest relating to unrecognized tax benefits, and $0.9 million
income tax recovery related to the adjustments above.
(5) $16.2 million stock-based compensation
expense; $1.7 million of termination costs; $29.5 million
amortization of purchased intangible assets; $0.8 million
restructuring costs; $0.5 million loss on subleased facilities;
$0.3 million foreign exchange loss on foreign tax liabilities; $2.2
million of non-cash interest expense for the accretion of the debt
discount related to the senior convertible notes; and $6.4 million
income tax recovery which includes $8.4 million net deferred tax
recovery relating to foreign exchange translation of a foreign
subsidiary, $1.0 million arrears interest relating to unrecognized
tax benefits, $3.1 million tax effect on inter-company
transactions, $0.1 million tax adjustments based on completed
filings and assessments received from tax authorities and $2.0
million income tax recovery related to the adjustments above.
PMC-Sierra, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
(unaudited)
September 26, December
27, 2010 2009 ASSETS: Current assets: Cash and
cash equivalents $ 131,075 $ 192,841 Short-term investments 114,329
67,928 Accounts receivable, net 76,765 50,745 Inventories, net
36,122 31,531 Prepaid expenses and other current assets 17,729
14,476 Income tax receivable 3,924 - Deferred tax assets
9,605 3,052 Total current assets 389,549
360,573 Property and equipment, net 15,529 13,909 Investment
securities 310,381 192,636 Goodwill 398,798 396,144 Intangible
assets, net 104,201 110,458 Deferred tax assets 251 250 Prepaid
expenses 24,497 26,187 Investments and other assets 12,738 10,175
Deposits for wafer fabrication capacity 5,145
5,145 $ 1,261,089 $ 1,115,477
LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts
payable $ 29,530 $ 22,266 Accrued liabilities 61,714 52,996
Liability for unrecognized tax benefit 38,168 31,330 Income taxes
payable 383 7,261 Deferred income taxes 232 681 Accrued
restructuring costs 2,263 3,994 Deferred income 22,218
12,498 Total current liabilities 154,508
131,026 2.25% senior convertible notes due October 15, 2025,
net 60,768 58,356 Long-term obligations 7,865 6,211 Deferred income
taxes 27,102 22,695 Liability for unrecognized tax benefit 15,647
14,663 PMC special shares convertible into 1,447 (2009 -
1,570) shares of common stock 1,826 2,003 Stockholders'
equity Common stock and additional paid in capital 1,560,551
1,521,723 Accumulated other comprehensive income 2,938 1,164
Accumulated deficit (570,116 ) (642,364 ) Total
stockholders' equity 993,373 880,523 $
1,261,089 $ 1,115,477
PMC-Sierra,
Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in
thousands) (unaudited)
Nine Months
Ended September 26, September 27, 2010
2009 Cash flows from operating activities: Net income
$ 72,248 $ 31,751 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
35,645 42,437 Stock-based compensation 16,315 16,212 Unrealized
foreign exchange loss, net 1,436 97 Net amortization (accretion) of
investment premiums/discounts 4,511 (419 ) Accrued interest on
investment securities (701 ) - Loss on disposal of investment
securities 78 - Asset impairment 4,882 - Loss on subleased
facilities - 538 Changes in operating assets and
liabilities: Accounts receivable (17,739 ) (8,070 ) Inventories 912
7,995 Prepaid expenses and other current assets 2,896 2,475
Accounts payable and accrued liabilities 5,648 4,562 Deferred
income taxes and income taxes payable (68 ) (6,624 ) Accrued
restructuring costs (1,739 ) (1,445 ) Deferred income 9,720
758 Net cash provided by operating activities
134,044 90,267
Cash flows
from investing activities: Acquisition of business (34,250 ) -
Purchases of property and equipment (6,847 ) (4,570 ) Purchases of
intangible assets (4,287 ) (1,398 ) Redemption of short-term
investments 4,574 170,802 Disposals of investment securities
133,000 11,142 Purchases of investment securities (303,192 )
(209,311 ) Net cash used in investing activities
(211,002 ) (33,335 )
Cash flows from financing
activities: Proceeds from issuance of common stock
15,133 24,311 Net cash provided by financing
activities 15,133 24,311 Effect
of exchange rate changes on cash and cash equivalents 59 1,962 Net
(decrease) increase in cash and cash equivalents (61,766 ) 83,205
Cash and cash equivalents, beginning of period 192,841
97,839 Cash and cash equivalents, end of
period $ 131,075 $ 181,044
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