Fourth Quarter Revenue of $43 Million
Previously Announced Restructuring Plan on
Track
Entropic to be Acquired by MaxLinear for $287
Million in Cash and Stock
Entropic (Nasdaq:ENTR), a world leader in semiconductor solutions
for the connected home, today reported its fourth quarter and
fiscal year results for the period ended December 31, 2014.
Also today, Entropic and Maxlinear, Inc. (NYSE:MXL) announced
that they have entered into a definitive agreement pursuant to
which Maxlinear will acquire Entropic in a combined stock and cash
transaction valued at $287 million, based on MaxLinear's closing
stock price on February 2, 2015. Please refer to a joint press
release issued by the parties today for additional details
regarding the transaction.
"Today's announcement represents a successful conclusion of our
Board's strategic review to enhance shareholder value," said Ted
Tewksbury, interim president and chief executive officer, Entropic.
"We conducted a very robust process resulting in today's
announcement which will deliver cash value to our shareholders
while enabling them to benefit from the increased scale and
synergies of the combined company."
Entropic reported fourth quarter net revenues of $42.6 million.
This compares to net revenues of $43.2 million in the third quarter
of 2014.
In accordance with U.S. generally accepted accounting principles
(GAAP), the Company's fourth quarter net loss was $25.4 million, or
$0.28 per share (basic and diluted). This compares with GAAP net
loss of $27.6 million, or $0.31 per share (basic and diluted) in
the third quarter of 2014. GAAP net loss includes charges of $13.7
million for the fourth quarter and $9.6 million for the third
quarter in connection with the Company's previously announced
restructuring plan.
Non-GAAP net loss in the fourth quarter was $5.7 million, or
$0.06 per share (basic and diluted), compared to non-GAAP net loss
of $10.0 million, or $0.11 per share (basic and diluted) in the
third quarter of 2014.
Net revenues for the year ended December 31, 2014 were $191.6
million, compared with net revenues of $259.4 million for the year
ended December 31, 2013. Net loss computed in accordance with GAAP
for the year ended December 31, 2014 was $98.1 million, or $1.09
per share (basic and diluted), compared with GAAP net loss of $66.2
million, or $0.73 per share (basic and diluted), for the year ended
December 31, 2013.
Non-GAAP net loss for the year ended December 31, 2014 was
$41.4 million, or $0.46 per share (basic and diluted), compared to
non-GAAP net loss of $10.4 million, or $0.11 per share (basic and
diluted) for the year ended December 31, 2013.
FINANCIAL GUIDANCE
"The Company remains on track to achieve the financial targets
we outlined in November," said David Lyle, chief financial officer,
Entropic. "For the first quarter, we expect a sequential
improvement in revenues of two to three million dollars primarily
because we are seeing healthy orders for STB SoC's used in HD-DTA's
for several cable PayTV service providers. Based on historical
ordering patterns, we believe ordering will be heavier in the first
half of the year for HD-DTA's versus the second half of the
year. On the bottom line, we expect first quarter earnings of
4 cents per share on a non-GAAP basis. We intend to end the
quarter with greater than $100 million in cash and investments on
the balance sheet."
Guidance for the Three Months Ending March 31,
2015 |
|
Three Months Ending
March 31, 2015 |
Total net revenue |
$45 to $46 million |
Gross margin (Non-GAAP) |
53% |
Research & development and selling,
general, and administrative expenses (Non-GAAP) |
$20 to $21 million |
For a reconciliation, please see the table included at
the end of this release.
CONFERENCE CALL
MaxLinear and Entropic management will host a conference call at
2:00 p.m. Pacific / 5:00 p.m. Eastern to discuss today's
announcement. Supporting materials for the conference call,
including a presentation, will be available on the Investor
Relations sections of MaxLinear's and Entropic's websites at
www.maxlinear.com and www.entropic.com, respectively.
Interested parties may access the conference call via any of the
following:
Teleconference: |
1-888-337-8198 /
International:1-719-325-2402 |
Access Code: |
3138635 |
Web Broadcast: |
http://edge.media-server.com/m/p/bh9atvf5/lan/en |
Replay: |
1-888-203-1112 /
International:1-719-457-0820 |
Replay Passcode: |
3138635 |
Due to the pending acquisition by MaxLinear, Entropic's fourth
quarter and full-year 2014 earnings conference call, originally
scheduled for this afternoon, is canceled.
About Entropic
Entropic™ (Nasdaq:ENTR) is a world leader in semiconductor
solutions for the connected home. The Company transforms how
traditional HDTV broadcast and IP-based streaming video content is
seamlessly, reliably, and securely delivered, processed, and
distributed into and throughout the home. Entropic's
next-generation Set-top Box (STB) System-on-a-Chip (SoC) and
Connectivity solutions enable Pay-TV operators to offer consumers
more captivating whole-home entertainment experiences by
transforming the way digital entertainment is delivered, connected
and consumed - in the home and on the go. For more information,
please visit Entropic at: www.entropic.com, read our blog Entropic
Topics, or get social with us at @Entropic_News, or on Facebook,
Google+, YouTube and LinkedIn.
The Entropic logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=4255
Non-GAAP Financial Measures
This press release and the accompanying tables contain the
following non-GAAP financial measures: net loss and net loss per
share. These non-GAAP financial measures exclude the effects on the
Statement of Operations of all forms of stock-based compensation,
transaction and integration costs, amortization of intangible
assets, losses related to equity method investment, impairment of
investment, the impact of fair value adjustments related to
contingent consideration payable in the acquisition of PLX
Technology assets, the deferred tax asset valuation allowance, the
cash tax difference, intellectual property litigation costs, asset
impairment charges and restructuring charges.
Management uses these non-GAAP financial measures to manage the
Company's business, including setting operating budgets and
executive compensation plans. These non-GAAP measures are also used
to (i) supplement the financial results and forecasts reported to
the Company's board of directors, (ii) evaluate the Company's
operating performance, (iii) compare the Company's performance to
internal forecasts, and (iv) manage the Company's business and
benchmarking performance internally. The non-GAAP measures have
been made available to stockholders consistently in the past to
provide transparency on how management manages the Company's
operating performance. Management believes that these non-GAAP
operating measures are useful to investors, when used as a
supplement to GAAP measures, in evaluating the Company's ongoing
operational performance.
The non-GAAP financial measures disclosed by the Company should
not be considered in isolation or a substitute for, or superior to,
the financial information prepared and presented in accordance with
GAAP, and the financial results calculated in accordance with GAAP
and reconciliations to those financial statements should be
carefully evaluated. The non-GAAP financial measures used by the
Company may be calculated differently from, and therefore may not
be comparable to, similarly titled measures used by other
companies.
Where You Can Find Additional Information
In connection with Entropic's pending acquisition by MaxLinear,
MaxLinear will file a registration statement on Form S-4 containing
a joint proxy statement/prospectus of Entropic and MaxLinear and
other documents concerning the proposed acquisition with the
Securities and Exchange Commission (the "SEC"). ENTROPIC URGES
INVESTORS TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND THESE
OTHER MATERIALS CAREFULLY WHEN THEY BECOME AVAILABLE BECAUSE THEY
WILL CONTAIN IMPORTANT INFORMATION ABOUT ENTROPIC, MAXLINEAR AND
THE PROPOSED TRANSACTION. Investors may obtain free copies of the
joint proxy statement/prospectus (when available) and other
documents filed by Entropic and MaxLinear with the SEC at the SEC's
website at www.sec.gov. Free copies of the joint proxy
statement/prospectus (when available) and Entropic's other SEC
filings are also available on Entropic's website at
http://www.entropic.com/.
Entropic, MaxLinear and their respective directors, executive
officers, certain members of management and certain employees may
be deemed, under SEC rules, to be participants in the solicitation
of proxies with respect to the proposed transaction. Information
regarding Entropic's officers and directors is included in
Entropic's Definitive Proxy Statement on Schedule 14A filed with
the SEC on April 3, 2014 with respect to its 2014 Annual Meeting of
Stockholders. This document is available free of charge at the
SEC's website at www.sec.gov or by going to Entropic's Investors
page on its corporate website at http://www.entropic.com/.
Information regarding MaxLinear's officers and directors is
included in MaxLinear's Definitive Proxy Statement on Schedule 14A
filed with the SEC on April 17, 2014 with respect to its 2014
Annual Meeting of Stockholders. This document is available free of
charge at the SEC's website at www.sec.gov or by going to
MaxLinear's Investors page on its corporate website at
www.MaxLinear.com. Additional information regarding the persons who
may, under the rules of the SEC, be deemed participants in the
solicitation of proxies in connection with the proposed merger, and
a description of their direct and indirect interests in the
proposed merger, which may differ from the interests of Entropic
stockholders or MaxLinear stockholders generally, will be set forth
in the joint proxy statement/prospectus when it is filed with the
SEC.
Forward-Looking Statements
Statements in this press release that are not strictly
historical in nature constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of
1995. Such statements include, but are not limited to,
statements regarding our financial targets, strategy and
restructuring plan, our product and market leadership in our core
markets, our technology and competitive advantages, our ability to
invest in product development and drive future revenue growth and
the timing and expected benefits of the proposed merger with
MaxLinear. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause
Entropic's actual results to be materially different from
historical results or from any results expressed or implied by such
forward-looking statements. These factors include, but are not
limited to, risks associated with our restructuring activities, our
ability to retain key employees, our dependence on a limited number
of supply chain partners for the manufacture of our products and
other factors that could affect our ability to meet customer
demand; our dependence on a limited number of customers and,
ultimately, service providers for a substantial portion of our
revenues; the ability of our customers or the service providers who
purchase their products to successfully compete and continue to
grow in their markets; the continued development of the market for
High Definition (HD) video and other multi-media content delivery
and networking solutions; risks associated with competing against
larger and more established companies and our ability to compete
successfully in the connected home entertainment market; risks
associated with timely development and introduction of new or
enhanced products including those associated with IP Video
delivery; risks related to international operations; risks related
to intellectual property, including third party licensing or patent
infringement claims; the risk that the proposed merger with
MaxLinear may be delayed or may not be consummated due to the
failure of Entropic or MaxLinear stockholders to approve the
proposed transactions, the failure to obtain required regulatory
clearances or the failure of other closing conditions to be
satisfied in the time period that the parties expect or at all, and
other factors discussed in the "Risk Factors" section of Entropic's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2014. All forward-looking statements are qualified in their
entirety by this cautionary statement. Entropic is providing this
information as of the date of this release and does not undertake
any obligation to update any forward-looking statements contained
in this release as a result of new information, future events or
otherwise.
Copyright © 2015 Entropic. All rights reserved. All other
product or company names mentioned are used for identification
purposes only and may be trademarks of their respective owners.
Entropic
Non-GAAP Gross Profit & Operating Expenses Reconciliation to
GAAP |
|
|
|
|
|
|
Q1 2015 |
|
|
|
Guidance |
|
|
|
|
Non-GAAP Gross Profit
Percentage |
|
|
53% |
Stock-Based Compensation |
|
|
(0%) |
Amortization of Purchased
Intangibles |
|
|
(6%) |
GAAP Gross Profit
Percentage |
|
|
47% |
|
|
|
|
|
Q1 2015 |
|
Guidance |
GAAP Operating Expenses |
$26.3 |
- |
$27.3 |
Stock-Based Compensation |
|
|
(3.0) |
Restructuring and Impairment
Charges |
|
|
(2.0) |
Amortization of Purchased
Intangibles |
|
|
(0.3) |
IP Litigation |
|
|
(0.0) |
MaxLinear M&A Transaction
Expenses |
|
|
(1.0) |
Non-GAAP Operating
Expenses |
$20.0 |
- |
$21.0 |
|
|
|
|
ENTROPIC
COMMUNICATIONS, INC. |
GAAP Condensed
Consolidated Statements of Operations |
(In thousands, except
for per share information) |
|
|
Three Months
Ended |
Year
Ended |
|
December 31,
2014 |
September 30,
2014 |
December 31,
2013 |
December 31,
2014 |
December 31,
2013 |
|
(unaudited) |
(unaudited) |
(unaudited) |
|
|
|
|
|
|
|
|
Net revenues |
$ 42,586 |
$ 43,178 |
$ 57,931 |
$ 191,619 |
$ 259,376 |
Cost of net revenues |
21,504 |
20,609 |
30,137 |
98,368 |
134,974 |
Gross profit |
21,082 |
22,569 |
27,794 |
93,251 |
124,402 |
Operating expenses: |
|
|
|
|
|
Research and development |
21,679 |
29,073 |
29,622 |
117,234 |
114,536 |
Sales and marketing |
5,125 |
5,923 |
6,273 |
24,371 |
24,882 |
General and administrative |
5,570 |
5,435 |
5,125 |
23,258 |
22,415 |
Amortization of
intangibles |
255 |
256 |
444 |
1,244 |
2,312 |
Restructuring charges |
8,393 |
2,186 |
-- |
12,375 |
1,694 |
Impairment of assets |
5,301 |
7,386 |
-- |
12,687 |
-- |
Total operating
expenses |
46,323 |
50,259 |
41,464 |
191,169 |
165,839 |
Loss from operations |
(25,241) |
(27,690) |
(13,670) |
(97,918) |
(41,437) |
Loss related to equity method
investment |
-- |
-- |
-- |
-- |
(1,115) |
Impairment of investment |
-- |
-- |
-- |
-- |
(4,780) |
Other income, net |
432 |
176 |
435 |
881 |
1,582 |
Loss before income taxes |
(24,809) |
(27,514) |
(13,235) |
(97,037) |
(45,750) |
Income tax provision (benefit) |
576 |
123 |
(1,333) |
1,087 |
20,404 |
Net loss |
$ (25,385) |
$ (27,637) |
$ (11,902) |
$ (98,124) |
$ (66,154) |
|
|
|
|
|
|
Net loss per share - basic and diluted |
$ (0.28) |
$ (0.31) |
$ (0.13) |
$ (1.09) |
$ (0.73) |
Weighted average number of shares used to
compute net loss per share - basic and diluted |
90,562 |
89,293 |
91,293 |
89,783 |
90,494 |
|
ENTROPIC
COMMUNICATIONS, INC. |
GAAP Condensed
Consolidated Balance Sheets |
(In
thousands) |
|
|
December 31 |
September 30 |
December 31 |
|
2014 |
2014 |
2013 |
|
|
(unaudited) |
|
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ 17,307 |
$ 10,350 |
$ 16,298 |
Marketable securities |
79,397 |
78,331 |
71,922 |
Accounts receivable |
27,795 |
29,435 |
30,204 |
Inventory |
10,404 |
14,492 |
13,503 |
Deferred tax assets,
current |
299 |
51 |
51 |
Prepaid expenses and other
current assets |
7,337 |
14,056 |
18,739 |
Total current assets |
142,539 |
146,715 |
150,717 |
Property and equipment, net |
17,413 |
23,502 |
17,994 |
Long-term marketable securities |
9,126 |
18,817 |
69,534 |
Intangible assets, net |
33,588 |
36,561 |
47,326 |
Goodwill |
4,688 |
4,688 |
4,688 |
Other long-term assets |
2,807 |
3,815 |
5,001 |
Total assets |
$ 210,161 |
$ 234,098 |
$ 295,260 |
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ 7,210 |
$ 11,411 |
$ 8,601 |
Accrued expenses and other
current liabilities |
9,573 |
7,055 |
6,318 |
Accrued payroll and
benefits |
8,387 |
9,933 |
7,077 |
Total current liabilities |
25,170 |
28,399 |
21,996 |
Deferred rent |
6,350 |
6,277 |
1,751 |
Other long-term liabilities |
2,381 |
2,069 |
1,688 |
Stockholders' equity |
176,260 |
197,353 |
269,825 |
Total liabilities and
stockholders' equity |
$ 210,161 |
$ 234,098 |
$ 295,260 |
|
ENTROPIC
COMMUNICATIONS, INC. |
Unaudited
Reconciliation of Non-GAAP Adjustments |
(In thousands, except
for per share information) |
|
This press release contains the
following non-GAAP financial measures: net loss and net loss per
share. The presentation of such measures is not intended to be
considered in isolation or as a substitute for, or superior to, the
financial information prepared and presented in accordance with
GAAP. Our non-GAAP net loss and net loss per share exclude the
items listed below. |
|
The following table sets forth
such non-GAAP measures for the applicable periods as well as the
reconciliation of such measures to the directly comparable GAAP
measures for the periods shown. |
|
|
Three Months
Ended |
Year
Ended |
|
December 31,
2014 |
September 30,
2014 |
December 31,
2013 |
December 31,
2014 |
December 31,
2013 |
|
(unaudited) |
(unaudited) |
(unaudited) |
(unaudited) |
(unaudited) |
GAAP net loss |
$ (25,385) |
$ (27,637) |
$ (11,902) |
$ (98,124) |
$ (66,154) |
Non-GAAP adjustments: |
|
|
|
|
|
Stock-based compensation: |
|
|
|
|
|
Cost of net revenues |
58 |
116 |
203 |
429 |
861 |
Research and development |
1,072 |
2,898 |
3,099 |
10,707 |
9,829 |
Sales and marketing |
197 |
633 |
561 |
2,164 |
1,885 |
General and administrative |
1,412 |
955 |
1,090 |
4,471 |
4,199 |
Total stock-based
compensation |
2,739 |
4,602 |
4,953 |
17,771 |
16,774 |
Amortization of intangible
assets: |
|
|
|
|
|
Cost of net revenues |
2,718 |
2,717 |
2,717 |
10,869 |
9,598 |
Operating expenses |
255 |
256 |
444 |
1,244 |
2,312 |
Transaction and integration
costs |
-- |
-- |
-- |
-- |
244 |
Loss related to equity method
investment |
-- |
-- |
-- |
-- |
1,115 |
Impairment of investment |
-- |
-- |
-- |
-- |
4,780 |
Adjustments to the fair value
of PLX acquisition contingent consideration |
-- |
-- |
-- |
-- |
(131) |
Cash tax difference (1) |
486 |
(53) |
(1,814) |
454 |
(7,278) |
IP litigation costs (2) |
(173) |
590 |
-- |
1,373 |
-- |
Deferred tax asset valuation
allowance |
-- |
-- |
-- |
-- |
26,695 |
Restructuring charges (3) |
8,393 |
2,186 |
-- |
12,375 |
1,694 |
Impairment of assets |
5,301 |
7,386 |
-- |
12,687 |
-- |
Total of non-GAAP
adjustments |
19,719 |
17,684 |
6,300 |
56,773 |
55,803 |
Non-GAAP net loss |
$ (5,666) |
$ (9,953) |
$ (5,602) |
$ (41,351) |
$ (10,351) |
|
|
|
|
|
|
Weighted average shares (basic) |
90,562 |
89,293 |
91,293 |
89,783 |
90,494 |
Adjustment for dilutive
shares |
-- |
-- |
-- |
-- |
-- |
Weighted average shares (diluted) |
90,562 |
89,293 |
91,293 |
89,783 |
90,494 |
|
|
|
|
|
|
GAAP net loss per share (basic) |
$ (0.28) |
$ (0.31) |
$ (0.13) |
$ (1.09) |
$ (0.73) |
Non-GAAP adjustments detailed
above |
0.22 |
0.20 |
0.07 |
0.63 |
0.62 |
Non-GAAP net loss per share
(diluted) |
$ (0.06) |
$ (0.11) |
$ (0.06) |
$ (0.46) |
$ (0.11) |
|
|
|
|
|
|
(1) Non-GAAP net loss per share
is calculated using the cash tax rate of (2)%, (2)%, and (9)% for
the three month periods ended December 31, 2014,
September 30, 2014 and December 31, 2013, respectively,
and (2)% and (11)% for the years ended December 31, 2014 and
2013, respectively. The estimated cash tax rate is the estimated
tax payable on our projected tax returns as a percentage of
estimated annual non-GAAP pre-tax net loss. We use an estimated
cash tax rate to adjust for the historical variation in the
effective book tax rate associated with the valuation allowance
adjustments, the utilization of research and development tax
credits, and the utilization of loss carryforwards which currently
have an overall effect of reducing taxes payable. We believe that
the cash tax rate provides a more transparent view of our operating
results. The effective tax rate used for the purposes of
calculating GAAP net loss was (2)%, 0%, and 10% for the three month
periods ended December 31, 2014, September 30, 2014 and
December 31, 2013, respectively, and (1)% and (45)% for the
years ended December 31, 2014 and 2013, respectively. |
(2) While litigation may arise in
the ordinary course of our business, we nevertheless consider our
intellectual property litigation with VIXS in 2014 to be an
unusual, non-recurring and unplanned activity and therefore exclude
this charge when presenting non-GAAP financial measures. |
(3) In November 2014, we
announced a corporate restructuring plan to advance our refocused
strategy. The restructuring plan is expected to result in a
workforce reduction of approximately 200 positions, constituting
approximately 40 percent of Entropic's global workforce and
includes closing facilities in Shanghai, China, Belfast, Northern
Ireland and San Jose, California. |
In June 2014, we announced a
corporate restructuring plan to accelerate our path to
profitability. The restructuring plan includes the closures and
consolidations of several global facilities including facilities
located in Austin, Texas; India; Taiwan and Israel. Approximately
150 positions were eliminated in connection with the restructuring
plan, representing about 23% of our work force. |
We recorded restructuring charges
of $8.4 million and $12.4 million during the three and twelve
months ended December 31, 2014 for both of these actions. We expect
to incur a total restructuring charge of approximately $14.2
million, all of which is expected to be cash expenditures. |
In June 2013, we incurred a
restructuring charge of $1.8 million pursuant to a plan to
rebalance our operations in an attempt to leverage synergies from
our acquisitions and refine our business operations. This plan
resulted in a reduction of our personnel by 66 employees, or
approximately 10% of our work force. |
CONTACT: Entropic Contact:
Debra Hart
+1 858.768.3852
debra.hart@entropic.com
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