UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): February 3, 2015
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ENTROPIC COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware | 001-33844 | 33-0947630 |
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
6350 Sequence Drive
San Diego, CA 92121
(Address of Principal Executive Offices and Zip Code)
(858) 768-3600
(Registrant's Telephone Number, Including Area Code)
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
x | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01. Entry into a Material Definitive Agreement.
On February 3, 2015, Entropic Communications, Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with MaxLinear, Inc., a Delaware corporation (“MaxLinear”), in a combined stock and cash transaction valued at $287 million (the “Merger”). In connection with the Merger, all of the issued and outstanding shares of Common Stock of the Company, par value $0.001 per share, will be cancelled and converted into the right to receive consideration per share consisting of (i) an amount in cash equal to $1.20 plus (ii) 0.2200 of a share of MaxLinear’s Class A Common Stock, par value $0.0001 per share (the “Stock Consideration”) plus (iii) any cash payable in lieu of fractional shares of MaxLinear’s Class A Common Stock otherwise issuable as Stock Consideration. The Merger is intended to qualify as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
The completion of the Merger is subject to the satisfaction or waiver of a number of closing conditions, including, among others, adoption of the Merger Agreement by the holders of a majority of the Company’s outstanding Common Stock, and the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
A joint press release issued by the Company and MaxLinear announcing the Merger Agreement was issued on February 3, 2015 and is attached as Exhibit 99.1 to this Current Report on Form 8-K.
Where You Can Find Additional Information
In connection with the Company’s pending acquisition by MaxLinear, MaxLinear will file a registration statement on Form S-4 containing a joint proxy statement/prospectus of the Company and MaxLinear and other documents concerning the proposed Merger with the Securities and Exchange Commission (the “SEC”). THE COMPANY 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 THE COMPANY, MAXLINEAR AND THE PROPOSED MERGER. Investors may obtain free copies of the joint proxy statement/prospectus (when available) and other documents filed by the Company 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 the Company’s other SEC filings are also available on the Company’s website at http://www.entropic.com/.
The Company, 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 Merger. Information regarding the Company’s officers and directors is included in the Company’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 the Company’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 the Company’s stockholders or MaxLinear’s stockholders generally, will be set forth in the joint proxy statement/prospectus when it is filed with the SEC.
Item 2.02. Results of Operations and Financial Condition.
On February 3, 2015, the Company issued a press release announcing, among other things, its financial results for the fourth quarter and fiscal year ended December 31, 2014. A copy of the press release is attached as Exhibit 99.2 to this Current Report on Form 8-K. The information in this Item 2.02 and Exhibit 99.2 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any registration statement or other document filed with the Securities and Exchange Commission, whether filed before or after the date hereof, and regardless of any general incorporation language in any such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Number Description
99.1 Press Release of Entropic Communications, Inc. and MaxLinear, Inc. dated February 3, 2015.
99.2 Press Release of Entropic Communications, Inc. dated February 3, 2015.
Cautionary Statement Regarding Forward-Looking Statements
Statements contained in this Current Report on Form 8-K that relate to future results and events may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking information, and are based on the current expectations, estimates, forecasts and projections of the Company and MaxLinear. There can be no assurances that the Merger will be consummated. The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: economic, business, competitive, and/or regulatory factors affecting the businesses of the Company and MaxLinear generally, including those set forth in the filings of the Company and MaxLinear with the SEC, especially in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of their respective Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, their Current Reports on Form 8-K and other SEC filings. These forward-looking statements speak only as of the date hereof. The Company and MaxLinear undertake no obligation to publicly release the results of any revisions or updates to these forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized.
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| | | ENTROPIC COMMUNICATIONS, INC. |
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Dated: | February 3, 2014 | By: | /s/ Lance W. Bridges |
| | | Lance W. Bridges, Esq. Senior Vice President and General Counsel |
EXHIBIT INDEX
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Number | Description |
99.1 | Press Release of Entropic Communications, Inc. and MaxLinear, Inc. dated February 3, 2015. |
99.2 | Press Release of Entropic Communications, Inc. dated February 3, 2015. |
FOR IMMEDIATE RELEASE
MaxLinear to Acquire Entropic,
Reaffirms its Fourth Quarter 2014 Guidance and Provides Outlook for First Quarter 2015
Acquisition Expands MaxLinear’s Strategic Presence in Broadband Access and Connectivity Markets
Acquisition Expected to be Immediately Accretive to Non-GAAP Earnings; Targeting Greater than $20 Million in Cost Savings in First Full Calendar Year Post-Close
CARLSBAD and SAN DIEGO, CALIFORNIA, February 3, 2015 - MaxLinear, Inc. (NYSE:MXL or “MaxLinear”), a leading provider of integrated radio frequency (“RF”) and mixed-signal integrated circuits (“ICs”), and Entropic Communications, Inc. (Nasdaq:ENTR or “Entropic”), a world leader in semiconductor solutions for the connected home, today announced that they have signed a definitive agreement for MaxLinear to acquire Entropic. The boards of directors of both MaxLinear and Entropic have unanimously approved the transaction.
Entropic shareholders will receive (i) $1.20 per share in cash and (ii) 0.2200 shares of MaxLinear common stock for each Entropic common share outstanding. Based on MaxLinear’s closing stock price on February 2, 2015, the merger consideration is valued at approximately $3.01 per Entropic share. The implied total transaction value is approximately $287 million and the implied enterprise value is $181 million, net of Entropic’s cash balance as of December 31, 2014. Shareholders of MaxLinear and Entropic will own approximately 65% and 35%, respectively, post completion of the acquisition.
Headquartered in San Diego, Entropic is recognized for pioneering the MoCA® (Multimedia over Coax Alliance) home networking standard, inventing Direct Broadcast Satellite (“DBS”) outdoor unit single-wire technology, and developing the industry’s first set-top box SoC platform based on the ARM® processor with advanced OpenGL graphics. Entropic has a rich history of
innovation and deep expertise in RF, analog/mixed signal and digital signal processing technologies. Entropic’s silicon solutions have been broadly deployed across major cable, satellite, and fiber service providers.
The acquisition will add significant scale to MaxLinear’s analog/mixed-signal business, expanding its addressable market and enhancing the strategic value of MaxLinear’s offerings to its broadband and access partners, OEM customers, and service providers. MaxLinear sees immediate cross-selling opportunities and longer-term platform integration opportunities with Entropic’s leading MoCA technology.
Along with broadening MaxLinear’s presence in its existing markets, Entropic adds immediate scale and deep customer relationships in MaxLinear’s most recent growth area of the satellite Pay-TV market. Entropic’s design talents and portfolio of approximately 1,500 issued and pending patents are highly complementary, and MaxLinear is uniquely positioned to capitalize on these assets.
“We are very excited about the opportunity to bring together two talented and largely complementary teams, as we increase our capabilities to solve the most difficult analog and mixed-signal RF challenges in Broadband markets,” said Dr. Kishore Seendripu, CEO of MaxLinear. ”We believe the scale and strategic benefits of a broader technology portfolio will enable us to accelerate our expansion into new markets more effectively. The financial benefits of the transaction should be immediately visible, as we expect non-GAAP earnings accretion in the first full quarter post-close.”
Dr. Ted Tewksbury, Interim President and CEO of Entropic, commented, “I share Kishore’s enthusiasm for this combination, which we believe maximizes value for Entropic’s shareholders, employees and customers. These are two excellent companies in the industry, and I believe our stakeholders will benefit from the resources and scale that the combination will provide.”
Other Transaction and Financial Details
As a result of the combination, MaxLinear anticipates it will achieve operating synergies in excess of $20 million in the first full calendar year post-close. Increased scale and projected cost savings are expected to lower combined non-GAAP operating expenses, generate significant operating margin expansion, and accelerate MaxLinear’s timing to achieving its stated target operating model.
The transaction is expected to close in the second quarter of 2015 subject to approval by the shareholders of both companies, the receipt of regulatory approvals, and other customary closing conditions. MaxLinear will add Dr. Ted Tewksbury to its board of directors upon closing of the transaction.
Stifel is acting as exclusive financial advisor to MaxLinear. Barclays is acting as exclusive financial advisor to Entropic. Wilson Sonsini Goodrich & Rosati, P.C. is acting as counsel for MaxLinear and Cooley LLP is acting as counsel for Entropic.
MaxLinear Reaffirms Fourth Quarter 2014 Guidance
MaxLinear’s fourth quarter 2014 revenue is expected to be in the range of $32 million to $33 million. This is unchanged from the Company’s previous guidance.
The Company is reaffirming its prior GAAP and non-GAAP gross margin and operating expense guidance.
The Company’s cash, cash equivalents and investments are expected to be $79 million as of December 31, 2014.
As previously announced, MaxLinear is scheduled to release its fourth quarter results on February 9, 2015 and will host a conference call that day to discuss those results.
MaxLinear Provides First Quarter 2015 Guidance
Revenue is expected to be between $34 million and $35 million for the first quarter of 2015.
GAAP and Non-GAAP gross margin is expected to be approximately 61% for the first quarter of 2015.
GAAP operating expenses for the first quarter of 2015 are expected to be $27.5 million. Non-GAAP operating expenses are expected to be $18.5 million for the first quarter of 2015. For the reconciliation, please see the table at the end of this release.
Conference Call / Webcast Details
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
A live webcast of the conference call will be accessible from the investor relations section of the MaxLinear website at http://investors.maxlinear.com, and will be archived and available after the call at http://investors.maxlinear.com. A replay of the conference call will also be available.
About Entropic
Entropic™ 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.
About MaxLinear, Inc.
MaxLinear, Inc. is a leading provider of radio-frequency and mixed-signal semiconductor solutions for broadband communications applications. MaxLinear is headquartered in Carlsbad, California. For more information, please visit www.maxlinear.com.
Cautionary Note Concerning Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, among others, statements concerning MaxLinear’s proposed acquisition of Entropic; anticipated accretion to MaxLinear’s earnings; anticipated cost savings arising from the acquisition; the anticipated timing of the closing of the acquisition; preliminary estimates of MaxLinear’s fourth quarter 2014 operating results; and MaxLinear’s financial guidance for the first quarter of 2015 including revenue, gross profit percentage, and operating expense guidance. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from any future results expressed or implied by the forward-looking statements. Forward-looking statements are based on management’s current, preliminary expectations and are subject to various risks and uncertainties. MaxLinear’s preliminary estimates of fourth quarter fiscal 2014 revenue, gross profit percentage, operating expenses, and cash are subject to review by MaxLinear’s management and audit by its independent registered public accounting firm. Actual results could differ materially as a result of such review and audit. In addition, risks and uncertainties that could affect the forward-looking statements set forth in this press release include the following: failure of MaxLinear’s or Entropic’s stockholders to approve the proposed merger transaction; failure to obtain regulatory approvals; the challenges and costs of closing, integrating, restructuring, and achieving currently anticipated synergies; the ability to retain key employees, customers, and suppliers during the pendency of the merger and afterward; and other factors generally affecting the business, operations, and financial condition of either MaxLinear or Entropic, including the information contained in MaxLinear’s respective Annual Reports on Form 10-K for the year ended December 31, 2013, subsequent Quarterly Reports on Form 10-Q, and other reports and filings with the SEC. Additional risks, uncertainties, and other factors affecting their respective businesses will be contained in MaxLinear’s and Entropic’s Annual Reports on Form 10-K for the year ended December 31, 2014.
Use of Non-GAAP Financial Measures by MaxLinear
To supplement the financial information MaxLinear has provided in this press release, including previously estimated financial metrics for the quarter ended December 31, 2014 and certain financial guidance MaxLinear has provided for the quarter ending March 31, 2015, MaxLinear has disclosed management’s current estimates of certain of these metrics on a non-GAAP basis. In particular, MaxLinear had disclosed estimated GAAP and non-GAAP gross profit percentage for the fourth quarter of 2014 and has disclosed estimated GAAP and non-GAAP operating expenses for the quarter ending March 31, 2015. With respect to GAAP and non-GAAP gross profit percentage for the fourth quarter of 2014, the amounts were approximately equal at 60% in a 2% range below and above; accordingly, MaxLinear has not provided a reconciliation of these financial metrics. For purposes of its disclosures of non-GAAP operating expense estimates for the quarter ending March 31, 2015, it has provided a reconciliation at the end of this press release. Estimated non-GAAP operating expenses exclude the impact of estimated stock-based compensation, accruals under MaxLinear’s stock-based performance bonus plan, charges relating to the pending acquisition of Entropic, charges related to the recently completed acquisition of Physpeed, and expenses relating to intellectual property litigation. MaxLinear believes that non-GAAP financial measures can provide useful information to both management and investors by excluding certain non-cash and other one-time expenses that are not indicative of its core operating results. Among other uses, MaxLinear’s management uses non-GAAP measures to compare its performance relative to forecasts and strategic plans and to benchmark its performance externally against competitors. In addition, MaxLinear management’s incentive compensation has historically been determined in part by using non-GAAP performance measures, which MaxLinear believes better reflect its core operating performance.
No Offer or Solicitation
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval with respect to the proposed merger or otherwise. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Additional Information and Where to Find It
In connection with the proposed merger, MaxLinear intends to file a registration statement on Form S-4 with the SEC, which will include a preliminary prospectus and related materials to register the shares of MaxLinear Class A Common Stock to be issued in the merger, and MaxLinear and Entropic intend to file a joint proxy statement/prospectus and other documents concerning the proposed merger with the SEC. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT, THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SEC CAREFULLY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT MAXLINEAR, ENTROPIC, AND THE PROPOSED MERGER. Investors and security holders will be able to obtain free copies of the registration statement and the joint proxy statement/prospectus (when they are available) and any other documents filed by MaxLinear and Entropic with the SEC at the SEC’s website at www.sec.gov. They may also be obtained for free by contacting MaxLinear Investor Relations at http://investors.maxlinear.com/, IR@MaxLinear.com or by telephone at (760) 517-1112 or by
contacting Entropic Investor Relations at http://ir.entropic.com/, ir@entropic.com or by telephone at (858) 768-3852. The contents of the websites referenced above are not deemed to be incorporated by reference into the registration statement or the joint proxy statement/prospectus.
Participants in the Solicitation
Each of Entropic and MaxLinear and their respective executive officers and directors may be deemed to be participants in the solicitation of proxies from their respective stockholders with respect to the transactions contemplated by the merger agreement. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of MaxLinear or Entropic security holders in connection with the proposed merger will be set forth in the registration statement and the joint proxy statement/prospectus when filed with the SEC. Information regarding Entropic’s executive officers and directors is included in Entropic’s Proxy Statement for its 2014 Annual Meeting of Stockholders, filed with the SEC on April 3, 2014, and its Current Report on Form 8-K, filed with the SEC on November 10, 2014, and information regarding MaxLinear’s executive officers and directors is included in MaxLinear’ Proxy Statement for its 2014 Annual Meeting of Stockholders, filed with the SEC on April 17, 2014 and its Current Report on Form 8-K, filed with the SEC on December 16, 2014. Copies of the foregoing documents may be obtained as provided above. 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 will be set forth in the joint proxy statement/prospectus when it is filed with the SEC. The interests of such persons may differ from the interests of MaxLinear or Entropic stockholders generally.
MxL and the MaxLinear logo are trademarks of MaxLinear, Inc.
MAXLINEAR CONTACT: MaxLinear Inc. Press Contact:
David Rodewald
The David James Agency LLC
Tel: 805-494-9508
david@davidjamesagency.com
MaxLinear Inc. Corporate Contact:
Adam Spice
Chief Financial Officer
Tel: 760-692-0711, ext. 196
aspice@maxlinear.com
ENTROPIC CONTACT: Entropic Corporate and Press Contact:
Debra Hart
Tel: 858-768-3852
debra.hart@entropic.com
MaxLinear, Inc.
First Quarter 2015 Operating Expenses Reconciliation to GAAP
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($ in millions) | | 1Q 2015 Guidance |
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GAAP Operating Expenses | $27.5 |
| Stock-Based Compensation | (4.0) |
| Stock-Based Bonus Plan Accrual | (1.4) |
| Physpeed Related Charges | (0.3) |
| IP Litigation | (0.5) |
| Entropic M&A Transaction Expenses | (2.8) |
Non-GAAP Operating Expenses | $18.5 |
Entropic Reports Fourth Quarter and Fiscal Year 2014 Results
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
SAN DIEGO, February 3, 2015 - 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."
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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.
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-4containing 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 Contact:
Debra Hart
+1 858.768.3852
debra.hart@entropic.com
# # #
Entropic Non-GAAP Gross Profit & Operating Expenses Reconciliation to GAAP
|
| | |
| | Q1 2005 Guidance |
Non-GAAP Gross Profit Percentage | | 53% |
Stock-Based Compensation | | (0%) |
Amortization of Purchased Intangibles | | (6%) |
GAAP Gross Profit Percentage | | 47% |
|
| | |
| | Q1 2005 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,
2014 | | September 30,
2014 | | December 31,
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 |
| | 2,718 |
| | 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 | ) |
Deferred tax asset valuation allowance | — |
| | — |
| | — |
| | — |
| | 26,695 |
|
Impairment of assets | 5,301 |
| | 7,386 |
| | — |
| | 12,687 |
| | — |
|
IP litigation costs (2) | (173 | ) | | 590 |
| | — |
| | 1,373 |
| | — |
|
Restructuring charges (3) | 8,393 |
| | 2,186 |
| | — |
| | 12,375 |
| | 1,694 |
|
Total of non-GAAP adjustments | 19,719 |
| | 17,685 |
| | 6,300 |
| | 56,773 |
| | 55,803 |
|
Non-GAAP net loss | $ | (5,666 | ) | | $ | (9,952 | ) | | $ | (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 and diluted) | $ | (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 Systems, Inc. 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 results in a workforce reduction of approximately 200 positions, constituting approximately 40 percent of Entropic's global workforce and includes 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.
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