MICROSEMI CORPORATION ALISO VIEJO, Calif., Jan. 26, 2017 /PRNewswire/ -- Microsemi Corporation (Nasdaq: MSCC), a leading provider of semiconductor solutions differentiated by power, security, reliability and performance, today reported unaudited results for its first quarter of fiscal year 2017 ended Jan. 1, 2017.
Net sales for Microsemi's first quarter of fiscal year 2017 were $435.5 million, up 32.3 percent from $329.2 million in the first quarter of 2016.
GAAP gross margin for the first quarter of 2017 was a record 63.5 percent, up 640 basis points from the 57.1 percent in the first quarter of 2016 and up 90 basis points from the 62.6 percent in the fourth quarter of 2016. GAAP operating income and net income for the first quarter of 2017 were $55.8 million and $19.5 million, respectively, and included restructuring, severance and other charges of $4.4 million. Also included in net income were amortization of intangible assets of $45.5 million, stock based compensation of $28.3 million and other non-cash charges of $1.1 million. GAAP operating margin for the first quarter of 2017 was 12.8 percent, up 170 basis points compared to 11.1 percent for the first quarter of 2016. GAAP net income per diluted share was $0.17 for the first quarter of 2017 compared to $0.25 per diluted share for the first quarter of 2016 and $0.35 per diluted share for the fourth quarter of 2016.
Non-GAAP gross margin for the first quarter of 2017 was a record 63.5 percent, up 640 basis points from the 57.1 percent in the first quarter of 2016 and up 90 basis points from the 62.6 percent reported in the fourth quarter of 2016. Non-GAAP operating income for the first quarter of 2017 was $132.7 million, up 58.4 percent from the first quarter of 2016. Non-GAAP operating margin for the first quarter of 2017 was 30.5 percent, up 500 basis points from the 25.5 percent reported in the first quarter of 2016. Non-GAAP net income for the first quarter of 2017 was $99.8 million or $0.86 per diluted share.
Operating and free cash flows for the first quarter of 2017 were at $77.6 million and $67.1 million, respectively. Cash and cash equivalents at the end of the first quarter of 2017 were $173.9 million following $75.0 million in credit facility principal payments and our first bond interest payment of $30.8 million.
"During our first fiscal quarter of 2017, we continued to execute on our winning strategy," stated James J. Peterson, Microsemi's chairman and CEO. "Gross margins improved 90 basis points sequentially, benefiting from strong results in our data center and optical end markets as well as the realization of expected integration synergies. These efforts will enable us to outgrow the industry and outperform our peers to the benefit of our shareholders."
Business Outlook
Microsemi currently expects net sales in the second quarter of fiscal year 2017 of between $430 million and $450 million, and expects non-GAAP diluted earnings per share of between $0.86 and $0.96.
Guidance on diluted earnings per share is provided only on a non-GAAP basis due to the inherent difficulty of forecasting the timing or amount of certain items that have been excluded from the forward-looking non-GAAP measures, and a reconciliation to the comparable GAAP guidance has not been provided because certain factors that are materially significant to Microsemi's ability to estimate the excluded items are not accessible or estimable on a forward-looking basis without unreasonable effort.
Microsemi regularly announces a quarterly outlook in the form of issuing a news release and does not undertake to update any of this information between such public announcements to reflect subsequent events or circumstances. Please refer to the "SAFE HARBOR" STATEMENT below for risks that may affect future actual results.
Non-GAAP Financial Measures
For further information regarding Microsemi's non-GAAP financial measures, please refer to "Notes on Non-GAAP Financial Measures" below. Non-GAAP financial measures are reconciled to comparable GAAP financial measures in the accompanying financial tables and notes.
Information for First Quarter 2017 Earnings Conference Call and Webcast
Date: Thursday, Jan. 26, 2017
Time: 4:45 p.m. EST (1:45 p.m. PST)
To access the webcast, log on to www.microsemi.com, go to the Investors section, and then to IR Events and Presentations. To listen to the live webcast, visit this website approximately 15 minutes prior to the start of the call to register, download and install any necessary audio software. For those unable to participate during the live webcast, a replay will be available shortly after the call on the Microsemi website for 90 days.
To participate in the conference call by telephone, call 877-264-1110 at approximately 4:30 p.m. EST (1:30 p.m. PST). International callers can call 706-634-1357. Please provide the following ID number: 48408698.
About Microsemi
Microsemi Corporation (Nasdaq: MSCC) offers a comprehensive portfolio of semiconductor and system solutions for aerospace & defense, communications, data center and industrial markets. Products include high-performance and radiation-hardened analog mixed-signal integrated circuits, FPGAs, SoCs and ASICs; power management products; timing and synchronization devices and precise time solutions, setting the world's standard for time; voice processing devices; RF solutions; discrete components; enterprise storage and communication solutions; security technologies and scalable anti-tamper products; Ethernet solutions; Power-over-Ethernet ICs and midspans; as well as custom design capabilities and services. Microsemi is headquartered in Aliso Viejo, California, and has approximately 4,800 employees globally. Learn more at www.microsemi.com.
PLEASE READ THE FOLLOWING FACTORS THAT CAN MATERIALLY AFFECT MICROSEMI'S FUTURE RESULTS.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Any statements set forth in the news release that are not entirely historical and factual in nature are forward-looking statements, including without limitation statements concerning Microsemi's net sales and earnings guidance, our ability to outgrow and outperform our peers and any other statements or beliefs regarding our plans or expectations. These forward-looking statements are based on Microsemi's current expectations and are inherently subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. The potential risks and uncertainties include, but are not limited to, such factors as our ability to successfully implement our acquisitions and divestitures strategy or integrate acquired companies; uncertainty as to the future profitability of acquired businesses, and delays in the realization of, or the failure to realize, any accretion from acquisition transactions; acquiring, managing and integrating new operations, businesses or assets, and the associated diversion of management attention or other related costs or difficulties; downturns in the highly cyclical semiconductor industry that may cause us to trigger financial covenants in our debt agreements, increase the cost of borrowing, and decrease the amount available under our credit facilities; continued negative or worsening worldwide economic conditions or market instability; risks related to Microsemi's international operations and sales, including divergent laws and regulations, political instability, trade restrictions and sanctions, restrictions in the transfer or repatriation of funds, currency fluctuations and availability of transportation services; difficulties and costs of protecting patents and other proprietary rights; Microsemi's reliance on government contracts for a significant portion of its sales, including impacts of any termination or renegotiation of such contracts, uncertainties of governmental appropriations and national defense policies and priorities and effects of any past or future government shutdowns; potential non-realization of expected orders or non-realization of backlog; failure to make sales indicated by the Microsemi's book-to-bill ratio; intense competition in the semiconductor industry and resultant downward price pressure; the effect of events such as natural disasters and related disruptions on our operations; the concentration of the facilities that service the semiconductor industry; delays in beginning production, implementing production techniques, resolving problems associated with technical equipment malfunctions, or issues related to government or customer qualification of facilities; our dependence on third parties for key functions; utilization of channel partners over which we have limited control for product distribution; increases in the costs of credit and the availability of credit or additional capital only under more restrictive conditions or not at all; changes to laws or regulations; unanticipated changes in Microsemi's tax obligations, results of tax examinations or exposure to additional income tax liabilities; changes in generally accepted accounting principles; principal, liquidity and counterparty risks related to Microsemi's holdings in securities; inability to develop new technologies and products to satisfy changes in customer demand or the development by our competitors of products that decrease the demand for Microsemi's products; unfavorable or declining conditions in end markets; inability of Microsemi's compound semiconductor products to compete successfully with silicon-based products; production delays related to new compound semiconductors; variability of our manufacturing yields; potential effects of system outages or data security breaches; inability by Microsemi to fulfill customer demand and resulting loss of customers; variations in customer order preferences; difficulties foreseeing future demand; rises in inventory levels and inventory obsolescence; environmental or other regulatory matters or litigation, or any matters involving contingent liabilities or other claims; the uncertainty of litigation, the costs and expenses of litigation, the potential material adverse effect litigation could have on Microsemi's business and results of operations if an adverse determination in litigation is made, and the time and attention required of management to attend to litigation; difficulties in determining the scope of, and procuring and maintaining, adequate insurance coverage; difficulties in the hiring and retention of qualified personnel in a competitive labor market; any circumstances that adversely impact the end markets of acquired businesses; and difficulties in closing or disposing of operations or assets or transferring work, assets or inventory from one plant to another. In addition to these factors and any other factors mentioned elsewhere in this news release, the reader should refer as well to the factors, uncertainties or risks identified in Microsemi's most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q reports filed by Microsemi with the SEC. Additional risk factors may be identified from time to time in Microsemi's future filings. The forward-looking statements included in this release speak only as of the date hereof, and Microsemi does not undertake any obligation to update these forward-looking statements to reflect subsequent events or circumstances. Amounts reported in this release are preliminary and subject to finalization prior to the filing of our next Quarterly Report on Form 10-Q.
Investor Inquiries: Robert C. Adams, Microsemi Corporation, Aliso Viejo, Calif. 949-380-6100.
(Financial Tables Follow)
Selected GAAP & Non-GAAP Financial Measures
(unaudited, in millions, except for percentages and per share amounts)
Quarter Ended
-------------
Jan 1, Oct 2, Jan 3,
2017 2016 2016
---- ---- ----
Net sales $435.5 $450.1 $329.2
Selected GAAP
Financial
Measures
Gross profit $276.5 $281.8 $187.9
Gross margin 63.5% 62.6% 57.1%
Operating
income $55.8 $63.8 $36.6
Operating
margin 12.8% 14.2% 11.1%
Net income $19.5 $40.5 $23.7
Diluted
earnings per
share $0.17 $0.35 $0.25
Selected Non-
GAAP Financial
Measures
Gross profit $276.5 $281.8 $187.9
Gross margin 63.5% 62.6% 57.1%
Operating
income $132.7 $139.5 $83.8
Operating
margin 30.5% 31.0% 25.5%
Net income $99.8 $104.9 $69.3
Diluted
earnings per
share $0.86 $0.91 $0.72
Additional details reconciling the selected GAAP financial measure to the selected non-GAAP financial measure may be found in the "Schedule Reconciling Selected Non-GAAP Financial Measures" and "Notes on Non-GAAP Financial Measures."
Schedule Reconciling Selected Non-GAAP Financial Measures
(unaudited, in millions, except for per share amounts)
Quarter Ended
-------------
Jan 1, Oct 2, Jan 3,
2017 2016 2016
---- ---- ----
GAAP and Non-GAAP
gross profit $276.5 $281.8 $187.9
GAAP operating income $55.8 $63.8 $36.6
Restructuring,
severance,
facilities and other
special charges (1) 2.4 2.4 1.8
Amortization of
intangible assets
(2) 45.5 45.6 25.4
Stock based
compensation (3) 28.3 27.5 14.0
Acquisition and
divestiture related
costs (4) 0.7 0.2 6.0
--- --- ---
Non-GAAP operating
income $132.7 $139.5 $83.8
------ ------ -----
GAAP net income $19.5 $40.5 $23.7
Adjustments to GAAP
gross profit and
operating income 76.9 75.7 47.2
Adjustment to gain on
divestiture (4) 1.2 - -
Credit facility
issuance and debt
extinguishment costs
(5) 2.1 2.2 0.7
Fair value change in
foreign tax
liabilities (6) (1.0) (0.3) -
Income tax effect on
non-GAAP
adjustments (7) 1.1 (13.2) (2.3)
--- ----- ----
Non-GAAP net income $99.8 $104.9 $69.3
----- ------ -----
GAAP diluted earnings
per share $0.17 $0.35 $0.25
Effect of non-GAAP
adjustments on
diluted earnings per
share $0.69 $0.56 $0.47
----- ----- -----
Non-GAAP diluted
earnings per share $0.86 $0.91 $0.72
----- ----- -----
Weighted-average
diluted shares used
in calculating non-
GAAP diluted
earnings per share 116.3 115.4 96.5
Operating cash flow $77.6 $129.8 $82.9
Payments for capital
expenditures (10.5) (14.6) (10.5)
Free cash flow (8) $67.1 $115.2 $72.4
----- ------ -----
Additional details reconciling the selected non-GAAP financial measure to the selected GAAP financial measure may be found in "Notes on Non-GAAP Financial Measures."
Summary of Schedule Reconciling Selected Non-GAAP Financial Measures
(unaudited, in millions, except for per share amounts)
Quarter Ended January 1, 2017
-----------------------------
GAAP Non-GAAP
Adjustments Non-GAAP
---- ------------ --------
Net sales $435.5 $ - $435.5
Gross
profit $276.5 $ - $276.5
Operating
income $55.8 $76.9 $132.7
Net income $19.5 $80.3 $99.8
Diluted
earnings
per share $0.17 $0.69 $0.86
Additional details reconciling the selected non-GAAP financial measure to the selected GAAP financial measure may be found in the "Schedule Reconciling Selected Non-GAAP Financial Measures" and "Notes on Non-GAAP Financial Measures."
Consolidated Condensed Statements of Income
(unaudited, in millions, except for per share amounts)
Quarter Ended
-------------
Jan 1, Oct 2, Jan 3,
2017 2016 2016
---- ---- ----
Net sales $435.5 $450.1 $329.2
Cost of sales 159.0 168.3 141.3
----- ----- -----
Gross profit $276.5 $281.8 $187.9
------ ------ ------
Operating expenses
Selling, general and
administrative $89.8 $86.3 $63.3
Research and
development 82.3 83.5 54.9
Amortization of
intangible assets 45.5 45.6 25.4
Restructuring,
severance and
facilities charges 2.4 2.4 1.7
Acquisition and
divestiture related
costs 0.7 0.2 6.0
Total operating
expenses $220.7 $218.0 $151.3
------ ------ ------
Operating income $55.8 $63.8 $36.6
----- ----- -----
Interest and other
expense, net (27.2) (28.0) (8.8)
----- ----- ----
Income before income
taxes $28.6 $35.8 $27.8
Provision for
(benefit from)
income taxes 9.1 (4.7) 4.1
Net income $19.5 $40.5 $23.7
===== ===== =====
Earnings per share
Basic $0.17 $0.36 $0.25
Diluted $0.17 $0.35 $0.25
Weighted-average
common shares
outstanding
Basic 114.0 112.4 95.1
Diluted 116.3 115.4 96.5
Consolidated Condensed Balance Sheets
(unaudited, in millions)
Jan 1, Oct 2,
2017 2016
---- ----
Assets
Current assets
Cash and cash equivalents $173.9 $189.5
Accounts receivable, net 223.6 245.2
Inventories 210.4 213.1
Other current assets 87.8 87.1
---- ----
Total current assets $695.7 $734.9
Property and equipment, net 183.2 174.9
Goodwill 2,484.1 2,479.4
Intangible assets, net 889.0 934.6
Deferred income taxes 33.7 37.3
Other assets 64.3 61.9
Total assets $4,350.0 $4,423.0
======== ========
Liabilities and stockholders'
equity
Current liabilities
Accounts payable $99.6 $112.8
Accrued liabilities 133.9 166.1
Current maturity of credit
facility 40.7 40.7
---- ----
Total current liabilities $274.2 $319.6
Credit facility 2,065.5 2,138.5
Deferred income taxes 120.3 120.2
Other long-term liabilities 117.9 115.8
Stockholders' equity 1,772.1 1,728.9
Total liabilities and
stockholders' equity $4,350.0 $4,423.0
======== ========
Notes on Non-GAAP Financial Measures
To supplement the consolidated financial results prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), this press release and its attachments include non-GAAP financial measures which are adjusted for the items listed in the footnotes below. Management reports the following non-GAAP financial measures:
-- non-GAAP gross profit and gross margin;
-- non-GAAP operating income and operating margin;
-- non-GAAP net income and diluted earnings per share; and
-- free cash flow.
Non-GAAP financial measures are not prepared in accordance with GAAP; therefore, the information is not necessarily comparable to other companies' financial information and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.
Management believes it is useful to provide these non-GAAP financial measures and a reconciliation to comparable GAAP financial measures as we believe they enhance an investor's overall understanding of our financial performance and future prospects by being more reflective of our core operational activities and more comparable with our results over various periods. By disclosing non-GAAP financial measures, management intends to provide investors with an alternate measure to evaluate and compare Microsemi's operating results and trends for the periods presented. Management uses non-GAAP financial measures internally for strategic decision making, forecasting future results and evaluating current performance. The items reconciling non-GAAP financial measures to GAAP financial measures and additional comments and the usefulness of each item are set forth below:
(1) In Microsemi's effort to streamline
our product lines and strategic
focus, as well as integrate product
lines from acquisitions, we have
periodically exited or deemphasized
several areas which has improved
operating expense from various cost
reductions. We periodically
evaluate the profitability of our
various offerings. Should the
actual or expected profitability
fall below an acceptable threshold,
we may decide to stop offering a
product, in part to reallocate
manufacturing, operations,
engineering, sales and support
resources to products we expect to
generate greater returns. We
believe that for many of these
products, market dynamics dictate
that price is the primary
differentiator rather than our
value-added core competencies of
power, reliability, security and
performance.
Restructuring, severance, facilities and other special charges consist of severance and other costs related to the consolidation of operations and strategic discontinuation of products. Other special charges also include gains or losses on litigation, net of settlement costs, primarily related to acquisition-related matters.Related to the streamlining of our operations, we also recorded charges and gains related to facility consolidation and equipment on both leased and owned properties and engineering equipment for development projects we are no longer pursuing. Facilities consisted of manufacturing sites, as well as sales, engineering and administrative space.
As the operations and products referred to above are not expected to have a continuing contribution to operations or they are expected to have a diminishing contribution during the transition phase, management believes excluding such items from Microsemi's operations is useful to investors as it provides a means of evaluating Microsemi's on-going operations. Management believes that utilizing non-GAAP financial measures that exclude these items is useful in providing an alternate measure to evaluate core operating activities and management excludes these items in its evaluation of operations and for strategic decision making, forecasting future results and evaluating current performance.
(2) Amortization of acquisition related
intangible assets is excluded from
internal analysis of Microsemi's
operations and management does not
view this non-cash expense as
reflective of the business' current
performance. Management believes
that utilizing non-GAAP financial
measures that exclude this non-
cash item is useful in providing an
alternate measure that excludes the
variability caused by purchase
accounting factors.
(3) Stock based compensation is excluded
by management when evaluating
operating activities and for
strategic decision making,
forecasting future results and
evaluating current performance.
Management believes that utilizing
non-GAAP financial measures that
exclude this non-cash item is
useful in providing an alternate
measure that excludes the
variability caused by different
methodologies and subjective
assumptions used in the valuation
of equity awards across different
companies.
(4) In accordance with business
combination and other relevant
accounting guidance, we expense
acquisition and divestiture costs
as incurred and recognize gains on
divestitures upon consummation of
the transaction. During the first
quarter of 2017, we reduced the
$125.5 million gain recognized from
our third quarter 2016 divestitures
by $1.2 million. Management
excludes these expenses and gains
when evaluating operating
activities and for strategic
decision making, forecasting future
results and evaluating current
performance. Management believes
that utilizing non-GAAP financial
measures that exclude this item is
useful in providing an alternate
measure that excludes the
variability caused by purchase
accounting factors.
(5) Credit facility issuance and debt
extinguishment costs have been
excluded as they are discrete
charges we incurred to issue our
credit facility. Management
excludes these expenses from
internal measurements of credit
facility interest rates and in
evaluating current performance.
Management believes that utilizing
non-GAAP financial measures that
exclude these items is useful in
providing an alternate measure that
is reflective of the ongoing
characteristics of the amended
credit facility.
(6) These amounts represent the foreign
exchange effect on non-current
foreign tax liabilities recorded
for possible assessments by tax
authorities. Changes in foreign
exchange rates are a non-cash
impact to these liabilities that
management excludes from internal
measurements and from forecasting
future results and are not viewed
by management as being reflective
of the business' ongoing tax
position.
(7) The tax effect of non-GAAP
adjustments represents the
difference in the provision for
income taxes that resulted from
non-GAAP adjustments to pretax
income and also certain acquisition
related and nondeductible stock
based compensation items, and non-
cash valuation allowance charges
and releases related to deferred
tax assets. These amounts are
excluded as non-GAAP adjustments
as the restructuring activities and
acquisitions are not viewed by
management as being reflective of
the business' ongoing tax position.
(8) Free cash flow is a non-GAAP
financial measure defined as
operating cash flow less cash paid
for capital expenditures. We
consider free cash flow to be a
liquidity measure which provides
useful information to management
and investors about the amount of
cash generated by the business
after our capital expenditures,
which can then be used for
strategic opportunities including,
among others, investing in
Microsemi's business, making
strategic acquisitions, reducing
debt principal and strengthening
the balance sheet. Management uses
free cash flow as a supplemental
measure to the net change in cash
and cash equivalents as presented
in Microsemi's consolidated
statements of cash flows prepared
in accordance with GAAP which
incorporates all cash movements
during the period.
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SOURCE Microsemi Corporation
