Intersil Corporation Reports First Quarter Results

Company Achieves Record Gross Margin

Apr 29, 2015, 16:02 ET from Intersil Corporation

MILPITAS, Calif., April 29, 2015 /PRNewswire/ -- Intersil Corporation (NASDAQ: ISIL), a leading provider of innovative power management and precision analog solutions, today announced financial results for the first quarter of 2015. Revenue of $134.2 million was up 2.3% sequentially. The company reported a GAAP net loss of $68.8 million resulting from a charge related to intellectual property litigation. Non-GAAP earnings per share of $0.17 exceeded expectations due in part to lower than anticipated operating expenses but also as a result of record gross margin during the quarter.  

Company Highlights

  • Gross margin improved again and was up to 59.9% on a GAAP basis and 60.2% on a non-GAAP basis.
  • Operating income on a non-GAAP basis increased sequentially, resulting in a non-GAAP operating margin of 21.3%.
  • Diluted GAAP loss per share was $0.53 and non-GAAP earnings per share were $0.17.

Quarterly Results

Revenue for the first quarter was better than seasonal as newly-introduced consumer products started ramping and the company's Industrial and Infrastructure (I&I) products experienced strong demand. All I&I product areas increased sequentially to contribute to a nearly 7% increase in revenue.  Intersil's Consumer and Computing (C&C) revenue was down sequentially 6% as a result of weak demand in the PC market. Overall design win activity remained strong, particularly for new products. The breakdown by end market for the quarter was as follows:

Q1 2015

Q4 2014

Q1 2014

End Market Revenue

$M

%

$M

%

$M

%

Industrial & Infrastructure

90.7

68%

85.0

65%

87.4

62%

Consumer & Computing

43.5

32%

46.1

35%

52.7

38%

Total Revenue

$134.2

$131.1

$140.1

Table 1. Intersil End Market Mix

 

For the first quarter, GAAP results include an $81.1 million charge related to an intellectual property lawsuit brought against Intersil in 2008 by Texas Advanced Optical Solutions. Intersil is seeking to overturn the verdict through post-trial motions and appeals to the appropriate U.S. Circuit Court of Appeals, as necessary. GAAP operating expenses therefore totaled $144.1 million, with R&D expense of $32 million and SG&A expense of $25.5 million. GAAP gross margin increased again to 59.9%. For the quarter, the company reported an operating loss of $63.8 million and a net loss of $68.8 million. GAAP diluted loss per share was $0.53.

Non-GAAP gross margin improved again for the eighth consecutive quarter to 60.2% due to favorable product revenue mix driven by lower revenue in computing and higher revenue from the company's I&I products. The company reported non-GAAP operating expenses of $52.1 million. Q1 non-GAAP operating income was $28.6 million resulting in a non-GAAP operating margin of 21.3%.  Fully diluted Q1 earnings per share on a non-GAAP basis were $0.17.

For a complete reconciliation of GAAP and non-GAAP results, please see the "Non-GAAP Results" table included at the end of this release.

Cash and short-term investments increased and totaled $221 million at the end of the first quarter. Intersil's board of directors authorized payment of a quarterly dividend of $0.12 per share of common stock. The payment of this dividend will be made on or about May 29, 2015, to shareholders of record as of the close of business on May 19, 2015.

"New business began to ramp in Q1 as anticipated, and we are making steady progress on our turnaround," said Necip Sayiner, president and CEO of Intersil. "While some customer platform delays and a weaker macro environment are moderating our near-term growth rate, we continue to enjoy strong interest in our new products."

Second Quarter 2015 Outlook

The following forward looking guidance is for the second quarter ending July 3, 2015, based on current business trends and conditions:

GAAP

Reconciling items

Non-GAAP

Revenue

Flat to Up 3%

Flat to Up 3%

Gross margin

Down 50 to 100 bps

Down 50 to 100 bps

Operating expenses

$63 million +/- $500K

$6 million equity-based compensation $4 million amortization of purchased intangibles

$53 million +/- $500K

Earnings per share

$0.07 to $0.09

$0.15 to $0.17

Table 2. Intersil Q2 2015 Outlook

 

Earnings Call Webcast

Intersil will be hosting a webcast to discuss the quarterly results and outlook today at 1:30 p.m. Pacific Time. To access the webcast, please visit the investor relations page of the company's website at ir.intersil.com. Participants can also dial (877) 280-4962 or +1 (857) 244-7319 and enter the pass code 56077149. A replay of the webcast will be available for two weeks following the conference call on the company website, or may be accessed by dialing (888) 286-8010, international dial +1 (617) 801-6888, using the pass code 38641605.

About Intersil

Intersil Corporation is a leading provider of innovative power management and precision analog solutions. The company's products form the building blocks of increasingly intelligent, mobile and power hungry electronics, enabling advances in power management to improve efficiency and extend battery life. With a deep portfolio of intellectual property and a rich history of design and process innovation, Intersil is the trusted partner to leading companies in some of the world's largest markets, including industrial and infrastructure, mobile computing, automotive and aerospace. For more information about Intersil, visit our website at www.intersil.com.

FORWARD-LOOKING STATEMENTS

Intersil Corporation press releases and other related comments may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, in connection with the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon Intersil's management's current expectations, estimates, beliefs, assumptions and projections about Intersil's business and industry. Words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "potential," "continue," "goals," "targets" and variations of these words (or negatives of these words) or similar expressions, are intended to identify forward-looking statements. In addition, any statements that refer to projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various risk factors. Important factors that may affect our business, future operating results and financial condition include: any faltering in global economic conditions, the highly cyclical nature of the semiconductor industry, intense competition in the semiconductor industry, unsuccessful product development or failure to obtain market acceptance of our products, downturns in the computing market, failure to make or deliver products in a timely manner, unavailability of raw materials, services, supplies or manufacturing capacity, delays in production or in implementing new production techniques, product defects or unreliability of products, adverse results in litigation matters, and other risk factors described in Intersil's Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, recent Current Reports on Form 8-K and other Intersil filings with the U.S. Securities and Exchange Commission (which you may obtain for free at the SEC's web site at http://www.sec.gov). These forward-looking statements are made only as of the date of this communication and Intersil undertakes no obligation to update or revise these forward-looking statements. Intersil does not adopt and is not responsible for any forward-looking statements and projections made by others in this press release.

Non-GAAP Reporting

To supplement its consolidated financial results presented in accordance with GAAP, Intersil uses non-GAAP financial measures which are adjusted from the most directly comparable GAAP financial measures to exclude certain items, as described in detail below. Management believes that these non-GAAP financial measures reflect an additional and useful way of viewing aspects of the Company's operations that, when viewed in conjunction with Intersil's GAAP results, provide a more comprehensive understanding of the various factors and trends affecting the Company's business and operations. It should also be noted that Intersil's non-GAAP information may be different from the non-GAAP information provided by other companies. Non-GAAP financial measures used by Intersil include:

  • Gross profit;
  • Operating expenses;
  • Provision (benefit) for income taxes;
  • Operating income (loss);
  • Net income (loss);
  • Diluted earnings (loss) per share; and
  • Weighted average shares outstanding – diluted.

The Company presents non-GAAP financial measures because the investor community uses non-GAAP results in its analysis and comparison of historical results and projections of the Company's future operating results. These non-GAAP results exclude acquisition related expense, restructuring and related costs, equity-based compensation expense, and certain other expenses and benefits. Management uses these non-GAAP measures to manage and assess the profitability of the business. These non-GAAP results are also consistent with the way management internally analyzes Intersil's financial results.

There are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP financial measures. The non-GAAP financial measures supplement, and should be viewed in conjunction with, GAAP financial measures. Investors should review the reconciliations of the non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in the accompanying press release.

As presented in the "Non-GAAP Results" tables in the accompanying press release, each of the non-GAAP financial measures excludes one or more of the following items:

Acquisition related.  Acquisition-related charges are not factored into management's evaluation of potential acquisitions or Intersil's performance after completion of acquisitions, because they are not related to the Company's core operating performance. Adjustments of these items provide investors with a basis to compare Intersil's performance to other companies without the variability caused by purchase accounting. Acquisition-related expenses primarily include:

  • Amortization of acquisition related intangibles, which include acquired intangibles such as purchased technology, patents, customer relationships, trademarks, backlog and non-compete agreements.

Restructuring and related costs. Restructuring charges primarily relate to changes in Intersil's infrastructure in efforts to reduce costs and rebalance its workforce. Restructuring charges (gains) are excluded from non-GAAP financial measures because they are not considered core operating activities. Although Intersil has engaged in various restructuring activities in the past, each has been a discrete event based on a unique set of business objectives. As such, management believes that it is appropriate to exclude restructuring charges (gains) from Intersil's non-GAAP financial measures as it enhances the ability of investors to compare the Company's period-over-period operating results from continuing operations. Restructuring-related charges (gains) primarily include:

  • Severance and retention costs directly related to a restructuring action.
  • Facility closure costs consist of ongoing costs associated with the exit of our leased and owned facilities.
  • Other write-offs such as intangibles related to a restructuring action.

Other adjustments. These items are excluded from non-GAAP financial measures because they are not related to the core operating activities and on-going future operating performance of Intersil. Excluding this data allows investors to better compare Intersil's period-over-period performance without such expense, which Intersil believes may be useful to the investor community. Other adjustments primarily include:

  • Equity-based compensation expense.
  • Legal or governmental judgments, awards, fines or penalties.
  • Income from IP agreement.
  • Write-offs (recoveries) related to Auction Rate Securities.
  • Tax effects of non-GAAP adjustments.
  • Diluted weighted average shares non-GAAP adjustment, for purposes of calculating non-GAAP diluted earnings per share, the GAAP diluted weighted average shares outstanding is adjusted to exclude the benefits of equity-based compensation expense attributable to future services not yet recognized in the financial statements that are treated as proceeds assumed to be used to repurchase shares under the GAAP treasury stock method.

Comparability. The above criteria has been consistently applied when calculating the non-GAAP financial measures for all periods presented in this press release and accompanying tables. During the second quarter of fiscal 2013 we revised our non-GAAP financial information to reduce the types of items excluded from our non-GAAP presentation in an effort to increase comparability of our results with published earnings estimates widely available on the Internet.  In the past we excluded other items such as the compensation expense(benefit) associated with our non-qualified deferred compensation plan, CEO severance costs, loss on interest-rate swaps, and related tax effects of these items, from our non-GAAP financial information. As a result, a non-GAAP financial measure presented in the accompanying press release tables may be different from that presented in a prior press release.

 

Intersil Corporation

Condensed Consolidated Statements of Operations

Unaudited

(In thousands, except percentages and per share amounts)

Quarter Ended

Apr. 3,

Jan. 2,

Apr. 4,

2015

2015

2014

Q1 2015

Q4 2014

Q1 2014

Revenue

$ 134,153

$ 131,126

$ 140,056

Cost of revenue

53,827

52,933

61,151

Gross profit

80,326

78,193

78,905

    Gross margin %

59.9%

59.6%

56.3%

Expenses:

    Research and development 

32,017

30,367

31,799

    Selling, general and administrative 

25,453

24,840

22,767

    Amortization of purchased intangibles

5,561

5,559

5,561

    Provision for export compliance settlement

-

-

4,000

    Provision for TAOS litigation

81,100

-

-

Total expenses

144,131

60,766

64,127

Operating (loss) income

(63,805)

17,427

14,778

    Interest expense and other

(257)

(316)

(488)

    Gain on investments, net

773

827

364

(Loss) income before income taxes

(63,289)

17,938

14,654

    Income tax expense

5,535

664

4,649

Net (loss) income

$  (68,824)

$   17,274

$   10,005

(Loss) earnings per share: 

    Basic

$      (0.53)

$       0.13

$       0.08

    Diluted

$      (0.53)

$       0.13

$       0.08

Weighted average shares outstanding:

    Basic

130,513

130,138

127,819

    Diluted

130,513

132,276

129,389

 

Intersil Corporation

Condensed Consolidated Balance Sheets

Unaudited

(in thousands)

Apr. 3,

Jan. 2,

Apr. 4,

2015

2015

2014

Assets

Current assets:

    Cash and short-term investments

$    220,900

$    211,216

$    197,336

    Trade receivables, net

51,236

55,585

52,830

    Inventories

77,798

73,770

61,877

    Prepaid expenses and other current assets

14,301

9,779

9,378

    Income taxes receivable

1,129

1,162

976

    Deferred income tax assets

20,615

20,433

15,808

      Total current assets

385,979

371,945

338,205

Non-current assets:

    Property, plant and equipment, net

73,073

72,272

77,958

    Purchased intangibles, net

28,839

34,400

51,081

    Goodwill

565,424

565,424

565,424

    Deferred income tax assets

38,779

39,334

56,543

    Other non-current assets

71,297

70,885

73,413

      Total non-current assets

777,412

782,315

824,419

Total assets

$ 1,163,391

$ 1,154,260

$ 1,162,624

Liabilities and shareholders' equity

Current liabilities:

    Trade payables

$      22,544

$      26,246

$      25,901

    Deferred income

13,442

11,631

10,048

    Income taxes payable

5,764

2,790

11,036

    Provision for TAOS litigation

79,470

-

-

    Other accrued expenses

68,522

64,847

76,030

      Total current liabilities

189,742

105,514

123,015

Non-current liabilities:

    Income taxes payable

60,661

59,745

71,703

    Other non-current liabilities

6,496

7,453

12,065

      Total non-current liabilities

67,157

67,198

83,768

Total shareholders' equity

906,492

981,548

955,841

Total liabilities and shareholders' equity

$ 1,163,391

$ 1,154,260

$ 1,162,624

 

Intersil Corporation

Condensed Consolidated Statements of Cash Flows

Unaudited

(In thousands)

Quarter Ended

Apr. 3,

Jan. 2,

Apr. 4,

2015

2015

2014

Q1 2015

Q4 2014

Q1 2014

Operating activities:

  Net (loss) income

$  (68,824)

$   17,274

$   10,005

    Depreciation

4,486

4,929

4,810

    Amortization of purchased intangibles

5,561

5,559

5,561

    Equity-based compensation

5,756

5,008

3,710

    Deferred income taxes

373

8,024

22,985

    Other

(1,059)

(1,326)

(585)

    Net changes in operating assets and liabilities

80,502

(21,157)

(28,629)

      Net cash flows provided by operating activities

26,795

18,311

17,857

Investing activities:

  Proceeds from investments

588

615

268

  Net capital expenditures

(4,990)

(3,857)

(784)

    Net cash flows used in investing activities

(4,402)

(3,242)

(516)

Financing activities:

  Proceeds from equity-based awards, net

4,355

1,794

488

  Dividends paid

(15,697)

(15,685)

(15,371)

    Net cash flows used in financing activities

(11,342)

(13,891)

(14,883)

Effect of exchange rates on cash and cash equivalents

(1,367)

(544)

91

    Net change in cash and cash equivalents

9,684

634

2,549

Cash and cash equivalents as of the beginning of the period

211,216

210,582

194,787

    Cash and cash equivalents as of the end of the period

$ 220,900

$ 211,216

$ 197,336

 

Intersil Corporation

Non-GAAP Results

Unaudited

(In thousands, except percentages)

Quarter Ended

Apr. 3,

Jan. 2,

Apr. 4,

2015

2015

2014

Q1 2015

Q4 2014

Q1 2014

Non-GAAP gross profit:

  GAAP gross profit

$   80,326

$ 78,193

$ 78,905

  Equity-based compensation COS

392

319

319

    Non-GAAP gross profit

$   80,718

$ 78,512

$ 79,224

Non-GAAP gross margin:

  GAAP gross margin

59.9%

59.6%

56.3%

  Equity-based compensation COS

0.3%

0.2%

0.3%

    Non-GAAP gross margin

60.2%

59.8%

56.6%

Non-GAAP operating expenses:

  GAAP operating expenses

$ 144,131

$ 60,766

$ 64,127

  Provision for export compliance settlement

-

-

(4,000)

  Provision for TAOS litigation

(81,100)

-

-

  Equity-based compensation (excl. COS)

(5,364)

(4,689)

(3,391)

  Amortization of purchased intangibles

(5,561)

(5,559)

(5,561)

    Non-GAAP operating expenses

$   52,106

$ 50,518

$ 51,175

Non-GAAP operating income:

  GAAP operating (loss) income

$  (63,805)

$ 17,427

$ 14,778

  Provision for export compliance settlement

-

-

4,000

  Provision for TAOS litigation

81,100

-

-

  Equity-based compensation

5,756

5,008

3,710

  Amortization of purchased intangibles

5,561

5,559

5,561

    Non-GAAP operating income

$   28,612

$ 27,994

$ 28,049

Non-GAAP operating margin:

  GAAP operating margin

(47.6)%

13.3 %

10.6 %

  Excluded items as a percent of revenue

68.9 %

8.0 %

9.4 %

    Non-GAAP operating margin 

21.3 %

21.3 %

20.0 %

 

Intersil Corporation

Non-GAAP Results

Unaudited

(In thousands, except per share amounts)

Quarter Ended

Apr. 3,

Jan. 2,

Apr. 4,

2015

2015

2014

Q1 2015

Q4 2014

Q1 2014

Non-GAAP net income:

  GAAP (loss) income

$ (68,824)

$ 17,274

$ 10,005

  Tax adjustments from non-cash and discrete items

(71)

(2,025)

(855)

  Provision for export compliance settlement

-

-

4,000

  Gain on recovery from auction rate securities

(588)

(615)

(268)

  Equity-based compensation

5,756

5,008

3,710

  Amortization of purchased intangibles

5,561

5,559

5,561

  Provision for TAOS litigation

81,100

-

-

    Non-GAAP net income

$  22,934

$ 25,201

$ 22,153

GAAP weighted average shares - diluted

130,513

132,276

129,389

  Non-GAAP adjustment

6,798

4,099

2,431

    Non-GAAP weighted average shares - diluted

137,311

136,375

131,820

Non-GAAP earnings per diluted share:

  GAAP (loss) earnings per diluted share

$     (0.53)

$     0.13

$     0.08

  Excluded items per share impact

0.70

0.05

0.09

    Non-GAAP earnings per diluted share

$      0.17

$     0.18

$     0.17

Equity-based compensation expense by classification:

  Cost of revenue ("COS")

$       392

$      319

$      319

  Research and development 

$    2,751

$   2,500

$   1,955

  Selling, general and administrative 

$    2,613

$   2,189

$   1,436

 

 

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SOURCE Intersil Corporation



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