Company Announces Strategy to Refocus on Core Capabilities, Implements Restructuring Plan
Fourth Quarter Actions to Target Annualized Cost Savings of $44 Million
Exploration of Strategic Alternatives to Enhance Shareholder Value is Ongoing
Conference Call to be Webcast Today at 5:30 a.m. Pacific Time
SAN DIEGO, Nov. 10, 2014 (GLOBE NEWSWIRE) -- Entropic (Nasdaq:ENTR), a world leader in semiconductor solutions for the connected home, today reported its third quarter results for the period ended September 30, 2014. Entropic reported third quarter net revenues of $43.2 million. This compares to net revenues of $50.2 million in the second quarter of 2014, and $56.4 million in the third quarter of 2013.
In accordance with U.S. generally accepted accounting principles (GAAP), the Company's third quarter net loss was $27.6 million, or $(0.31) per share (basic and diluted). This compares with GAAP net loss of $21.8 million, or $(0.24) per share (basic and diluted) in the second quarter of 2014, and GAAP net loss of $11.9 million, or $(0.13) per share (basic and diluted) in the third quarter of 2013. Third quarter GAAP net loss for 2014 includes charges of $9.6 million in connection with the refocused strategy and restructuring plan.
Non-GAAP net loss in the third quarter was $10.0 million, or $(0.11) per share (basic and diluted), compared to non-GAAP net loss of $10.4 million, or $(0.12) per share (basic and diluted) in the second quarter of 2014, and non-GAAP net loss of $5.6 million, or $(0.06) (basic and diluted), in the third quarter of 2013.
| Three Months Ended | |||
| (In millions, except per share data) | September 30, 2014 | June 30, 2014 | September 30, 2013 |
| Net revenues | $43.2 | $50.2 | $56.4 |
| GAAP net loss | $(27.6) | $(21.8) | $(11.9) |
| GAAP net loss per share (basic and diluted) | $(0.31) | $(0.24) | $(0.13) |
| Non-GAAP net loss1 | $(10.0) | $(10.4) | $(5.6) |
| Non-GAAP net loss per share1 (basic and diluted) | $(0.11) | $(0.12) | $(0.06) |
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1. Please refer to "Non-GAAP Financial Measures" below and the financial statements portion of this press release for an explanation of the non-GAAP financial measures contained in the table above and a reconciliation of such measures to the comparable GAAP financial measures. |
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Refocused Strategy and Restructuring Plan
Entropic also announced its strategy to refocus on its core Connectivity businesses, which include MoCA® (Multimedia over Coax Alliance), direct broadcast satellite outdoor unit (DBS ODU) and broadband access. Entropic will continue to pursue design wins for all set-top box system-on-a-chip (SoC) products in production or already commercialized and will continue to invest to support those programs, but the Company will discontinue all new set-top box SoC product development. Entropic believes the set-top box SoC business will contribute meaningful revenue for the next three years or more, based on design wins currently in the pipeline and the products it has already brought to market.
"Entropic is refocusing on its core radio frequency, analog/mixed signal and digital signal processing technologies in order to pull in time to profitability while effectively addressing longer term growth trends in connectivity," said interim President and CEO Dr. Ted Tewksbury. "While we will not be developing new set-top box SoCs, we will continue to invest in existing SoC products and support ongoing customer programs."
To advance its refocused strategy, Entropic is implementing a restructuring plan that it expects to substantially complete within the current quarter. The restructuring plan is expected to result in a workforce reduction of approximately 200 positions, constituting approximately 40 percent of Entropic's global workforce and includes closing facilities in Shanghai, China, Belfast, Northern Ireland and San Jose, California.
As a result of the restructuring plan, beginning in the first quarter of 2015, Entropic expects to realize approximately $11 million in non-GAAP quarterly savings, primarily in operating expenses, with annualized non-GAAP savings projected at $44 million.
Entropic estimates it will incur pre-tax GAAP charges of between $9.0 million and $11.0 million in connection with the restructuring plan, the majority of which will be recorded during the fourth quarter of 2014.
The Company is continuing to actively explore strategic alternatives to enhance shareholder value.
Dr. Tewksbury continued, "With our refocused strategy and restructuring plan, we are targeting to reach non-GAAP profitability next quarter. We are continuing to explore strategic alternatives, and remain focused on product innovation, operational excellence, and enhancing shareholder value."
For More Information
Entropic management will be holding a conference call today, November 10, 2014 at 5:30 a.m. Pacific Time/8:30 a.m. Eastern Time to discuss today's announcement, and to provide guidance for the fourth quarter of fiscal 2014.
Interested parties may access the conference call via any of the following:
| Teleconference: | 888-713-4209 |
| Access Code: | 83800594 |
| Web Broadcast: | http://events.entropic.com/ |
| Replay: | 888-286-8010 |
| Replay Passcode: | 78521479 |
About Entropic
Entropic™ (Nasdaq:ENTR) is a world leader in semiconductor solutions for the connected home. The Company transforms how traditional HDTV broadcast and IP-based streaming video content is seamlessly, reliably, and securely delivered, processed, and distributed into and throughout the home. Entropic's next-generation Set-top Box (STB) System-on-a-Chip (SoC) and Connectivity solutions enable Pay-TV operators to offer consumers more captivating whole-home entertainment experiences by transforming the way digital entertainment is delivered, connected and consumed – in the home and on the go. For more information, please visit Entropic at: www.entropic.com, read our blog Entropic Topics, or get social with us at @Entropic_News, or on Facebook, Google+,YouTube and LinkedIn.
The Entropic logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4255
Non-GAAP Financial Measures
This press release and the accompanying tables contain the following non-GAAP financial measures: net loss and net loss per share. These non-GAAP financial measures exclude the effects on the Statement of Operations of all forms of stock-based compensation, transaction and integration costs, amortization of intangible assets, losses related to equity method investment, impairment of investment, the impact of fair value adjustments related to contingent consideration payable in the acquisition of PLX Technology assets, the deferred tax asset valuation allowance, the cash tax difference, IP 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.
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 refocused strategy and restructuring plan, our financial position (including the anticipated savings from the restructuring plan, and the ongoing contribution of revenue from the set-top box SOC business), our design wins and engineering and operational efficiencies and our ability to drive future revenue growth and reach profitability. 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, risks related to our evaluation of strategic alternatives, 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; 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 © 2014 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 COMMUNICATIONS, INC. | |||||
| GAAP Condensed Consolidated Statements of Operations | |||||
| (In thousands, except for per share information) | |||||
| Three Months Ended | Nine Months Ended | ||||
| September 30, 2014 | June 30, 2014 | September 30, 2013 | September 30, 2014 | September 30, 2013 | |
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |
| Net revenues | $ 43,178 | $ 50,200 | $ 56,376 | $ 149,033 | $ 201,445 |
| Cost of net revenues | 20,609 | 26,662 | 28,863 | 76,864 | 104,837 |
| Gross profit | 22,569 | 23,538 | 27,513 | 72,169 | 96,608 |
| Operating expenses: | |||||
| Research and development | 29,073 | 31,216 | 28,510 | 95,555 | 84,914 |
| Sales and marketing | 5,923 | 5,878 | 6,137 | 19,246 | 18,609 |
| General and administrative | 5,435 | 6,121 | 5,751 | 17,688 | 17,290 |
| Amortization of intangibles | 256 | 290 | 443 | 989 | 1,868 |
| Restructuring charges | 2,186 | 1,796 | (69) | 3,982 | 1,694 |
| Impairment of assets | 7,386 | -- | -- | 7,386 | -- |
| Total operating expenses | 50,259 | 45,301 | 40,772 | 144,846 | 124,375 |
| Loss from operations | (27,690) | (21,763) | (13,259) | (72,677) | (27,767) |
| Loss related to equity method investment | -- | -- | -- | -- | (1,115) |
| Impairment of investment | -- | -- | -- | -- | (4,780) |
| Other income, net | 176 | 192 | 464 | 449 | 1,147 |
| Loss before income taxes | (27,514) | (21,571) | (12,795) | (72,228) | (32,515) |
| Income tax provision (benefit) | 123 | 278 | (860) | 511 | 21,737 |
| Net loss | $ (27,637) | $ (21,849) | $ (11,935) | $ (72,739) | $ (54,252) |
| Net loss per share - basic and diluted | $ (0.31) | $ (0.24) | $ (0.13) | $ (0.81) | $ (0.60) |
| Weighted average number of shares used to compute net loss per share - basic and diluted | 89,293 | 89,566 | 91,069 | 89,520 | 90,225 |
| ENTROPIC COMMUNICATIONS, INC. | |||
| GAAP Condensed Consolidated Balance Sheets | |||
| (In thousands) | |||
| September 30 | June 30 | December 31 | |
| 2014 | 2014 | 2013 | |
| (unaudited) | (unaudited) | (unaudited) | |
| ASSETS | |||
| Current assets: | |||
| Cash and cash equivalents | $ 10,350 | $ 11,054 | $ 16,298 |
| Marketable securities | 78,331 | 73,835 | 71,922 |
| Accounts receivable | 29,435 | 30,879 | 30,204 |
| Inventory | 14,492 | 13,907 | 13,503 |
| Deferred tax assets, current | 51 | 51 | 51 |
| Prepaid expenses and other current assets | 14,056 | 17,797 | 18,739 |
| Total current assets | 146,715 | 147,523 | 150,717 |
| Property and equipment, net | 23,502 | 19,454 | 17,994 |
| Long-term marketable securities | 18,817 | 36,005 | 69,534 |
| Intangible assets, net | 36,561 | 41,159 | 47,326 |
| Goodwill | 4,688 | 4,688 | 4,688 |
| Other long-term assets | 3,815 | 5,734 | 5,001 |
| Total assets | $ 234,098 | $ 254,563 | $ 295,260 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||
| Current liabilities: | |||
| Accounts payable | $ 11,411 | $ 10,522 | $ 8,601 |
| Accrued expenses and other current liabilities | 7,055 | 6,380 | 6,318 |
| Accrued payroll and benefits | 9,933 | 8,525 | 7,077 |
| Total current liabilities | 28,399 | 25,427 | 21,996 |
| Deferred rent | 6,277 | 1,991 | 1,751 |
| Other long-term liabilities | 2,069 | 2,060 | 1,688 |
| Stockholders' equity | 197,353 | 225,085 | 269,825 |
| Total liabilities and stockholders' equity | $ 234,098 | $ 254,563 | $ 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 | Nine Months Ended | ||||
| September 30, 2014 | June 30, 2014 | September 30, 2013 | September 30, 2014 | September 30, 2013 | |
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |
| GAAP net loss | $ (27,637) | $ (21,849) | $ (11,935) | $ (72,739) | $ (54,252) |
| Non-GAAP adjustments: | |||||
| Stock-based compensation: | |||||
| Cost of net revenues | 116 | 88 | 227 | 371 | 658 |
| Research and development | 2,898 | 3,535 | 2,766 | 9,635 | 6,730 |
| Sales and marketing | 633 | 772 | 510 | 1,967 | 1,324 |
| General and administrative | 955 | 1,167 | 1,089 | 3,059 | 3,109 |
| Total stock-based compensation | 4,602 | 5,562 | 4,592 | 15,032 | 11,821 |
| Amortization of intangible assets: | |||||
| Cost of net revenues | 2,717 | 2,717 | 2,425 | 8,151 | 6,881 |
| Operating expenses | 256 | 290 | 443 | 989 | 1,868 |
| 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) | (103) | 134 | (1,093) | (82) | (5,464) |
| IP litigation costs (2) | 590 | 935 | -- | 1,546 | -- |
| Deferred tax asset valuation allowance | -- | -- | -- | -- | 26,695 |
| Restructuring charges (3) | 2,186 | 1,796 | (69) | 3,982 | 1,694 |
| Impairment of assets | 7,386 | -- | -- | 7,386 | -- |
| Total of non-GAAP adjustments | 17,634 | 11,434 | 6,298 | 37,004 | 49,503 |
| Non-GAAP net (loss) income | $ (10,003) | $ (10,415) | $ (5,637) | $ (35,735) | $ (4,749) |
| Weighted average shares (basic) | 89,293 | 89,566 | 91,069 | 89,520 | 90,225 |
| Adjustment for dilutive shares | -- | -- | -- | -- | -- |
| Weighted average shares (diluted) | 89,293 | 89,566 | 91,069 | 89,520 | 90,225 |
| GAAP net loss per share (basic) | $ (0.31) | $ (0.24) | $ (0.13) | $ (0.81) | $ (0.60) |
| Non-GAAP adjustments detailed above | 0.20 | 0.12 | 0.07 | 0.41 | 0.55 |
| Non-GAAP net (loss) income per share (diluted) | $ (0.11) | $ (0.12) | $ (0.06) | $ (0.40) | $ (0.05) |
| (1) Non-GAAP net loss per share is calculated using the cash tax rate of (2)%, (1)%, and (4)% for the three month periods ended September 30, 2014, June 30, 2014 and September 30, 2013, respectively, and (2)% and (12)% for the nine month periods ended September 30, 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 0%, (1)%, and 7% for the three month periods ended September 30, 2014, June 30, 2014 and September 30, 2013, respectively, and (1)% and (67)% for the nine month periods ended September 30, 2014 and 2013, respectively. | |||||
| (2) While litigation may arise in the ordinary course of our business, we nevertheless consider the 2014 IP litigation to be an unusual, non-recurring and unplanned activity and therefore exclude this charge when presenting non-GAAP financial measures. | |||||
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(3) 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. We expect that approximately 150 positions will be eliminated in connection with the restructuring plan, representing about 23% of our work force. We recorded restructuring charges of $2.8 million and $4.6 million during the three and nine months ended September 30, 2014. We expect to incur a total restructuring charge of approximately $6.0 million of which approximately $5.4 million 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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