MICROSEMI CORPORATION ALISO VIEJO, Calif., Nov. 9, 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 fourth quarter and fiscal year 2017 ended Oct. 1, 2017.
Net sales for Microsemi's fourth quarter of fiscal year 2017 were a record $475.3 million, up 5.6 percent from the $450.1 million in the prior year fourth quarter and up 3.7 percent from $458.1 million in the third quarter of 2017. Net sales for fiscal year 2017 were a record $1.81 billion, up 9.5 percent from the $1.65 billion reported in 2016.
GAAP gross margin for the fourth quarter of 2017 was 64.0 percent, up 140 basis points from the 62.6 percent in the fourth quarter of 2016, and is inclusive of the effect of non-cash purchase accounting charges. GAAP operating income and net income for the fourth quarter of 2017 were $75.4 million and $102.0 million, respectively, and included restructuring, severance and other charges of $4.0 million. Also included in operating income were non-cash charges of $78.5 million, including amortization of intangible assets and stock based compensation. GAAP operating margin for the fourth quarter of 2017 was a record 15.9 percent, up 170 basis points compared to 14.2 percent for the fourth quarter of 2016 and up 60 basis points compared to 15.3 percent for the third quarter of 2017. GAAP net income per diluted share was $0.87 for the fourth quarter of 2017 compared to $0.35 per diluted share for the fourth quarter of 2016 and $0.12 per diluted share for the third quarter of 2017.
Non-GAAP gross margin for the fourth quarter of 2017 was a record 64.4 percent, up 180 basis points from the 62.6 percent in the fourth quarter of 2016 and up 50 basis points from the 63.9 percent in the third quarter of 2017. Non-GAAP operating income for the fourth quarter of 2017 was $160.0 million, up 14.7 percent from the fourth quarter of 2016 and up 8.2 percent from the third quarter of 2017. Non-GAAP operating margin for the fourth quarter of 2017 was a record 33.7 percent, up 270 basis points from 31.0 percent in the fourth quarter of 2016 and up 140 basis points from 32.3 percent in the third quarter of 2017. Non-GAAP net income for the fourth quarter of 2017 was a record $128.2 million and a record $1.09 per diluted share.
Operating and free cash flows for the fourth quarter of 2017 were at $156.9 million and $139.3 million, respectively. Cash and cash equivalents at the end of the fourth quarter of 2017 were $144.9 million.
"I am pleased to report record net sales and non-GAAP gross and operating margins for our fourth fiscal quarter of 2017," said James J. Peterson, Microsemi's chairman and CEO. "We surpassed our stated goal of a 3.0 leverage ratio through a combination of strong operating results, record cash flow and debt repayment."
Business Outlook
Microsemi currently expects net sales in the first quarter of fiscal year 2018 of between $448 million and $472 million, and expects non-GAAP diluted earnings per share of between $0.95 and $1.07.
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 Fourth Quarter 2017 Earnings Conference Call and Webcast
Date: Thursday, Nov. 9, 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: 7379608.
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, market share gains, revenue growth, margin improvements, increasing cash flow and any other statements or beliefs regarding Microsemi's 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 continued negative or worsening worldwide economic conditions or market instability; risks related to Microsemi's international operations and sales, including divergent laws and regulations, unanticipated changes in Microsemi's tax obligations and liabilities resulting from factors such as changes in tax laws and, tax examinations; political instability, trade restrictions and sanctions, restrictions in the transfer or repatriation of funds, currency fluctuations and availability of transportation services; 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; 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; 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; 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 Annual Report on Form 10-K.
(Financial Tables Follow)
Selected GAAP & Non-GAAP Financial Measures
(unaudited, in millions, except for percentages and per share amounts)
Quarter Ended Twelve Months Ended
------------- -------------------
Oct 1, Jul 2, Oct 2, Oct 1, Oct 2,
2017 2017 2016 2017 2016
---- ---- ---- ---- ----
Net sales $475.3 $458.1 $450.1 $1,811.8 $1,655.0
Selected
GAAP
Financial
Measures
Gross profit $304.1 $292.7 $281.8 $1,157.5 $937.1
Gross margin 64.0% 63.9% 62.6% 63.9% 56.6%
Operating
income $75.4 $70.0 $63.8 $270.3 $53.7
Operating
margin 15.9% 15.3% 14.2% 14.9% 3.2%
Net income
(loss) $102.0 $13.6 $40.5 $176.3 $(32.6)
Diluted
earnings
(loss) per
share $0.87 $0.12 $0.35 $1.51 $(0.31)
Selected
Non-GAAP
Financial
Measures
Gross profit $306.2 $292.7 $281.8 $1,159.6 $1,007.3
Gross margin 64.4% 63.9% 62.6% 64.0% 60.9%
Operating
income $160.0 $147.9 $139.5 $578.2 $462.2
Operating
margin 33.7% 32.3% 31.0% 31.9% 27.9%
Net income $128.2 $116.0 $104.9 $450.3 $332.8
Diluted
earnings
per share $1.09 $0.99 $0.91 $3.85 $3.05
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 Twelve Months Ended
------------- -------------------
Oct 1, Jul 2, Oct 2, Oct 1, Oct 2,
2017 2017 2016 2017 2016
---- ---- ---- ---- ----
GAAP gross profit $304.1 $292.7 $281.8 $1,157.5 $937.1
Manufacturing profit
in acquired inventory
(1) 2.1 - - 2.1 66.2
Inventory write-offs
from restructuring
activities (2) - - - - 4.0
Non-GAAP gross profit $306.2 $292.7 $281.8 $1,159.6 $1,007.3
------ -------- --------
GAAP operating income $75.4 $70.0 $63.8 $270.3 $53.7
Adjustments to GAAP
gross profit 2.1 - - 2.1 70.2
Restructuring,
severance, and other
special charges (1) 4.0 11.2 2.4 23.4 58.5
Facility consolidation
and equipment charges
(1) - - - - 2.4
Amortization of
intangible assets (2) 50.1 49.6 45.6 191.7 161.2
Stock based
compensation (3) 28.4 16.7 27.5 89.0 84.8
Acquisition and
divestiture related
costs (4) - 0.4 0.2 1.7 31.4
--- --- --- --- ----
Non-GAAP operating
income $160.0 $147.9 $139.5 $578.2 $462.2
------ ------ ------ ------ ------
GAAP net income (loss) $102.0 $13.6 $40.5 $176.3 $(32.6)
Adjustments to GAAP
gross profit and
operating income 84.6 77.9 75.7 307.9 408.5
Gain on divestiture
(4) - - - 1.2 (125.5)
Credit facility
issuance and debt
extinguishment costs
(5) 1.9 34.9 2.1 41.3 100.5
Gain from facility
sale (2) (3.1) - - (3.1) -
Fair value change in
foreign tax
liabilities (6) 1.9 1.3 (0.3) 3.4 2.9
Income tax effect on
non-GAAP adjustments
(7) (59.1) (11.7) (13.1) (76.7) (21.0)
----- ----- ----- ----- -----
Non-GAAP net income $128.2 $116.0 $104.9 $450.3 $332.8
------ ------ ------ ------ ------
GAAP diluted earnings
(loss) per share $0.87 $0.12 $0.35 $1.51 $(0.31)
Effect of non-GAAP
adjustments on
diluted earnings per
share $0.22 $0.87 $0.56 $2.34 $3.36
----- ----- ----- ----- -----
Non-GAAP diluted
earnings per share $1.09 $0.99 $0.91 $3.85 $3.05
----- ----- ----- ----- -----
Weighted-average
diluted shares used
in calculating non-
GAAP diluted earnings
per share 117.7 117.2 115.4 117.1 109.3
Operating cash flow $156.9 $118.7 $129.8 $474.7 $274.6
Payments for capital
expenditures (17.6) (10.6) (14.6) (54.7) (48.8)
-----
Free cash flow (8) $139.3 $108.1 $115.2 $420.0 $225.8
------ ------ ------ ------ ------
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 October 1, 2017
-----------------------------
GAAP Non-GAAP Non-GAAP
Adjustments
-----------
Net sales $475.3 $ - $475.3
Gross profit $304.1 $2.1 $306.2
Operating income $75.4 $84.6 $160.0
Net income $102.0 $26.2 $128.2
Diluted earnings per share $0.87 $0.22 $1.09
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 Twelve Months Ended
------------- -------------------
Oct 1, Jul 2, Oct 2, Oct 1, Oct 2,
2017 2017 2016 2017 2016
---- ---- ---- ---- ----
Net sales $475.3 $458.1 $450.1 $1,811.8 $1,655.0
Cost of sales 171.2 165.4 168.3 654.3 717.9
----- ----- ----- ----- -----
Gross profit $304.1 $292.7 $281.8 $1,157.5 $937.1
------ ------ ------ -------- ------
Operating expenses
Selling, general and
administrative $87.3 $76.4 $86.3 $329.0 $321.0
Research and
development 87.3 85.1 83.5 341.6 309.1
Amortization of
intangible assets 50.1 49.6 45.6 191.7 161.2
Restructuring,
severance and
facilities charges 4.0 11.2 2.4 23.2 60.7
Acquisition and
divestiture related
costs - 0.4 0.2 1.7 31.4
Total operating
expenses $228.7 $222.7 $218.0 $887.2 $883.4
------ ------ ------ ------ ------
Operating income $75.4 $70.0 $63.8 $270.3 $53.7
----- ----- ----- ------ -----
Interest and other
expense, net (22.1) (58.7) (27.9) (134.2) (79.1)
----- ----- ----- ------ -----
Income (loss) before
income taxes $53.3 $11.3 $35.9 $136.1 $(25.4)
Provision for
(benefit from)
income taxes (48.7) (2.3) (4.6) (40.2) 7.2
Net income (loss) $102.0 $13.6 $40.5 $176.3 $(32.6)
====== ===== ===== ====== ======
Earnings (loss) per
share
Basic $0.88 $0.12 $0.36 $1.54 $(0.31)
Diluted $0.87 $0.12 $0.35 $1.51 $(0.31)
Weighted-average
common shares
outstanding
Basic 115.3 115.0 112.4 114.9 107.0
Diluted 117.7 117.2 115.4 117.1 107.0
Consolidated Condensed Balance Sheets
(unaudited, in millions)
Oct 1, Oct 2,
2017 2016
---- ----
Assets
Current assets
Cash and cash equivalents $144.9 $189.5
Accounts receivable, net 267.9 245.2
Inventories 239.1 213.1
Other current assets 75.0 87.1
---- ----
Total current assets $726.9 $734.9
Property and equipment, net 197.6 174.9
Goodwill 2,497.3 2,479.4
Intangible assets, net 752.3 934.6
Deferred income taxes 67.2 37.3
Other assets 81.8 61.9
Total assets $4,323.1 $4,423.0
======== ========
Liabilities and stockholders'
equity
Current liabilities
Accounts payable $164.9 $112.8
Accrued liabilities 153.4 166.1
Current maturity of debt 61.1 40.7
---- ----
Total current liabilities $379.4 $319.6
Debt 1,735.6 2,138.5
Deferred income taxes 103.8 120.2
Other long-term liabilities 110.0 115.8
Stockholders' equity 1,994.3 1,728.9
Total liabilities and
stockholders' equity $4,323.1 $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) Manufacturing profit in acquired
inventory results from purchase
accounting entries to increase the
value of inventory acquired to its
fair value. As the acquired
inventory is sold, the associated
manufacturing profit in acquired
inventory increases cost of goods
sold and reduces gross profit.
Management believes it is useful to
exclude manufacturing profit in
acquired inventory as it does not
reflect continuing operations of
acquired entities and to facilitate
comparability of gross profit
between periods. In addition,
management excludes the impact of
manufacturing profit in acquired
inventory in internal measurements
of gross profit.
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
