Pericom Semiconductor Reports Fiscal Second Quarter 2014 Financial Results

MILPITAS, CA--(Marketwired - Jan 28, 2014) - Pericom Semiconductor Corporation (NASDAQ: PSEM) 

• Net revenues increased 5.3% year-over-year to $32.0 million.
• Achieved 38.1% gross margin (39.8% non-GAAP) and year-over-year increase of 135 bps.
• Net income improved to $0.05 per diluted share; $0.08 on a non-GAAP basis. 

Pericom Semiconductor Corporation (NASDAQ: PSEM), a worldwide supplier of high performance connectivity and timing solutions, today announced results for its fiscal 2014 second quarter ended December 28, 2013.

Net revenues for the second quarter were $32.0 million, a decrease of 1.7% from the $32.6 million reported in the first quarter, and an increase of 5.3% from the $30.4 million reported in the comparable period last year. The revenue increase from the prior year is the result of volume increases in the consumer and embedded end-market segments.

GAAP gross margin was 38.1% in the second quarter, a decrease from 39.3% last quarter and an increase from 36.8% in the comparable period last year. On a non-GAAP basis, gross margin was 39.8% in the second quarter, which reflects exclusion of share-based compensation, amortization of intangible assets and amortization of fair value adjustments on acquired fixed assets. The comparable non-GAAP gross margins were 40.9% last quarter and 38.5% in the comparable period last year. The improvement in gross margin from the prior year primarily reflects favorable product mix from our focus on higher margin opportunities in networking and telecom, server, storage, and embedded end-market segments. The sequential decline in gross margin primarily reflects increased underutilization expenses in the current quarter.

GAAP net income for the second quarter was $1.2 million, or $0.05 per diluted share, compared with net income of $374,000, or $0.02 per diluted share in the first quarter, and net loss of $5.3 million, or $0.23 per diluted share in the comparable period last year. GAAP net income for all periods included share-based compensation, amortization of intangible assets, and amortization of fair value adjustments, and the current quarter also included a restructuring charge, fixed asset write off, and the benefit of a release of tax reserves. Excluding these items, non-GAAP net income for the second quarter was $1.9 million, or $0.08 per diluted share, compared with non-GAAP net income of $1.9 million or $0.08 per diluted share in the first quarter, and non-GAAP net income of $922,000, or $0.04 per diluted share in the comparable period last year. 

The balance sheet remained very strong with cash and cash equivalents and investments in marketable securities of $118 million or $5.12 per diluted share at the end of the second quarter. At quarter-end, working capital was $106 million and the current ratio was 6.9.

"Our gross margin improvement over last year has been driven by growth in selected market segments and aligns with our previously stated strategy," said Alex Hui, President and CEO of Pericom. "We have expanded our gross margin every year for the last three fiscal years and believe we are on track to deliver another year of improvement in fiscal 2014. We continue to focus on growing business in networking, cloud computing, high-end consumer and embedded applications. We feel positive about our design win pipeline and believe these new opportunities will drive our future revenue growth and margin improvement."

New Products 

In the second quarter of fiscal 2014, Pericom introduced a total of 14 new products in our Signal Integrity, Connectivity/Switching, and Timing product areas. All of these products are targeted to our focus market segments, and were sampled to key customers during the quarter.

We introduced 5 new products across our Connectivity/Switching product families which included power management USB chargers and load switches, and supervisory IC products.

We also expanded our Timing solutions for next generation platforms with 6 new products, including high performance clock generators and clock buffers, and real time clock XO families.

For Signal Integrity, we introduced 3 new products targeting advanced USB3 applications.

Share Repurchase Update

On April 26, 2012 the Board authorized a repurchase program for up to $25 million of shares of our common stock. Pursuant to this authorization, the Company repurchased 269,051 shares in the three months ended December 28, 2013 for an aggregate cost of $2,372,000 and an average per share purchase price of $8.82. The remaining balance of potential share repurchases under the authorization is approximately $14.8 million. Shares may be repurchased from time to time in the open market or through private transactions, at the discretion of Pericom management. As of January 24, 2014, Pericom had approximately 22.8 million shares of common stock outstanding.

Fiscal Q3 2014 Outlook

The following statements are based on current expectations. These statements are forward looking, and actual results may differ materially.

• Revenues are expected to be in the range of $30.0 million to $32.5 million.
  
  
• GAAP gross margins are expected to be between 37.0% and 39.0%, and adjusting for share-based compensation, amortization of intangibles and fair value adjustments that are expected to total approximately 1.5%, non-GAAP gross margins are expected to be in the 38.5% to 40.5% range.
  
  
• GAAP operating expenses are expected to be between $11.9 million and $12.4 million, and adjusting for share-based compensation, amortization of intangibles and fair value adjustments that are expected to total approximately $1.1 million, non-GAAP operating expenses are expected to be in the range of $10.8 million to $11.3 million.
  
  
• Other income is expected to be between $0.5 million and $0.8 million on a GAAP basis and on a non-GAAP basis, and consists of interest income and realized gains on sales of marketable securities, other income and expenses, and currency exchange gains and losses.
  
  
• The effective tax rate is expected to be approximately 30-34% on a GAAP basis and 25-29% on a non-GAAP basis.
  
  

Conference Call

The press release will be followed by a conference call beginning at 1:30 p.m. Pacific time on January 28, 2014. To listen to the call, dial (877) 377-7103 and reference "Pericom". A slide presentation will accompany the conference call. To view the slides, please visit the investor relations section of www.pericom.com.

The Pericom financial results conference call will be available via a live webcast on the investor relations section of the web site at http://www.pericom.com. Access the web site 15 minutes prior to the start of the call to download and install any necessary audio software. An archived webcast replay will be available on the web site for approximately 90 days.

A taped replay of the conference call will be made available for the period from this evening through midnight on Saturday, February 1st. To listen to the replay, dial toll-free (855) 859-2056 and reference conference ID 41631830.

About Pericom

Pericom Semiconductor Corporation (NASDAQ: PSEM) enables serial connectivity with the industry's most complete solutions for the computing, communications, consumer and embedded market segments. Pericom's analog, digital and mixed-signal integrated circuits, along with its frequency control products are essential in the timing, switching, bridging and conditioning of high-speed signals required by today's ever-increasing speed and bandwidth demanding applications. Company headquarters is in Milpitas, California, with design centers and technical sales and support offices globally. Pericom and the Pericom logo are trademarks or registered trademarks of Pericom Semiconductor Corp in the U.S. and/or other countries. Our website is http://www.pericom.com.

Non-GAAP Financial Information 

In addition to disclosing financial results calculated in accordance with U.S. generally accepted accounting principles (GAAP), this announcement of operating results contains non-GAAP financial measures that exclude the income statement effects of share-based compensation, amortization of intangible assets, fair value adjustments on acquired fixed assets, write off of equipment, restructuring charge, lease restructuring and moving costs, release of tax reserves, tax provision on intercompany transactions and the effects of excluding share-based compensation upon the number of diluted shares used in calculating non-GAAP earnings per share.

We have excluded share-based compensation expense in calculating these non-GAAP financial measures. These expenses are non-cash in nature and rely on valuations of the future market price of our common stock that is difficult to predict and is affected by market factors that are largely not within the control of management. We have excluded amortization of intangible assets, amortization of fair value adjustments on acquired fixed assets, write off of equipment, restructuring charge, lease restructuring and moving costs, release of tax reserves, tax provision on intercompany transactions and the corresponding tax effects because we do not consider them to be related to our core operating performance. We also use non-GAAP data in calculating certain metrics such as non-GAAP cost of goods sold in computing inventory days of supply.

We use the non-GAAP financial measures that exclude these items to make strategic decisions, forecast future results and evaluate the Company's current operating performance. We believe that the presentation of non-GAAP financial measures that exclude these items is useful to investors because we do not consider these charges either part of the day-to-day business or reflective of the core operational activities of the Company that are within the control of management or that are used to evaluate the Company's operating performance.

The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated 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. The Company has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

Safe Harbor Statement

This press release contains forward-looking statements as defined under The Securities Litigation Reform Act of 1995. Forward-looking statements in this release include statements by our CEO concerning future business and revenue growth and margin improvement and the statements under the captions "Fiscal Q3 2014 Outlook", which regard the anticipated revenues, gross margin, operating expenses, other income, and effective tax rate in the third fiscal quarter of 2014. The Company's actual results could differ materially from what is set forth in such forward-looking statements due to a variety of risk factors, including softness in demand for our products, price erosion for certain of our products, unexpected difficulties in developing new products, customer decisions to reduce inventory, economic or financial difficulties experienced by our customers, or technological and market changes. All forward-looking statements included in this document are made as of the date hereof, based on information available to the Company as of the date hereof, and Pericom assumes no obligation to update any forward-looking statements. Parties receiving this release are encouraged to review our annual report on Form 10-K for the year ended June 29, 2013, our quarterly report on Form 10-Q for the quarter ended September 28, 2013, and in particular, the risk factors sections contained in those reports.

Pericom Semiconductor Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
			Three Months Ended											Six Months Ended
			December 28, 2013				September 28, 2013			December 29, 2012				December 28, 2013				December 29, 2012
Net revenues			$	32,040			$	32,608		$	30,433			$	64,648			$	67,182
Cost of revenues				19,820				19,800			19,239				39,620				42,077
	Gross profit			12,220				12,808			11,194				25,028				25,105
Operating expenses:
	Research and development			5,274				5,045			5,097				10,319				10,420
	Selling, general and administrative			7,126				7,687			7,532				14,813				15,171
		Total operating expenses		12,400				12,732			12,629				25,132				25,591
Income (loss) from operations				(180	)			76			(1,435	)			(104	)			(486	)
Interest and other income, net				1,047				486			795				1,533				1,430
Income (loss) before income taxes				867				562			(640	)			1,429				944
Income tax expense (benefit)				(331	)			231			4,756				(100	)			5,256
Net income (loss) from consolidated companies				1,198				331			(5,396	)			1,529				(4,312	)
Equity in net income of unconsolidated affiliate				27				43			57				70				165
Net income (loss)			$	1,225			$	374		$	(5,339	)		$	1,599			$	(4,147	)
Basic income (loss) per share			$	0.05			$	0.02		$	(0.23	)		$	0.07			$	(0.18	)
Diluted income (loss) per share			$	0.05			$	0.02		$	(0.23	)		$	0.07			$	(0.18	)
Shares used in computing basic income (loss) per share				22,800				22,794			23,515				22,797				23,529
Shares used in computing diluted income (loss) per share				23,019				22,951			23,515				22,985				23,529

Pericom Semiconductor Corporation
Condensed Consolidated Statements of Operations
(In thousands)
(unaudited)
			Three Months Ended									Six Months Ended
			December 28, 2013			September 28, 2013			December 29, 2012			December 28, 2013			December 29, 2012
Share-based compensation
	Cost of revenues		$	50		$	36		$	43		$	86		$	95
	Research and development			313			297			333			610			655
	Selling, general and administrative			388			396			484			784			951
		Share-based compensation expense	$	751		$	729		$	860		$	1,480		$	1,701
Amortization of intangible assets
	Cost of revenues		$	481		$	488		$	481		$	969		$	958
	Research and development			17			50			49			67			105
	Selling, general and administrative			249			247			242			496			485
		Amortization of intangible assets	$	747		$	785		$	772		$	1,532		$	1,548

Pericom Semiconductor Corporation
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income
(In thousands)
(unaudited)
			Three Months Ended												Six Months Ended
			December 28, 2013				September 28, 2013				December 29, 2012				December 28, 2013				December 29, 2012
GAAP net income (loss)			$	1,225			$	374			$	(5,339	)		$	1,599			$	(4,147	)
Reconciling items:
	Share-based compensation expense			751				729				860				1,480				1,701
	Amortization of intangible assets			747				785				772				1,532				1,548
	Fair value adjustment to depreciation expense on acquired fixed assets			51				51				50				102				100
	Restructuring charge			95				-				-				95				-
	Write off of fixed asset and release of tax reserves			(531	)			-				-				(531	)			-
	Tax on intercompany transaction			-				15				4,987				15				4,987
	Lease restructuring and moving costs			-				522				-				522				-
	Tax effect of adjustments			(452	)			(543	)			(408	)			(995	)			(810	)
		Total reconciling items		661				1,559				6,261				2,220				7,526
Non-GAAP net income			$	1,886			$	1,933			$	922			$	3,819			$	3,379
Reconciliation of GAAP Diluted EPS to Non-GAAP Diluted EPS
(unaudited)
Diluted net income (loss) per share:
	GAAP diluted income (loss) per share		$	0.05			$	0.02			$	(0.23	)		$	0.07			$	(0.18	)
	Adjustments:
	Share-based compensation expense			0.03				0.03				0.04				0.06				0.08
	Amortization of intangible assets			0.03				0.03				0.03				0.06				0.06
	Fair value adjustment to depreciation expense on acquired fixed assets			-				-				-				-				-
	Restructuring charge			0.01				-				-				0.01				-
	Write off of fixed asset and release of tax reserves			(0.02	)			-				-				(0.02	)			-
	Tax on intercompany transaction			-				-				0.21				-				0.21
	Lease restructuring and moving costs			-				0.02				-				0.02				-
	Tax effect of adjustments			(0.02	)			(0.02	)			(0.02	)			(0.04	)			(0.04	)
	Difference in share count			-				-				0.01				-				0.01
		Total adjustments		0.03				0.06				0.27				0.09				0.32
	Non-GAAP diluted income per share		$	0.08			$	0.08			$	0.04			$	0.16			$	0.14
Shares used in diluted net income (loss) per share calculation:
GAAP				23,019				22,951				23,515				22,985				23,529
	Change in diluted shares from GAAP net loss to non-GAAP net income			-				-				141				-				169
	Exclude the benefit of share-based compensation expense (1)			426				390				507				408				408
		Non-GAAP		23,445				23,341				24,163				23,393				24,106

(1) For purposes of calculating non-GAAP diluted net income per share, the GAAP diluted weighted average shares outstanding is adjusted to exclude the benefits of unamortized stock compensation costs that are treated as proceeds assumed to be used to repurchase shares under the GAAP treasury stock method.

Pericom Semiconductor Corporation
Reconciliation of GAAP Gross Margin to Non-GAAP Gross Margin
(In thousands)
(unaudited)
			Three Months Ended												Six Months Ended
			December 28, 2013				September 28, 2013				December 29, 2012				December 28, 2013				December 29, 2012
GAAP gross margin			$	12,220			$	12,808			$	11,194			$	25,028			$	25,105
- % of revenues				38.1	%			39.3	%			36.8	%			38.7	%			37.4	%
Reconciling items:
	Share-based compensation			50				36				43				86				95
	Amortization of intangible assets			481				488				481				969				958
	Fair value adjustment to depreciation expense on acquired fixed assets			10				10				10				20				20
		Total reconciling items		541				534				534				1,075				1,073
Non-GAAP gross margin			$	12,761			$	13,342			$	11,728			$	26,103			$	26,178
- % of revenues				39.8	%			40.9	%			38.5	%			40.4	%			39.0	%
Reconciliation of GAAP R&D Expenses to Non-GAAP R&D Expenses
(unaudited)
GAAP research and development expenses			$	5,274			$	5,045			$	5,097			$	10,319			$	10,420
- % of revenues				16.5	%			15.5	%			16.7	%			16.0	%			15.5	%
Reconciling items:
	Share-based compensation			(313	)			(297	)			(333	)			(610	)			(655	)
	Amortization of intangible assets			(17	)			(50	)			(49	)			(67	)			(105	)
	Fair value adjustment to depreciation expense on acquired fixed assets			(10	)			(10	)			(10	)			(20	)			(20	)
	Restructuring charge			(78	)			-				-				(78	)			-
	Write off of fixed asset			(210	)			-				-				(210	)			-
		Total reconciling items		(628	)			(357	)			(392	)			(985	)			(780	)
Non-GAAP research and development expenses			$	4,646			$	4,688			$	4,705			$	9,334			$	9,640
- % of revenues				14.5	%			14.4	%			15.5	%			14.4	%			14.3	%
Reconciliation of GAAP SG&A Expenses to Non-GAAP SG&A Expenses
(unaudited)
GAAP selling, general and administrative expenses			$	7,126			$	7,687			$	7,532			$	14,813			$	15,171
- % of revenues				22.2	%			23.6	%			24.7	%			22.9	%			22.6	%
Reconciling items:
	Share-based compensation			(388	)			(396	)			(484	)			(784	)			(951	)
	Amortization of intangible assets			(249	)			(247	)			(242	)			(496	)			(485	)
	Fair value adjustment to depreciation expense on acquired fixed assets			(31	)			(31	)			(30	)			(62	)			(60	)
	Restructuring charge			(17	)			-				-				(17	)			-
	Lease restructuring and moving costs			-				(522	)			-				(522	)			-
		Total reconciling items		(685	)			(1,196	)			(756	)			(1,881	)			(1,496	)
Non-GAAP selling, general and administrative expenses			$	6,441			$	6,491			$	6,776			$	12,932			$	13,675
- % of revenues				20.1	%			19.9	%			22.3	%			20.0	%			20.4	%

Pericom Semiconductor Corporation
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
			As of			As of
			December 28, 2013			June 29, 2013
		Assets
Current assets:
	Cash and cash equivalents		$	30,270		$	30,844
	Short-term investments			49,648			29,447
	Accounts receivable - trade			23,967			22,105
	Inventories			13,294			14,844
	Prepaid expenses and other current assets			6,044			5,886
	Deferred income taxes			474			585
		Total current assets		123,697			103,711
Property, plant and equipment-net				60,550			60,959
Investments in unconsolidated affiliates				2,617			2,525
Deferred income taxes non-current				3,290			3,411
Long-term investments in marketable securities				37,952			57,392
Intangible assets				8,503			9,944
Other assets				8,319			8,625
		Total assets	$	244,928		$	246,567
		Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable		$	8,693		$	12,184
	Accrued liabilities			9,315			8,731
		Total current liabilities		18,008			20,915
Industrial development subsidy				6,870			7,263
Deferred tax liabilities				5,799			5,798
Other long-term liabilities				2,767			3,700
		Total liabilities		33,444			37,676
Shareholders' equity:
	Common stock and paid in capital			119,775			119,591
	Retained earnings and other comprehensive income			91,709			89,300
		Total shareholders' equity		211,484			208,891
		Total liabilities and shareholders' equity	$	244,928		$	246,567