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Intersil Corporation Reports Third Quarter Results
Delivers Another Meaningful Gross Margin Improvement

MILPITAS, Calif., Oct. 29, 2014 /PRNewswire/ -- Intersil Corporation (NASDAQ: ISIL), a leading provider of innovative power management and precision analog solutions, today announced financial results for the third quarter ended October 3, 2014. Revenue of $143.6 million was lower than expected, reflecting weaker end market demand at the end of the quarter. Earnings per share results were within expectations as continued improvement in gross margin and lower operating expenses supported profitability.

Company Highlights

  • Both GAAP and non-GAAP gross margin improved for the sixth consecutive quarter to 58.4% and 58.6% respectively
  • Operating margin increased again to a recent record of 15.2% on a GAAP basis and 22.1% on a non-GAAP basis
  • Earnings per diluted share were within expectations and flat sequentially at $0.10 on a GAAP basis and $0.19 on a non-GAAP basis
  • Cash and investment balances increased to $211 million

Revenue for the third quarter of $143.6 million decreased 3% sequentially due primarily to weaker than anticipated demand in consumer and industrial and infrastructure markets. Up 4% year-over-year, Intersil's industrial and infrastructure revenue decreased broadly sequentially across most end markets. Consumer revenue was down 8% sequentially reflecting the continued transition from non-strategic to new product revenue. Computing demand was strong, but excess inventory at distributors will contribute to steep declines in the fourth quarter. The breakdown by end market was as follows:

 

End Market

Q3 2014

Q2 2014

Q3 2013

Revenue $M

Revenue %

Revenue $M

Revenue %

Revenue $M

Revenue %

Industrial & Infrastructure

91.1

63%

94.8

64%

87.8

58%

Computing

31.4

22%

30.0

20%

28.2

18%

Consumer

21.1

15%

23.0

16%

36.6

24%

Total Revenue

$143.6


$147.8


$152.6


 

Financial Results
The Company's solid operating results despite lower revenue reflected the improved health of the business. In the third quarter, GAAP operating expenses decreased by 5% sequentially to $62.0 million. GAAP gross margin increased to 58.4%. Operating income improved to $21.9 million, or 15.2% of revenue compared to 3.3% in Q3 2013. GAAP net income for the quarter increased to $13.9 million or $0.10 per diluted share, compared to a loss in the same period last year.

The non-GAAP results also showed meaningful improvement. Non-GAAP gross margin improved to 58.6% in the third quarter. Third quarter non-GAAP operating expenses declined to $52.3 million, down 4% sequentially and year-over-year. Third quarter non-GAAP operating income increased sequentially to $31.8 million, resulting in non-GAAP operating margin of 22.1%. Third quarter non-GAAP net income of $25.5 million resulted in non-GAAP earnings per diluted share of $0.19. For a complete reconciliation of GAAP and non-GAAP results, please see the "Non-GAAP Results" tables included at the end of this release.

Cash flow from operating activities was $24.0 million, contributing to a sequential increase in cash and short-term investments to $211 million. 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 November 29, 2014, to shareholders of record as of the close of business on November 18, 2014.

"We are staying focused on the things we can control," said Necip Sayiner, president and CEO of Intersil. "We're operating our business to protect profitability, we're continuing to introduce new products and we're securing the design wins that we believe will allow us to grow and drive earnings higher in 2015."

Fourth Quarter 2014 Outlook

The following forward looking guidance is for the fourth quarter ending January 2, 2015, based on current business trends and conditions:


GAAP

Reconciling items

Non-GAAP

Revenue

$125 to $132 million


$125 to $132 million

Gross margin

Up 50 bps


Up 50 bps

Operating expenses

Down $1 million

$4.5 million equity-based compensation

$5.6 million amortization of purchased intangibles

Down $1 million

Earnings per share(diluted)

$0.06 to $0.08


$0.13 to $0.15

 

Earnings Call Webcast
Intersil will be hosting a webcast to discuss the quarterly results and outlook today at 1:45 p.m. Pacific Time. To access the conference call, please visit the company's investor relations website at ir.intersil.com. Participants can also dial (866) 277-1184 or +1 (617) 597-5360 and enter the pass code 42634846. 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 34839042.

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. Intersil does not adopt and is not responsible for any forward-looking statements and projections made by others in this press release. 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) discuss some of the important risk factors that may affect our business, results of operations and financial condition. 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.

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 net income (loss) per share
  • 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 agreements
  • Writeoffs (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


Oct. 3,


Jul. 4,


Oct. 4,


2014


2014


2013


Q3 2014


Q2 2014


Q3 2013







Revenue

$ 143,612


$ 147,761


$ 152,644

Cost of revenue

59,763


61,953


68,008

Gross profit

83,849


85,808


84,636

 Gross margin %

58.4%


58.1%


55.4%







Expenses:






 Research and development 

31,194


32,491


31,311

 Selling, general and administrative 

25,243


27,076


27,083

 Amortization of purchased intangibles

5,561


5,560


6,080

 Provision for export compliance settlement

-


-


6,000

 Restructuring and related costs

-


-


9,067

Total expenses

61,998


65,127


79,541







Operating income

21,851


20,681


5,095

 Interest expense, fees and other expenses

(554)


(384)


(429)

 (Loss) / gain on investments

(148)


495


893

Income before income taxes

21,149


20,792


5,559

 Income tax expense

7,262


7,146


13,737

Net income

$   13,887


$   13,646


$   (8,178)







Earnings per share: 






 Basic

$       0.11


$       0.11


$     (0.06)

 Diluted

$       0.10


$       0.10


$     (0.06)







Weighted average shares outstanding:






 Basic

129,620


129,020


127,339

 Diluted

132,626


132,214


127,339

 

Intersil Corporation

Condensed Consolidated Balance Sheets

Unaudited

(in thousands)










Oct. 3,


Jul. 4,


Jan. 3,



2014


2014


2014

Assets







Current assets:







 Cash and short-term investments


$    210,582


$    201,241


$    194,787

 Trade receivables, net


58,680


59,121


49,466

 Inventories


67,651


65,077


62,408

 Prepaid expenses and other current assets


9,945


9,966


9,752

 Income taxes receivable


1,450


2,839


1,091

 Deferred income tax assets


14,337


15,590


22,328

 Total current assets


362,645


353,834


339,832

Non-current assets:







 Property, plant and equipment, net


73,755


75,798


81,867

 Purchased intangibles, net


39,959


45,520


56,641

 Goodwill


565,424


565,424


565,424

 Deferred income tax assets


53,455


55,186


73,008

 Other non-current assets


71,720


73,144


74,624

 Total non-current assets


804,313


815,072


851,564

Total assets


$ 1,166,958


$ 1,168,906


$ 1,191,396








Liabilities and shareholders' equity







Current liabilities:







 Trade payables


$      26,809


$      28,330


$      26,248

 Deferred income


10,821


10,965


11,936

 Income taxes payable


6,105


8,370


14,588

 Other accrued expenses


66,151


70,166


77,117

 Total current liabilities


109,886


117,831


129,889

Non-current liabilities:







 Income taxes payable


72,887


72,367


90,102

 Other non-current liabilities


8,991


10,528


13,603

 Total non-current liabilities


81,878


82,895


103,705

Total shareholders' equity


975,194


968,180


957,802

Total liabilities and shareholders' equity


$ 1,166,958


$ 1,168,906


$ 1,191,396

 

Intersil Corporation

Condensed Consolidated Statements of Cash Flows

Unaudited

(In thousands)








Quarter Ended


Oct. 3,


Jul. 4,


Oct. 4,


2014


2014


2013


Q3 2014


Q2 2014


Q3 2013

Operating activities:






Net income

$   13,887


$   13,646


$    (8,178)

Depreciation

4,898


4,785


4,380

Amortization of purchased intangibles

5,561


5,560


6,080

Equity-based compensation

4,385


5,585


4,287

Non-cash portion of restructuring charges

-


-


1,012

Other

(195)


(55)


(220)

Deferred income taxes

2,985


1,575


12,028

Net changes in operating assets and liabilities

(7,505)


(17,891)


185

Net cash flows from operating activities

24,016


13,205


19,574







Investing activities:






Proceeds from investments

192


-


2,991

Net capital expenditures

(3,150)


(2,066)


(3,461)

Net cash flows from investing activities

(2,958)


(2,066)


(470)







Financing activities:






Proceeds from equity-based awards, net

5,700


8,957


3,260

Dividends paid

(15,634)


(16,220)


(15,339)

Net cash flows from financing activities

(9,934)


(7,263)


(12,079)







Effect of exchange rates on cash and cash equivalents

(1,783)


29


859







Net change in cash and cash equivalents

9,341


3,905


7,884







Cash and cash equivalents as of the beginning of the period

201,241


197,336


158,916







Cash and cash equivalents as of the end of the period

$ 210,582


$ 201,241


$ 166,800

 

Intersil Corporation

Non-GAAP Results

Unaudited

(In thousands, except percentages)








Quarter Ended


Oct. 3,


Jul. 4,


Oct. 4,


2014


2014


2013


Q3 2014


Q2 2014


Q3 2013







Non-GAAP gross profit:






GAAP gross profit

$   83,849


$   85,808


$   84,636

Equity-based compensation COS

294


394


324

Non-GAAP gross profit

$   84,143


$   86,202


$   84,960







Non-GAAP gross margin:






GAAP gross margin

58.4%


58.1%


55.4%

Equity-based compensation COS

0.2%


0.2%


0.3%

Non-GAAP gross margin

58.6%


58.3%


55.7%







Non-GAAP operating expenses:






GAAP operating expenses

$   61,998


$   65,127


$   79,541

Restructuring and related costs

-


-


(9,067)

Provision for export compliance settlement

-


-


(6,000)

Equity-based compensation (excl. COS)

(4,091)


(5,191)


(3,963)

Amortization of purchased intangibles

(5,561)


(5,560)


(6,080)

Non-GAAP operating expenses

$   52,346


$   54,376


$   54,431







Non-GAAP operating income:






GAAP operating income

$   21,851


$   20,681


$     5,095

Restructuring and related costs

-


-


9,067

Provision for export compliance settlement

-


-


6,000

Equity-based compensation

4,385


5,585


4,287

Amortization of purchased intangibles

5,561


5,560


6,080

Non-GAAP operating income

$   31,797


$   31,826


$   30,529







Non-GAAP operating margin:






GAAP operating margin

15.2 %


14.0 %


3.3 %

Excluded items as a percent of revenue

6.9 %


7.5 %


16.7 %

Non-GAAP operating margin 

22.1 %


21.5 %


20.0 %

 

Intersil Corporation

Non-GAAP Results

Unaudited

(In thousands, except per share amounts)








Quarter Ended


Oct. 3,


Jul. 4,


Oct. 4,


2014


2014


2013


Q3 2014


Q2 2014


Q3 2013







Non-GAAP net income:






 GAAP net income

$  13,887


$  13,646


$  (8,178)

 Tax adjustments from non-cash and discrete items

1,821


1,232


8,816

 Restructuring and related costs

-


-


9,067

 Provision for export compliance settlement

-


-


6,000

 Gain on recovery from auction rate securities

(191)


-


(241)

 Equity-based compensation

4,385


5,585


4,287

 Amortization of purchased intangibles

5,561


5,560


6,080

 Non-GAAP net income

$  25,463


$  26,023


$ 25,831







GAAP weighted average shares - diluted

132,626


132,214


127,339

 Non-GAAP adjustment

4,409


3,527


3,267

 Non-GAAP weighted average shares - diluted

137,035


135,741


130,606







Non-GAAP earnings per diluted share:






 GAAP earnings per diluted share

$      0.10


$      0.10


$    (0.06)

 Excluded items per share impact

0.09


0.09


0.26

 Non-GAAP earnings per diluted share

$      0.19


$      0.19


$     0.20













Equity-based compensation expense by classification:






  Cost of revenue ("COS")

$       294


$       394


$      324

  Research and development 

$    1,967


$    2,046


$   1,691

  Selling, general and administrative 

$    2,124


$    3,145


$   2,272

 

Intersil Corporation Logo

Logo - http://photos.prnewswire.com/prnh/20140926/148698

SOURCE Intersil Corporation

For further information: Investor, Shannon Pleasant, Intersil Corporation, (512) 382-8444, spleasant@intersil.com
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