Contact:
Robert Van Buskirk
President and Chief Executive Officer
Sirenza Microdevices, Inc.
(303) 327-3030
ir@sirenza.com
FOR IMMEDIATE RELEASE
Sirenza Microdevices Reports Second Quarter 2007 Results;
Record Quarterly Revenue and Pro Forma Income Before Tax
BROOMFIELD, Colo. - August 1, 2007 - Sirenza Microdevices, Inc. (NASDAQ:SMDI) today reported its financial results for its second quarter ended June 30, 2007.
Financial Highlights
Revenue
- Record quarterly revenue of $46.7 million, as compared to $39.0 million year-over-year and $39.1 million sequentially
- Sequential and year-over-year revenue growth of 20%
Earnings
- Quarterly earnings per share of $0.05 per share, compared to earnings of $0.05 per share a year ago and earnings of $0.02 per share sequentially
- Quarterly pro forma earnings per share of $0.17 per share, compared to $0.16 per share a year ago and $0.12 per share sequentially
- Record quarterly pro forma income before taxes of $10.1 million, resulting in an income before taxes margin of 22% on a pro forma basis
Cash Flow
- Quarterly cash flow from operations of approximately $4.7 million
- Fifteen consecutive quarters of positive cash flow from operations
"We are very pleased with our second quarter and our 2007 year-to-date results. In what has historically been a seasonally slower half of the year for Sirenza, we exceeded the upper end of our revenue and pro forma earnings guidance as we continued our drive to diversify our business," stated Robert Van Buskirk, president and chief executive officer. "On a sequential sales increase of 20%, our pro forma income before taxes increased by 58%, clearly demonstrating the continued leverage in our operating model. In addition, we increased our sales by 20% year-over-year and our pro forma income before taxes by 33%; we exceeded our goal of 20% pro forma income before taxes this quarter while we also continued our substantial positive cash flow from operations. We currently see ongoing strength in our major end markets, including CATV transmission applications, mobile wireless infrastructure applications and emerging wireless access applications such as WiMAX. In the second quarter, we continu ed production of our high-performance, high-power RF modules for HDTV light source applications and we made excellent progress in our China manufacturing transition activities. We are optimistic that the revenue momentum we realized in the first half of the year will provide a solid foundation for further growth in the remainder of 2007."
The company's second quarter net income was $2.8 million, or earnings of $0.05 per diluted share. This compared year-over-year with net income of $2.1 million, or earnings of $0.05 per diluted share and sequentially with net income of $1.0 million, or $0.02 per diluted share.
Excluding the effects of the charges detailed in the reconciliation of pro forma to GAAP results included with this press release, Sirenza's pro forma net income for the second quarter was $8.7 million, or $0.17 per diluted share. This compared year-over-year with pro forma net income of $7.2 million, or $0.16 per diluted share and sequentially with pro forma net income of $6.2 million, or $0.12 per diluted share.
1Pro forma net income, income before taxes, net income margin, income before taxes margin, gross margin, total research and development, sales and marketing and general and administrative expenses and earnings per share are non-GAAP financial measures calculated to exclude the effects of charges for the amortization of acquisition-related intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up, salaries associated with transitional Micro Linear employees, restructuring costs, and manufacturing facility relocation and related costs detailed in the reconciliation included within this press release.
Sirenza's second quarter gross margin was 46%, compared with 37% a year ago and 43% sequentially. Excluding the effects of the charges detailed in the reconciliation of pro forma to GAAP results included with this press release, Sirenza's pro forma gross margin was 49%, compared with 44% a year ago and 45% sequentially.
In the aggregate, the company's research and development, sales and marketing, and general and administrative expenses for the second quarter of 2007 were $14.1 million, compared with $10.6 million a year ago and $12.7 million sequentially. On a pro forma basis, excluding the effects of the charges detailed in the reconciliation of pro forma to GAAP results included with this press release, these same expenses were $12.8 million, compared with $9.5 million a year ago and $11.5 million sequentially.
At June 30, 2007, Sirenza's total assets were $219.7 million, including cash and cash equivalents of approximately $26.9 million.
Use of Non-GAAP Financial Measures
In keeping with its historical financial reporting practices, Sirenza believes that the supplemental presentation of pro forma net income, income before taxes and earnings per share, gross margin, net income margin, income before taxes margin, and total research and development, sales and marketing and general and administrative expenses calculations provide meaningful non-GAAP financial measures to help management and investors understand and compare operating results and business trends among different reporting periods on a consistent basis, independently of regularly reported non-cash charges and infrequent or unusual events. Sirenza management also uses such pro forma measures in its planning and development of target operating models and in setting incentive compensation goals for its employees. Readers are cautioned not to view pro forma results as an alternative to GAAP results or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with pro forma results for the second quarters of 2007 and 2006, respectively, and the first quarter of 2007 contained below.
Second Quarter Teleconference and Web cast
Sirenza management plans to host a teleconference at 2:45 p.m. MT / 4:45 p.m. ET today to discuss the company's second quarter 2007 financial results and its current outlook for the third quarter of 2007. This teleconference will be web cast live for the general public. For more information, please visit the Investor Relations page of Sirenza's website at www.sirenza.com. The teleconference web cast will be archived on this site until August 1, 2008, and a telephonic replay for domestic listeners will be available at (800) 405-2236, conference ID number 11093961#, and for international listeners at (303) 590-3000, conference ID number 11093961#, until August 8, 2007.
Also available via the "Financial Data" link on the Investor Relations page of Sirenza's website will be a reconciliation to GAAP of the pro forma financial measures contained in Sirenza's current outlook for the third quarter of 2007, to be presented by the company in today's teleconference.
Sirenza Microdevices, Inc.
Sirenza Microdevices is a supplier of radio frequency (RF) components. Headquartered in Broomfield, Colorado, with operations in China, Germany and the U.S., Sirenza and its subsidiary Premier Devices design and develop RF components for the commercial communications, consumer, and aerospace, defense and homeland security (A&D) equipment markets. Sirenza's integrated circuit (IC), multi-chip module (MCM) and passive product lines include amplifiers, power amplifiers, cable TV amplifiers, circulators, isolators, mixers, splitters, transformers, couplers, modulators, demodulators, transceivers, tuners, discrete devices, signal source components, government and military specified components, and antennae and receivers for satellite radio. Sirenza holds ISO 9001:2000 Quality Management System and ISO 14001:2004 Environmental Management System (registered by QMI) certifications for its Broomfield, Colorado manufacturing facility, and ISO 9001:2000 Quality Management System certificati ons for its Shanghai and Nuremberg manufacturing facilities. Detailed product information may be found on Sirenza's website at www.sirenza.com and at www.premierdevices.com.
Forward-Looking Statements
This news release and the views expressed by Sirenza management on Sirenza's teleconference held today contain forward-looking statements regarding future events or results, including the statement above regarding Sirenza's optimism that the revenue momentum it realized in the first half of 2007 will provide a solid foundation for further growth in the remainder of 2007, as well as any other statements regarding Sirenza's anticipated future growth or financial results in its third quarter of 2007 or any future period or its other expectations for its business, products or industry in any such period. Sirenza cautions readers that such statements are, in fact, predictions that are subject to risks and uncertainties, and that actual events or results may differ materially. Factors that could cause actual events or results to differ materially include, but are not limited to:lower than expected demand for Sirenza's products at Huawei, Mo torola, Nokia, RFS, or other major OEMs, or for RF components or broadband products in general or MCM, IC or CATV products in particular; lower than expected demand for Sirenza's products at Luxim, Sirius, digital cordless telephone and personal handyphone makers or others primarily serving consumer markets; slower than expected build-out of 3G and TD-SCDMA infrastructure in China, or worldwide build-out of WiMax-based infrastructure; overall general economic conditions in the commercial communications or consumer markets; exertion of downward pressure on the pricing of Sirenza's components; lower-margin sales, such as sales of consumer or module products and certain sales to higher-volume OEMs, increasing as a percentage of Sirenza's overall sales; Sirenza's ability to compete successfully with providers of similar components, and also with providers of more highly integrated, IC-based solutions designed to perform the same functions; a lower than expected seasonal increase in sales in the second half of 20 07 as compared to the first half; risks associated with Sirenza's planned transition of most of its domestic manufacturing to China in 2007, such as higher than expected associated start-up and wind-down expense, possible delays, business interruption or resulting underutilization or capacity constraints; possible underutilization or capacity constraints at any of Sirenza's worldwide manufacturing locations, whether due to shortages of raw materials or equipment necessary to meet customer demands or otherwise; Sirenza's ability to successfully develop new product designs targeted to the market's demand and in time to meet that demand; product quality, performance and reliability problems that may result in liability or expense; Sirenza's reliance on third parties for outsourced manufacturing, packaging and test services and supply; the possibility that Sirenza's income tax rate may increase in future periods or that it may be unable to fully offset its taxable income with net operating losses; Sirenza's abil ity to accurately plan its purchase of raw materials and production to meet customer demand, avoiding excess and obsolete inventory; risks related to PDI's operations located in China and Germany or Sirenza's lack of experience in managing foreign operations, foreign currency transactions and fluctuations, and related tax forecasting, tax planning and cash management requirements; the need to upgrade PDI's private company finance and accounting infrastructure, forecasting and internal controls for public company reporting and compliance requirements; Sirenza's ability to successfully complete financing transactions or acquisitions, to integrate the assets, product lines, personnel and operations of any acquisitions with Sirenza, and to realize any expected synergies from such acquisitions; Sirenza's lack of market knowledge relative to other participants in new markets into which it has or may diversify; claims from time to time relating to the infringement of third-party proprietary rights, which could resu lt in liability, expense or halted sales of Sirenza products; and the loss of any key personnel, particularly to competitors. Other factors that could cause actual events or results to differ materially from those in Sirenza's forward-looking statements are included in Sirenza's Quarterly Report Form 10-Q filed with the Securities and Exchange Commission in May 2007. Sirenza expressly disclaims any current intention to update its forward-looking statements, and the estimates and assumptions associated with them, at any time or for any reason.
NOTE: Sirenza Microdevices® and the Sirenza logo are trademarks of Sirenza Microdevices, Inc. All other trademarks are property of their respective owners.
SIRENZA MICRODEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended | Six Months Ended | |||||||||
June 30, 2007 | June 30, 2006 | June 30, 2007 | June 30, 2006 | |||||||
Net revenues | $ 46,735 | $ 39,033 | $ 85,789 | $ 59,925 | ||||||
Cost of revenues | 25,371 | 24,507 | 47,527 | 35,320 | ||||||
Gross profit | 21,364 | 14,526 | 38,262 | 24,605 | ||||||
Operating expenses: | ||||||||||
Research and development | 5,661 | 3,233 | 10,571 | 6,109 | ||||||
Sales and marketing | 3,216 | 3,013 | 6,168 | 5,239 | ||||||
General and administrative | 5,221 | 4,332 | 10,082 | 7,424 | ||||||
Amortization of acquired intangible assets | 3,140 | 1,503 | 6,327 | 1,952 | ||||||
Restructuring | 122 | - | 122 | - | ||||||
Total operating expenses | 17,360 | 12,081 | 33,270 | 20,724 | ||||||
Income from operations | 4,004 | 2,445 | 4,992 | 3,881 | ||||||
Interest expense | 24 | 93 | 89 | - | ||||||
Interest and other income, net | 200 | 121 | 469 | 222 | ||||||
Income before taxes | 4,180 | 2,473 | 5,372 | 4,103 | ||||||
Provision for income taxes | 1,352 | 353 | 1,503 | 400 | ||||||
Net income | $ 2,828 | $ 2,120 | $ 3,869 | $ 3,703 | ||||||
Basic net income per share | $ 0.06 | $ 0.05 | $ 0.08 | $ 0.09 | ||||||
Diluted net income per share | $ 0.05 | $ 0.05 | $ 0.07 | $ 0.09 | ||||||
Shares used to compute basic net income per share | 50,746 | 44,444 | 50,422 | 40,681 | ||||||
Shares used to compute diluted net income per share | 52,540 | 46,360 | 52,310 | 42,620 | ||||||
Reconciliation of GAAP Results with Pro Forma Results | ||||||||||||
(In thousands, except per-share and percentage data) | ||||||||||||
(Unaudited) | ||||||||||||
The following table reconciles the company's net income, income before taxes, net income margin, income before taxes margin, gross profit and gross margin, total research and development, sales and marketing and general and administrative expenses, and earnings per share as reported under accounting principles generally accepted in the United States (GAAP) with those financial measures as adjusted by the items detailed below and presented in the accompanying news release and associated teleconference. These calculations are not prepared in accordance with GAAP and should not be viewed as alternatives to GAAP. In keeping with its historical financial reporting practices, the company believes that the supplemental presentation of these calculations provides meaningful non-GAAP financial measures to help investors understand and compare business trends among different reporting periods on a consistent basis, independently of regularly reported non-cash charges and infrequent or un usual events. | ||||||||||||
Three Months Ended | ||||
June 30, 2007 | March 31, 2007 | June 30, 2006 | ||
Reconciliation of Pro Forma Gross Profit and Gross Margin | ||||
Net revenues as reported under GAAP | $ 46,735 | $ 39,054 | $ 39,033 | |
Gross profit as reported under GAAP | 21,364 | 16,898 | 14,526 | |
Stock-based compensation, included in the calculation of gross profit | 83 | 98 | 185 | |
Manufacturing facility relocation and related costs included in the calculation of gross profit | 1,199 | 500 | - | |
Amortization of acquisition-related inventory step-up | 77 | 151 | 2,301 | |
Pro forma gross profit | $ 22,723 | $ 17,647 | $ 17,012 | |
Gross margin as reported under GAAP | 46% | 43% | 37% | |
Pro forma gross margin | 49% | 45% | 44% | |
Reconciliation of Pro Forma Total Research and Development, Sales and Marketing and General and Administrative Expenses | ||||
R&D and SG&A expenses as reported under GAAP | $ 14,098 | $ 12,723 | $ 10,578 | |
Stock-based compensation included in R&D and SG&A expenses | 892 | 943 | 1,083 | |
Micro Linear transitional salaries included in R&D and SG&A expenses | 150 | 276 | - | |
Manufacturing facility relocation and related costs included in R&D and SG&A expenses | 220 | 41 | - | |
Pro forma R&D and SG&A expenses | $ 12,836 | $ 11,463 | $ 9,495 | |
Reconciliation of Income Before Taxes and Income Before Taxes Margin | ||||
Income before taxes as reported under GAAP | $ 4,180 | $ 1,192 | $ 2,473 | |
Amortization of acquisition-related intangible assets | 3,140 | 3,187 | 1,504 | |
Total stock-based compensation | 975 | 1,041 | 1,268 | |
Amortization of acquisition-related inventory step-up | 77 | 151 | 2,301 | |
Micro Linear transitional salaries | 150 | 276 | - | |
Total manufacturing facility relocation and related costs | 1,419 | 541 | - | |
Restructuring | 122 | - | - | |
Pro forma income before taxes | $ 10,063 | $ 6,388 | $ 7,546 | |
Income before taxes margin as reported under GAAP | 9% | 3% | 6% | |
Pro forma income before taxes margin | 22% | 16% | 19% | |
Reconciliation of Pro Forma Net Income, Net Income Margin & EPS | |||
Net income as reported under GAAP | $ 2 ,828 | $ 1,041 | $ 2,120 |
Amortization of acquisition-related intangible assets | 3,140 | 3,187 | 1,504 |
Total stock-based compensation | 975 | 1,041 | 1,268 |
Amortization of acquisition-related inventory step-up | 77 | 151 | 2,301 |
Micro Linear transitional salaries | 150 | 276 | - |
Total manufacturing facility relocation and related costs | 1,419 | 541 | - |
Restructuring | 122 | - | - |
Pro forma net income | $ 8,711 | $ 6,237 | $ 7,193 |
Net income margin as reported under GAAP | 6% | 3% | 5% |
Pro forma net income margin | 19% | 16% | 18% |
Net income per share as reported under GAAP | |||
Basic | $ 0.06 | $ 0.02 | $ 0.05 |
Diluted | $ 0.05 | $ 0.02 | $ 0.05 |
Pro forma net income per share | |||
Basic | $ 0.17 | $ 0.12 | $ 0.16 |
Diluted | $ 0.17 | $ 0.12 | $ 0.16 |
Shares used to compute GAAP and pro forma net income per share | |||
Basic | 50,746 | 50,009 | 44,444 |
Diluted | 52,540 | 52,080 | 46.360 |
SIRENZA MICRODEVICES, INC. | |||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||
(In thousands) | |||||
June 30, 2007 | December 31, 2006 | ||||
(unaudited) | |||||
Assets | |||||
Current assets: | |||||
Cash and cash equivalents | $ 26,934 | $ 24,847 | |||
Short-term investments | - | 19 | |||
Accounts receivable, net | 31,572 | 22,227 | |||
Inventories | 24,568 | 27,045 | |||
Other current assets | 3,467 | 3,446 | |||
Total current assets | 86,541 | 77,584 | |||
Property and equipment, net | 18,864 | 15,345 | |||
Other non-current assets | 1,612 | 1,720 | |||
Acquisition-related intangibles, net | 51,347 | 57,081 | |||
Goodwill | 61,303 | 59,862 | |||
Total assets | $ 219,667 | $ 211,592 | |||
Liabilities and stockholders' equity | |||||
Current liabilities: | |||||
Accounts payable | $ 11,686 | $ 9,389 | |||
Income taxes payable | 2,824 | 3,232 | |||
Accrued compensation and other expenses | 8,843 | 6,716 | |||
Other accrued liabilities | 177 | 2,894 | |||
Deferred margin on distributor inventory | 1,481 | 1,529 | |||
Notes payable in connection with the acquisition of PDI | - | 3,000 | |||
Capital lease obligations | 420 | 517 | |||
Total current liabilities | 25,431 | 27,277 | |||
Capital lease obligations, long-term portion | 387 | 531 | |||
Deferred tax and other liabilities, non-current | 10,666 | 10,101 | |||
Accrued pension | 3,178 | 2,962 | |||
Stockholders' equity | 180,005 | 170,721 | |||
Total liabilities and stockholders' equity | $ 219,667 | $ 211,592 | |||