PMC Sierra (PMCS) 8-K PMC Reports Third Quarter 2015 Results

Exhibit 99.1

PMC Reports Third Quarter 2015 Results

SUNNYVALE, Calif.--(BUSINESS WIRE)--October 26, 2015--PMC-Sierra, Inc. (PMC®) (Nasdaq:PMCS), the semiconductor and software solutions innovator transforming networks that connect, move and store big data, today reported results for the third quarter ended September 26, 2015.

Net revenues in the third quarter of 2015 totaled $133.6 million, an increase of 7.1 percent compared to $124.8 million in the second quarter of 2015, and a decrease of 1.4 percent from $135.5 million in the third quarter of 2014.

GAAP net income in the third quarter of 2015 totaled $6.7 million or $0.03 per diluted share, compared to GAAP net loss in the second quarter of 2015 of $8.6 million or $0.04 per share, and to GAAP net income in the third quarter of 2014 of $5.5 million or $0.03 per diluted share. GAAP operating margin in the third quarter of 2015 was 8.3 percent, compared to GAAP operating margin in the third quarter of 2014 of 5.5 percent.

Non-GAAP net income in the third quarter of 2015 totaled $26.2 million or $0.13 per diluted share, compared to non-GAAP net income in the second quarter of 2015 of $18.0 million or $0.09 per diluted share, and to non-GAAP net income in the third quarter of 2014 of $22.5 million or $0.11 per diluted share. Non-GAAP operating margin in the third quarter of 2015 was 20.5 percent, compared to non-GAAP operating margin in the second quarter of 2015 of 15.3 percent, and to non-GAAP operating margin in the third quarter of 2014 of 17.3 percent.

In the third quarter of 2015, storage product revenues reached a quarterly record of $97.6 million, or 73 percent of revenues, an increase of 12 percent compared to storage product revenues of $87.0 million in the second quarter of 2015. Optical product revenues in the third quarter of 2015 totaled $23.5 million, or 18 percent of revenues, a decrease of 7 percent compared to optical product revenues of $25.2 million in the second quarter of 2015. Mobile product revenues in the third quarter of 2015 totaled $12.5 million, or 9 percent of revenues, which was flat compared to mobile product revenues of $12.6 million in the second quarter of 2015.

For a full reconciliation of each non-GAAP item used herein to the most directly comparable GAAP financial measure, please refer to the schedule included with this release. The Company believes the additional non-GAAP measures are useful to investors for the purpose of financial analysis. Management uses the non-GAAP measures internally to evaluate its in-period operating performance before gains, losses and other charges that are considered by management to be outside of the Company’s core operating results. In addition, the measures are used to plan for the Company’s future periods. However, non-GAAP measures are neither stated in accordance with, nor are they a substitute for, GAAP measures.

THIRD QUARTER AND RECENT HIGHLIGHTS

The Company announced the following:

• On Oct. 5, Skyworks Solutions, Inc. and PMC announced a definitive agreement under which Skyworks will acquire PMC for $10.50 per share in an all-cash transaction valued at approximately $2 billion.
• On Oct. 20, PMC announced it received an unsolicited proposal from Microsemi Corporation (NASDAQ: MSCC) to acquire all of the outstanding shares of PMC common stock in a cash and stock transaction. Under the terms of Microsemi’s proposal, PMC stockholders would receive $8.75 in cash and 0.0736 of a share of Microsemi common stock for each share of PMC common stock held at the close of the transaction. Based on the closing stock price of the Microsemi common stock on October 19, 2015, the Microsemi proposal was valued at $11.35 per share of PMC common stock.
• On Oct. 22, PMC announced the META-240G, a multi-rate framer for routers that supports Ethernet and OTN protocols. Extending OTN to the router enables a single management layer between optical transport and routing networks, resulting in lower operating costs and improved service availability for network operators. META-240G provides ultra-low latency OTN encryption for secure cloud connectivity, and it consumes 50 percent less power per port than the previous generation, enabling router line card capacities of 1Tbps and higher.
• On Aug. 18, PMC announced that its Switchtec™ PSX PCIe® Storage Switches would be an industry partner solution in the Intel® Rack Scale Architecture demonstration at the Intel Developer Forum, “Your Datacenter and Software Defined Infrastructure” zone, August 18-20, 2015. The flexibility of PMC’s Switchtec PCIe switching architecture enables spec-compliant dynamic partitioning that is non-disruptive to I/O through an integrated, firmware-defined control plane. This creates a scalable performance storage tier capable of dynamically mapping any drive from a pool of NVMe™ SSDs to any one of multiple servers connected via Switchtec technology.
• On Aug. 12, Derek Dicker, vice president of PMC’s Performance Solutions Group, presented a keynote, “Breaking Down the Barriers to PCIe® Adoption,” at Flash Memory Summit 2015. PMC storage experts also discussed the latest trends in PCIe, NVMe and error correction that are shaping next-generation SSDs in forum sessions during the conference.
• On Aug. 11, PMC and Mellanox® Technologies, Ltd. announced the companies would showcase two breakthrough NVMe™ solutions at Flash Memory Summit, August 12-13, 2015. The companies announced a solution for peer-to-peer transactions between RDMA-capable NICs and NVRAM drives to accelerate critical data center applications by enabling direct memory transactions to persistent memory across a low-latency fabric. PMC and Mellanox also demonstrated NVMe over RDMA leveraging PMC’s Flashtec™ NVRAM Drive’s NVMe interface and Mellanox’s ConnectX-3 Pro network card.
• On Aug. 8, PMC announced the industry’s first PCIe storage switches and the world’s fastest SSD controllers. SSDs designed with PMC’s second-generation Flashtec NVMe Controllers can deliver one million IOPS and greater than 20TB of flash capacity. Systems connecting a pool of these high-performance, low-latency drives require a new class of PCIe switching solutions with robust storage features. PMC Switchtec™ PSX PCIe Storage Switches enable PCIe-SSD-based systems to scale, with the resiliency, programmability and advanced diagnostics needed for mass deployment. Together, Switchtec PCIe storage switches and Flashtec PCIe controllers provide an end-to-end solution to reliably scale the next-generation performance tier of storage.

Safe Harbor Statement

This release contains or refers to forward-looking statements that involve risks and uncertainties. The Company’s SEC filings, including the Company’s most recent reports on Form 10-K and Form 10-Q, describe the risks associated with the Company’s business, including PMC’s limited revenue visibility due to variable customer demands, market segment growth or decline, orders with short delivery lead times, customer concentration, changes in inventory, and other items such as tax rates, foreign exchange rates and volatility in global financial markets. Please also see the Company’s Current Reports on Form 8-K filed on October 6 and October 20, 2015, together with the accompanying exhibits, for important information about the announcements described above regarding Skyworks and Microsemi, including risks and uncertainties regarding the subjects of those announcements.

About PMC

PMC (Nasdaq:PMCS) is the semiconductor and software solutions innovator transforming networks that connect, move and store big data. Building on a track record of technology leadership, the Company is driving innovation across storage, optical and mobile networks. PMC’s highly integrated solutions increase performance and enable next-generation services to accelerate the network transformation. For more information, visit www.pmcs.com. Follow PMC on Facebook, Twitter, LinkedIn and RSS.

© Copyright PMC-Sierra, Inc. 2015. All rights reserved. PMC and PMC-SIERRA are registered trademarks of PMC-Sierra, Inc. in the United States and other countries, PMCS, Flashtec and Switchtec are trademarks of PMC-Sierra, Inc. PMC disclaims any ownership rights in other product and company names mentioned herein. PMC is the corporate brand of PMC-Sierra, Inc.

PMC-Sierra, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
(unaudited)
	Three Months Ended									Nine Months Ended
	September 26,			June 27,			September 27,			September 26,			September 27,
	2015			2015			2014			2015			2014
Net revenues	$	133,574		$	124,767		$	135,462		$	391,412		$	388,752
Cost of revenues		37,999			38,434			40,306		$	116,413			114,694
Gross profit		95,575			86,333			95,156			274,999			274,058
Research and development, net		47,277			55,833			48,441			151,976			147,977
Selling, general and administrative		28,050			30,488			29,265			88,589			87,596
Amortization of purchased intangible assets		9,172			9,269			9,948			27,758			32,225
Income (loss) from operations		11,076			(9,257	)		7,502			6,676			6,260
Other income (expense):
Gain on investment securities and other investments		70			25			12			127			87
Amortization of debt issuance costs		(51	)		(51	)		(51	)		(153	)		(153	)
Accretion of discount on short-term and long-term obligation		(170	)		(180	)		-			(560	)		-
Foreign exchange gain (loss)		2,412			(948	)		899			4,058			642
Interest and other financial income, net		108			317			198			589			321
Income (loss) before (provision for) benefit from income taxes		13,445			(10,094	)		8,560			10,737			7,157
(Provision for) benefit from income taxes		(6,727	)		1,515			(3,087	)		(7,943	)		(9,405	)
Net income (loss)	$	6,718		$	(8,579	)	$	5,473		$	2,794		$	(2,248	)
Net income (loss) per common share - basic and diluted	$	0.03		$	(0.04	)	$	0.03		$	0.01		$	(0.01	)
Shares used in per share calculation - basic		194,562			195,732			197,613			196,848			196,305
Shares used in per share calculation - diluted		196,865			195,732			200,744			201,018			196,305

As a supplement to the Company’s condensed consolidated financial statements presented in accordance with generally accepted accounting principles (“GAAP”), the Company provides additional non-GAAP measures for cost of revenues, gross profit, gross profit percentage, research and development expense, net, selling, general and administrative expense, amortization of purchased intangible assets, other income (expense), benefit from (provision for) income taxes, operating expenses, operating (loss) income, operating margin, net (loss) income, and net income per share - basic and diluted.

A non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The Company believes that the additional non-GAAP measures are useful to investors for the purpose of financial analysis. Management uses these measures internally to evaluate the Company’s in-period operating performance before gains, losses and other charges that are considered by management to be outside of the Company’s core operating results. In addition, the measures are used for planning and forecasting of the Company’s future periods. However, non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures. Other companies may use different non-GAAP measures and presentation of results.

PMC-Sierra, Inc.
Adjustments to GAAP Cost of Revenues, Gross Profit, Gross Profit Percentage, Research and Development Expense, net,
Selling, General and Administrative Expense, Amortization of Purchased Intangible Assets
Other Income (Expense), (Provision for) Benefit from Income Taxes, Operating Expenses, Operating Income (Loss),
Net Income (Loss), and Net Income (Loss) Per Share - Basic and Diluted
(in thousands, except for per share amounts)
(unaudited)
	Three Months Ended									Nine Months Ended
	September 26,			June 27,			September 27,			September 26,			September 27,
	2015			2015			2014			2015			2014
GAAP cost of revenues	$	37,999		$	38,434		$	40,306		$	116,413		$	114,694
Stock-based compensation		(266	)		(266	)		(226	)		(803	)		(681	)
Termination recoveries (costs)		26			(1,215	)		-			(1,189	)		9
Reversal of accruals		700			-			-			-			-
Non-GAAP cost of revenues	$	38,459		$	36,953		$	40,080		$	114,421		$	114,022
GAAP gross profit	$	95,575		$	86,333		$	95,156		$	274,999		$	274,058
Stock-based compensation		266			266			226			803			681
Termination (recoveries) costs		(26	)		1,215			-			1,189			(9	)
Reversal of accruals		(700	)		-			-			(700	)		-
Non-GAAP gross profit	$	95,115		$	87,814		$	95,382		$	276,291		$	274,730
Non-GAAP gross profit %		71.2	%		70.4	%		70.4	%		70.6	%		70.7	%
GAAP research and development expense, net	$	47,277		$	55,833		$	48,441		$	151,976		$	147,977
Stock-based compensation		(2,266	)		(2,400	)		(1,990	)		(7,510	)		(6,540	)
Acquisition-related costs		(26	)		(162	)		(356	)		(294	)		(1,950	)
Termination recoveries (costs)		87			(7,944	)		28			(7,819	)		(256	)
Other restructuring costs		(740	)		-			-			(740	)		-
Asset impairments		-			(252	)		-			(252	)		-
Non-GAAP research and development expense, net	$	44,332		$	45,075		$	46,123		$	135,361		$	139,231
GAAP selling, general and administrative expense	$	28,050		$	30,488		$	29,265		$	88,589		$	87,596
Stock-based compensation		(2,658	)		(3,445	)		(3,012	)		(9,681	)		(9,113	)
Acquisition-related costs		(1,550	)		(34	)		(669	)		(1,755	)		(733	)
Lease exit (costs) recoveries		(115	)		488			(31	)		384			(177	)
Termination (costs) recoveries		(14	)		(3,867	)		254			(4,388	)		(1,044	)
Other restructuring costs		(346	)		-			-			(346	)		-
Asset impairments		-			-			-			-			(477	)
Other expenses		-			-			-			-			(58	)
Non-GAAP selling, general and administrative expense	$	23,367		$	23,630		$	25,807		$	72,803		$	75,994
GAAP amortization of purchased intangible assets	$	9,172		$	9,269		$	9,948		$	27,758		$	32,225
Amortization of purchased intangible assets		(9,172	)		(9,269	)		(9,948	)		(27,758	)		(32,225	)
Non-GAAP amortization of purchased intangible assets	$	-		$	-		$	-		$	-		$	-
GAAP other income	$	2,369		$	(837	)	$	1,058		$	4,061		$	897
Foreign exchange loss (gain) on foreign tax liabilities		(2,413	)		487			(1,081	)		(4,105	)		(984	)
Other restructuring costs		12			-			-			12			-
Accretion of discount on short-term and long-term obligations		170			180			-			560			-
Non-GAAP other income (expense)	$	138		$	(170	)	$	(23	)	$	528		$	(87	)
GAAP (provision for) benefit from income taxes	$	(6,727	)	$	1,515		$	(3,087	)	$	(7,943	)	$	(9,405	)
Benefit from (provision for) income taxes		5,327			(2,467	)		2,178			4,376			6,839
Non-GAAP provision for income taxes	$	(1,400	)	$	(952	)	$	(909	)	$	(3,567	)	$	(2,566	)
GAAP operating expenses	$	84,499		$	95,590		$	87,654		$	268,323		$	267,798
Stock-based compensation		(4,924	)		(5,845	)		(5,002	)		(17,191	)		(15,653	)
Acquisition-related costs		(1,576	)		(196	)		(1,025	)		(2,049	)		(2,683	)
Asset impairments		-			(252	)		-			(252	)		(477	)
Lease exit (costs) recoveries		(115	)		488			(31	)		384			(177	)
Termination costs		73			(11,811	)		282			(12,207	)		(1,300	)
Other restructuring costs		(1,086	)		-			-			(1,086	)		-
Amortization of purchased intangible assets		(9,172	)		(9,269	)		(9,948	)		(27,758	)		(32,225	)
Other expenses		-			-			-			-			(58	)
Non-GAAP operating expenses	$	67,699		$	68,705		$	71,930		$	208,164		$	215,225
	September 26,			June 27,			September 27,			September 26,			September 27,
	2015			2015			2014			2015			2014
GAAP operating income (loss)	$	11,076		$	(9,257	)	$	7,502		$	6,676		$	6,260
Stock-based compensation		5,190			6,111			5,228			17,994			16,334
Acquisition-related costs		1,576			196			1,025			2,049			2,683
Asset impairments		-			252			-			252			477
Lease exit costs (recoveries)		115			(488	)		31			(384	)		177
Termination costs		(99	)		13,026			(282	)		13,396			1,291
Other restructuring costs		1,086			-			-			1,086			-
Amortization of purchased intangible assets		9,172			9,269			9,948			27,758			32,225
Reversal of accruals		(700	)		-			-			(700	)		-
Other expenses		-			-			-			-			58
Non-GAAP operating income	$	27,416		$	19,109		$	23,452		$	68,127		$	59,505
Non-GAAP operating margin		20.5	%		15.3	%		17.3	%		17.4	%		15.3	%
GAAP net income (loss)	$	6,718		$	(8,579	)	$	5,473		$	2,794		$	(2,248	)
Stock-based compensation		5,190			6,111			5,228			17,994			16,334
Acquisition-related costs		1,576			196			1,025			2,049			2,683
Termination costs		(99	)		13,026			(282	)		13,396			1,291
Other restructuring costs		1,098			-			-			1,098			-
Reversal of accruals		(700	)		-			-			(700	)		-
Asset impairments		-			252			-			252			477
Lease exit costs (recoveries)		115			(488	)		31			(384	)		177
Amortization of purchased intangible assets		9,172			9,269			9,948			27,758			32,225
Other expenses		-			-			-			-			58
Foreign exchange (gain) loss on foreign tax liabilities		(2,413	)		487			(1,081	)		(4,105	)		(984	)
Accretion of discount on short-term and long-term obligations		170			180			-			560			-
Benefit from (provision for) income taxes		5,327			(2,467	)		2,178			4,376			6,839
Non-GAAP net income	$	26,154		$	17,987		$	22,520		$	65,088		$	56,852
Non-GAAP net income per share - basic	$	0.13		$	0.09		$	0.11		$	0.33		$	0.29
Non-GAAP net income per share - diluted	$	0.13		$	0.09		$	0.11		$	0.32		$	0.28
Shares used to calculate non-GAAP net income per share - basic		194,562			195,732			197,613			196,848			196,305
Shares used to calculate non-GAAP net income per share - diluted		196,865			200,501			200,744			201,018			199,548

PMC-Sierra, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
	September 26,			December 27,
	2015			2014
ASSETS:
Current assets:
Cash and cash equivalents	$	73,130		$	112,570
Short-term investments		42,347			45,885
Cash, cash equivalents and short-term investments		115,477			158,455
Accounts receivable, net		62,269			55,414
Inventories, net		32,846			37,949
Prepaid expenses and other current assets		12,020			16,473
Income taxes receivable		1,147			1,968
Prepaid tax expense		5,211			51
Deferred tax assets		-			5,442
Total current assets		228,970			275,752
Investment securities		134,400			107,509
Investments and other assets		6,328			7,683
Prepaid tax expense		93			42
Property and equipment, net		37,871			37,311
Goodwill		283,239			283,239
Intangible assets, net		116,945			143,680
Deferred tax assets		13,218			13,412
Long-term income tax receivable		440			457
	$	821,504		$	869,085
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable	$	18,261		$	23,360
Accrued liabilities		55,172			74,135
Credit facility		30,000			-
Income taxes payable		626			1,062
Liability for unrecognized tax benefit		14,001			16,076
Deferred tax liabilities		7,677			7,644
Deferred income		4,515			4,530
Total current liabilities		130,252			126,807
Long-term obligations		28,396			36,305
Deferred tax liabilities		56,182			53,493
Liability for unrecognized tax benefit		27,107			25,244
PMC special shares convertible into 205 (2014 - 278) shares of common stock		475			745
Stockholders' equity:
Common stock and additional paid in capital		1,599,541			1,595,809
Accumulated other comprehensive loss		(2,813	)		(2,355	)
Accumulated deficit		(1,017,636	)		(966,963	)
Total stockholders' equity		579,092			626,491
	$	821,504		$	869,085

PMC-Sierra, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
	Nine Months Ended
	September 26,			September 27,
	2015			2014
Cash flows from operating activities:
Net income (loss)	$	2,794		$	(2,248	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		45,166			48,739
Stock-based compensation		17,994			16,334
Unrealized foreign exchange gain, net		(8,179	)		(2,372	)
Net amortization of premiums and accrued interest of investments		587			628
Asset impairments		252			770
Gain on disposal of property and equipment		(63	)		-
Gain on investment securities and other investments		(64	)		(86	)
Accretion of discount on short-term and long-term obligations		560			-
Amortization of debt issuance costs		153			153
Gain on lease exit, net		(696	)		-
Changes in operating assets and liabilities:
Accounts receivable, net		(6,855	)		(934	)
Inventories, net		5,103			(3,514	)
Prepaid expenses and other current assets		1,106			4,072
Accounts payable and accrued liabilities		(2,106	)		(6,699	)
Deferred taxes and income taxes payable		1,054			8,608
Deferred income		(15	)		(1,980	)
Net cash provided by operating activities		56,791			61,471
Cash flows from investing activities:
Cash paid in connection with business acquisition		-			(10,000	)
Purchases of property and equipment		(13,724	)		(11,175	)
Purchase of intangible assets		(4,072	)		(1,167	)
Redemption of short-term investments		28,131			4,920
Disposals of investment securities and other investments		40,446			37,936
Purchases of investment securities and other investments		(92,577	)		(67,727	)
Net cash used in investing activities		(41,796	)		(47,213	)
Cash flows from financing activities:
Installment payment in connection with previous business acquisition		(18,000	)		-
Proceeds from credit facility		102,000			30,000
Repayment of credit facility		(72,000	)		(60,000	)
Proceeds from issuance of common stock		36,982			17,924
Repurchases of common stock		(102,108	)		(11,496	)
Net cash used in financing activities		(53,126	)		(23,572	)
Effect of exchange rate changes on cash and cash equivalents		(1,309	)		(784	)
Net decrease in cash and cash equivalents		(39,440	)		(10,098	)
Cash and cash equivalents, beginning of the period		112,570			100,038
Cash and cash equivalents, end of the period	$	73,130		$	89,940

CONTACT:
PMC-Sierra, Inc.
Joel Achramowicz, 1-408-239-8630
Director, Investor Relations
Joel.Achramowicz@pmcs.com
or
Kim Mason, 1-604-415-6239
Manager, Corporate Communications
kim.mason@pmcs.com