UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
November 2, 2016
Date of Report (Date of earliest event reported)
Commission File No. 0-14225
EXAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
|
94-1741481 |
(State or other jurisdiction of incorporation) |
|
(I.R.S. Employer Identification Number) |
48720 Kato Road, Fremont, CA 94538
(Address of principal executive offices, zip code)
(510) 668-7000
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. |
Results of Operations and Financial Condition |
On November 2, 2016, Exar Corporation (the “Company”) issued a press release announcing its financial results for the second fiscal quarter ended October 2, 2016. A copy of each of the press release and the supplemental financial information and commentary by Keith Tainsky, Chief Financial Officer of the Company regarding the Company’s second fiscal quarter ended October 2, 2016, is attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and is incorporated herein by reference.
The information in this Current Report on Form 8-K and the Exhibits attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01. |
Financial Statements and Exhibits |
|
(d) |
Exhibits. |
99.1 |
Press Release of Exar Corporation dated November 2, 2016. |
99.2 |
Supplemental Financial Information and Commentary. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
EXAR CORPORATION |
|
(Registrant) |
|
|
Date: November 2, 2016 |
/s/ Keith Tainsky |
|
Keith Tainsky
Chief Financial Officer |
EXHIBIT INDEX | ||
Exhibit No. |
|
Description |
99.1 |
|
Press Release of Exar Corporation dated November 2, 2016. |
99.2 |
Supplemental Financial Information and Commentary. |
Exhibit 99.1
|
Press Release
Exar Corporation Announces Fiscal 2017 Second Quarter Financial Results
Fremont, CA – November 2, 2016 - Exar Corporation (NYSE: EXAR) a leading supplier of analog mixed-signal application specific technology solutions serving the Industrial, Infrastructure, Automotive, and Audio/Video markets, today announced financial results for the Company's fiscal year 2017 second quarter, which ended on October 2, 2016. Unless otherwise indicated, all non-GAAP financial results exclude the financial results of the iML Display business which the Company is in the process of divesting, and are presented in the GAAP results as discontinued operations.
Fiscal 2017 Second Quarter Highlights
● |
Net sales of $27.6 million, up 2% sequentially |
● |
GAAP gross margin of 47.8% (Non-GAAP gross margin of 51.9%) |
● |
GAAP operating income of $0.1 million (Non-GAAP operating income of $3.7 million) |
● |
GAAP EPS from continuing operations of $0.00 (Non-GAAP EPS of $0.08) |
● |
GAAP EPS from discontinued operations of $0.02 (Non-GAAP EPS of $0.05) |
● |
IML divestiture cleared CFIUS and Taiwan regulatory reviews |
Ryan Benton, Exar’s Chief Executive Officer, commented, “Exar again delivered solid financial results, with second quarter revenue, Non-GAAP gross margin and EPS from continuing operations all within our guidance range. Revenue increased 2% sequentially, despite going from 14 weeks in the first quarter to the usual 13 weeks in the second quarter. Revenue per week was up 10% sequentially. We had strong execution from Exar’s core business, as non-GAAP EPS from continuing operations came in at $0.08 for the second quarter in a row, despite the one less work week.”
Mr. Benton added, “On the deal front, we have made significant progress on the sale of our iML subsidiary to Beijing E-Town Chipone Technology Co., Ltd. The transaction has cleared CFIUS review in the United States and another key regulatory hurdle in Taiwan, and we expect to close the transaction within a few weeks. This transaction is a great example of cross-border cooperation and is a true win-win.”
Fiscal 2017 Second Quarter Highlights (Continuing Operations Only):
The following highlights the Company's financial performance on both a GAAP and supplemental non-GAAP basis. The Company provides supplemental information regarding its operating performance on a non-GAAP basis that excludes certain gains, losses, and charges, which either occur relatively infrequently or which management considers to be outside our core operating results. Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered a supplement to, not a substitute for, financial statements prepared in accordance with GAAP. A complete reconciliation of GAAP to non-GAAP results is attached to this press release.
Exar’s fiscal 2017 first quarter was comprised of fourteen weeks, as opposed to the second quarter, which consisted of the usual thirteen weeks.
● |
Net Sales |
o |
Second quarter net sales of $27.6 million increased $0.5 million, or 2%, from the previous quarter’s $27.1 million. |
● |
Gross Margin |
o |
GAAP gross margin of 47.8% decreased from 49.2% reported in the previous quarter. |
o |
Non-GAAP gross margin of 51.9% was consistent with 51.8% reported in the previous quarter. |
● |
Operating Expenses |
o |
GAAP operating expenses of $13.1 million increased $7.6 million from the previous quarter’s expenses of $5.5 million, which was net of a gain of $9.3 million related to the sale-leaseback of our corporate headquarters. Fiscal 2017 second quarter operating expenses included: |
■ |
Charges of (i) $2.1 million stock-based compensation expense and (ii) $0.4 million mergers and acquisitions costs. |
o |
Non-GAAP operating expenses of $10.6 million increased by $0.5 million, or 5% from the previous quarter’s operating expenses of $10.1 million. |
● |
Net Income |
o |
GAAP net income of $0.1 million, compared to $7.5 million reported in the previous quarter, which included a gain of $9.3 million related to the sale-leaseback of our corporate headquarters. |
o |
Non-GAAP net income of $3.8 million was consistent with the previous quarter’s net income of $3.8 million. |
● |
Earnings Per Share |
o |
GAAP diluted earnings per share of $0.00, compared to $0.15 reported in the previous quarter, which included a gain of $9.3 million related to the sale-leaseback of our corporate headquarters. |
o |
Non-GAAP diluted earnings per share of $0.08 were consistent with that reported in the previous quarter. |
Keith Tainsky, Exar’s Chief Financial Officer, stated, “We remain committed to our fundamental goal of delivering predictable operating results and increasing shareholder value. Through the first half of the fiscal year we have had solid earnings. Increasing advanced product sales and expanding the funnel of cost-down activities is a winning recipe for Exar.” Mr. Tainsky continued, “In addition to launching new products for Tier 1 accounts, we will continue to drive the organization and our supply chain to a leaner cost structure. Keeping the pressure on our supply chain will enable our sales team to capitalize and grow our core business.”
Fiscal 2017 Third Quarter Guidance:
For the fiscal 2017 third quarter ending January 1, 2017, the Company expects results to be as follows:
● |
Net sales: $27.1 million plus or minus $0.5 million |
● |
GAAP gross margin: 47.5% to 49.5% (Non-GAAP 51.5% to 53.5%) |
● |
GAAP operating expenses: $13.0 million to $13.5 million (Non-GAAP $10.6 million to $11.0 million) |
● |
GAAP EPS: $(0.01) to $0.02 (Non-GAAP $0.06 to $0.08) |
Conference Call and Prepared Remarks
Exar is providing a copy of prepared remarks in conjunction with its press release. These remarks are offered to provide stockholders and analysts with additional time and detail for analyzing results in advance of the Company’s quarterly conference call. The remarks will be available at Exar’s Investor webpage in conjunction with this press release.
As previously scheduled, the conference call will begin today, November 2, 2016 at 4:45 p.m. EDT (1:45 p.m. PDT). To access the conference call, please dial (918) 534-8424 or (844) 359-0802. The passcode for the live call is 91970722. In addition, a live webcast will be available on Exar's Investor webpage.
An archive of the conference call webcast will be available on Exar's Investor webpage after the conference call's conclusion.
About Exar
Exar’s mission is to leverage our extensive analog and mixed-signal portfolio, experience and IP to deliver leading-edge application specific technology solutions to target markets where operational excellence and reliability are valued. We service the Industrial, Infrastructure, Automotive, and Audio/Video markets by acting as an extension of the customer’s own technology organization and singularly focusing on exceeding customer expectations. For more information, visit http://www.exar.com.
Forward-Looking Statements Safe Harbor Disclosure
Except for historical information contained herein, this press release and matters discussed on the conference call contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding the sale of the Company’s iML subsidiary to Beijing E-Town Chipone Technology Co., Ltd., including the expected timing of the closing of that transaction, that the Company will continue to drive the organization and its supply chain to a leaner cost structure, the expected impact of keeping the pressure on the Company’s supply chain enabling its sales team to capitalize and grow the Company’s core business and the Company’s financial outlook expectations for the third quarter ending January 1, 2017. These statements are based on management's current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Therefore, actual outcomes and results may differ materially from what is expressed herein. For a discussion of these risks and uncertainties, the Company urges investors to review in detail the risks and uncertainties and other factors described in its Securities and Exchange Commission (SEC) filings, including, but not limited to, the “Risk Factors”, “Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our public reports filed with the SEC, including our annual report on Form 10-K filed with the SEC on May 27, 2016 and our Form 10-Q filed with the SEC on August 10, 2016, and available on our Investor webpage and on the SEC website at www.sec.gov.
Discussion of Non-GAAP Financial Measures
The Company’s non-GAAP measures exclude charges related to stock-based compensation, amortization of acquired intangible assets, impairment charges, initial gain upon closing sale-leaseback of our corporate headquarters, restructuring charges and exit costs which include costs for personnel whose positions have been eliminated as part of a restructuring or are in the process of being eliminated as part of the discontinuation of a product line, severance costs associated with the former CEO, accruals for and proceeds received from dispute resolutions and patent litigation, merger and acquisition and related integration costs, certain income tax benefits and credits, and related income tax effects on certain excluded items. The Company excludes these items primarily because they are significant special expense and gain estimates, which management separates for consideration when evaluating and managing business operations. The Company’s management uses non-GAAP net income and non-GAAP earnings per share to evaluate its current operating results and financial results and to compare them against historical financial results. Additionally, we disclose the non-GAAP measure of free cash flow, which is derived from our net cash provided (used) by operations, less purchases of fixed assets and IP, plus proceeds from the sale of fixed assets and IP. Management believes these non-GAAP measures are useful to investors because they are frequently used by securities analysts, investors and other interested parties in evaluating the Company and provide further clarity on its profitability.
Unless otherwise indicated, all non-GAAP financial results exclude the financial results of the iML Display business which the Company is in the process of divesting, and are presented in the GAAP results as discontinued operations.
In addition, the Company believes that providing investors with these non-GAAP measurements enhances their ability to compare the Company’s business against that of its competitors who employ and disclose similar non-GAAP measures. However, the manner in which we calculate these non-GAAP financial measures may be different from non-GAAP methods of accounting and reporting used by the Company’s competitors to the extent their non-GAAP measures include or exclude other items. The material limitation associated with the use of the non-GAAP financial measures is that the non-GAAP measures may not reflect the full economic impact of Exar’s activities. Accordingly, investors are cautioned not to place undue reliance on non-GAAP information. The presentation of this additional information should not be considered a substitute for net income or net income per diluted share or other measures prepared in accordance with GAAP.
Investors should refer to the reconciliation of Non-GAAP Results to GAAP Results, which is contained in this press release.
For more information, visit http://www.exar.com
For Press Inquiries Contact: press@exar.com
For Investor Relations Contact:
Keith Tainsky, CFO |
Laura Guerrant-Oiye, Investor Relations |
Phone: (510) 668-7201 |
Phone: (510) 668-7201 |
Email: investorrelations@exar.com |
Email: laura.guerrant@exar.com |
-Tables follow-
Unless otherwise indicated, all financial results presented in the following tables exclude the financial results of the iML Display business which the Company is in the process of divesting, and are presented as discontinued operations.
FINANCIAL COMPARISON
(In thousands, except per share amounts) (Unaudited)
GAAP Results |
THREE MONTHS ENDED |
SIX MONTHS ENDED |
||||||||||||||||||||||||||||||||||||||
OCTOBER 2, 2016 |
JULY 3, 2016 |
SEPTEMBER 27, 2015 |
OCTOBER 2, 2016 |
SEPTEMBER 27, 2015 |
||||||||||||||||||||||||||||||||||||
Industrial |
$ | 19,042 | 69 | % | $ | 18,436 | 67 | % | $ | 17,134 | 75 | % | $ | 37,478 | 69 | % | $ | 36,599 | 71 | % | ||||||||||||||||||||
Infrastructure |
5,065 | 18 | % | 5,596 | 21 | % | 2,224 | 10 | % | 10,661 | 19 | % | 6,698 | 13 | % | |||||||||||||||||||||||||
Audio/Video |
1,840 | 7 | % | 1,852 | 7 | % | 2,022 | 9 | % | 3,692 | 7 | % | 3,962 | 8 | % | |||||||||||||||||||||||||
Automotive |
961 | 3 | % | 779 | 3 | % | 859 | 4 | % | 1,740 | 3 | % | 1,805 | 4 | % | |||||||||||||||||||||||||
Other |
693 | 3 | % | 473 | 2 | % | 516 | 2 | % | 1,166 | 2 | % | 1,874 | 4 | % | |||||||||||||||||||||||||
Net Sales |
$ | 27,601 | 100 | % | $ | 27,136 | 100 | % | $ | 22,755 | 100 | % | $ | 54,737 | 100 | % | $ | 50,938 | 100 | % | ||||||||||||||||||||
Gross Profit |
$ | 13,193 | 48 | % | $ | 13,362 | 49 | % | $ | 8,553 | 38 | % | $ | 26,555 | 49 | % | $ | 21,431 | 42 | % | ||||||||||||||||||||
Operating Expenses |
$ | 13,112 | 48 | % | $ | 5,492 | 20 | % | $ | 13,984 | 61 | % | $ | 18,604 | 34 | % | $ | 29,933 | 59 | % | ||||||||||||||||||||
Income (loss) from operations |
$ | 81 | 0 | % | $ | 7,870 | 29 | % | $ | (5,431 | ) | -24 | % | $ | 7,951 | 15 | % | $ | (8,502 | ) | -17 | % | ||||||||||||||||||
Net income (loss) from continuing operations |
$ | 83 | 0 | % | $ | 7,543 | 28 | % | $ | (2,090 | ) | -9 | % | $ | 7,626 | 14 | % | $ | (4,444 | ) | -9 | % | ||||||||||||||||||
Net income (loss) per share from continuing operations |
||||||||||||||||||||||||||||||||||||||||
Basic |
$ | 0.00 | $ | 0.15 | $ | (0.04 | ) | $ | 0.15 | $ | (0.09 | ) | ||||||||||||||||||||||||||||
Diluted |
$ | 0.00 | $ | 0.15 | $ | (0.04 | ) | $ | 0.15 | $ | (0.09 | ) |
Non-GAAP Results |
THREE MONTHS ENDED |
SIX MONTHS ENDED |
||||||||||||||||||||||||||||||||||||||
OCTOBER 2, 2016 |
JULY 3, 2016 |
SEPTEMBER 27, 2015 |
OCTOBER 2, 2016 |
SEPTEMBER 27, 2015 |
||||||||||||||||||||||||||||||||||||
Gross Profit |
$ | 14,331 | 52 | % | $ | 14,070 | 52 | % | $ | 8,498 | 37 | % | $ | 28,401 | 52 | % | $ | 22,070 | 43 | % | ||||||||||||||||||||
Operating Expenses |
$ | 10,605 | 38 | % | $ | 10,087 | 37 | % | $ | 11,642 | 51 | % | $ | 20,692 | 38 | % | $ | 24,030 | 47 | % | ||||||||||||||||||||
Income from operations |
$ | 3,726 | 13 | % | $ | 3,983 | 15 | % | $ | (3,144 | ) | -14 | % | $ | 7,709 | 14 | % | $ | (1,960 | ) | -4 | % | ||||||||||||||||||
Net income (loss) from continuing operations |
$ | 3,839 | 14 | % | $ | 3,798 | 14 | % | $ | (3,220 | ) | -14 | % | $ | 7,637 | 14 | % | $ | (2,143 | ) | -4 | % | ||||||||||||||||||
Net income (loss) per share from continuing operations |
||||||||||||||||||||||||||||||||||||||||
Basic |
$ | 0.08 | $ | 0.08 | $ | (0.07 | ) | $ | 0.16 | $ | (0.04 | ) | ||||||||||||||||||||||||||||
Diluted |
$ | 0.08 | $ | 0.08 | $ | (0.07 | ) | $ | 0.15 | $ | (0.04 | ) |
EXAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED |
SIX MONTHS ENDED |
|||||||||||||||||||
OCTOBER 2, 2016 |
JULY 3, 2016 |
SEPTEMBER 27, 2015 |
OCTOBER 2, 2016 |
SEPTEMBER 27, 2015 |
||||||||||||||||
Net sales |
$ | 20,400 | $ | 19,636 | $ | 14,050 | $ | 40,036 | $ | 30,856 | ||||||||||
Net sales, related party |
7,201 | 7,500 | 8,705 | 14,701 | 20,082 | |||||||||||||||
Total net sales |
27,601 | 27,136 | 22,755 | 54,737 | 50,938 | |||||||||||||||
Cost of sales: |
||||||||||||||||||||
Cost of sales (1) |
11,008 | 10,411 | 10,430 | 21,419 | 20,206 | |||||||||||||||
Cost of sales, related party |
2,581 | 2,769 | 3,906 | 5,350 | 8,822 | |||||||||||||||
Restructuring charges and exit costs |
225 | - | 740 | 225 | 740 | |||||||||||||||
Proceeds from legal settlement |
- | - | (1,500 | ) | - | (1,500 | ) | |||||||||||||
Amortization of purchased intangible assets |
594 | 594 | 626 | 1,188 | 1,239 | |||||||||||||||
Total cost of sales |
14,408 | 13,774 | 14,202 | 28,182 | 29,507 | |||||||||||||||
Gross profit |
13,193 | 13,362 | 8,553 | 26,555 | 21,431 | |||||||||||||||
Operating expenses: |
47.8 | % | 49.2 | % | 37.6 | % | 48.5 | % | 42.1 | % | ||||||||||
Research and development (2) |
4,945 | 4,931 | 5,844 | 9,876 | 12,273 | |||||||||||||||
Selling, general and administrative (3) |
7,752 | 6,564 | 7,163 | 14,316 | 14,909 | |||||||||||||||
Restructuring charges and exit costs |
- | 923 | 977 | 923 | 2,207 | |||||||||||||||
Merger and acquisition costs |
415 | 855 | - | 1,270 | 544 | |||||||||||||||
Impairment of design tools |
- | 1,519 | - | 1,519 | - | |||||||||||||||
Gain on disposal of property |
- | (9,300 | ) | - | (9,300 | ) | - | |||||||||||||
Total operating expenses |
13,112 | 5,492 | 13,984 | 18,604 | 29,933 | |||||||||||||||
Income (loss) from operations |
81 | 7,870 | (5,431 | ) | 7,951 | (8,502 | ) | |||||||||||||
Other income and expense, net: |
||||||||||||||||||||
Interest income and other, net |
85 | 2 | (26 | ) | 87 | (48 | ) | |||||||||||||
Interest expense and other, net |
(29 | ) | (38 | ) | (45 | ) | (67 | ) | (93 | ) | ||||||||||
Total other income (expense), net |
56 | (36 | ) | (71 | ) | 20 | (141 | ) | ||||||||||||
Income (loss) before income taxes |
137 | 7,834 | (5,502 | ) | 7,971 | (8,643 | ) | |||||||||||||
Provision for (benefit from) income taxes |
54 | 291 | (3,412 | ) | 345 | (4,199 | ) | |||||||||||||
Net income (loss) from continuing operations |
83 | 7,543 | (2,090 | ) | 7,626 | (4,444 | ) | |||||||||||||
Net income (loss) from discontinued operations |
925 | 1,397 | (2,107 | ) | 2,322 | (2,263 | ) | |||||||||||||
Net income (loss) |
$ | 1,008 | $ | 8,940 | $ | (4,197 | ) | $ | 9,948 | $ | (6,707 | ) | ||||||||
Income (loss) per share — basic |
||||||||||||||||||||
From continuing operations |
$ | 0.00 | $ | 0.15 | $ | (0.04 | ) | $ | 0.15 | $ | (0.09 | ) | ||||||||
From discontinued operations |
0.02 | 0.03 | (0.04 | ) | 0.05 | (0.05 | ) | |||||||||||||
Income (loss) per share — basic |
$ | 0.02 | $ | 0.18 | $ | (0.08 | ) | $ | 0.20 | $ | (0.14 | ) | ||||||||
Income (loss) per share — diluted |
||||||||||||||||||||
From continuing operations |
$ | 0.00 | $ | 0.15 | $ | (0.04 | ) | $ | 0.15 | $ | (0.09 | ) | ||||||||
From discontinued operations |
0.02 | 0.03 | (0.04 | ) | 0.05 | (0.05 | ) | |||||||||||||
Income (loss) per share — diluted |
$ | 0.02 | $ | 0.18 | $ | (0.08 | ) | $ | 0.20 | $ | (0.14 | ) | ||||||||
Shares used in the computation of net income (loss) per share: |
||||||||||||||||||||
Basic |
49,614 | 48,680 | 48,121 | 49,129 | 48,024 | |||||||||||||||
Diluted |
50,434 | 49,058 | 48,121 | 49,661 | 48,024 | |||||||||||||||
(1) Stock-based compensation included in cost of sales |
$ | 301 | $ | 114 | $ | 79 | $ | 415 | $ | 159 | ||||||||||
(2) Stock-based compensation included in R&D |
524 | 246 | 98 | 770 | 392 | |||||||||||||||
(3) Stock-based compensation included in SG&A |
1,579 | 733 | 1,099 | 2,312 | 2,448 |
EXAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
OCTOBER 2, |
JULY 3, |
MARCH 27, |
||||||||||
2016 |
2016 |
2016 |
||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 96,382 | $ | 85,276 | $ | 55,070 | ||||||
Accounts receivable, net |
15,693 | 15,539 | 16,130 | |||||||||
Accounts receivable, related party, net |
3,184 | 3,184 | 3,247 | |||||||||
Inventories |
23,245 | 22,104 | 20,807 | |||||||||
Other current assets |
2,000 | 2,179 | 1,922 | |||||||||
Assets held for sale |
89,745 | 92,688 | 93,911 | |||||||||
Total current assets |
230,249 | 220,970 | 191,087 | |||||||||
Property, plant and equipment, net |
4,984 | 5,159 | 20,299 | |||||||||
Goodwill |
31,613 | 31,613 | 31,613 | |||||||||
Intangible assets, net |
10,307 | 11,012 | 11,735 | |||||||||
Other non-current assets |
972 | 1,006 | 639 | |||||||||
Total assets |
$ | 278,125 | $ | 269,760 | $ | 255,373 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 7,200 | $ | 11,312 | $ | 11,258 | ||||||
Accrued compensation and related benefits |
2,839 | 2,273 | 2,984 | |||||||||
Deferred income and allowances on sales to distributors |
3,017 | 3,213 | 3,053 | |||||||||
Deferred income and allowances on sales to distributors, related party |
3,357 | 5,885 | 4,683 | |||||||||
Other current liabilities |
11,800 | 12,299 | 10,669 | |||||||||
Liabilities held for sale |
7,376 | 2,479 | 3,470 | |||||||||
Total current liabilities |
35,589 | 37,461 | 36,117 | |||||||||
Long-term lease financing obligations |
428 | 856 | 1,285 | |||||||||
Other non-current obligations |
4,094 | 4,314 | 3,422 | |||||||||
Total liabilities |
40,111 | 42,631 | 40,824 | |||||||||
Stockholders' equity |
238,014 | 227,129 | 214,549 | |||||||||
Total liabilities and stockholders' equity |
$ | 278,125 | $ | 269,760 | $ | 255,373 |
EXAR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED OCTOBER 2, 2016 |
||||||||||||||||||||||||||||
Gross Margin |
Oper. Expenses |
Oper. Income |
Net Income from Cont. Operations |
Oper. Income from Disc. Operations |
Net Income from Disc. Operations |
Net Income |
||||||||||||||||||||||
GAAP amount |
$ | 13,193 | $ | 13,112 | $ | 81 | $ | 83 | $ | 1,034 | $ | 925 | $ | 1,008 | ||||||||||||||
Adjustments to GAAP amounts: |
||||||||||||||||||||||||||||
Amortization of purchased intangible assets |
594 | (108 | ) | 702 | 702 | - | - | 702 | ||||||||||||||||||||
Restructuring charges and other non-GAAP exit costs, net |
243 | - | 243 | 243 | - | - | 243 | |||||||||||||||||||||
Stock-based compensation |
301 | (2,103 | ) | 2,404 | 2,404 | 761 | 761 | 3,165 | ||||||||||||||||||||
Merger and acquisition costs |
- | (415 | ) | 415 | 415 | - | - | 415 | ||||||||||||||||||||
Transition service and retention charges for disposal group |
- | (279 | ) | 279 | 279 | 965 | 965 | 1,244 | ||||||||||||||||||||
Impairment of design tools |
- | - | - | - | - | - | - | |||||||||||||||||||||
Gain on disposal of property |
- | 398 | (398 | ) | (398 | ) | - | - | (398 | ) | ||||||||||||||||||
Income tax effects |
- | - | - | 111 | - | 112 | 223 | |||||||||||||||||||||
Non-GAAP amount |
$ | 14,331 | $ | 10,605 | $ | 3,726 | $ | 3,839 | $ | 2,760 | $ | 2,763 | $ | 6,602 | ||||||||||||||
% of revenue |
51.9 | % | 38.4 | % | 13.5 | % | 13.9 | % | N/A | |||||||||||||||||||
Non-GAAP net income per share |
$ | 0.08 | $ | 0.05 | ||||||||||||||||||||||||
Shares used in the computation of Non-GAAP net income per share |
51,165 | 51,165 |
THREE MONTHS ENDED JULY 3, 2016 |
||||||||||||||||||||||||||||
Gross Margin |
Oper. Expenses |
Oper. Income |
Net Income from Cont. Operations |
Oper. Income from Disc. Operations |
Net Income from Disc. Operations |
Net Income |
||||||||||||||||||||||
GAAP amount |
$ | 13,362 | $ | 5,492 | $ | 7,870 | $ | 7,543 | $ | 1,493 | $ | 1,397 | $ | 8,940 | ||||||||||||||
Adjustments to GAAP amounts: |
||||||||||||||||||||||||||||
Amortization of purchased intangible assets |
594 | (125 | ) | 719 | 719 | 1,806 | 1,806 | 2,525 | ||||||||||||||||||||
Restructuring charges and other non-GAAP exit costs, net |
- | (923 | ) | 923 | 923 | 109 | 109 | 1,032 | ||||||||||||||||||||
Stock-based compensation |
114 | (979 | ) | 1,093 | 1,093 | (52 | ) | (52 | ) | 1,041 | ||||||||||||||||||
Merger and acquisition costs |
- | (855 | ) | 855 | 855 | - | - | 855 | ||||||||||||||||||||
Transition service for disposal group |
- | (304 | ) | 304 | 304 | - | - | 304 | ||||||||||||||||||||
Impairment of design tools |
- | (1,519 | ) | 1,519 | 1,519 | - | - | 1,519 | ||||||||||||||||||||
Gain on disposal of property |
- | 9,300 | (9,300 | ) | (9,300 | ) | - | - | (9,300 | ) | ||||||||||||||||||
Income tax effects |
- | - | - | 142 | - | 160 | 302 | |||||||||||||||||||||
Non-GAAP amount |
$ | 14,070 | $ | 10,087 | $ | 3,983 | $ | 3,798 | $ | 3,356 | $ | 3,420 | $ | 7,218 | ||||||||||||||
% of revenue |
51.8 | % | 37.2 | % | 14.7 | % | 14.0 | % | N/A | |||||||||||||||||||
Non-GAAP net income per share |
$ | 0.08 | $ | 0.07 | ||||||||||||||||||||||||
Shares used in the computation of Non-GAAP net income per share |
49,281 | 49,281 |
THREE MONTHS ENDED SEPTEMBER 27, 2015 |
||||||||||||||||||||||||||||
Gross Margin |
Oper. Expenses |
Oper. Income (Expense) |
Net Income (Loss) from Cont. Operations |
Oper. Income from Disc. Operations |
Net Income (Loss) from Disc. Operations |
Net Income (Loss) |
||||||||||||||||||||||
GAAP amount |
$ | 8,553 | $ | 13,984 | $ | (5,431 | ) | $ | (2,090 | ) | $ | 180 | $ | (2,107 | ) | $ | (4,197 | ) | ||||||||||
Adjustments to GAAP amounts: |
||||||||||||||||||||||||||||
Amortization of purchased intangible assets |
626 | (125 | ) | 751 | 751 | 2,650 | 2,650 | 3,401 | ||||||||||||||||||||
Restructuring charges and other non-GAAP exit costs, net |
740 | (977 | ) | 1,717 | 1,717 | 339 | 339 | 2,056 | ||||||||||||||||||||
Stock-based compensation |
79 | (1,197 | ) | 1,276 | 1,276 | 176 | 176 | 1,452 | ||||||||||||||||||||
Proceeds from legal settlement |
(1,500 | ) | - | (1,500 | ) | (1,500 | ) | 201 | 201 | (1,299 | ) | |||||||||||||||||
Merger and acquisition costs |
- | (43 | ) | 43 | 43 | - | - | 43 | ||||||||||||||||||||
Income tax effects |
- | - | - | (3,417 | ) | - | 2,229 | (1,188 | ) | |||||||||||||||||||
Non-GAAP amount |
$ | 8,498 | $ | 11,642 | $ | (3,144 | ) | $ | (3,220 | ) | $ | 3,546 | $ | 3,488 | $ | 268 | ||||||||||||
% of revenue |
37.3 | % | 51.2 | % | -13.8 | % | -14.2 | % | N/A | |||||||||||||||||||
Non-GAAP net income (loss) per share |
$ | (0.07 | ) | $ | 0.07 | |||||||||||||||||||||||
Shares used in the computation of Non-GAAP net income (loss) per share |
48,121 | 49,172 |
EXAR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(In thousands, except per share amounts)
(Unaudited)
SIX MONTHS ENDED OCTOBER 2, 2016 |
||||||||||||||||||||||||||||
Gross Margin |
Oper. Expenses |
Oper. Income |
Net Income from Cont. Operations |
Oper. Income from Disc. Operations |
Net Income from Disc. Operations |
Net Income |
||||||||||||||||||||||
GAAP amount |
$ | 26,555 | $ | 18,604 | $ | 7,951 | $ | 7,626 | $ | 2,527 | $ | 2,322 | $ | 9,948 | ||||||||||||||
Adjustments to GAAP amounts: |
||||||||||||||||||||||||||||
Amortization of purchased intangible assets |
1,188 | (233 | ) | 1,421 | 1,421 | 1,806 | 1,806 | 3,227 | ||||||||||||||||||||
Restructuring charges and other non-GAAP exit costs, net |
243 | (923 | ) | 1,166 | 1,166 | 109 | 109 | 1,275 | ||||||||||||||||||||
Stock-based compensation |
415 | (3,082 | ) | 3,497 | 3,497 | 709 | 709 | 4,206 | ||||||||||||||||||||
Merger and acquisition costs |
- | (1,270 | ) | 1,270 | 1,270 | - | - | 1,270 | ||||||||||||||||||||
Transition service and retention charges for disposal group |
- | (583 | ) | 583 | 583 | 965 | 965 | 1,548 | ||||||||||||||||||||
Impairment of design tools |
- | (1,519 | ) | 1,519 | 1,519 | - | - | 1,519 | ||||||||||||||||||||
Gain on disposal of property |
- | 9,698 | (9,698 | ) | (9,698 | ) | - | - | (9,698 | ) | ||||||||||||||||||
Income tax effects |
- | - | - | 253 | - | 272 | 525 | |||||||||||||||||||||
Non-GAAP amount |
$ | 28,401 | $ | 20,692 | $ | 7,709 | $ | 7,637 | $ | 6,116 | $ | 6,183 | $ | 13,820 | ||||||||||||||
% of revenue |
51.9 | % | 37.8 | % | 14.1 | % | 14.0 | % | N/A | |||||||||||||||||||
Non-GAAP net income per share |
$ | 0.15 | $ | 0.12 | ||||||||||||||||||||||||
Shares used in the computation of Non-GAAP net income per share |
50,323 | 50,323 |
SIX MONTHS ENDED SEPTEMBER 27, 2015 |
||||||||||||||||||||||||||||
Gross Margin |
Oper. Expenses |
Oper. Income (Expense) |
Net Income (Loss) from Cont. Operations |
Oper. Income from Disc. Operations |
Net Income (Loss) from Disc. Operations |
Net Income (Loss) |
||||||||||||||||||||||
GAAP amount |
$ | 21,431 | $ | 29,933 | $ | (8,502 | ) | $ | (4,444 | ) | $ | 912 | $ | (2,263 | ) | $ | (6,707 | ) | ||||||||||
Adjustments to GAAP amounts: |
||||||||||||||||||||||||||||
Amortization of purchased intangible assets |
1,239 | (269 | ) | 1,508 | 1,508 | 5,259 | 5,259 | 6,767 | ||||||||||||||||||||
Restructuring charges and other non-GAAP exit costs, net |
740 | (2,208 | ) | 2,948 | 2,948 | 745 | 745 | 3,693 | ||||||||||||||||||||
Stock-based compensation |
160 | (2,839 | ) | 2,999 | 2,999 | 390 | 390 | 3,389 | ||||||||||||||||||||
Proceeds from legal settlement |
(1,500 | ) | - | (1,500 | ) | (1,500 | ) | 201 | 201 | (1,299 | ) | |||||||||||||||||
Merger and acquisition costs |
- | (587 | ) | 587 | 587 | 124 | 124 | 711 | ||||||||||||||||||||
Income tax effects |
- | - | - | (4,241 | ) | - | 3,033 | (1,208 | ) | |||||||||||||||||||
Non-GAAP amount |
$ | 22,070 | $ | 24,030 | $ | (1,960 | ) | $ | (2,143 | ) | $ | 7,631 | $ | 7,489 | $ | 5,346 | ||||||||||||
% of revenue |
43.3 | % | 47.2 | % | -3.8 | % | -4.2 | % | N/A | |||||||||||||||||||
Non-GAAP (loss) net income per share |
$ | (0.04 | ) | $ | 0.15 | |||||||||||||||||||||||
Shares used in the computation of Non-GAAP net income (loss) per share |
48,024 | 49,661 |
###
Exhibit 99.2
EXAR CORPORATION
SECOND QUARTER FISCAL YEAR 2017 EARNINGS ANNOUNCEMENT
PREPARED CONFERENCE CALL REMARKS
Exar Corporation is providing a copy of these prepared remarks in conjunction with our fiscal year 2017 second quarter press release in order to provide shareholders and analysts with additional time and detail for analyzing our financial results in advance of our quarterly conference call. The conference call will begin today, November 2, 2016 at 4:45 p.m. EDT (1:45 p.m. PDT). To access the conference call, please dial (918) 534-8424 or (844) 359-0802. The passcode for the live call is 91970722. In addition, a live webcast will be available on Exar's Investor webpage and an archive of the conference call webcast will be available after the conclusion of the conference call.
Please see the section “Discussion of Non-GAAP Financial Measures” later in this document for more details on non-GAAP data. Investors should also refer to the reconciliation of Non-GAAP Results to GAAP Results, which is contained in our press release. Unless otherwise indicated, all non-GAAP financial results presented exclude the financial results of the iML Display business which the Company is in the process of divesting, and are presented in the GAAP results as discontinued operations.
Discussion of GAAP Operating Results
Today we reported the following GAAP results for our second quarter fiscal 2017. (First quarter 2017 was comprised of fourteen weeks, as opposed to the usual thirteen weeks for the second quarter.)
THREE MONTHS ENDED |
||||||||||||||||||||||||
OCTOBER 2, 2016 |
JULY 3, 2016 |
SEPTEMBER 27, 2015 |
||||||||||||||||||||||
Net Sales |
$ | 27,601 | 100 | % | $ | 27,136 | 100 | % | $ | 22,755 | 100 | % | ||||||||||||
Cost of Sales |
14,408 | 52 | % | 13,774 | 51 | % | 14,202 | 62 | % | |||||||||||||||
Gross Profit |
$ | 13,193 | 48 | % | $ | 13,362 | 49 | % | $ | 8,553 | 38 | % | ||||||||||||
Operating Expenses |
13,112 | 48 | % | 5,492 | 20 | % | 13,984 | 62 | % | |||||||||||||||
Income (loss) from operations |
$ | 81 | 0 | % | $ | 7,870 | 29 | % | $ | (5,431 | ) | -24 | % |
Second quarter net sales increased $0.5 million or 2% sequentially. Second quarter net sales were driven by an increase in the industrial and automotive markets. Second quarter net sales increased $4.8 million or 21% from the second quarter a year ago. For additional commentary on net sales, see comments regarding sales by end markets below.
On a GAAP basis, second quarter gross margin of 47.8% decreased from the 49.2% reported in the first quarter largely as a result of increased stock-based compensation expense, and increased from 37.6% reported in the same period a year ago, largely as a result of our strategic initiative to lower our cost of goods sold and increased advanced product sales, which generally sell at higher margins.
In the second quarter, GAAP operating expenses were $13.1 million, compared with $5.5 million reported in the first quarter and $14.0 million a year ago. First quarter GAAP operating expenses included a gain of $9.3 million related to the sale-leaseback of our corporate headquarters. Second quarter GAAP operating expenses included (i) $2.1 million in stock-based compensation expense, (ii) $0.4 million mergers and acquisitions costs, and (iii) $0.4 million accretion of gain from the sale-leaseback of the Fremont facility.
Second quarter GAAP net income from continuing operations was $0.1 million, or $0.00 per diluted share, compared to $7.5 million, or $0.15 per diluted share reported in the first quarter.
Second quarter GAAP net income from discontinued operations was $0.9 million, or $0.02 per diluted share, compared to $1.4 million, or $0.03 per diluted share, reported in the first quarter.
Discussion of Business and Non-GAAP Financial Highlights (Continuing Operations Only)
The Company’s non-GAAP measures exclude certain recurring charges, such as stock-based compensation, amortization and impairment of acquired intangible assets, as well as certain one-time or non-recurring charges, such as charges from restructuring. Please see the section “Discussion of Non-GAAP Financial Measures” later in this document for more details on non-GAAP data.
We reported the following non-GAAP results for our second quarter fiscal 2017:
● |
Net sales of $27.6 million increased $0.5 million, or 2%, from the previous quarter. |
● |
Gross margin of 51.9% was consistent with 51.8% reported in the previous quarter. |
● |
Operating expenses of $10.6 million, increased by $0.5 million, or 5%, from the previous quarter. |
● |
Operating income was $3.7 million, down $0.3 million from the fiscal 2017 first quarter and up $6.9 million from the same period a year ago. |
● |
Net income of $3.8 million was consistent with the previous quarter. |
● |
EPS of $0.08 was consistent with that reported in the previous quarter and increased $0.15 compared to the same period a year ago. |
Our net sales by end market in dollars and as a percentage of total net sales were as follows for the periods presented (in thousands, except percentages):
THREE MONTHS ENDED |
||||||||||||||||||||||||
OCTOBER 2, 2016 |
JULY 3, 2016 |
SEPTEMBER 27, 2015 |
||||||||||||||||||||||
Industrial |
$ | 19,042 | 69 | % | $ | 18,436 | 67 | % | $ | 17,134 | 75 | % | ||||||||||||
Infrastructure |
5,065 | 18 | % | 5,596 | 21 | % | 2,224 | 10 | % | |||||||||||||||
Audio/Video |
1,840 | 7 | % | 1,852 | 7 | % | 2,022 | 9 | % | |||||||||||||||
Automotive |
961 | 3 | % | 779 | 3 | % | 859 | 4 | % | |||||||||||||||
Other |
693 | 3 | % | 473 | 2 | % | 516 | 2 | % | |||||||||||||||
Net Sales |
$ | 27,601 | 100 | % | $ | 27,136 | 100 | % | $ | 22,755 | 100 | % |
Industrial. Fiscal 2017 second quarter Industrial revenue was $19.0 million, which represented 69% of sales, an increase of 3% when compared to the $18.4 million reported in the previous quarter. The increase in the Industrial market was attributable to the core interface business, which started to show benefits of the lower cost structure allowing Exar to be more competitive.
Infrastructure. Fiscal 2017 second quarter Infrastructure revenue was $5.1 million, which represented 18% of sales, a decrease of 9% when compared to the $5.6 million reported in the previous quarter. As anticipated, this reduction was from further decline in a legacy telecommunications product, which was a nominal amount in the fiscal 2017 second quarter.
Audio/Video. Fiscal 2017 second quarter Audio/Video revenue was $1.8 million, which represented 7% of sales, a decrease of 1% when compared to the $1.9 million reported in the previous quarter.
Automotive. Fiscal 2017 second quarter Automotive revenue was $1.0 million, which represented 3% of sales, an increase of 23% when compared to the $0.8 million reported in the previous quarter. This increase was attributable to increased sales in the China automotive infotainment market.
Discussion of Non-GAAP Gross Margins, Operating Expenses and Operating Margins (Continuing Operations Only)
On a non-GAAP basis, our net sales and operating results as a percentage of net sales were as follows for the periods presented (in thousands, except percentages):
THREE MONTHS ENDED |
||||||||||||||||||||||||
OCTOBER 2, 2016 |
JULY 3, 2016 |
SEPTEMBER 27, 2015 |
||||||||||||||||||||||
Net Sales |
$ | 27,601 | 100 | % | $ | 27,136 | 100 | % | $ | 22,755 | 100 | % | ||||||||||||
Cost of Sales |
13,270 | 48 | % | 13,066 | 48 | % | 14,257 | 63 | % | |||||||||||||||
Gross Profit |
$ | 14,331 | 52 | % | $ | 14,070 | 52 | % | $ | 8,498 | 37 | % | ||||||||||||
Operating Expenses |
10,605 | 38 | % | 10,087 | 37 | % | 11,642 | 51 | % | |||||||||||||||
Income (loss) from operations |
$ | 3,726 | 13 | % | $ | 3,983 | 15 | % | $ | (3,144 | ) | -14 | % |
Gross Margin
On a non-GAAP basis, second quarter gross margin of 51.9% was consistent with 51.8% reported in the first quarter. This equates to a non-GAAP gross profit of $14.3 million for the second quarter, compared with $14.1 million last quarter. Gross margin was flat as a less favorable product mix offset the continued realization of COGS reduction.
Operating Expenses
Second quarter non-GAAP operating expenses of $10.6 million increased by $0.5 million, or 5% from previous quarter, and decreased 9% from the $11.6 million reported in the second quarter a year ago. Second quarter R&D expenses were $4.3 million, a 1% decrease as compared with the $4.4 million reported in the first quarter and a 24% decrease from the $5.7 million reported a year ago. R&D expenses decreased sequentially due in part to one less work week as there were 14 weeks in the first quarter and lower software tool charges. Second quarter SG&A expenses were $6.3 million, a 10% increase as compared with the $5.7 million reported in the first quarter and a 6% increase from the $5.9 million reported a year ago. The sequential SG&A increase was largely the result of increased rent as a result of the sale-leaseback of the Fremont facility.
Operating Margin
In the second quarter, non-GAAP operating income and operating margin were $3.7 million and 13%, respectively, compared to $4.0 million and 15%, in the previous quarter, and a non-GAAP operating loss of $3.1 million or negative 14% from the same quarter a year ago.
EBITDA
In the second quarter, non-GAAP EBITDA and EBITDA margin were $4.2 million or 15%, respectively, compared with $4.9 million and 18% in the previous first quarter, and a negative $1.7 million or negative 8% from the same quarter a year ago.
Discussion of Non-GAAP Net Income/EPS (Continuing Operations Only)
Net Income
Second quarter non-GAAP net income of $3.8 million was consistent with last quarter, and increased $7.1 million on a year-over-year basis.
EPS
Second quarter non-GAAP diluted earnings per share of $0.08 were consistent with that reported in the previous quarter and increased $0.15 compared with the same quarter a year ago.
Consolidated Balance Sheet and Cash Flow Highlights
Cash and Equivalents
We ended the fiscal 2017 second quarter with $96.4 million in cash and cash equivalents, up from $85.3 million reported in the first quarter.
Net Accounts Receivable
Second quarter net accounts receivable increased to $18.9 million from $18.7 million last quarter. Second quarter DSO decreased to 62 days, compared to 68 days last quarter.
Net Inventory
Second quarter net inventory increased to $23.2 million from $22.1 million in the previous quarter. Second quarter days inventory was 143 days, compared to 153 days last quarter.
Deferred Margin
Second quarter deferred margin decreased to $6.4 million, compared with $9.1 million in the first quarter.
Assets and Liabilities Held for Sale
The Company is in the process of divesting its wholly-owned subsidiary Integrated Memory Logic Limited (iML). Accordingly, the assets and liabilities of iML are presented as assets and liabilities held for sale. At the end of the fiscal 2017 second quarter, assets held for sale was $89.7 million, and liabilities held for sale was $7.4 million.
Cash Flow from Continuing Operations
Second quarter total depreciation and amortization was $1.2 million, of which $0.5 million was included in the non-GAAP results. Cash used by operations for the second quarter was $0.8 million. This included a reduction of $2.7 million of deferred margin, which represents channel inventory for sell-through customers. This compares to cash provided by operations of $4.7 million for the first quarter.
Capital Structure
The number of shares used in the second quarter calculation of non-GAAP results was 51.2 million, compared with 49.3 million used in the previous first quarter.
Pending Sale of Integrated Memory Logic Limited
The Company is in the process of divesting its wholly-owned subsidiary Integrated Memory Logic Limited (iML) to Beijing E-Town Chipone Technology Co., Ltd., a consortium comprised of Beijing-based IC design and solutions manufacturer Chipone Technology Co., Ltd and its financial partner Beijing E-Town International Investment & Development Co., Ltd. This transaction has been approved by CFIUS in the United States and another key regulatory body in Taiwan. The Company expects this transaction to close in the fiscal 2017 third quarter. The Company expects to record a gain on the transaction (before tax) of approximately $45.0 million to $50.0 million and incur a tax liability of approximately $1.0 million, which will be presented as part of discontinued operations results.
Discussion of Fiscal 2017 Third Quarter Guidance for Continuing Operations
For the fiscal 2017 third quarter ending January 1, 2017, the Company expects results to be as follows:
● |
Net sales: $27.1 million plus or minus $0.5 million |
● |
GAAP gross margin: 47.5% to 49.5% (Non-GAAP 51.5% to 53.5%) |
● |
GAAP operating expenses: $13.0 million to $13.5 million (Non-GAAP $10.6 million to $11.0 million) |
● |
GAAP EPS: $(0.01) to $0.02 (Non-GAAP $0.06 to $0.08) |
Forward-Looking Statements Safe Harbor Disclosure
Except for historical information contained herein, this press release and matters discussed on the conference call contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding the sale of the Company’s iML subsidiary to Beijing E-Town Chipone Technology Co., Ltd., including the expected timing of the closing of that transaction and the expected gain to be recognized by the Company from that transaction, and the Company’s financial outlook expectations for the third quarter ending January 1, 2017. These statements are based on management's current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Therefore, actual outcomes and results may differ materially from what is expressed herein. For a discussion of these risks and uncertainties, the Company urges investors to review in detail the risks and uncertainties and other factors described in its Securities and Exchange Commission (SEC) filings, including, but not limited to, the “Risk Factors”, “Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our public reports filed with the SEC, including our annual report on Form 10-K filed with the SEC on May 27, 2016 and our Form 10-Q filed with the SEC on August 10, 2016, and available on our Investor webpage and on the SEC website at www.sec.gov.
Discussion of Non-GAAP Financial Measures
The Company’s non-GAAP measures exclude charges related to stock-based compensation, amortization of acquired intangible assets, impairment charges, initial gain upon closing sale-leaseback of our corporate headquarters, restructuring charges and exit costs which include costs for personnel whose positions have been eliminated as part of a restructuring or are in the process of being eliminated as part of the discontinuation of a product line, severance costs associated with the former CEO, accruals for and proceeds received from dispute resolutions and patent litigation, merger and acquisition and related integration costs, certain income tax benefits and credits, and related income tax effects on certain excluded items. The Company excludes these items primarily because they are significant special expense and gain estimates, which management separates for consideration when evaluating and managing business operations. The Company’s management uses non-GAAP net income and non-GAAP earnings per share to evaluate its current operating results and financial results and to compare them against historical financial results. Additionally, we disclose the non-GAAP measure of free cash flow, which is derived from our net cash provided (used) by operations, less purchases of fixed assets and IP, plus proceeds from the sale of fixed assets and IP. Management believes these non-GAAP measures are useful to investors because they are frequently used by securities analysts, investors and other interested parties in evaluating the Company and provides further clarity on its profitability.
Unless otherwise indicated, all non-GAAP financial results exclude the financial results of the iML Display business which the Company is in the process of divesting, and are presented in the GAAP results as discontinued operations.
In addition, the Company believes that providing investors with these non-GAAP measurements enhances their ability to compare the Company’s business against that of its competitors who employ and disclose similar non-GAAP measures. However, the manner in which we calculate these non-GAAP financial measures may be different from non-GAAP methods of accounting and reporting used by the Company’s competitors to the extent their non-GAAP measures include or exclude other items. The material limitation associated with the use of the non-GAAP financial measures is that the non-GAAP measures may not reflect the full economic impact of Exar’s activities. Accordingly, investors are cautioned not to place undue reliance on non-GAAP information. The presentation of this additional information should not be considered a substitute for net income or net income per diluted share or other measures prepared in accordance with GAAP.
Investors should refer to the reconciliation of Non-GAAP Results to GAAP Results, which is contained in our press release.
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