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Conexant Delivers 21 Percent Sequential Revenue Growth and Completes First Phase of Recovery Plan20 April 2005
Conexant Systems, Inc. (NASDAQ:CNXT - News) today announced revenues of $169.7 million for the second quarter of fiscal 2005, which ended April 1, 2005. The company had previously guided for second fiscal quarter revenues of approximately $160 million. Conexant also accomplished the first phase of its recovery plan by successfully completing its two-quarter channel inventory reduction initiative. Over this period, the company drove the consumption of approximately $70 million of inventory at distributors and direct customers in order to balance revenues with end-customer demand as rapidly as possible.
Second fiscal quarter 2005 revenues of $169.7 million increased 21 percent from first fiscal quarter 2005 revenues of $140.6 million, and decreased 30 percent compared to second fiscal quarter 2004 revenues of $243.8 million. The second fiscal quarter 2005 pro forma operating loss was $29.2 million, compared to a pro forma operating loss of $85.9 million in the first quarter of fiscal 2005, and a pro forma operating profit of $19.9 million in the year-ago quarter. On a pro forma basis, the net loss for the second fiscal quarter of 2005 was $0.08 per diluted share and in line with expectations, compared to a net loss of $0.20 in the first fiscal quarter, and a net profit of $0.04 per diluted share in the second fiscal quarter of 2004.
Based on generally accepted accounting principles (GAAP), the net loss for the second quarter of fiscal 2005 was $73.2 million, or $0.16 per diluted share, compared to a net loss of $120.7 million, or $0.26 per diluted share, in the first quarter of fiscal 2005, and a net loss of $143.4 million, or $0.41 per diluted share, in the second quarter of fiscal 2004.
Conexant provides pro forma results as a supplement to financial statements based on GAAP. The company uses pro forma information to evaluate its operating performance and believes this presentation provides investors with additional insight into its underlying operating results. A full reconciliation between pro forma and GAAP results is included in the accompanying financial data.
"Conexant's second fiscal quarter revenues of $169.7 million were nearly $10 million higher than previously expected, primarily due to greater-than-anticipated demand in our DSL business," said Dwight W. Decker, Conexant chairman and chief executive officer.
"During the quarter, we continued our focus on working capital management. We reduced internal inventory by $26 million, bringing the two-quarter reduction in this metric to $40 million, excluding the impact of charges," Decker said. "We collected $180 million in receivables during the quarter, reducing DSOs by 15 percent from 60 to 51 days. We achieved our targeted reduction from $93 million to $89 million in quarterly pro forma operating expenses. We also achieved our goal of holding our cash level flat, excluding any change in the value of our equity holdings, by capturing a gain of approximately $50 million through a refinancing of our headquarters building that covered our operating losses and restructuring costs.
"Our only disappointment during the quarter was that the timely completion of our two-quarter inventory reduction initiative required a number of out-of-the-ordinary channel actions," Decker continued. "These included selectively placing higher-cost products into more price-sensitive applications, and special pricing for certain customers on selected slower moving products. This dynamic depressed second fiscal quarter gross margins to 35.3 percent of revenues, a level below our expectations entering the quarter.
"From a broader perspective, by quickly returning channel inventory to normalized levels, we successfully executed on the first phase of our three-stage recovery plan," Decker said. "We are now focused on the second phase of this plan, which is to grow revenues, complete in-process cost reductions, and achieve profitability before the end of the calendar year. In order to reach this critical milestone, we are targeting a revenue level of $220 million, gross margins of 40 percent, and quarterly operating expenses of $80 million.
"Once accomplished, we will turn to our third phase, in which we will focus on differentiating Conexant by leveraging our unique broadband media and communications processing capabilities to develop new converged digital consumer electronics products and maximize our profitability," Decker said.
Third Fiscal Quarter 2005 Outlook
"We expect to deliver third fiscal quarter revenues of approximately $190 million, up approximately 12 percent sequentially from the $170 million in revenue we recorded in the just concluded quarter," Decker said.
"With the effects of our inventory reduction initiative behind us, we anticipate that gross margins for the current quarter will improve to a level of approximately 38 percent, despite significant and continuing price pressure in our DSL and wireless networking businesses," Decker continued. "We expect to further reduce pro forma operating expenses from $89 million in the March quarter to $86 million in the current quarter. Driven by these improvements, we anticipate that we will reduce our pro forma operating loss by more than 50 percent sequentially, from $29 million in the March quarter to a loss of approximately $14 million in the current quarter, resulting in a pro forma net loss of approximately $0.05 per share, based on approximately 470 million fully diluted shares."
Note to Editors, Analysts and Investors
Conexant's conference call will take place on Wednesday, April 20, 2005, at 5 p.m. Eastern time/2 p.m. Pacific time. To listen to the conference call via telephone, dial 866-710-0179 (domestic) or 334-323-9854 (international); security code: Conexant. To listen via the Internet, visit the Investor Relations section of Conexant's Web site at www.conexant.com/ir. Playback of the conference call will be available shortly after the call concludes and will be accessible on Conexant's Web site at www.conexant.com/ir or by calling 877-919-4059 (domestic) or 334-323-7226 (international); pass code: 59844236.
About Conexant
Conexant's innovative semiconductor solutions are driving broadband communications, enterprise networks and digital home networks worldwide. The company has leveraged its expertise and leadership position in modem technologies to enable more Internet connections than all of its competitors combined, and continues to develop highly integrated silicon solutions for broadband data and media processing networks.
Key products include client-side xDSL and cable modem solutions, home network processors, broadcast video encoders and decoders, digital set-top box components and systems solutions, and dial-up modems. Conexant's suite of networking components includes a leadership portfolio of IEEE 802.11a/b/g-compliant WLAN chipsets, software and reference designs, as well as solutions for applications based on HomePlug(SM) and HomePNA(TM). The company also offers a complete line of asymmetric and symmetric DSL central office solutions, which are used by service providers worldwide to deliver broadband data, voice, and video over copper telephone lines.
Conexant is a fabless semiconductor company that recorded more than $900 million in revenues in fiscal year 2004. The company has approximately 2,400 employees worldwide, and is headquartered in Newport Beach, Calif. To learn more, please visit us at www.conexant.com.
Safe Harbor Statement
This press release contains statements relating to our future results (including certain projections and business trends) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to: the substantial losses the company has incurred recently; the cyclical nature of the semiconductor industry and the markets addressed by the company's and its customers' products; demand for and market acceptance of new and existing products; successful development of new products; the timing of new product introductions and product quality; the company's ability to anticipate trends and develop products for which there will be market demand; the availability of manufacturing capacity; pricing pressures and other competitive factors; changes in product mix; product obsolescence; the ability to develop and implement new technologies and to obtain protection for the related intellectual property; the uncertainties of litigation and the demands it may place on the time and attention of company management; and the risk that the businesses of Conexant and GlobespanVirata have not yet been completely and may not be integrated successfully, as well as other risks and uncertainties, including those detailed from time to time in our Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Conexant is a registered trademark of Conexant Systems, Inc. Other brands and names contained in this release are the property of their respective owners.
CONEXANT SYSTEMS, INC.
GAAP Consolidated Statements of Operations
(Unaudited, in Thousands, Except Per Share Amounts)
Three months ended Six months ended
March 31, March 31, March 31, March 31,
2005 2004 2005 2004
Net revenues (See Note 1) $169,738 $243,781 $310,359 $421,114
Cost of goods sold (See Note 2) 109,766 142,116 243,231 240,312
Gross margin 59,972 101,665 67,128 180,802
Operating expenses:
Research and development 70,539 53,734 143,080 92,888
Selling, general and
administrative 28,362 30,602 58,368 53,411
Amortization of intangible
assets 8,140 3,653 16,433 4,608
In-process research and
development -- 160,818 -- 160,818
Special charges (See Note 3) 13,596 5,514 32,853 6,119
Total operating expenses 120,637 254,321 250,734 317,844
Operating loss (60,665) (152,656) (183,606) (137,042)
Other expense (income), net 11,892 (9,736) 9,137 (35,017)
Loss before income taxes (72,557) (142,920) (192,743) (102,025)
Provision for income taxes 630 459 1,162 707
Net loss $(73,187)$(143,379)$(193,905)$(102,732)
Basic and diluted loss per
share $(0.16) $(0.41) $(0.41) $(0.33)
Number of shares used in per
share computation - basic and
diluted 470,189 349,968 469,279 313,580
The GAAP consolidated statements of operations include the results
of operations of GlobespanVirata, Inc. from Feb. 27, 2004, the date of
the company's merger with GlobespanVirata. No restatement has been
made to earlier periods.
Note 1 - Includes $9.6 million and $17.5 million of pricing
adjustments to inventories in the channel during the three and six
months ended March 31, 2005, respectively.
Note 2 - Includes $45.0 million of charges related to internal
inventory in the six months ended March 31, 2005.
Note 3 - Special charges consist of asset impairments,
restructuring charges, integration costs, and other special items.
CONEXANT SYSTEMS, INC.
Pro Forma (Non-GAAP) Consolidated Statements of Operations
(Unaudited, in Thousands, Except Per Share Amounts)
Three months ended Six months ended
March 31, March 31, March 31, March 31,
2005 2004 2005 2004
Net revenues (See Note 4) $169,738 $243,781 $310,359 $421,114
Cost of goods sold (See Note 5) 109,766 141,304 243,231 239,500
Gross margin 59,972 102,477 67,128 181,614
Operating expenses:
Research and development 63,909 52,863 130,574 91,994
Selling, general and
administrative 25,225 29,746 51,586 52,555
Total operating expenses 89,134 82,609 182,160 144,549
Pro forma operating income
(loss) (29,162) 19,868 (115,032) 37,065
Other expense, net 6,741 4,686 15,670 9,289
Pro forma income (loss) before
income taxes (35,903) 15,182 (130,702) 27,776
Provision for income taxes 630 459 1,162 707
Pro forma net income (loss) $(36,533) $14,723 $(131,864) $27,069
Basic income (loss) per share
pro forma (non-GAAP) $(0.08) $0.04 $(0.28) $0.09
Diluted income (loss) per share
pro forma (non-GAAP) $(0.08) $0.04 $(0.28) $0.08
Number of shares used in per
share computation - basic 470,189 349,968 469,279 313,580
Number of shares used in per
share computation - diluted 470,189 377,993 469,279 339,087
The pro forma (non-GAAP) consolidated statements of operations
include the results of operations of GlobespanVirata, Inc. from
Feb. 27, 2004, the date of the company's merger with
GlobespanVirata. No restatement has been made to earlier periods.
Pro forma operating income (loss), pro forma net income (loss),
and basic and diluted income (loss) per share pro forma (non-GAAP)
excludes certain non-cash and special items related to operations, and
certain non-operating gains and losses. The company believes these
measures of income provide a better understanding of its underlying
operating results and the company uses these measures internally to
evaluate its underlying operating performance. These measures of
income are not in accordance with, or an alternative for, generally
accepted accounting principles and may be different from pro forma
measures used by other companies.
A reconciliation of GAAP consolidated statements of operations and
per share information as determined under generally accepted
accounting principles with the pro forma net income (loss) and pro
forma per share information presented above is presented in the
following table.
Note 4 - Includes $9.6 million and $17.5 million of pricing
adjustments to inventories in the channel during the three and six
months ended March 31, 2005, respectively.
Note 5 - Includes $45.0 million of charges related to internal
inventory in the six months ended March 31, 2005.
CONEXANT SYSTEMS, INC.
Reconciliation of GAAP Consolidated Statements of Operations to
Pro Forma (Non-GAAP) Consolidated Statements of Operations
(Unaudited, in Thousands, Except Per Share Amounts)
Three months ended Six months ended
March 31, March 31, March 31, March 31,
2005 2004 2005 2004
Net loss (unaudited) $(73,187)$(143,379)$(193,905)$(102,732)
Non-cash and special items:
Amortization of intangible
assets 8,140 3,653 16,433 4,608
In-process research and
development -- 160,818 -- 160,818
IP litigation support costs 2,148 570 4,345 570
Special charges (See Note 6) 13,596 5,514 32,853 6,119
Stock compensation 3,019 1,157 6,008 1,180
Transitional salaries and
benefits (See Note 7) 4,600 -- 8,935 --
Equity in losses (earnings) of
equity method investees 3,371 (651) 6,460 (10,816)
Unrealized gain on note
receivable from Skyworks -- (16,456) -- (11,545)
Unrealized (gain) loss on
Mindspeed warrant 13,492 2,085 (1,281) (22,545)
Inventory impairment -- 812 -- 812
Gain on sale of equity
securities (11,112) -- (11,112) --
Write-down (recovery) of
investments (600) 600 (600) 600
Pro forma net income (loss) $(36,533) $14,723 $(131,864) $27,069
Income (loss) per share, basic:
Net loss (GAAP) $(0.16) $(0.41) $(0.41) $(0.33)
Non-cash and special items 0.08 0.45 0.13 0.42
Pro forma (non-GAAP) income
(loss) $(0.08) $0.04 $(0.28) $0.09
Income (loss) per share,
diluted:
Net loss (GAAP) $(0.16) $(0.41) $(0.41) $(0.33)
Non-cash and special items 0.08 0.45 0.13 0.41
Pro forma (non-GAAP) income
(loss) $(0.08) $0.04 $(0.28) $0.08
Note 6 - Special charges consist of asset impairments,
restructuring charges, integration costs, and other special items.
Note 7- Transitional salaries and benefits of $4,600 for the three
months ended March 31, 2005, and $8,935 for the six months ended March
31, 2005, represent amounts earned by employees, who have been
notified of their termination as part of our restructuring activities,
from the date of their notification. Included in the above amounts for
the three and six months ended March 31, 2005, are $632 and $928,
respectively, of facilities related costs.
CONEXANT SYSTEMS, INC.
Consolidated Condensed Balance Sheets
(Unaudited, in Thousands)
March 31, Dec. 31, Sept. 30,
2005 2004 2004
ASSETS
Current assets:
Cash and cash equivalents (See Note 8) $141,206 $132,326 $139,031
Marketable securities (See Note 8) 104,613 135,597 163,040
Receivables, net 94,706 92,864 185,037
Inventories 110,098 136,438 194,754
Mindspeed warrant - current portion 3,250 5,634 3,599
Other current assets 22,608 17,521 20,768
Total current assets 476,481 520,380 706,229
Property, plant and equipment, net 51,052 53,266 55,741
Goodwill 718,335 714,852 708,544
Intangible assets, net 122,597 128,947 135,241
Mindspeed warrant 24,316 35,737 23,000
Marketable securities - long term
(See Note 8) 117,981 123,266 137,604
Other assets 109,049 112,936 114,163
Total assets $1,619,811 $1,689,384 $1,880,522
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $92,392 $89,171 $141,533
Accrued compensation and benefits 33,708 44,511 40,423
Restructuring and reorganization
liabilities 24,919 28,205 22,427
Other current liabilities 58,546 51,502 67,044
Total current liabilities 209,565 213,389 271,427
Convertible subordinated notes 711,825 711,825 711,825
Other liabilities 105,590 64,741 68,883
Total liabilities 1,026,980 989,955 1,052,135
Shareholders' equity 592,831 699,429 828,387
Total liabilities and
shareholders' equity $1,619,811 $1,689,384 $1,880,522
Note 8 - Total cash, cash equivalents and marketable securities at
March 31, 2005, Dec. 31, 2004, and Sept. 30, 2004, are as follows:
March 31, Dec. 31, Sept. 30,
2005 2004 2004
Cash and cash equivalents $141,206 $132,326 $139,031
Other short-term marketable securities
(primarily mutual funds, domestic
government agencies and corporate debt
securities) 10,222 2,587 13,764
Long-term marketable securities
(primarily domestic government
agencies and corporate debt securities) 117,981 123,266 137,604
Subtotal 269,409 258,179 290,399
Equity securities - Skyworks Solutions,
Inc. (6.2 million shares at March 31,
2005, Dec. 31, 2004 and Sept. 30, 2004) 38,643 58,305 61,767
Equity securities - SiRF Technologies,
Inc. (5.0 million shares at March 31,
2005 and 5.9 million shares at Dec. 31,
2004 and Sept. 30, 2004) 55,748 74,705 87,509
Subtotal Skyworks and SiRF (See Note 9) 94,391 133,010 149,276
Total cash, cash equivalents and
marketable securities $363,800 $391,189 $439,675
Note 9 - The decrease in value of Skyworks and SiRF shares from
Dec. 31, 2004, to March 31, 2005, was approximately $28.3 million,
excluding the sale of 0.9 million shares of SiRF for net proceeds of
$10.2 million during the three months ended March 31, 2005.
CONEXANT SYSTEMS, INC.
Selected Other Data
(Unaudited, in Thousands)
Three months ended Six months ended
March 31, March 31,
2005 2004 2005 2004
Selected Data:
Depreciation (See Note 10) $4,692 $3,670 $9,530 $6,825
Capital expenditures 10,280 5,045 12,362 9,902
Revenues By Region:
Americas $21,267 $25,542 $39,706 $47,943
Asia-Pacific 132,585 198,298 238,057 338,660
Europe, Middle East and Africa 15,886 19,941 32,596 34,511
$169,738 $243,781 $310,359 $421,114
Note 10 - Does not include amortization of intangible assets, as
applicable.
--------------------------------------------------------------------------------
Contact:
Conexant Systems, Inc.
Gwen Carlson (Media), 949-483-7363
or
Bruce Thomas (Investors), 949-483-2698
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Source: Conexant Systems, Inc.
Source: Business Wire
All trademarks and copyrighted information contained herein are the property of their respective owners.
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