Entropic Reports Third Quarter 2013 Results

The following excerpt is from the company's SEC filing.

SAN DIEGO, October 29, 2013 - Entropic (NASDAQ: ENTR), a world leader in semiconductor solutions for the connected home, today reported its third quarter results for the period ended September 30, 2013. Entropic reported third quarter net revenues of $56.4 million. This compares to net revenues of $70.6 million in the second quarter of 2013, and $89.8 million in the third quarter of 2012.

In accordance with U.S. generally accepted accounting principles (GAAP), the Company's third quarter net loss was $11.9 million, or $(0.13) per share (basic and diluted). This compares with GAAP net loss of $39.9 million, or $(0.44) per share (basic and diluted) in the second quarter of 2013, and net income of $0.4 million, or $0.00 per share (diluted) in the third quarter of 2012. Included in the GAAP operating results for the second quarter of 2013 is a charge of $26.7 million, or $0.30 per share (diluted), associated with the establishment of a valuation allowance related to federal deferred tax assets.

Non-GAAP net loss in the third quarter was $5.6 million, or $(0.06) per share (diluted), compared to non-GAAP net income of $0.6 million, or $0.01 per share (diluted) in the second quarter of 2013, and non-GAAP net income of $7.7 million, or $0.09 per share (diluted), in the third quarter of 2012.

“Entropic delivered revenue near the higher end of the guided range for the third quarter," said Patrick Henry, Entropic’s president and chief executive officer.  "We continue to drive innovation across our businesses and have made significant progress toward our long-term goals by developing new products and winning key tier-one designs.  We are focused on optimizing the connected home entertainment experience and we are confident that Entropic has the right strategy in place to address core operator needs, produce high-volume design-wins and create significant value for shareholders.”

 Three Months Ended(In millions, except per share data) September 30, 2013 June 30, 2013 September 30, 2012Net revenues $56.4 $70.6 $89.8GAAP net (loss) income $(11.9) $(39.9) $0.4GAAP net (loss) income per share (basic and diluted) $(0.13) $(0.44) $0.00Non-GAAP net (loss) income1 $(5.6) $0.6 $7.7Non-GAAP net (loss) income per share1 (diluted) $(0.06) $0.01 $0.09

1. Please refer to “Non-GAAP Financial Measures” below and the financial statements portion of this press release for an explanation of the non-GAAP financial measures contained in the table above and a reconciliation of such measures to the comparable GAAP financial measures.

•Stock Repurchase Program: Entropic announced a $30 million stock repurchase program, which reflected the Board's ongoing commitment to maximizing shareholder value and continued confidence in Entropic's long-term strategic direction.

•Executive Hires: Entropic appointed Matthew Rhodes as senior vice president, Global Marketing to oversee the development, execution and communication of the Company's overall product vision, strategy and roadmap across all market segments, worldwide.

◦Jupiter Telecommunications Co., Ltd. (J:COM), the largest multiple system operator in Japan, unveiled its first IP-based Video-on-Demand (VOD) STB using an Entropic-powered PIXELA solution.

◦LG CNS, the leading IT services company in South Korea, selected Entropic's Verimatrix-certified, high-performance hybrid STB SoC to deliver a secure and powerful TV viewing experience.

◦Entropic and Prime extended their reach in the Brazilian DBS ODU market by deploying a new Low Noise Block (LNB) solution at a leading Brazilian satellite operator.

•Alticast: Entropic and Alticast demonstrated Reference Design Kit (RDK) STB solutions at multiple trade events in Q3 2013, which highlighted Alticast's proven RDK integration expertise on Entropic's powerful SoC platform.

•OmniPhy: OmniPhy announced its Video Display IP Group shipped a new Silicon Intellectual Property platform to Entropic to support HDMI 2.0 TX and RX standards for the Ultra-High-Definition (UHD) market.

Entropic management will be holding a conference call today, October 29, 2013 at 1:30 p.m. Pacific Time/4:30 p.m. Eastern Time to discuss the Company's results for the third quarter of fiscal 2013, and to provide guidance for the fourth quarter. You may access the conference call via any of the following:

Entropic™ (Nasdaq: ENTR) is a world leader in semiconductor solutions for the connected home. The Company transforms how traditional HDTV broadcast and IP-based streaming video content is seamlessly, reliably, and securely delivered, processed, and distributed into and throughout the home. Entropic's next-generation Set-top Box (STB) System-on-a-Chip (SoC) and Connectivity solutions enable Pay-TV operators to offer consumers more captivating whole-home entertainment experiences by transforming the way digital entertainment is delivered, connected and consumed - in the home and on the go. For more information, visit Entropic at: www.entropic.com.

This press release and the accompanying tables contain the following non-GAAP financial measures: net income and net income per share. These non-GAAP financial measures exclude the effects on the Statement of Operations of all forms of stock-based compensation, transaction and integration costs related to the Trident Microsystems, PLX Technology and Mobius Semiconductor transactions, amortization of intangible assets, the loss related to equity method investment, the impairment of investment, the impact of fair value adjustments related to contingent consideration payable in the acquisition of PLX Technology assets, deferred tax asset valuation allowance, the cash tax difference and the restructuring charge.

Management uses these non-GAAP financial measures to manage the Company's business, including setting operating budgets and executive compensation plans. These non-GAAP measures are also used to (i) supplement the financial results and forecasts reported to the Company's board of directors, (ii) evaluate the Company's operating performance, (iii) compare the Company's performance to internal forecasts, and (iv) manage the Company's business and benchmarking performance internally. The non-GAAP measures have been made available to stockholders consistently in the past to provide transparency on how management manages the Company's operating performance. Management believes that these non-GAAP operating measures are useful to investors, when used as a supplement to GAAP measures, in evaluating the Company's ongoing operational performance.

The non-GAAP financial measures disclosed by the Company should not be considered in isolation or a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

Copyright © 2013 Entropic. All rights reserved. All other product or company names mentioned are used for identification purposes only and may be trademarks of their respective owners.

 Three Months Ended Nine Months Ended September 30, 2013 June 30, 2013 September 30, 2012 September 30, 2013 September 30, 2012 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)          Net revenues$56,376 $70,612 $89,825 $201,445 $231,980Cost of net revenues28,863 36,356 45,778 104,837 111,886Gross profit27,513 34,256 44,047 96,608 120,094Operating expenses:         Research and development28,510 28,334 28,072 84,914 69,214Sales and marketing6,137 6,017 6,966 18,609 18,986General and administrative5,751 5,456 5,718 17,290 19,592Amortization of intangibles443 495 930 1,868 1,645Restructuring charges(69) 1,763 — 1,694 —Total operating expenses40,772 42,065 41,686 124,375 109,437(Loss) income from operations(13,259) (7,809) 2,361 (27,767) 10,657Loss related to equity method investment— (335) (799) (1,115) (2,536)Impairment of investment— (4,780) — (4,780) —Other income, net464 255 31 1,147 567(Loss) income before income taxes(12,795) (12,669) 1,593 (32,515) 8,688Income tax provision (benefit)(860) 27,244 1,185 21,737 4,214Net (loss) income$(11,935) $(39,913) $408 $(54,252) $4,474          Net (loss) income per share - basic and diluted$(0.13) $(0.44) $0.00 $(0.60) $0.05Weighted average number of shares used to compute net (loss) income per share - basic91,069 90,281 88,399 90,225 87,913Weighted average number of shares used to compute net (loss) income per share - diluted91,069 90,281 90,885 90,225 89,918

 September 30, 2013 June 30, 2013 December 31, 2012 (unaudited) (unaudited)  ASSETS     Current assets:     Cash and cash equivalents$27,901 $14,349 $17,206Marketable securities59,549 91,334 79,981Accounts receivable40,797 45,452 41,847Inventory15,116 15,323 26,395Deferred tax assets, current13 — 7,157Prepaid expenses and other current assets17,405 15,323 11,988Total current assets160,781 181,781 184,574Property and equipment, net17,928 18,992 17,629Long-term marketable securities73,894 60,118 71,748Intangible assets, net50,487 53,355 46,997Deferred tax assets, long-term— 661 19,255Goodwill4,688 4,688 4,664Other long-term assets6,356 3,483 8,683Total assets$314,134 $323,078 $353,550LIABILITIES AND STOCKHOLDERS' EQUITY     Current liabilities:     Accounts payable$14,956 $14,910 $11,380Accrued expenses and other current liabilities7,158 8,273 8,067Accrued payroll and benefits8,156 9,223 9,474Total current liabilities30,270 32,406 28,921Deferred rent2,178 2,244 683Other long-term liabilities1,586 1,511 1,281Stockholders' equity280,100 286,917 322,665Total liabilities and stockholders' equity$314,134 $323,078 $353,550

This press release contains the following non-GAAP financial measures: net income and net income per share. The presentation of such measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Our non-GAAP net income and net income per share exclude the items listed below.

The following table sets forth such non-GAAP measures for the applicable periods as well as the reconciliation of such measures to the directly comparable GAAP measures for the periods shown. Three Months Ended Nine Months Ended September 30, 2013 June 30, 2013 September 30, 2012 September 30, 2013 September 30, 2012 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)GAAP net (loss) income$(11,935) $(39,913) $408 $(54,252) $4,474Non-GAAP adjustments:         Stock-based compensation:         Cost of net revenues227 230 217 658 567Research and development2,766 1,975 2,030 6,730 5,554Sales and marketing510 516 675 1,324 1,679General and administrative1,089 1,054 1,283 3,109 3,182Total stock-based compensation4,592 3,775 4,205 11,821 10,982Amortization of intangible assets:         Cost of net revenues2,425 2,228 2,025 6,881 3,802Operating expenses443 495 930 1,868 1,645Transaction and integration costs— 244 183 244 4,484Loss related to equity method investment— 335 799 1,115 2,536Impairment of investment— 4,780 — 4,780 —Adjustments to the fair value of PLX acquisition contingent consideration— (143) 230 (131) 230Income tax effects of pre-tax adjustments— 2,591 (2,930) — (8,288)Cash tax difference (1)(1,093) (2,274) 1,899 (5,464) 6,357Deferred tax asset valuation allowance— 26,695 — 26,695 —Restructuring charges (2)(69) 1,763 — 1,694 —Total of non-GAAP adjustments6,298 40,489 7,341 49,503 21,748Non-GAAP net (loss) income$(5,637) $576 $7,749 $(4,749) $26,222Weighted average shares (basic)91,069 90,281 88,399 90,225 87,913Adjustment for dilutive shares— 2,152 2,486 — 2,005Weighted average shares (diluted)91,069 92,433 90,885 90,225 89,918GAAP net (loss) income per share (basic)$(0.13) $(0.44) $0.00 $(0.60) $0.05Non-GAAP adjustments detailed above0.07 0.45 0.09 0.55 0.24Non-GAAP net (loss) income per share (diluted)$(0.06) $0.01 $0.09 $(0.05) $0.29          

(1)The Company's non-GAAP net (loss) income per share is calculated using the cash tax rate of (4)%, 29%, and 22% for the three month periods ended September 30, 2013, June 30, 2013, and September 30, 2012, respectively. The Company's non-GAAP net (loss) income per share is calculated using the cash tax rate of (12)% and 19% for the nine month periods ended September 30, 2013 and 2012, respectively. The estimated cash tax rate is the estimated tax payable on the Company's projected tax returns as a percentage of estimated annual non-GAAP pre-tax net income (loss). The Company uses an estimated cash tax rate to adjust for the historical variation in the effective book tax rate associated with the valuation allowance adjustments, the utilization of research and development tax credits, and the utilization of loss carryforwards which currently have an overall effect of reducing taxes payable. The Company believes that the cash tax rate provides a more transparent view of its operating results. The Company's effective tax rate used for the purposes of calculating GAAP net (loss) income for the three month periods ended September 30, 2013, June 30, 2013, and September 30, 2012 was approximately 7%, (215)%, and 74%, respectively. The Company's effective tax rate used for the purposes of calculating GAAP net (loss) income for the nine month periods ended September 30, 2013 and 2012 was approximately (67)% and 49%, respectively.

(2)In June, 2013, we incurred a restructuring charge of $1.8 million pursuant to a plan to rebalance our operations in an attempt to leverage synergies from our acquisitions and refine our business operations. This plan resulted in a reduction of our personnel by 66 employees, or approximately 10% of our workforce.

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here. Entropic Communications next reports earnings on October 29, 2013.

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