- Earnings per share at the high end of Q2 guidance range
- Non-GAAP net income of $6.3 million and GAAP net income of $0.7 million
- Cash and cash equivalents increase by $8.6 million quarter-over-quarter to $55.7 million
Zarlink Semiconductor (
"Our ability to generate solid cash flow and achieve profitability at current revenue levels highlights the success we have had to date in enhancing the efficiency of our operations," said Kirk K. Mandy, President and CEO, Zarlink Semiconductor. "The steps we have taken to improve our cost structure and expand our gross margin are driving bottom-line growth. We believe these efforts, combined with increasing demand for new medical wireless and next-generation timing products and strong relationships with customers in emerging markets, position Zarlink for continuing growth in the coming quarters."
Second quarter revenue was $53.6 million, at the high end of the Company's guidance range of $52 million to $54 million, compared with revenue of $53.6 million in Q1 Fiscal 2010 and $61.8 million in Q2 Fiscal 2009.
For Q2 Fiscal 2010, revenue from Zarlink's Communication Products group increased to $34.2 million from $32.6 million in Q1 Fiscal 2010, due to growing demand for next-generation timing and telecom networking products. Revenue from Zarlink's Communication Products group in Q2 Fiscal 2009 was $39.7 million.
Medical Products revenue for Q2 Fiscal 2010 was $7.8 million, compared with Q1 Fiscal 2010 revenue of $9.0 million, with growing demand for new medical wireless products offset by expected seasonality and decreased shipments for legacy hearing aid products. Revenue from Zarlink's Medical Products group in Q2 Fiscal 2009 was $7.8 million.
Optical Products revenue in Q2 Fiscal 2010 was $3.8 million, compared with revenue of $4.0 million in Q1 Fiscal 2010, due to a continuing slowdown in enterprise communication spending. Revenue from Zarlink's Optical Products group in Q2 Fiscal 2009 was $6.8 million. Custom and Other revenue in Q2 Fiscal 2010 was $7.8 million, compared with Q1 Fiscal 2010 revenue of $8.0 million and Q2 Fiscal 2009 revenue of $7.5 million.
Gross margin in Q2 Fiscal 2010 was 50% of revenue, which included $0.9 million in supply chain harmonization costs. In comparison, gross margin in Q1 Fiscal 2010 was 50%, which included $1.1 million in supply chain harmonization costs. Gross margin in Q2 Fiscal 2009 was 49%, which included integration costs of $0.8 million.
R&D expenses in Q2 Fiscal 2010 were $10.6 million, or 20% of revenue. This compares with Q1 Fiscal 2010 R&D expenses of $9.5 million, or 18% of revenue. In Q2 Fiscal 2009, R&D expenses were $11.2 million or 18% of revenue, which included integration costs of $0.1 million.
S&A expenses in Q2 Fiscal 2010 were $10.1 million, or 19% of revenue. This compares with Q1 Fiscal 2010 S&A expenses of $10.3 million, or 19% of revenue. In Q2 Fiscal 2009, S&A expenses were $13.6 million or 22% of revenue, which included proxy contest costs of $1.2 million and severance and integration costs of $0.3 million.
On a GAAP basis, Q2 Fiscal 2010 operating income was $5.2 million, compared to Q1 Fiscal 2010 operating income of $4.4 million and Q2 Fiscal 2009 operating income of $3.9 million. Net income in Q2 Fiscal 2010 was $0.7 million or break-even per share, which included a non-cash foreign exchange loss of $3 million related primarily to Zarlink's Canadian dollar denominated debenture, based on an exchange rate of CDN$1.00 to US$0.92 at September 25, 2009. Excluding the impact of foreign exchange, earnings per share were at the high end of Q2 guidance of $0.01 to $0.03 per share. In Q1 Fiscal 2010, Zarlink recorded a net loss of $0.5 million, or $0.01 per share. In Q2 Fiscal 2009, Zarlink recorded net income of $7.2 million, or $0.05 per share.
On a non-GAAP basis, operating income for Q2 Fiscal 2010 was $7.4 million, compared to Q1 Fiscal 2010 non-GAAP operating income of $8.5 million and Q2 Fiscal 2009 non-GAAP operating income of $7.6 million. Non-GAAP net income in Q2 Fiscal 2010 was $6.3 million, or $0.05 basic earnings per share and $0.04 diluted earnings per share. For Q1 Fiscal 2010, non-GAAP net income was $7.5 million, or $0.06 basic earnings per share and $0.05 diluted earnings per share. For Q2 Fiscal 2009 non-GAAP net income was $9.0 million, or $0.07 basic earnings per share and $0.06 diluted earnings per share.
In Q2 Fiscal 2010, cash and short-term investments increased by $8.6 million to $55.7 million as at September 25, 2009 compared with $47.1 million as at June 26, 2009.
The Company made several important technology announcements in Q2 Fiscal 2010, including:
- Gigaset Communications is using Zarlink's VE880 VoicePort Series in an innovative fixed mobile convergence system that merges wireless voice service and the wired home phone network;
- Zarlink's VoiceEdge VE792 Next Generation Carrier Chipset (NGCC) and a testing solution from Tollgrade Communications provides a collaborative solution that helps telecom carriers improve triple play service reliability while reducing operating costs;
- Expanded line test capabilities for the VE890 chipset series that help voice-over-IP (VoIP) service providers lower operating costs and deliver voice services with the same reliability as traditional telephone network operators;
On October 28, 2009, Zarlink declared a quarterly dividend of CDN$0.50 per share on its preferred shares (
Third Quarter Fiscal 2010 Guidance
The opening backlog at the start of Q3 Fiscal 2010 was approximately $45 million, compared with an opening backlog of $49 million at the start of Q2 Fiscal 2010.
Zarlink is forecasting for Q3 Fiscal 2010:
- Revenue between $52 million and $54 million;
- Gross margins between 50% to 52%, excluding supply chain harmonization costs of approximately $0.7 million;
- Operating expenses between $21 million to $22 million excluding amortization of intangibles;
- Excluding any potential impact of foreign exchange gains/losses related to the Company's Canadian dollar denominated debenture, Zarlink expects Q3 earnings of $0.01 to $0.03 per share.
Analyst Conference Call
An open conference call for analysts will be held on October 28, 2009 beginning at 5:00 p.m. EDT. Access the call by dialing 1-866-250-4877. Investors, media and other parties are listen-only. For a replay, call 1-877-289-8525, passcode 4173770# or 416-640-1917, passcode 4173770#. The replay is available until midnight November 11, 2009. A live audio webcast will be available through http://www.marketwire.com/ (Marketwire) or from the Company's website at www.zarlink.com/
About Zarlink Semiconductor
For over 30 years, Zarlink Semiconductor has delivered semiconductor solutions that drive the capabilities of voice, enterprise, broadband and wireless communications. The Company's success is built on its technology strengths including voice and data networks, optoelectronics and ultra low-power communications. For more information, visit www.zarlink.com.
Shareholders and other individuals wishing to receive, free of charge, copies of the reports filed with the U.S. Securities and Exchange Commission and Regulatory Authorities, should visit the Company's web site at www.zarlink.com or contact Investor Relations.
Certain statements in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and assumptions include, among others, the following: our dependence on the successful development and market introduction of new products; our ability to integrate any business, technologies, product lines or services that we have or will acquire; our dependence on revenue generation from our legacy products in order to fund development of our new products; current market conditions, including the lack of liquidity in the markets and economic slowdown, may increase our operating costs or reduce our revenue, thereby negatively impacting our operating results; our ability to operate profitably and generate positive cash flows in the future; the impact of the current economic crisis on our suppliers and customers and our ability to transfer parts to other suppliers; our dependence on our foundry suppliers and third-party subcontractors; order cancellations and deferrals by our customers; our substantial indebtedness could adversely affect our financial position; the cost and accounting implications of compliance with new accounting standards; and other factors referenced in our Annual Report on Form 20-F. Investors are encouraged to consider the risks detailed in this filing.
Zarlink and the Zarlink Semiconductor logo are trademarks of Zarlink Semiconductor Inc.
Zarlink Semiconductor Inc.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) DATA
(in thousands of U.S dollars, except per share amounts, U.S. GAAP)
(Unaudited)
Three months ended Six months ended
-------------------------------------------------------------------------
Sept. 25, June 26, Sept. 26, Sept. 25, Sept. 26,
2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue $53,596 $53,608 $61,827 $107,204 $122,338
Cost of revenue 26,665 26,745 31,250 53,410 64,171
-------------------------------------------------------------------------
Gross margin 26,931 26,863 30,577 53,794 58,167
-------------------------------------------------------------------------
Expenses:
Research and
development 10,601 9,536 11,218 20,137 23,158
Selling and
Administrative 10,124 10,293 13,626 20,417 26,083
Amortization of
intangible assets 1,803 1,825 1,846 3,628 3,692
Contract impairment - 809 - 809 -
Recovery of
current asset (768) - - (768) -
Gain on sale of
assets - - - - (936)
-------------------------------------------------------------------------
21,760 22,463 26,690 44,223 51,997
-------------------------------------------------------------------------
Operating income 5,171 4,400 3,887 9,571 6,170
Loss on repurchase
of convertible
debentures (316) - - (316) -
Interest income 43 45 349 88 716
Interest expense (973) (903) (1,145) (1,876) (2,315)
Amortization of
debt issue costs (160) (160) (184) (320) (368)
Foreign exchange
gain (loss) (2,999) (3,880) 1,940 (6,879) 1,618
-------------------------------------------------------------------------
Net income (loss)
before income taxes 766 (498) 4,847 268 5,821
Income tax recovery
(expense) (46) (18) 2,385 (64) 2,511
-------------------------------------------------------------------------
Net income (loss) $720 $(516) $7,232 $204 $8,332
-------------------------------------------------------------------------
Net income (loss)
attributable to
common shareholders $135 $(1,005) $6,566 $(870) $6,938
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income (loss)
per common share:
Basic and diluted $0.00 $(0.01) $0.05 $(0.01) $0.05
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average
number of common
shares outstanding
(thousands):
Basic 122,426 122,426 125,580 122,426 126,412
Diluted 123,510 122,426 157,723 122,426 158,555
Percentage of
revenue:
Gross margin 50% 50% 49% 50% 48%
Research and
Development 20% 18% 18% 19% 19%
Selling and
Administrative 19% 19% 22% 19% 21%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Zarlink Semiconductor Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS DATA
(in thousands of U.S. dollars, U.S. GAAP)
(Unaudited)
Three months ended Six months ended
-------------------------------------------------------------------------
Sept. 25, June 26, Sept. 26, Sept. 25, Sept. 26,
2009 2009 2008 2009 2008
-------------------------------------------------------------------------
CASH PROVIDED BY
(USED IN)
----------------
Operating
activities:
Net income (loss) $720 $(516) $ 7,232 $204 $ 8,332
Depreciation
of fixed assets 949 976 1,164 1,925 2,383
Amortization of
other assets 1,963 1,985 2,030 3,948 4,060
Stock compensation
expense 325 363 490 688 1,000
Other non-cash
changes in
operating
activities 2,665 4,390 (1,186) 7,055 (1,636)
Deferred income
taxes (71) 154 996 83 933
Decrease (increase)
in working
capital:
Trade accounts
and other
receivables 2,692 (1,613) (2,943) 1,079 (5,745)
Inventories (878) (1,645) 610 (2,523) 1,068
Prepaid
expenses
and other (247) (70) 235 (317) 1,569
Payables and
other accrued
liabilities (796) (1,083) (1,916) (1,879) (4,778)
Deferred credits 1,898 17 2,174 1,915 1,941
-------------------------------------------------------------------------
Total 9,220 2,958 8,886 12,178 9,127
-------------------------------------------------------------------------
Investing activities:
Expenditures for
fixed assets (411) (575) (634) (986) (2,264)
Proceeds from
disposal of fixed
assets - - 11 - 984
-------------------------------------------------------------------------
Total (411) (575) (623) (986) (1,280)
-------------------------------------------------------------------------
Financing activities:
Repurchase of
long-term debt (13) - - (13) -
Payment of dividends
on preferred shares (466) (477) (519) (943) (1,085)
Repurchase of
preferred shares (433) (272) (440) (705) (890)
Repurchase of
common shares - - (980) - (1,820)
-------------------------------------------------------------------------
Total (912) (749) (1,939) (1,661) (3,795)
-------------------------------------------------------------------------
Effect of currency
translation on cash 672 497 (559) 1,169 (541)
Increase in cash and
cash equivalents 8,569 2,131 5,765 10,700 3,511
Cash and cash
equivalents,
beginning of period 47,137 45,006 40,107 45,006 42,361
-------------------------------------------------------------------------
Cash and cash
equivalents, end
of period $55,706 $47,137 $45,872 $55,706 $45,872
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Zarlink Semiconductor Inc.
CONSOLIDATED BALANCE SHEETS DATA
(in thousands of U.S. dollars, U.S. GAAP)
(Unaudited)
Sept. 25, June 26, March 27,
2009 2009 2009
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $55,706 $47,137 $45,006
Restricted cash and cash equivalents 15,455 13,783 13,145
Trade accounts receivable - net 23,209 26,247 24,556
Other accounts receivable - net 4,568 4,222 4,300
Inventories - net 30,344 29,465 27,821
Prepaid expenses and other 2,998 2,752 2,681
Current assets held for sale 1,935 1,935 1,935
-------------------------------------------------------------------------
134,215 125,541 119,444
Fixed assets - net 11,803 12,153 12,530
Deferred income tax assets - net 5,723 5,654 5,800
Intangible assets - net 45,477 47,280 49,106
Other assets 2,283 2,489 2,655
-------------------------------------------------------------------------
$199,501 $193,117 $189,535
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $12,513 $12,298 $12,018
Employee-related payables 8,918 8,940 9,478
Income and other taxes payable 657 513 482
Current portion of provisions for exit
Activities 1,826 2,247 3,645
Other accrued liabilities 6,972 7,549 6,454
Deferred credits 2,776 878 861
Deferred income tax liabilities -
current portion 31 32 28
-------------------------------------------------------------------------
33,693 32,457 32,966
Long-term debt - convertible debentures 64,923 61,473 57,203
Long-term portion of provisions for exit
Activities 558 583 200Pension liabilities 17,075 15,278 14,690
Deferred income tax liabilities -
long-term portion 31 32 28
Long-term accrued income taxes 2,350 2,271 2,408
Other long-term liabilities 833 837 830
-------------------------------------------------------------------------
119,463 112,931 108,325
-------------------------------------------------------------------------
Redeemable preferred shares, unlimited
shares authorized; 1,014,400 shares
issued and outstanding as at
September 25, 2009 12,984 13,298 13,558
-------------------------------------------------------------------------
Shareholders' equity:
Common shares, unlimited shares
authorized; no par value; 122,425,682
shares issued and outstanding as at
September 25, 2009 738,818 738,818 738,818
Additional paid-in capital 34,526 34,320 33,969
Deficit (670,611) (670,865) (669,872)
Accumulated other comprehensive loss (35,679) (35,385) (35,263)
-------------------------------------------------------------------------
67,054 66,888 67,652
-------------------------------------------------------------------------
$199,501 $193,117 $189,535
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Zarlink Semiconductor Inc.
SUPPLEMENTARY SCHEDULES
(in thousands of U.S. dollars, U.S. GAAP)
(Unaudited)
Geographic Information:
Revenue, based on the geographic location of Zarlink's customers, was
distributed as follows:
Three Months Three Months Three Months
Ended Ended Ended
Sept. 25, % of June 26, % of Sept. 26, % of
2009 Total 2009 Total 2008 Total
--------------------------------------------------------------------------
Asia - Pacific $29,143 54% $28,429 53% $32,782 53%
Europe 13,379 25 14,306 27 15,130 24
Americas 11,074 21 10,873 20 13,915 23
--------------------------------------------------------------------------
$53,596 100% $53,608 100% $61,827 100%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Six Months Six Months
Ended % of Ended % of
Sept. 25, 2009 Total Sept. 26, 2008 Total
-----------------------------------------------------------------------
Asia - Pacific $57,572 54% $62,300 51%
Europe 27,685 26 32,135 26
Americas 21,947 20 27,903 23
-----------------------------------------------------------------------
$107,204 100% $122,338 100%
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Product Group Information:
-------------------------
Revenue, based on product group, was distributed as follows:
Three Months Three Months Three Months
Ended Ended Ended
Sept. 25, % of June 26, % of Sept. 26, % of
2009 Total 2009 Total 2008 Total
--------------------------------------------------------------------------
Communication
Products $34,196 64% $32,648 61% $39,729 64%
Medical Products 7,799 15 8,984 17 7,810 13
Optical Products 3,830 7 3,953 7 6,839 11
Custom & Other 7,771 14 8,023 15 7,449 12
--------------------------------------------------------------------------
$53,596 100% $53,608 100% $61,827 100%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Six Months Six Months
Ended % of Ended % of
Sept. 25, 2009 Total Sept. 26, 2008 Total
-----------------------------------------------------------------------
Communication
Products $66,844 62% $78,782 64%
Medical Products 16,783 16 16,978 14
Optical Products 7,783 7 13,048 11
Custom & Other 15,794 15 13,530 11
-----------------------------------------------------------------------
$107,204 100% $122,338 100%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-GAAP Measures
As a supplement to Zarlink's consolidated financial statements presented in accordance with generally accepted accounting principles ("GAAP"), the Company provides additional non-GAAP measures for operating income, net income (loss), and basic and diluted net income (loss) per share.
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. These non-GAAP financial measures should assist investors in understanding how management views our core results of operations on an on-going basis, as well as enhance comparisons of our core results of operations with historical periods. In addition, the measures are used for planning and forecasting of the Company's future periods. Investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures do not reflect all costs associated with our operations as determined in accordance with GAAP. Other companies may exclude or include different items in a particular non-GAAP financial measure, or provide different non-GAAP financial measures to those provided by Zarlink. Therefore, our non-GAAP financial measures are unlikely to be comparable to those presented by other companies.
Zarlink Semiconductor Inc.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share amounts)
(Unaudited)
Three months ended Six months ended
--------------------------------------------------------------------------
Sept. 25, June 26, Sept. 26, Sept. 25, Sept. 26,
2009 2009 2008 2009 2008
--------------------------------------------------------------------------
GAAP net income
(loss) $720 $(516) $7,232 $204 $8,332
Amortization of
intangible assets 1,803 1,825 1,846 3,628 3,692
Contract impairment - 809 - 809 -
Foreign exchange
loss (gain) 2,999 3,880 (1,940) 6,879 (1,618)
Restructuring and
supply chain
harmonization 889 1,093 1,339 1,981 3,280
Recovery of
current asset (768) - - (768) -
Stock compensation
expense 325 363 490 688 1,000
Gain on sale of
assets - - - - (936)
Loss on repurchase
of convertible
debentures 316 - - 316 -
--------------------------------------------------------------------------
Non-GAAP net income $6,284 $7,454 $8,967 $13,737 $13,750
GAAP operating
Income $5,171 $4,400 $3,887 $9,571 $6,170
Amortization of
intangible assets 1,803 1,825 1,846 3,628 3,692
Contract impairment - 809 - 809 -
Restructuring and
supply chain
harmonization 889 1,093 1,339 1,981 3,280
Recovery of current
asset (768) - - (768) -
Stock compensation
expense 325 363 490 688 1,000
Gain on sale of assets - - - - (936)
--------------------------------------------------------------------------
Non-GAAP operating
Income $7,420 $8,490 $7,562 $15,909 $13,206
GAAP net income (loss)
per common share -
basic $0.00 $(0.01) $0.05 $(0.01) $0.05
Amortization of
intangible assets 0.01 0.01 0.01 0.03 0.03
Contract impairment - 0.01 - 0.01 - Foreign exchange
loss (gain) 0.02 0.03 (0.02) 0.06 (0.01)
Restructuring and
supply chain
harmonization 0.01 0.01 0.01 0.02 0.03
Recovery of current
asset (0.01) - - (0.01) -
Stock compensation
expense 0.00 0.00 0.00 0.01 0.01
Gain on sale of
assets - - - - (0.01)
Loss on repurchase
of convertible
debentures 0.00 - - 0.00 -
--------------------------------------------------------------------------
Non-GAAP net income
per common share -
basic(i) $0.05 $0.06 $0.07 $0.10 $0.10
GAAP net income (loss)
per common share -
diluted $0.00 $(0.01) $0.05 $(0.01) $0.05
Amortization of
intangible assets 0.01 0.01 0.01 0.02 0.02
Contract impairment - 0.01 - 0.01 -
Foreign exchange
loss (gain) 0.02 0.03 (0.01) 0.05 (0.01)
Restructuring and
supply chain
harmonization 0.01 0.01 0.01 0.01 0.02
Recovery of current
asset (0.01) - - (0.01) -
Stock compensation
Expense 0.00 0.00 0.00 0.00 0.01
Gain on sale of
assets - - - - (0.01)
Loss on repurchase
of convertible
debentures 0.00 - - 0.00 -
Effect of dilutive
potential common
shares 0.00 0.01 - 0.01 -
--------------------------------------------------------------------------
Non-GAAP net income
per common share -
diluted(i) $0.04 $0.05 $0.06 $0.09 $0.09
Shares used to
calculate non-GAAP
net income per
common share -
basic 122,426 122,426 125,580 122,426 126,412
Shares used to
calculate non-GAAP
net income per
common share -
diluted 152,436 151,696 157,723 152,148 158,555
(i) Amounts may not add due to rounding.
Contacts: Zarlink Semiconductor Inc. Ed Goffin Media Relations and Investor Relations 613-270-7112 Email Contact