Paul Pickering & Kevin Bauer - KMA Sales · PDF fileGenerally Accepted Accounting Principles:...
Transcript of Paul Pickering & Kevin Bauer - KMA Sales · PDF fileGenerally Accepted Accounting Principles:...
Paul Pickering & Kevin BauerThomas Weisel Technology & Telecom Conference – February 10, 2010
Cautionary RemarksForward-Looking Statements:This presentation contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. 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. The forward-looking statements contained in this presentation include statements about future financial and operating results; economic recession, industry and market conditions, potential merger synergies and cost savings; the ability to drive growth and expand customer and partner relationships, changes in gross margins, revenues and operating expenses, manufacturing yields or operations, product development initiatives, design win conversion and other such statements. These statements are not guarantees of future performance, involve risks, uncertainties and assumptions that are difficult to predict, and are based upon assumptions as to future events that may not prove accurate. Therefore, actual outcomes and results may differ materially from what is expressed herein. In any forward-looking statement in which the Company expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement or expectation or belief will result or be achieved or accomplished. Information concerning risk factors are detailed in the Company's SEC reports, including the Annual Report on Form 10-K for the year ended March 29, 2009 and Quarterly Report on Form 10-Q for the three months ended June 28, 2009, September 27, 2009 and December 27, 2009.
Generally Accepted Accounting Principles:The Company reports its financial results in accordance with GAAP. Additionally, the Company supplements reported GAAP financials with non-GAAP measures which are included in related press releases and reports furnished to the SEC, copies of which are available at the Company’s website: http://www.exar.com or the SEC’s website at: http://www.sec.gov. In this presentation, we are disclosing non-GAAP gross margin, non-GAAP research and development expenses, non-GAAP selling, general and administrative expenses, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP net income (loss), and non-GAAP diluted earnings (loss) per share, which are adjusted to exclude from our GAAP results all stock-based compensation expense, amortization of acquired intangible assets, fair value adjustment of acquired inventories, acquisition-related costs, separation costs of executive officers, acceleration of depreciation on abandoned equipment, goodwill and other intangible asset impairment, impairment charges on investments, and income tax effects. These non-GAAP measures are presented in part to enhance the understanding of the Company’s historical financial performance and comparability between reporting periods. The Company believes the non-GAAP presentation, when shown in conjunction with the corresponding GAAP measures, provide relevant and useful information to analysts, investors, management and other interested parties following the semiconductor industry. For its internal purposes, the Company uses the foregoing non-GAAP measures to evaluate performance across reporting periods, determine certain employee benefits as well as plan for and forecast the Company’s future periods. These non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP. These measures shouldonly be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures.
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• Powering Connectivity by delivering highly differentiated silicon solutions for the evolving connected world
• Distinctive expertise in analog & mixed-signal SoC design
• Fabless semiconductor company with global design, sales and support• 530 employees worldwide
• 38 year history of EXcellence And Reliability
• Strong Foundation ~ $218M cash + ~ $225M NOL’s + ~ $30M Net Assets
• FY3Q10 (Dec-09) Revenue = $33.9M
• FY4Q10 Revenue Guidance = $35M-37M
Exar at a Glance
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Broad Market PenetrationDatacomStorage
Portable GamingDisplayMedia GatewayStorage
Consumer
SecurityHVAC
Lighting ControlMotor ControlAdapter Cards
Factory Automation
Industrial
Enterprise ServersWireline InfrastructureWireless Infrastructure
Network Equipment
Backup/VTLEnterprise Storage ArraysSAN Switches/DirectorsSMB NAS
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Investor Overview
• Datacom & Storage Focus sized for profitable growth• Revenue and Gross Margins are increasing
• Track record of decreasing OpEx
• Non-GAAP operating profitability targeted for March Q’CY10 (before impact
of Neterion)
• Focus strengthened by plan to acquire Neterion
• Emerging stronger from WW economic downturn• Delivering many new winning-products (35 in CY 2009)
• New products (digital power, deduplication, USB UART) ramping revenue
• Increased major account relevance (e.g. Huawei & ZTE)
• Successfully integrated two acquisitions in 2009 (Hifn & Galazar)
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Datacom Growth Drivers• Migration to packet-based infrastructure
• Cost, flexibility, service revenue• Ubiquity of connected devices
• Multimedia = more bandwidth to more users• Cloud computing model
• SMB outsourcing IT to manage costs• ‘Mega datacenter’ economies of scale
• Virtualized enterprise datacenters• Green initiatives = less power
• 20% of hardware cost in 2000, 70% in 2001• Power density increasing 15% annually*
• Network and storage security• Efficient utilization of compute, network and storage resources
• Power efficiency• Space efficiency *Source: IDC
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Storage Growth Drivers• Capacity
• 45 GB of data for every human on Earth*• 10x growth from 2006 to 2011 (60% CAGR)*• Multiplication effect
• Performance• Becoming an integral part of the network• Backup moving from tape to disk-based• Migration to SSD in some segments
• Lower power, higher performance, more robust
• Security• Corporate governance• Protecting personal information
• Efficiency• Data compression is a requirement• Minimizing data redundancy is critical• Increasing back-up/restore speeds is necessary
*Source: IDC
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Product Vision – Managing Data
Reduce – Secure – Optimize – Transport
Compression: Minimize locally for storage and transport
Encryption: Protect user’s data at rest and in motion
Deduplication: Eliminate redundancy – minimize globally
Power: Reduce power usage in components, cards and systems
Communication: Connectivity through TDM and IP networks Connectivity through I/O interfaces
Virtualization: Enable efficient server utilization
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Datacom & Storage
Exar Product Lines
Data Encryption & Compression SolutionsData Deduplication Solutions10 Gigabit Ethernet NIC Solutions
Data Encryption & Compression SolutionsData Encryption & Compression SolutionsData Deduplication SolutionsData Deduplication Solutions10 Gigabit Ethernet NIC Solutions10 Gigabit Ethernet NIC Solutions
Communications
Carrier Ethernet and Optical Transport (OTN)SONET / SDH SolutionsT / E Telecom Carrier Solutions
Carrier Ethernet and Optical Transport (OTN)Carrier Ethernet and Optical Transport (OTN)SONET / SDH SolutionsSONET / SDH SolutionsT / E Telecom Carrier SolutionsT / E Telecom Carrier Solutions
Power
Digital PowerStandard LinearDC/DC Conversion
Digital PowerDigital PowerStandard LinearStandard LinearDC/DC ConversionDC/DC Conversion
Interface
UART SolutionsSerial Transceiver SolutionsUART SolutionsUART SolutionsSerial Transceiver SolutionsSerial Transceiver Solutions
Acquisitions:
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Technology Solution Enablement
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Flexible Technology Delivery
Revenue, Gross Margin (N-G) & OpEx (N-G)Quarterly Trends (June 08 – March 10)
$40M
$35M
$30M
$25M
$20M
$15M
$10M
$5M
$0MJun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09
70%
65%
60%
55%
50%
45%
40%
35%
30%
Guidance Range 1/28/10:
WW Economic Downturn
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Mar-10
Revenue by Product Line
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Datacom38%
Interface45%
Power17%
FY10 YTD ‐ 9 mths
Worldwide Sales & Support
Future Electronics Corporate Locations
Nu Horizons Corporate Locations
Fremont, CA Headquarters Design Manufacturing Sales & Marketing
Taipei, TaiwanShenzhen, China
Tokyo, Japan
Billerica, MA
Montréal, Ottawa & Toronto Canada
Beijing, China Seoul, KoreaAtlanta, GA
Palatine,IL
Plano,TX
Munich, GermanyParis, France
London, UK
Shanghai, China
Ipoh, MalaysiaSingapore
Raleigh, NCPoway,CA
Milan,Italy
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Channel Partners# of
Components
DiscontinuanceMass Production
Japan
Local Distributors
AsiaPan-Asian &
Local Distributors
Europe
Pan-Euro& Local
Distributors
Concept
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Direct & Disty (sell‐thru)82%
Disty (sell‐in)18%
FY10 YTD ‐9 mths
Revenue by Geography & Channel
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Americas26%
Asia25%
China35%
EMEA14%
FY10 YTD ‐9 mths
P&L Quarterly Targets without Neterion
*Dependent upon the rate of economic recovery in the markets we serve
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Key Financial Metrics
*Includes cash payments for Hifn and Galazar acquisition related costs of $4.0M
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Neterion Acquisition OverviewNeterion Acquisition OverviewNeterion Acquisition Overview
Rationale for Neterion
• Positioning Exar for growth• Addressing higher growth markets• Adding proven technology• Strong software development team
• Expanded solutions for the Converged Data Center• Network connectivity: Neterion: 1Q, 2010
• 10 Gigabit Ethernet• Virtualization
• Enterprise/SMB storage: Hifn: acquired 2Q09• Data compression and deduplication• Data security
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Optimizing & SecuringData at Rest and Data in Motion
Exar in the “Cloud”
• Server Connectivity• I/O Virtualization • Data Compression• Data Deduplication• Secure Storage
• T/E Carrier Interface• Packet Network Interface• Secure Voice/Data
• Secure Storage• Data Compression• Data Deduplication• Secure Backup
• Data Compression• Secure Storage• Online Backup
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Why Exar?Managing Data at Rest in the Data Center
New InstallationsNew InstallationsNew Installations
Protected via RAID Against Loss
Protected via RAID Protected via RAID Against LossAgainst Loss
Encrypted Rarely
Encrypted Encrypted RarelyRarely
No Management ofData Footprint
No Management ofNo Management ofData FootprintData Footprint
Data Deduplication only in Backup
Data Deduplication only Data Deduplication only in Backupin Backup
Installed BaseInstalled BaseInstalled Base
Protected via RAID Against Loss
Protected via RAID Protected via RAID Against LossAgainst Loss
No Protection Against TheftNo Protection No Protection Against TheftAgainst Theft
No Management ofData Footprint
No Management ofNo Management ofData FootprintData Footprint
No Elimination ofData RedundancyNo Elimination ofNo Elimination ofData RedundancyData Redundancy
Next GenerationNext GenerationNext Generation
Protected via RAID Against Loss
Protected via RAID Protected via RAID Against LossAgainst Loss
Encryption as a Standard FeatureEncryptionEncryption as a as a
Standard FeatureStandard Feature
Data Footprint Reduced w/Compression
Data Footprint Reduced Data Footprint Reduced w/w/CompressionCompression
Data Deduplication inPrimary Storage
Data Data DeduplicationDeduplication ininPrimary StoragePrimary Storage
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70%+ Utilization70%+ Utilization70%+ Utilization
10 Gigabit Ethernetwith Compression
10 Gigabit Ethernet10 Gigabit Ethernetwith with CompressionCompression
Security:Encryption in the LAN
Security:Security:EncryptionEncryption in the LANin the LAN
VirtualMachines
Multiple PartitionsOne Server
Multiple Owners
Multiple PartitionsMultiple PartitionsOne ServerOne Server
Multiple OwnersMultiple Owners
Next GenerationNext GenerationNext Generation
70%+ Utilization70%+ Utilization70%+ Utilization
10 Gigabit Ethernet10 Gigabit Ethernet10 Gigabit Ethernet
Multiple Partitions/AppsOne ServerOne Owner
Multiple Partitions/AppsMultiple Partitions/AppsOne ServerOne ServerOne OwnerOne Owner
Security:WAN Firewall
Security:Security:WAN FirewallWAN Firewall
VirtualMachines
New InstallationsNew InstallationsNew Installations
15% Utilization15% Utilization15% Utilization
Gigabit EthernetGigabit EthernetGigabit Ethernet
One ApplicationOne ServerOne Owner
One ApplicationOne ApplicationOne ServerOne ServerOne OwnerOne Owner
Security:WAN Firewall
Security:Security:WAN FirewallWAN Firewall
Installed BaseInstalled BaseInstalled Base
Why Neterion?Managing Data in Motion in the Data Center
10 GE 10 GE1 GE
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Neterion
Solutions for Converged Data Center
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• Virtualization Leadership• 10 Gigabit Ethernet Technology•• Virtualization LeadershipVirtualization Leadership•• 10 Gigabit Ethernet Technology10 Gigabit Ethernet Technology
Exar
• Data Reduction and Security Leadership• Hardware Offload Technology• Extensive R&D, Sales, and Marketing Resources
•• Data Reduction and Security LeadershipData Reduction and Security Leadership•• Hardware Offload TechnologyHardware Offload Technology•• Extensive R&D, Sales, and Marketing ResourcesExtensive R&D, Sales, and Marketing Resources
Exar & Neterion
Solutions to Optimize Next Generation Server I/OSolutions to Optimize Next Generation Server I/OSolutions to Optimize Next Generation Server I/O
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• Improved financial performance
• Increasing Revenue & Gross Margins
• Track record of reducing OpEx & achieving cost synergies
• Moving to operating profitability
• Delivering winning products & design wins
• New products & FY09 design wins starting to add revenue
Positioning to address growth markets
Summary
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Thank You for your attendance!
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Appendix
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Reconciliation of Unaudited GAAP to Non-GAAP Results (1/2)
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(In thousands, except per share amounts) JUN 29, SEP 28, DEC 28, MAR 29, JUN 28, SEP 27, DEC 27,2008 2008 2008 2009 2009 2009 2009
Net Sales 32,211$ 32,748$ 26,305$ 23,854$ 30,862$ 31,588$ 33,931$
GAAP gross margin $ 14,470$ 15,005$ 10,704$ 10,066$ 12,845$ 14,090$ 17,045$ Stock-based compensation 192 174 118 111 116 151 117 Amortization of acquired intangible assets 955 955 783 436 1,340 1,567 1,108 Fair value adjustment of acquired inventories - - - - 1,787 447 92 Acquisition-related costs 115 - - - 6 18 - Accelaration of depreciation on abandoned equipment - - 300 - - - - Non-GAAP gross margin $ 15,732$ 16,134$ 11,905$ 10,613$ 16,094$ 16,273$ 18,362$
GAAP gross margin % 44.9% 45.8% 40.7% 42.2% 41.6% 44.6% 50.2% Stock-based compensation 0.6% 0.5% 0.5% 0.5% 0.4% 0.5% 0.3% Amortization of acquired intangible assets 3.0% 2.9% 3.0% 1.8% 4.3% 5.0% 3.3% Fair value adjustment of acquired inventories - - - - 5.8% 1.4% 0.3% Acquisition-related costs 0.4% - - - - 0.1% - Accelaration of depreciation on abandoned equipment - 1.1% - - - - Non-GAAP gross margin % 48.8% 49.3% 45.3% 44.5% 52.1% 51.5% 54.1%
GAAP research and development expenses 8,092$ 8,133$ 8,092$ 7,512$ 12,294$ 12,288$ 11,674$ Stock-based compensation 358 481 392 383 486 748 467 Amortization of acquired intangible assets 263 263 200 72 588 635 635 Acquisition-related costs - - - - 557 192 128 Accelaration of depreciation on abandoned equipment - - 437 - - - - Non-GAAP research and development expenses 7,471$ 7,389$ 7,063$ 7,057$ 10,663$ 10,713$ 10,444$
GAAP selling, general and administrative expenses 11,301$ 9,746$ 9,099$ 8,816$ 15,112$ 11,375$ 10,688$ Stock-based compensation 809 435 768 713 707 767 751 Amortization of acquired intangible assets 162 162 122 44 142 179 178 Acquisition-related costs 541 - - 778 3,926 620 297 Separation costs of executive officers - - - - 162 - - Accelaration of depreciation on abandoned equipment - - 437 - - - - Non-GAAP selling, general and administrative expenses 9,789$ 9,149$ 7,772$ 7,281$ 10,175$ 9,809$ 9,462$
GAAP operating expenses 19,393$ 17,879$ 76,867$ 16,328$ 27,406$ 23,663$ 22,362$ Stock-based compensation 1,167 916 1,160 1,096 1,193 1,515 1,218 Amortization of acquired intangible assets 425 425 322 116 730 814 813 Acquisition-related costs 541 - - 778 4,483 812 425 Separation costs of executive officers - - - - 162 - - Accelaration of depreciation on abandoned equipment - 874 - - - - Goodwill and other intangible asset impairment - - 59,676 - - - - Non-GAAP operating expenses 17,260$ 16,538$ 14,835$ 14,338$ 20,838$ 20,522$ 19,906$
GAAP operating loss (4,923)$ (2,874)$ (66,163)$ (6,262)$ (14,561)$ (9,573)$ (5,317)$ Stock-based compensation 1,359 1,090 1,278 1,207 1,309 1,666 1,335 Amortization of acquired intangible assets 1,380 1,380 1,105 552 2,070 2,381 1,921 Fair value adjustment of acquired inventories - - - - 1,787 447 92 Acquisition-related costs 656 - - 778 4,489 830 425 Separation costs of executive officers - - - - 162 - - Accelaration of depreciation on abandoned equipment - - 1,174 - - - - Goodwill and other intangible asset impairment - - 59,676 - - - - Non-GAAP operating income (loss) (1,528)$ (404)$ (2,930)$ (3,725)$ (4,744)$ (4,249)$ (1,544)$
Notes: Certain amounts may not total due to rounding.
Reconciliation of Unaudited GAAP to Non-GAAP Results (2/2)
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(In thousands, except per share amounts) JUN 29, SEP 28, DEC 28, MAR 29, JUN 28, SEP 27, DEC 27,2008 2008 2008 2009 2009 2009 2009
Net Sales 32,211$ 32,748$ 26,305$ 23,854$ 30,862$ 31,588$ 33,931$
GAAP net loss (2,461)$ (2,187)$ (63,823)$ (4,565)$ (12,875)$ (8,163)$ (3,762)$ Stock-based compensation 1,359 1,090 1,278 1,207 1,309 1,666 1,335 Amortization of acquired intangible assets 1,380 1,380 1,105 552 2,070 2,381 1,921 Fair value adjustment of acquired inventories - - - - 1,787 447 92 Acquisition-related costs 656 - - 778 4,489 830 425 Separation costs of executive officers - - - - 162 - - Accelaration of depreciation on abandoned equipment - - 1,174 - - - - Goodwill and other intangible asset impairment - - 59,676 - - - - Impairment charges on investments - 1,454 34 301 72 245 - Income tax effects (161) 142 (103) (413) (152) (136) 107 Non-GAAP net income (loss) 773$ 1,879$ (659)$ (2,140)$ (3,138)$ (2,730)$ 118$
GAAP diluted loss per share (0.06)$ (0.05)$ (1.49)$ (0.11)$ (0.30)$ (0.19)$ (0.09)$ Stock-based compensation 0.03 0.03 0.03 0.03 0.03 0.04 0.03 Amortization of acquired intangible assets 0.03 0.03 0.03 0.01 0.05 0.05 0.04
Fair value adjustment of acquired inventories - - - - 0.04 0.01 - Acquisition-related costs 0.02 - - 0.02 0.10 0.02 0.01 Separation costs of executive officers - - - - - - - Accelaration of depreciation on abandoned equipment - - 0.03 - - - - Goodwill and other intangible asset impairment - - 1.39 - - - - Impairment charges on investments - 0.03 - 0.01 - 0.01 - Income tax effects - - - (0.01) - - - Non-GAAP diluted earnings (loss) per share 0.02$ 0.04$ (0.02)$ (0.05)$ (0.07)$ (0.06)$ 0.00$
Shares used in diluted earnings (loss) per share --- GAAP 42,973 42,735 42,889 42,950 43,314 43,550 43,648 The effect of dilutive potential common shares due to reporting Non-GAAP net income 260 246 - - - - - The effect of removing stock-based compensation expense under SFAS 123R for Non-GAAP presentation purpose (81) (130) - - - - - Shares used in diluted earnings (loss) per share --- Non-GAAP 43,152 42,851 42,889 42,950 43,314 43,550 43,648
Notes: Certain amounts may not total due to rounding.
Peer Group Revenue & OpEx (N-G) through Downturn (Quarterly Trends Sep 08 – Sep 09*)
110%
100%
90%
80%
70%
60%
50%
Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
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PE
EP
PP
PE
EE
P P
PE E
E
Peer Group (Avg): ACTL, ADPT, AMCC, CRUS, LSCC, MCRL, MSPD, POWI, SIMG, SMSC
EXAR Revenue & OpEx (N-G) for Sep-08, Dec-08 & Mar-09 is “as if combined with Hifn & Galazar”
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