Financial Results
Under generally accepted accounting principles (GAAP), net income for the second quarter of 2005 was $10.9 million or $0.29 per diluted share, compared to $8.8 million, or $0.23 per diluted share, in the second quarter of 2004 and $25.5 million or $0.68 per diluted share in the first quarter of 2005. This GAAP net income includes non-cash charges related to deferred stock-based compensation for all periods and a $250,000 reversal in the first quarter of 2005 of the lease abandonment charge taken in 2004. These charges are set forth in the reconciliation GAAP to non-GAAP financial measures table included below. The second quarter 2005 results include income taxes at an effective tax rate of 37% which compares to an effective tax rate of 2% in the second quarter of 2004 and 34% in the first quarter of 2005.
As of June 30, 2005, SigmaTel reported cash and short-term investments of $178.6 million, which is up from the March 31, 2005 balance of $150.7 million.
"Our corporate strategy has been to position SigmaTel to provide investors with a sound, long-term growth investment. We are confident that with solid execution and a focus on diversifying our product offerings through internal design, mergers and acquisitions, and joint development, we will continue to grow the company at a pace equal to or better than other premium mixed signal companies," said Ron Edgerton, Chief Executive Officer and President of SigmaTel. "We believe that we can extrapolate this success to complimentary markets."
Business Summary
SigmaTel's portable SoC products for digital audio applications continued to win new designs in the second quarter. The release of the SigmaTel software development kit ("SDK") enabled with Microsoft's WMDRM 10 and MTP allows customers the flexibility to create players that can playback both download and subscription based content. The capability of dynamic switching between MTP and Mass Storage Class USB and an on-chip Real Time Clock supports subscription based music services without requiring additional components like many competing solutions. The company's SDK supporting large block MLC can also reduce costs by allowing customers to take advantage of lower memory costs. In addition several key customers have been early adopters of the 3600 solution and are pleased with the highly integrated features and low power consumption. The 3600 family will provide solutions for both hard-drive and flash MP3 player designs and is expected to be in production later in the third quarter.
The momentum of design wins for SigmaTel's audio codecs increased during the second quarter. Customers have told SigmaTel that audio performance is becoming a competitive differentiator for personal computer manufacturers. The company believes its ability to provide 8-channel high-fidelity audio codecs for PC and convergent home entertainment applications furthers the evolution of the home computer as the control center of the home theater/entertainment center. The STAC 9220 is in production in several key desktop designs and there have been additional wins in the notebook segment. At Computex Taipei last month, the company successfully demonstrated its "VFIR" (very fast infrared) technology for the secure wireless transfer of files between two portable devices. This capability can be integrated in various portable devices such as MP3 players and digital cameras.
The ITC investigation instigated by SigmaTel against Actions Semiconductor is scheduled for trial in late November. SigmaTel is seeking to stop Actions' from importing infringing products into the U.S.
SigmaTel's growth during the second quarter included the opening of multiple offices in Asia. In addition to the offices opened in the first quarter in Taiwan and Singapore, SigmaTel opened offices during the last 2 months in Shenzhen, Southern China and Seoul, Korea. CEO Edgerton stated, "Throughout the quarter we have been focused on strengthening sales and customer service by building infrastructure to provide more timely strategic support for our customers in Asia and our regional presence should help expand our customer base."
Business Outlook
"The financial success of our growing portfolio of design-winning products has allowed us to develop enhancements and companion chips for our current offerings and target other areas where we can use our mixed-signal expertise to increase the breadth of our solutions for portable digital multimedia products," said Mr. Edgerton. "We believe higher levels of integration that are cost effective for our customers will make our designs the solution of choice as we introduce a new generation of multimedia chips. Our approach will allow us to develop new customer relationships and grow existing ones, positively impacting our long-term results. It is essential to understand not only the needs of our customers, but also the various components of the competitive landscape, so as to maintain, if not increase, our technological lead, and deliver the long-term shareholder value that is deserving of a highly profitable growth company. Each of these elements as well as expected business developments has been given thoughtful consideration and we have factored this into our third quarter guidance."
Specific guidance for the third quarter of 2005:
-- Revenues are expected to be between $73.0 million and $82.0 million, up 52% to 70% when compared to the $48.1 million of revenues in the third quarter of 2004.
-- Gross margin is expected to be 54 percent, plus or minus a couple of percentage points. SigmaTel's gross margin percentage varies primarily with product mix, pricing, and unit costs.
-- Pro forma adjusted net income is expected to be between $11.1 million and $13.7 million. This excludes the amortization of non-cash deferred stock-based compensation of approximately $0.2 million.
-- GAAP net income is expected to be between $11.0 million and $13.6 million, including a provision for income taxes at a rate of 35%.
-- Proforma adjusted EPS is expected to be between $0.30 and $0.37. Included in this guidance is approximately $0.03 per share for projected litigation costs.
We have updated our corporate presentation and it is now available on our corporate website, www.sigmatel.com/investor.relations. This presentation incorporates the company's new financial data and information about the strategic acquisitions announced earlier today.
Conference Call Today
A conference call will be held today, July 26, 2005, beginning at 4:00 P.M. Central Time. This call will be simulcast via SigmaTel's website at www.sigmatel.com/investor.relations. Replays of the call will be available at this web address and via telephone at 800-633-8284 (U.S.) and 402-977-9140 (international) by entering reservation number 21250066. These replays will be available through August 26, 2005.
About SigmaTel:
SigmaTel, Inc., a fabless semiconductor company headquartered in Austin, Texas, designs, develops, and markets proprietary, analog intensive, mixed-signal ICs for a variety of products in the consumer electronics and computing markets, including portable compressed audio players, such as MP3 players, notebook and desktop PCs, DVD players, digital televisions, and set-top boxes. SigmaTel provides complete, system-level solutions that include highly-integrated ICs, customizable firmware and software, software development tools, reference designs, and applications support. The Company's focus is on providing system-level solutions that enable customers to rapidly introduce and offer electronic products that are small, light-weight, power-efficient, reliable, and cost-effective. SigmaTel is ISO 9001:2000 certified and is committed to providing customers with high performance, quality products along with superior customer service.
Readers may obtain investment information from the company's investor relations department at 512-381-3931, by sending email to investor.relations@sigmatel.com, or on the Web at www.sigmatel.com/investor.relations.
Cautionary Language:
This press release contains forward-looking statements based on current SigmaTel expectations. The words "expect," "will," "should," "would," "anticipate," "project," "outlook," "believe," "intend," and similar phrases as they relate to SigmaTel or future events are intended to identify such forward-looking statements. These forward-looking statements reflect the current views and assumptions of SigmaTel, but are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. A number of important factors could cause actual results to differ materially from those in the forward-looking statements, and there will be events in the future that SigmaTel is not able to accurately predict or control. Among the factors that could cause actual results to differ materially from those in the forward-looking statements are the following: risks that SigmaTel may not be able to maintain its high growth rate; risks that adverse changes in the global economy may reduce demand for SigmaTel's products; risks that shortages of supply for other components of MP3 players may limit customer demand to purchase SigmaTel's portable audio SoCs; quarterly fluctuations in revenue and operating results due to seasonal fluctuations in demand for consumer electronics products and other factors; risks that SigmaTel's foundry suppliers may not allocate to it sufficient silicon wafers to meet its demand due to SigmaTel's lack of long term supply contracts with foundries and tightening foundry capacity; risks that SigmaTel may not be able to successfully manage strains associated with its growth; risks that SigmaTel's new products under development may not be completed in a timely fashion and may not achieve market acceptance; risks with managing international activities; intellectual property litigation risk; dependence on a limited number of products; the semiconductor industry's cyclical nature; geographic concentration of foundries, assembly and test facilities, distributors, and customers in the Pacific Rim, subjecting SigmaTel to risks of natural disasters, epidemics (such as SARS), and political unrest; and other factors. For a discussion of these and other factors that could impact SigmaTel's financial results and cause actual results to differ materially from those in the forward-looking statements, please refer to recent SigmaTel filings with the SEC, the Form 10-Q that was filed on April 19,2005, the Form 10-K that was filed on February 8, 2005 covering the annual period ended December 31, 2004, and the Form 10-Q that SigmaTel anticipates filing shortly covering the quarterly period ended June 30, 2005.
Non-GAAP Financial Measurements
In addition to the GAAP results provided by this document, the company has provided non-GAAP financial measurements that present net income and net income per share on a basis excluding certain non-cash charges. Details of these excluded items are presented in the table below, which reconciles the GAAP results to non-GAAP financial measurements described in this press release. Also, this press release and the reconciliation from GAAP results to these and other additional non-GAAP financial measurements that may be discussed in the Q2 2005 earnings conference call can be found on the company's website at www.sigmatel.com/investor.relations.
SigmaTel is a registered trademark of SigmaTel, Inc. All other products and brand names as they appear in this release are trademarks or registered trademarks of their respective holders. All specifications may be changed without notice.
SIGMATEL, INC.
PRO FORMA VS. GAAP RESULTS
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2005 2004 2005 2004
---------- ------- -------- --------
Net income as reported $10,896 $8,821 $36,426 $15,752
Pro forma adjustments (tax
effected):
Partial reversal of lease
abandonment charge -- -- (250) --
Deferred stock-based
compensation 155 394 272 1,369
---------- ------- -------- --------
Pro forma net income $11,051 $9,215 $36,448 $17,121
========== ======= ======== ========
Diluted weighted average shares
outstanding 37,351 38,768 37,584 38,607
Diluted net income per share,
pro forma $0.30 $0.24 $0.97 $0.44
========== ======= ======== ========
SIGMATEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2005 2004 2005 2004
--------- -------- --------- --------
Revenues $69,572 $36,608 $168,910 $68,108
Cost of goods sold 30,999 16,778 73,293 31,562
--------- -------- --------- --------
Gross profit 38,573 19,830 95,617 36,546
Operating expenses:
Research and development 12,890 7,170 24,760 13,253
Selling, general and
administrative 9,326 3,603 16,440 6,502
Amortization of deferred
stock-based compensation 238 402 418 1,397
--------- -------- --------- --------
Total operating expenses 22,454 11,175 41,618 21,152
--------- -------- --------- --------
Operating income 16,119 8,655 53,999 15,394
Other income (expense):
Interest income, net 1,245 345 2,067 678
Foreign exchange loss (43) -- (43) --
--------- -------- --------- --------
Total other income 1,202 345 2,024 678
--------- -------- --------- --------
Income before income taxes 17,321 9,000 56,023 16,072
Income taxes 6,425 179 19,597 320
--------- -------- --------- --------
Net income $10,896 $8,821 $36,426 $15,752
========= ======== ========= ========
BASIC NET INCOME PER SHARE $0.31 $0.25 $1.02 $0.45
========= ======== ========= ========
DILUTED NET INCOME PER SHARE $0.29 $0.23 $0.97 $0.41
========= ======== ========= ========
WEIGHTED AVERAGE SHARES USED TO
COMPUTE:
Basic net income 35,704 35,147 35,552 34,820
Diluted net income 37,351 38,768 37,584 38,607
SIGMATEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
June 30, December 31,
2005 2004
---------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $73,894 $27,246
Short-term investments 104,726 114,451
Accounts receivable, net 40,263 34,195
Inventories, net 26,920 19,411
Income tax receivable 3,861 --
Deferred tax asset, net 364 7,613
Prepaid expenses and other current assets 4,474 4,241
---------- ------------
Total current assets 254,502 207,157
Property, equipment and software, net 10,984 7,116
Intangible assets, net 4,736 4,357
Other assets 1,992 1,285
---------- ------------
Total assets $272,214 $219,915
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $21,830 $23,016
Accrued compensation 3,592 3,884
Other accrued expenses 2,956 2,459
Income taxes payable -- 239
Deferred revenue 9,094 7,286
Current portion of long-term obligations 715 1,223
---------- ------------
Total current liabilities 38,187 38,107
Non-current income taxes payable 6,807 --
Other liabilities 340 892
---------- ------------
Total liabilities 45,334 38,999
---------- ------------
Stockholders' equity:
Common stock, $0.0001 par value; 170,000
shares authorized; shares issued and
outstanding: 35,867 and 35,777 at 2005
and 35,205 and 35,115 at 2004,
respectively 4 4
Additional paid-in capital 182,618 173,480
Notes receivable from stockholders (5) (7)
Deferred stock-based compensation (869) (1,278)
Treasury stock, 90 common shares at cost (741) (741)
Accumulated surplus 45,884 9,458
Accumulated other comprehensive loss (11) --
---------- ------------
Total stockholders' equity 226,880 180,916
---------- ------------
Total liabilities and stockholders' equity $272,214 $219,915
========== ============
SIGMATEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months
Ended June 30,
-----------------
2005 2004
-------- --------
Cash flows from operating activities:
Net income $36,426 $15,752
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,026 2,098
Amortization of deferred stock-based
compensation 418 1,397
Amortization of premium and accretion of
discount on securities 120 --
Deferred income tax expense 7,452 --
Lease abandonment adjustments (385) --
Tax benefit related to exercise of employee
stock options 6,358 --
Other non-cash (benefit) expense (232) 409
Changes in assets and liabilities:
Accounts receivable, net (6,068) (3,182)
Inventories, net (7,509) (6,613)
Prepaid expenses and other
assets (1,145) (1,021)
Accounts payable (1,186) 3,141
Accrued expenses 146 1,151
Income taxes payable 2,707 --
Deferred revenue and other
liabilities 1,228 2,863
-------- --------
Net cash provided by operating
activities 41,356 15,995
-------- --------
Cash flows from investing activities:
Proceeds from maturities of short-term
investments 73,056 48,250
Purchase of short-term investments (63,451) (89,832)
Purchase of property, equipment, software and
intangible assets (7,273) (6,649)
-------- --------
Net cash provided by (used in)
investing activities 2,332 (48,231)
Cash flows from financing activities:
Payments on capital lease obligations (32) (23)
Proceeds from notes receivable from
stockholders 2 108
Proceeds from issuance of common stock, net
of issuance costs 3,048 8,312
-------- --------
Net cash provided by financing
activities 3,018 8,397
-------- --------
Effect of exchange rate changes on cash (58) --
-------- --------
Net increase (decrease) in cash and cash
equivalents 46,648 (23,839)
Cash and cash equivalents, beginning of period 27,246 61,841
-------- --------
Cash and cash equivalents, end of period $73,894 $38,002
======== ========
Contact:
SigmaTel, Inc., Austin Investor Relations: Debbie Laudermilk, 512-381-3931 Email Contact or Press Contact: Rebecca Gonzales, 512-381-3913 Email Contact