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RSS INFOZoran Corporation Reports Second Quarter 2008 Results
SUNNYVALE, Calif. (July 28, 2008) - Zoran Corporation (Nasdaq GS: ZRAN), a leading provider of digital solutions for applications in the growing digital entertainment and digital imaging markets, today reported results for its second quarter ended June 30, 2008.
Revenues for the second quarter were $128.7 million, compared to $109.0 million last quarter and $129.9 million for the second quarter of 2007. The Company reported a net loss for the second quarter of $36.6 million, or $0.71 per share, which includes a one time in-process research and development expense of $22.4 million as part of the acquisition of Let It Wave, charges of $9.3 million related to the amortization of acquisition-related purchased intangible assets, and stock-based compensation expenses of $3.6 million. This compares with a net loss of $4.7 million, or $0.09 per share, for the previous quarter and a net income of $0.2 million, or $0.00 per diluted share, for the second quarter of 2007. Zoran’s GAAP net income was adversely impacted by a significant change in the tax rate as a result of changes to the geographic mix in income projections for the remainder of the year. The increased rate has been applied to the Company’s year-to-date earnings. The Company will continue to utilize its tax assets, which significantly reduce the actual cash paid out on income taxes.
Non-GAAP net income for the second quarter was $1.5 million, or $0.03 per diluted share, which excludes the in-process research and development expense, charges related to the amortization of acquisition-related purchased intangible assets, and stock-based compensation expenses. This compares with non-GAAP net income of $3.5 million, or $0.07 per diluted share, for the previous quarter, and $16.9 million, or $0.33 per diluted share, for the same period last year. The Company’s non-GAAP net income was also affected by the substantial change in the annual effective tax rate, which increased to 73.2 percent in the second quarter. Excluding the net effect of the tax rate change, our non-GAAP net income for the quarter based on the originally projected annualized tax rate of 31.5 percent, would have been $ 8.0 million or $0.15 per diluted share.
“During the second quarter we achieved record sales in our DTV and mobile phone processor lines, sequentially growing revenues 34 and 29 percent, respectively,” said Dr. Levy Gerzberg, Zoran’s president and chief executive officer. “In digital cameras, our COACH product line performed well, growing 47 percent over last quarter, while we also achieved strong growth in the set-top-box segment, which grew 114 percent during the same period. However, the decline in DVD was larger than we had anticipated, resulting in the weaker than expected revenues we reported. Despite relative strength in sectors such as automotive applications, and the increased demand Blu Ray is expected to drive, we believe DVD will not exhibit the same seasonal revenue growth we’ve seen in past years. We are also seeing increasingly cautious order patterns from our customers in the digital camera market. In light of these factors, which we believe are driven largely by continued weakness in the global economy and the subsequent reduction in consumer spending, we are maintaining a cautious outlook for the third quarter. We are confident in our strong portfolio of integrated technologies and systems expertise and believe we can maintain and enhance our leadership positions in each of our core markets.”
Recent Highlights
Revenues by product line for the second quarter of 2008 were 33 percent Digital Camera, 28 percent DTV, 15 percent DVD, 15 percent Printer Imaging, 7 percent mobile phone processors and 2 percent other
Zoran Adds Frame Rate Conversion Technology Through Acquisition of Let It Wave
Zoran-Powered Apex Digital Converter Box Supporting Analog Pass-Through Gains NTIA Approval
Zoran’s APPROACH® 5C Multimedia Processor Powers LG’s Secret Black Label Phone With High Quality Image Capture
Zoran Launches Highly Integrated Quatro® Processors Supporting Improved Performance, Color Touch Panels and Wi-Fi and Ethernet Options
Zoran Announces Preliminary Approval of Derivative Litigation Settlement
Future Outlook
The following statements are based on our current expectations. These statements are forward-looking, and actual results may differ materially.The Company is currently expecting third quarter 2008 revenues to range between $123 million and $128 million, with gross margins ranging between 46 and 47 percent. Excluding acquisition related amortization costs and stock-based compensation expense, non-GAAP operating expenses are expected to be in a range of $54.5 million to $55.5 million. Acquisition-related amortization costs are expected to be approximately $4.5 million, and stock-based compensation expense is expected to range between $3.2 and $3.6 million. The Company expects to record third quarter earnings in the range of a loss of $0.04 per share to $0.00 per diluted share. Non-GAAP earnings for the quarter, which excludes acquisition related amortization costs and stock-based compensation expense, is expected to range between $0.02 and $0.04 per diluted share on approximately 52.2 million shares.
Zoran will provide more commentary on its second quarter results during the quarterly conference call.
Use of Non-GAAP Financial Information
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Zoran provides non-GAAP financial information, consisting of non-GAAP operating expense and non-GAAP net income (loss) that excludes acquisition related in-process research and development expenses, amortization of acquired intangible assets and stock-based compensation expense.The Company believes that its non-GAAP financial information provides useful information to management and investors regarding financial and business trends relating to its financial condition and results of operations because it excludes items that management considers to be outside of the Company’s core operating results. The Company believes that this non-GAAP net income (loss), in combination with the Company’s financial results calculated in accordance with GAAP, provides investors with additional perspective and a more meaningful understanding of the Company’s ongoing operating performance. In addition, the Company’s management uses these non-GAAP measures to review and assess the financial performance of the Company, to determine executive officer incentive compensation, and to plan and forecast performance in future periods. The Company’s non-GAAP net income (loss) is not prepared in accordance with GAAP, is not an alternative to GAAP financial information, and may be calculated differently than non-GAAP financial information disclosed by other companies.
Quarterly Conference Call
Zoran Corporation has scheduled a conference call for 2:00 p.m. PT today to discuss second quarter results. To listen to the call, please call 617-614-4070 approximately five minutes prior to the start of the call. For those who are not available to listen to the live conference call, a replay will be available from approximately 4:30 p.m. PT on July 28, until 4:30 p.m. PT on August 4, 2008. The access number for the replay is 617-801-6888, confirmation number 81126486. Additionally, the conference call will be broadcast live over the Internet and can be accessed by all interested parties through the investor relations section of Zoran’s website at www.zoran.com. Please access the website at least fifteen minutes prior to the start of the call to register and to download and install any necessary audio software.Company Profile
Zoran Corporation, based in Sunnyvale, California, is a leading provider of digital solutions for applications in the growing digital entertainment and digital imaging markets. With two decades of expertise developing and delivering digital signal processing technologies, Zoran has pioneered high-performance digital audio and video, imaging applications, and Connect Share Entertain™ technologies for the digital home. Zoran’s proficiency in integration delivers major benefits for OEM customers, including greater capabilities within each product generation, reduced system costs, and shorter time to market. Zoran-based DVD, digital camera, DTV, multimedia mobile phone, and multifunction printer products have received recognition for excellence and are now in hundreds of millions of homes and offices worldwide. With headquarters in the U.S. and additional operations in Canada, China, England, France, Germany, India, Israel, Japan, Korea and Taiwan, Zoran may be contacted on the World Wide Web at www.zoran.com or at 408-523-6500.Forward-Looking Statements
This press release includes forward-looking statements, including the chief executive officer quotation and the material presented under “Future Outlook,” that reflect the Company’s current views with respect to future events and financial performance. These forward-looking statements are subject to many risks and uncertainties that could cause actual results to differ materially from what is expected, including risks associated with: potential declines in the Company’s sales or market share as a result of a general economic slowdown that could reduce demand for consumer electronic and other products incorporating the Company’s products; the rapidly evolving markets for the Company’s products and uncertainty regarding the pace and direction of development of those markets; cost and timing of new product development; timing and impact of new product introductions by the Company and its competitors and transitions away from older products; intense competition in our markets; the Company’s reliance on other parties for wafer supplies, product assembly and testing, and scalable manufacturing capacity; the effects of changes in revenue and product mix on the Company’s gross margins; the Company’s dependence on sales to large customers; fluctuations in product mix; fluctuations in tax rate caused by changing projections of the geographic sources of Company income; dependence on key personnel; litigation related to our review of historical stock option practices and related financial restatements; and reliance on international sales and operations, particularly operations in Israel. Further information regarding these and other risks and uncertainties can be found in the Company’s most recently filed Annual Report on Form 10-K and other filings with the SEC.Zoran, the Zoran logo, Quatro and APPROACH are trademarks of Zoran Corporation in the United States and/or other countries. All other brands or names may be claimed as property of others.
ZORAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Revenues:
Hardware product revenues $ 113,606 $ 114,508 $ 207,903 $ 201,690
Software and other revenues 15,079 15,395 29,813 29,872
--------- --------- --------- ---------
Total revenues 128,685 129,903 237,716 231,562
Costs and expenses:
Cost of hardware product
revenues 68,360 60,178 126,149 104,376
Research and development 30,797 29,976 58,684 54,964
Selling, general and
administrative 24,260 28,414 49,899 57,007
Amortization of intangibles 9,256 12,169 18,493 24,338
In-process research and
development 22,383 - 22,383 -
--------- --------- --------- ---------
Total costs and expenses 155,056 130,737 275,608 240,685
Operating loss (26,371) (834) (37,892) (9,123)
Interest and other income, net 2,831 3,882 6,644 8,087
--------- --------- --------- ---------
Income (loss) before income
taxes (23,540) 3,048 (31,248) (1,036)
Provision for income taxes 13,080 2,850 10,050 4,650
--------- --------- --------- ---------
Net income (loss) $ (36,620) $ 198 $ (41,298) $ (5,686)
========= ========= ========= =========
Basic net income (loss) per
share $ (0.71) $ 0.00 $ (0.80) $ (0.11)
========= ========= ========= =========
Diluted net income (loss) per
share $ (0.71) $ 0.00 $ (0.80) $ (0.11)
========= ========= ========= =========
Shares used to compute basic
net income (loss) per share 51,707 49,600 51,576 49,527
========= ========= ========= =========
Shares used to compute diluted
net income (loss) per share 51,707 51,187 51,576 49,527
========= ========= ========= =========
ZORAN CORPORATION
NON-GAAP ADJUSTMENTS TO NET INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
2008 2007 2008 2007
--------- ---------- --------- ---------
GAAP net income
(loss) $ (36,620) $ 198 $ (41,298) $ (5,686)
Adjusting items to
GAAP net income
(loss):
Amortization of
intangibles 9,256 (a) 12,169(a) 18,493 (a) 24,338 (a)
Operating
expenses related
to stock based
compensation
expense 3,641 (b) 4,520(b) 6,584 (b) 7,756 (b)
In-process
research and
development
expense 22,383 © - 22,383 © -
Provision for
income taxes 2,869 (d) - (1,140)(d) -
--------- ---------- --------- ---------
Non-GAAP net income $ 1,529 (e) $ 16,887(e) $ 5,022 (e) $ 26,408 (e)
========= ========== ========= =========
Non-GAAP basic net
income per share $ 0.03 (e) $ 0.34(e) $ 0.10 (e) $ 0.53 (e)
========= ========== ========= =========
Non-GAAP diluted
net income per
share $ 0.03 (e) $ 0.33(e) $ 0.10 (e) $ 0.52 (e)
========= ========== ========= =========
Shares used to
compute non-GAAP
basic net income
per share 51,707 49,600 51,576 49,527
========= ========== ========= =========
Shares used to
compute non-GAAP
diluted net income
per share 52,142 51,410 52,082 50,958
========= ========== ========= =========
(a) This adjustment reflects the amortization of intangible assets
associated with the acquisitions of Oak Technology, Inc. in August 2003,
Emblaze Semiconductor in July 2004, Oren Semiconductor, Inc. in June 2005
and Let It Wave in June 2008. These acquired intangible assets are
amortized over their estimated useful lives. Such amortization expense
does not impact the Company’s cash flows and is excluded by management when
evaluating our core operating results. (see (e) below)
(b) This adjustment reflects the stock-based compensation expense recorded
under SFAS 123R. For 2007, the adjustment also includes additional stock
based compensation expense attributable to options that were remeasured as
part of the stock option review and the attributable tax implications under
IRS regulation 409(A) that will be incurred by the Company. The Company
excludes these items when it evaluates the continuing operational
performance of the Company as management believes this GAAP measure is not
indicative of its core operating performance. (see (e) below)
© This adjustment reflects the in process research and development charge
recorded by the Company as part of the acquisition of Let It Wave in June
2008. This in process research and development charge does not impact the
Company’s ongoing cash flows and is excluded by management when evaluating
our core operating results. (see (e) below)
(d) This adjustment represents the difference between the non-GAAP income
tax rate and the GAAP income tax rate. This adjustment is made by the
Company when it evaluates its continuing operational performance. (see (e)
below)
(e) The Company believes that its non-GAAP financial information provides
useful information to management and investors regarding financial and
business trends relating to its financial condition and results of
operations because it excludes charges that management considers to be
outside of the Company’s core operating results. The Company believes that
this non-GAAP net income, in combination with the Company’s financial
results calculated in accordance with GAAP, provides investors with
additional perspective and a more meaningful understanding of the Company’s
ongoing operating performance. In addition, the Company’s management uses
these non-GAAP measures to review and assess the financial performance of
the Company, to determine executive officer incentive compensation and to
plan and forecast performance in future periods. The Company’s non-GAAP net
income is not prepared in accordance with GAAP, is not an alternative to
GAAP financial information, and may be calculated differently than non-GAAP
financial information disclosed by other companies.
ZORAN CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)
June 30, December 31, 2008 2007 ------------ ------------
ASSETS
Current assets: Cash and short-term investments $ 302,396 $ 319,809 Accounts receivable, net 57,877 58,220 Inventory 60,603 48,992 Prepaid expenses and other current assets 25,412 25,189 ------------ ------------ Total current assets 446,288 452,210
Property and equipment, net 17,805 17,636 Other assets 129,742 155,850 Intangible assets, net 177,448 194,636 ------------ ------------
Total assets $ 771,283 $ 820,332 ============ ============
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities: Accounts payable $ 44,157 $ 67,836 Accrued expenses and other liabilities 46,793 43,968 ------------ ------------ Total current liabilities 90,950 111,804
Long term liabilities 25,092 20,756
Stockholders’ equity: Common stock 52 51 Additional paid-in capital 858,263 847,597 Accumulated other comprehensive income (905) 995 Accumulated deficit (202,169) (160,871) ------------ ------------ Total stockholders’ equity 655,241 687,772
Total liabilities and stockholders’ equity $ 771,283 $ 820,332 ============ ============
###
Contacts:
Karl SchneiderChief Financial Officer
(408) 523-6500
ir@zoran.com
Bonnie McBride (Investors)
(415) 806-0385
bonnie@mcbridegrp.com
