ESS Technology Reports Third Quarter Results
Wednesday October 23, 4:20 pm ET
Revenue of $60.7 Million and EPS of $0.06
FREMONT, Calif., Oct. 23 /PRNewswire-FirstCall/ -- ESS Technology (Nasdaq: ESST - News) today reported net revenues for the third quarter of 2002 of $60.7 million, down $11.7 million or 16.2% percent from the same period last year, and down $25.3 million or 29.4% compared to revenues of $86.0 million in the second quarter of 2002.
Net income for the third quarter of 2002 was $2.8 million, or $0.06 per diluted share, compared to net income of $12.8 million, or $0.28 per diluted share, in the third quarter of 2001. For the second quarter of 2002, net income was $17.3 million, or $0.36 per diluted share.
Pro forma net income for the third quarter of 2002 was $3.3 million, compared to $9.2 million for the third quarter 2001 and $18.0 million for the second quarter 2002. Pro forma earnings per diluted share were $0.07, compared to pro forma earnings of $0.20 per diluted share in the same period last year and the pro forma $0.37 earned in the second quarter of 2002. Pro forma net income excludes the effects of amortization of intangible assets, the effects of investment gains and losses, and the effects of the discontinued operations.
Gross margin for the third quarter of 2002 was 25%, down from 37% for the third quarter of 2001 and down from 41% for the second quarter of 2002. The decrease is mainly due to a $9.3 million charge for inventory reserves which represents approximately 15% of gross margin. This charge primarily consists of approximately a $7.1 million write down of VCD inventory to the lower of cost or market resulting from the Company's introduction of its new low cost product for that market and the Company's adoption of an aggressive pricing strategy to gain market share in the VCD market based on that new product. In addition, the Company took a $1.8 million charge for excess and obsolete inventory, $900,000 of which is due to the old, higher cost VCD product becoming obsolete.
Robert L. Blair, president and chief executive officer commented, "Our third quarter results are due to an unexpectedly weak market and the impact of competition. As we stated in our revised guidance in September we were greatly surprised when the typical seasonal pick up in sales simply did not occur this year. In addition, customer adoption of a competitor's combined DVD servo/decoder solution was much quicker than expected. We now believe this quick adoption was enabled largely due to our competitor copying ESS intellectual property to shorten the design cycle. Therefore, we initiated a lawsuit in the federal courts seeking to stop this infringement."
Mr. Blair continued, "However, we have several positive aspects to our business that will drive future growth. We plan to sample our Vibratto II chip, which we believe is the most technically advanced integrated DVD servo/decoder solution, in the coming weeks. We also plan to introduce our new higher margin Visba3 VCD product for volume shipments in the first quarter of 2003. In addition, we continue to win important new DVD designs in Japan, Korea and Europe and we have continued to grow our business in the automotive DVD market. We also have seen continued new design wins for our DVR and DVD-recordable solutions throughout Asia. Finally, our recently introduced family of consumer digital audio products continues to win designs in Japan, Korea and China. ESS is committed to the digital entertainment market and we believe we will continue to be the world's leading supplier of digital video products," Mr. Blair concluded.(emphasis added)
Fourth Quarter 2002 Guidance
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. We expect overall revenues for the fourth quarter to range from $45 - $50 million, gross margins of 30% - 33%, and earnings per diluted share to be in the range of $0.02 to $0.05.
Earnings Conference Call
ESS Technology, Inc. has scheduled a conference call for 5:00 p.m. ET today to discuss its third quarter results. An Internet simulcast and reply will be available at www.esstech.com and videonewswire.com .
About ESS Technology
ESS Technology, Inc., is a leading supplier of high-performance feature-rich chips, applications and solutions for digital entertainment markets. ESS provides advanced products that enable the emergence of digital home systems that deliver and manage entertainment and information in the home.
ESS, headquartered in Fremont, California, has R&D, sales, and technical support offices worldwide. ESS Technology's common stock is traded on the Nasdaq under the symbol "ESST." ESS Technology's web site address is: esstech.com .
The matters discussed in this news release include certain forward-looking statements that involve risks and uncertainties, including, but not limited to, the impact of competitive products and pricing, the possible reduction of consumer spending occasioned by general economic conditions, the timely availability and acceptance of the Company's new products, the dependence on continued growth in demand for consumer multimedia products, the uncertainty of the outcome of any litigation proceedings, and the other risks detailed from time to time in the SEC reports of ESS, including the reports on Form 10-K and Form 10-Q. Actual results could differ materially from those projected in the forward-looking statements.
NOTE: All trademarks mentioned in this news release are owned by their respective holders and are used in this news release for identification purposes only.
ESS TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) (audited)
September 30 December 31
2002 2001
ASSETS
Current Assets:
Cash and cash equivalents $114,873 $96,995
Short-term investments 65,133 32,039
Accounts receivable, net 31,863 42,642
Inventories 44,881 37,452
Prepaid expenses and other assets 4,147 1,894
Total current assets 260,897 211,022
Property, plant and equipment, net 18,650 22,438
Other assets, net 7,444 4,505
Total Assets $286,991 $237,965
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $41,716 $49,173
Income taxes payable and deferred
income taxes 9,983 4,883
Total current liabilities 51,699 54,056
Non-current deferred tax liability 6,931 6,931
Shareholders' equity:
Common stock 196,072 153,678
Accumulated other comprehensive
income (loss) 133 (1,374)
Retained earnings 32,156 24,674
Total shareholders' equity 228,361 176,978
Total Liabilities and Shareholders'
Equity $286,991 $237,965
ESS TECHNOLOGY, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (A)
(unaudited)
(in thousands, except per share data)
Three months ended Nine months ended
September September September September
30 30 30 30
2002 2001 2002 2001
Net revenues $60,746 $72,397 $225,898 $188,114
Cost of revenues 45,665 45,930 141,321 131,506
Gross profit 15,081 26,467 84,577 56,608
25% 37% 37% 30%
Operating expenses:
Research and development 6,946 6,037 20,064 16,556
Selling, general and
administrative 6,452 11,686 27,859 29,269
Operating income 1,683 8,744 36,654 10,783
Nonoperating income, net 1,788 989 4,562 1,706
Income before provision for income
taxes 3,471 9,733 41,216 12,489
Provision for income taxes 176 487 2,026 587
Net income $3,295 $9,246 $39,190 $11,902
Net income per share
Basic $0.08 $0.22 $0.89 $0.28
Diluted $0.07 $0.20 $0.83 $0.27
Weighted average common shares:
Basic 43,484 42,380 44,127 42,375
Diluted 45,706 45,375 47,408 44,761
(A) Pro Forma adjustments are detailed within the schedule titled
"Reconciliation of GAAP Basis Net Income to Pro Forma Net Income"
ESS TECHNOLOGY, INC.
RECONCILIATION OF GAAP BASIS NET INCOME (LOSS) TO PRO FORMA NET INCOME
(unaudited)
(in thousands)
Three months
ended Nine months ended
Sep 30 Sep 30 Sep 30 Sep 30
2002 2001 2002 2001
Net income (loss) - GAAP basis $2,759 $12,787 $36,467 $(18,096)
Pro Forma Adjustments:
Amortization of intangible assets
(A) 214 454 428 2,906
Write down of investments (B) 350 782 3,337 1,814
Cisco stock sale (C) -- -- 61 21,187
Tax effect to items (A) and (B)
and (C) (28) (62) (1,103) (8,711)
Discontinued operation, net of
tax (D) -- (4,715) -- 12,802
Net income - Pro forma $3,295 $9,246 $39,190 $11,902
(A) Pro forma amounts for all periods presented exclude the effects of
amortization of intangible assets, amounting to $214 and $454 for the
three months ended September 30, 2002 and September 30, 2001,
respectively, and $428 and $2,906 for the nine months ended
September 30, 2002 and September 30, 2001, respectively.
(B) Pro forma amounts for all periods presented exclude the effect of the
write-down of investments, amounting to $350 and $782 for the
three months ended September 30, 2002 and September 30, 2001,
respectively, and $3,337 and $1,814 for the nine months ended
September 30, 2002 and September 30, 2001, respectively.
(C) Pro forma amounts for all periods presented exclude the realized
losses on the sale of Cisco stock, amounting to $61 and $21,187 for
the nine months ended September 30, 2002 and September 30, 2001,
respectively.
(D) Pro forma amounts for all periods presented exclude the effects of
the discontinued operation, amounting to $0 and ($4,715) for the
three months ended September 30, 2002 and September 30, 2001,
respectively, and $0 and $12,802 for the nine months ended
September 30, 2002 and September 30, 2001, respectively.
ESS TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-GAAP BASIS
(unaudited)
(in thousands, except per share data)
Three months ended Nine months ended
September September September September
30 30 30 30
2002 2001 2002 2001
Net revenues $60,746 $72,397 $225,898 $188,114
Cost of revenues 45,665 45,930 141,321 131,506
Gross profit 15,081 26,467 84,577 56,608
25% 37% 37% 30%
Operating expenses:
Research and development 7,160 7,273 20,584 21,276
Selling, general and administrative 6,452 11,686 27,859 29,269
Operating income 1,469 7,508 36,134 6,063
Nonoperating income (loss), net 1,438 989 1,256 (19,481)
Income (loss) before provision for
(benefit from) income taxes 2,907 8,497 37,390 (13,418)
Provision for (benefit from) income
taxes 148 425 923 (8,124)
Income (loss) from continuing
operations 2,759 8,072 36,467 (5,294)
(Loss) from discontinued operation -- -- -- (4,205)
Income (loss) from disposal of
discontinued operation -- 4,715 -- (8,597)
Net income (loss) $2,759 $12,787 $36,467 $(18,096)
Net income (loss) per share:
Basic
Continuing operations $0.06 $0.19 $0.83 $(0.13)
Discontinued operation $-- $0.11 $-- $(0.30)
$0.06 $0.30 $0.83 $(0.43)
Diluted
Continuing operations $0.06 $0.18 $0.77 $(0.13)
Discontinued operation $-- $0.10 $-- $(0.30)
$0.06 $0.28 $0.77 $(0.43)
Weighted average common shares:
Basic 43,484 42,380 44,127 42,375
Diluted 45,706 45,375 47,408 42,375
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Source: ESS Technology, Inc. |
