ESS Technology Reports Second Quarter 2003 Results
Wednesday July 30, 4:57 pm ET
FREMONT, Calif., July 30 /PRNewswire-FirstCall/ -- ESS Technology (Nasdaq: ESST - News) today reported net revenues for the second quarter of 2003 of $31.0 million compared to $86.0 million for the same period last year and compared to $33.2 million in the first quarter of 2003.
Net income for the second quarter of 2003 was $15.9 million, or $0.40 per diluted share, compared to net income of $17.3 million, or $0.36 per diluted share, for the second quarter of 2002. For the first quarter of 2003, net loss was ($2.1) million, or ($0.05) per diluted share.
Non-GAAP (formerly referred to as pro forma) net income for the second quarter of 2003 was $19.2 million, or $0.48 per diluted share, compared to second quarter 2002 non-GAAP net income of $18.0 million, or $0.37 per diluted share. Non-GAAP net income and loss excludes the effects of amortization of intangible assets, write-down of investments, in-process research and development, and related tax effects. Both GAAP and Non-GAAP net income for the second quarter of 2003 include an up-front licensing fee of $45.0 million from MediaTek. Excluding this licensing fee, non-GAAP net loss for the second quarter of 2003 would have been ($1.9) million, or ($0.05) per diluted share.
Robert Blair, president and CEO of ESS Technology commented, "During the quarter, ESS achieved several significant goals. First, we settled our lawsuit with MediaTek, which has brought us an up-front licensing fee of $45.0 million this quarter, plus ongoing royalties that should amount to $4-$5 million per quarter up to a maximum of an additional $45.0 million. We increased gross margins by 3% over the first quarter, and we made over $15.9 million in profits after tax. More importantly, ESS began volume shipments of our Vibratto II family of integrated DVD products, and we were the first DVD supplier to be certified by DivX Networks for DivX and MPEG4 products. We believe the MPEG4 decode market is growing extremely fast worldwide and we expect both of these new products to have a significant contribution starting from the second half of 2003.
"Also in the second quarter, we expanded our technology and product offerings by acquiring Pictos Technologies, Inc. for $27.0 million in cash. This acquisition is part of ESS's long-term strategy as Pictos's imaging technologies expand ESS's product line to address the large and growing cellular camera phone, digital still camera and camcorder markets. We believe these new products and markets will have a significant contribution to ESS in 2004 and beyond," Mr. Blair continued.
"2003 is a year of development and investment for ESS Technology. We are putting in place the technologies and products to achieve our vision of being the leading supplier of digital entertainment products for the consumer entertainment electronics industry," Mr. Blair concluded.
Third Quarter 2003 Guidance
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. Continuing uncertainty in global economic conditions makes it particularly difficult to predict product demand and other related matters.
We expect net revenues for the third quarter of 2003 to increase by 16%- 30% over the second quarter to $36-$40 million, and the fourth quarter revenues to increase by an additional 40% over the third quarter to $50-$56 million. For the third quarter, we expect gross margins to range from 31%-34%. We also expect R&D spending to increase by approximately 25% over the second quarter, reflecting increased new product activity and the R&D expenses acquired during the Pictos acquisition. Other operating expenses are planned to increase by 9%. Overall, for the third quarter, we expect a GAAP loss per diluted share to be in the range of ($0.05) to ($0.10) and a non-GAAP loss per diluted share in the range of ($0.02) to ($0.07). Non-GAAP net income and loss excludes the effects of amortization of intangible assets, investment gains and losses and related tax effects. The third quarter guidance does not include any royalties from MediaTek which will not begin until the fourth quarter.
During the fourth quarter of 2003 we expect overall revenues to grow by more than 40% over the third quarter, driven by increases in DVD and recordable products shipments plus royalty income.
Earnings Conference Call
As previously announced, ESS Technology, Inc. has scheduled a conference call beginning 2:00 p.m. PDT/5:00 p.m. EDT, July 30, 2003, to discuss its second quarter 2003 results. Investors are invited to listen to a live webcast of the conference call at www.esstech.com or videonewswire.com . A replay of the webcast will also be available at www.esstech.com and videonewswire.com or by telephone at 800-633-8284 (U.S./Canada)/402-977-9140 (International), Reservation #21155400, beginning at 5:00 p.m. PDT / 8:00 p.m. EDT, July 30, 2003.
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 National Market 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 ESS' new products, the dependence on continued growth in demand for consumer multimedia products and other risks detailed from time to time in the SEC reports of ESS, including the reports on Form 10-K, Form 10-Q and Form 8-K (if any) which we incorporate by reference. Actual results could differ materially from those projected in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.
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
(unaudited)
(in thousands)
June 30, December 31,
2003 2002
ASSETS
Current Assets:
Cash and cash equivalents $74,544 $138,072
Short-term investments 61,377 61,030
Accounts receivable, net 30,859 28,468
Accounts receivable- MediaTek 45,000 --
Inventories 23,867 24,155
Deferred income taxes 351 --
Prepaid expenses and other assets 3,963 2,834
Total current assets 239,961 254,559
Property, plant and equipment, net 20,763 18,985
Other assets, net 37,002 8,058
Total Assets $297,726 $281,602
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $39,265 $35,084
Income taxes payable and deferred
income taxes 36,576 9,474
Total current liabilities 75,841 44,558
Non-current deferred tax liability 10,813 7,676
Shareholders' equity:
Common stock 171,529 196,344
Accumulated other comprehensive income 440 504
Retained earnings 39,103 32,520
Total shareholders' equity 211,072 229,368
Total Liabilities and Shareholders' Equity $297,726 $281,602
ESS TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-GAAP BASIS
(unaudited)
(in thousands, except per share data)
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
Net revenues $31,011 $86,037 $64,162 $165,152
Cost of revenues 20,982 50,817 44,358 95,656
Gross profit 10,029 35,220 19,804 69,496
32% 41% 31% 42%
Operating expenses:
Research and
development 7,330 7,043 13,586 13,424
In-process Research
and Development 1,420 -- 1,420 --
Selling, general
and administrative 6,660 11,051 13,334 21,407
Operating income
(loss) (5,381) 17,126 (8,536) 34,665
Nonoperating
income (loss), net 44,187 1,085 45,131 (182)
Income before
provision for
income taxes 38,806 18,211 36,595 34,483
Provision for
income taxes 22,905 889 22,807 775
Net income $15,901 $17,322 $13,788 $33,708
Net income
per share
Basic $0.41 $0.38 $0.34 $0.75
Diluted $0.40 $0.36 $0.34 $0.70
Weighted average
common shares:
Basic 38,683 45,147 40,164 44,692
Diluted 39,842 48,446 41,129 48,447
ESS TECHNOLOGY, INC.
NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)(2)
(unaudited)
(in thousands, except per share data)
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
Net revenues $31,011 $86,037 $64,162 $165,152
Cost of revenues 20,982 50,817 44,358 95,656
Gross profit 10,029 35,220 19,804 69,496
32% 41% 31% 42%
Operating expenses:
Research and
development 6,912 6,766 12,947 13,118
In-process
research and
development -- -- -- --
Selling, general
and administrative 6,660 11,051 13,334 21,407
Operating income
(loss) (3,543) 17,403 (6,477) 34,971
Nonoperating
income, net 45,824 1,496 47,118 2,774
Income before
provision
for income taxes 42,281 18,899 40,641 37,745
Provision for
income taxes 23,079 944 23,009 1,850
Net income $19,202 $17,955 $17,632 $35,895
Net income per share
Basic $0.50 $0.40 $0.44 $0.80
Diluted $0.48 $0.37 $0.43 $0.74
Weighted average
common shares:
Basic 38,683 45,147 40,164 44,692
Diluted 39,842 48,446 41,129 48,447
(1) Use of Non-GAAP Financial Information:
To supplement our consolidated financial statements presented in accordance with GAAP, we use non-GAAP measures of operating results, net income/(loss) and earnings per share, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures are provided to enhance the user's overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that we believe are not indicative of our ongoing core operating results. Our non-operating income includes licensing fees from MediaTek. In addition, since we have historically reported non-GAAP results to the investment community, we believe the inclusion of non-GAAP numbers provides consistency in our financial reporting. Further, these non-GAAP results are one of the primary indicators management uses for planning and forecasting results for future periods. The non-GAAP information is presented using consistent methodology from quarter-to-quarter and year-to-year. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.
# (2) Non-GAAP adjustments are detailed within the schedule entitled "Reconciliation of GAAP Basis Net Income to Non-GAAP Net Income"
ESS TECHNOLOGY, INC.
RECONCILIATION OF GAAP BASIS NET INCOME TO NON-GAAP NET INCOME
(unaudited)
(in thousands)
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
Net income
- GAAP basis $15,901 $17,322 $13,788 $33,708
Pro Forma
Adjustments:
Amortization
of intangible
assets (3) 418 277 639 214
Write down of
investments (4) 1,637 350 1,987 2,987
In-process research
and development (5) 1,420 -- 1,420 --
Cisco Sale (6) -- 61 -- 61
Tax effect to
items (3) to (6) (174) (55) (202) (1,075)
Net income
- Non - GAAP $19,202 $17,955 $17,632 $35,895
* (3) Non-GAAP amounts for all periods presented exclude the effects of amortization of intangible assets, amounting to $418 and $277 for the three months ended June 30, 2003 and June 30, 2002, respectively, and $639 and $214 for the six months ended June 30, 2003 and June 30, 2002, respectively.
* (4) Non-GAAP amounts for all periods presented exclude the effect of the write-down of investments, amounting to $1,637 and $350 for the three months ended June 30, 2003 and June 30, 2002, respectively, and $1,987 and $2,987 for the six months ended June 30, 2003 and June 30, 2002, respectively,
(5) Non-GAAP amounts for all periods presented exclude the effect of
in-process research and development on Pictos acquisition, amounting to $1,420
for the three and six months ended June 30, 2003.
# (6) Non-GAAP amounts for all periods presented exclude the realized losses on the sale of Cisco stock, amounting to $61 for the three and six months ended June 30, 2002.
Source: ESS Technology, Inc. |
