WELCOME TO SMSC’S ANALYST DAY June 28, 2011 NASDAQ Market Site – New York
1
SMSC: GROWTH THROUGH CONNECTIVITY
2
Christine King, President & CEO
Safe Harbor Statement Forward Looking Statements This presentation includes forward-looking statements about expected future events and financial and operating results that involve risks and uncertainties, which may cause actual future results to be materially different from those discussed in forward-looking statements. Such statements are subject to change, and the Company does not undertake to update such statements, except to the extent required under applicable law and regulation. See SMSC’s “Other Factors That May Affect Future Operating Results” and “Risk Factors” included within the Company’s filings with the Securities & Exchange Commission and the “Forward Looking Statements” description accompanying the Company’s earnings releases.
Non-GAAP Financial Measures Non-GAAP financial measures referenced in this presentation are offered to provide additional insight into underlying operating performance. These non-GAAP measures exclude charges and credits for stock appreciation rights (SARs), stock options and restricted stock units associated with the accounting pursuant to SFAS 123R, the amortization of acquired intangible assets, restructuring charges and related accelerated depreciation on certain test equipment, executive transition costs, costs associated with business acquisition related activities including the impact of writing up the cost of acquired inventory and the revaluation of contingent consideration, and litigation settlement expenses, impairment losses, an acquisition termination fee gain, employee stock purchase plan costs and an out-of-period adjustment for the release of an inventory liability. These non-GAAP measures also exclude certain revenues as reflected in the accompanying materials. A reconciliation of non-GAAP measures to GAAP is contained in the appendix to this presentation. The Company's management believes that this information assists in evaluating operational trends, financial performance and cash generating capacity. Non-GAAP measures are not meant as a substitute for GAAP, but are included solely for informational and comparative purposes. Guidance is presented on a non-GAAP basis only, given that the GAAP basis charges for equity-based compensation related to SARs cannot be projected reasonably.
3
SMSC: A Blueprint for Growth
“Enabling Content Rich Connectivity Systems�
Customer Value
Our Target Market Market Growth = ~20% CAGR
~98% Single Sourced
SMSC Connectivity Revenue = ~90%
55% Gross Margin
Defendable Growth Through Core Competencies
Increasing Content Computing
Today
Future
$2
$5
High Value USB
$12
$15
Automotive
$17
$25
Computing & Automotive Architecture Knowledge Wireless Audio & Systems Capability Hi-Speed Interface Circuit Design Network Engineering Expertise
All Drive Our Target Business Model ~20% Revenue CAGR Opportunity 20% Operating Margin @$145M in Quarterly Revenue
4
Source: SMSC and Third Party Estimates FY11 Data Except Business Model; Non-GAAP Measures; See appendix for GAAP to Non-GAAP Reconciliation
“The SMSC Advantage” Results in a CAGR Growth Opportunity that Outpaces the Market Automotive
USB
Market Unit Growth 8%
New MOST® Adopters Increasing Non-MOST Content Companions USB Software
5
>20%
Market Unit Growth 6%
Computing
SMSC $ Opportunity
SMSC $ Opportunity
SMSC $ Opportunity ~30%
Audio
>40% 3%
Consumer Market Unit Growth
Differentiated USB Sockets Drive Higher ASPs
Attractive Wireless Audio Growth >40%
Expanded Use Case and Software Extend Content
SMSC Drives The Complete Solution from Cloud to Destination
Transition to USB 3.0
SMSC $ Opportunity >12%
Market Unit Growth 9%
Market Share Growth Worldwide with Major PC OEMs Adding Content Through New Features & Analog Integration
Source: IMS, CEA, NPD, NEA, Intstat, FutureSource, ABI & DisplaySource, IDC, Gartner, JD Powers & SMSC Estimates
Our Connectivity Solutions
USB Market Revenue
SMSC Revenue Growing Faster Than Market Units 90%
Commodity
USB
10%
Focus on Differentiated Solutions Multiple Port Connectivity Added Content Graphics Security Growth Driven by “Connected Devices” Transition To USB 3.0
DIFFERENTIATED SMSC’s Focus
Networking Products New Opportunities in Industrial Networking Home Connectivity Drives Significant Growth Energy Conservation “Green” Provides a Product Refresh Computing Products New Embedded Control Customers Increasing Content New Features Analog Integration 6
.. .
.
. .. . .
USB, Networking & Computing Products Our Base Business Continues to Grow
High Value USB Products USB to Ethernet Hubs
Security
CAGR Growth Opportunity
Today’s Content
21%
$0.30 to $25
Forecast Today
Future
22%
23%
Portable Products USB
Networking Products
9%
Industrial Networking
$0.30 to $8
13% 18% Networking
Consumer Networking
Computing & Peripheral Products Embedded Controllers Analog 7
17%
$0.25 to $4 32%
Computing
27%
Pies Represent Percentage of Total SMSC Revenue
Multiple Growth Vectors For Automotive Products SMSC Provides “One Stop Shopping” with a Full System Solution
New OEM Introductions of MOST Further Opportunities ! !
Round-out opportunities in Europe, Asia and the US Initial activity in China
Nodes Per Year
Expansion of Our Content n
tio
M
w
Ne
OE
p do
A
lC
na
Ad
io dit
ing
o pp
ies
O
k or
tw
w
Ne
Ne
Multiple Growth Vectors
2001
2004
2008
Years
2012
2016
New Networking Opportunities Driver Assist Camera Networking Specialty Component Networking
8
HEADUNIT
nit
rtu
t
en
t on
Video IO Function Content Protection
K2L Gateway Software & Software Framework
Power Management MOST Base Node
USB
Ethernet
Kleer
Headunit Content Range $3
$28
Reach Extended to Non-MOST Cars
Automotive Products Growing Beyond MOST®
CAGR Growth Opportunity
Today’s Content
MOST Networking MOST25 MOST50
MOST150
21%
$7 to $28
Forecast Today
Future
MOST Networking
K2L Software
53%
Companion Chips Video
Power
I/O
Connectivity Functions USB
Ethernet
112%
$1 to $24
$1 to $33
15%
15%
1%
2% Companion Chips
1%
Connectivity Functions
Wireless Audio Pies Represent Percentage of Total SMSC Revenue
9
7%
Digital Wireless Audio Market Group A New High Growth Segment
Wireless Audio Market Growth R
AG %C
$191M
>30
Wireless Audio Adoption at ~5% Today
$82M CY11
CY12
CY13
CY14
Home Theater
Headphones
AirPlay
Automotive
Speakers and Docks
SMSC has the Full Solution From Cloud to Destination Full Standard Support with Proprietary Audio Quality Design Wins with Top Consumer OEMS, Headphone Makers and Speaker System Providers 10
Source: IMS, CEA, NPD, NEA, Intstat, FutureSource, ABI & DisplaySource, IDC, Gartner, JD Powers & SMSC Estimates
Wireless Audio Products
Convergence Provides Accelerated Growth Opportunity
Today’s Content
Today
Future
$6 to $10 10%
Automotive
11
$4 to $6
>40% CAGR Opportunity
14%
Pies Represent Percentage of Total SMSC Revenue
Over 40% Share Today and Growing Combined JukeBlox and Kleer Roadmap Creates a Unique Leadership Position $1B Total Addressable Market Opportunity Once Audio is Fully Connected
Source: IMS, CEA, NPD, NEA, Intstat, FutureSource, ABI & DisplaySource, IDC, Gartner, JD Powers & SMSC Estimates
Increased Connectivity Drives Strong Growth in Automotive and Consumer Applications Vertical Market Revenues
13% Industrial 36% Consumer Future
Electronics
Revenues by Product Line
14%
27% PC
Audio Products
24%
62% 24% Automotive
Future
Automotive
USB, Networking & Computing
Audio Products
10%
15%
Industrial
33%
17%
PC
Automotive
34%
Consumer Electronics
Today 12
73% 18% Automotive
Today = FY12 Estimate
Today
USB, Networking & Computing
Unaudited Data
SMSC Addresses a Substantial Market Opportunity with Attractive Growth Rates Target Addressable Market
25%
28%
CAGR
CAGR
USB
Automotive
A $1.3B Market in CY12 Growing at ~20% CAGR
Computing 13
11%
32%
CAGR
CAGR
Wireless Audio
Source: IMS, CEA, NPD, NEA, Intstat, FutureSource, ABI & DisplaySource, IDC, Gartner, JD Powers & SMSC Estimates
Strong Market Share Positions in Our Target Markets CY10
SMSC USB SAM $263M
SMSC AUTOMOTIVE
SAM $146M MOST®
$80M
TrueAuto™ USB
$12M
MOST Companion
Hubs
$91M
$48M
USB Subsystems
TrueAuto Ethernet
$70M
$6M
SMSC WIRELESS AUDIO SAM $50M
USB to Ethernet
$18M
TrueAuto™ USB
$12M
14
Embedded Controllers
Thermal Management
I/O Controllers
RightTouch™
$222M
Wireless Audio
$50M
Media Readers USB Graphics
$59M
SMSC PC SAM $506M
$72M
$70M $11M
Energy Management
$13M
$131M
SMSC Auto Market Share
SMSC USB Market Share
SMSC Wireless Audio Market Share
SMSC PC Market Share
50%
35%
34%
26%
SMSC & Third Party Estimates
SMSC Core Competencies Drive & Defend Our Growth
Differentiated Core Competencies Starts with System Expertise Computing & Automotive Architecture Knowledge Wireless Audio & Systems Capability Hi-Speed Interface Circuit Design Network Engineering Expertise IC Hardware
15
Middleware Firmware
Software System Architecture
Deep Computing & Automotive Systems Knowledge Computing Ecosystem Notebook/Desktop
Automotive Ecosystem SMSC: “Where Consumer Content Meets Automotive Reliability” - For 10 Years
“Development Partner of Major OEMs for Over 15 Years”
Complete System Offering Peripheral Subsystem Inventor Hardware/Firmware Partitioning Shared Memory Architecture PC Bus and Low Level Software Expertise
Analog Integration Licensed to ~30,000 US Patents
Tablets
Network & Data Transmission Gateway Systems & Software Full Software Solution TrueAuto™ Quality Harsh Environmental Performance Audio/Video & Content Protection
USB PHY
Thermal Mgt
USB/HSIC Hub
USB/HSIC to Ethernet
16
Low Power USB Multiple Protocol Interfaces
A Leader in Wireless Audio Solutions SMSC Drives the Wireless Audio Ecosystem from the Cloud to Destination HD Audio Delivered Wirelessly Connecting to a New World of Entertainment
Low Cost. Simple. Robust. Low Power. Your Music & the World’s Music ...from Any Device, Anytime & Anywhere
Connected and Interoperable Audio Software Deep Protocol Expertise WiFi USB Ethernet AirPlay DLNA 17
Hear the Difference!
Ultra Low-Power Audio Baseband and RF Full System Design & Architecture Including: Software Baseband RF Audio Multiple Interface & Protocol Support
World Class Hi-Speed Interface Circuit Design USB
MOST Network Ring
SMSC PHY
Competitor PHY Competitor
SMSC
4 Port Size
10.0mm2
2.74mm2
Single Port Power
320mW
165mW
Competitor 4-Port Hub
Size Package
Ring + Star + Daisy Chain
Diverse Transmission Wiring Optical • Coax • UTP High Performance Synchronous Protocol Optimized for Audio & Video Highly Flexible & Efficient
SMSC 7-Port Hub Competitor
SMSC
15.53mm2
15.46mm2
80-pin QFP
64-pin QFN
Small Size Low Power Integration of Proprietary Features & Software Industrial & Automotive Qualified 18
Ring + Star
Ethernet Industrial & Automotive Ready Integration with Many Interfaces Low-Power & Energy Efficient
Comprehensive Networking System Expertise
Computing
Consumer
Industrial
Automotive
Wide Reaching Operating System Driver Expertise
World Class Physical Interfaces
Interoperability with Multiple Protocols MOST • USB • Ethernet • HSIC • Video • Graphics • SPDIF • Audio • Content Protection
Co-Inventor of MOST
Inventor of Inter-Chip Connectivity™ Technology
Harsh Environments Low Latency Green Solutions Energy Efficient Ethernet 19
SMSC Makes Customers Successful Moving to Supply Higher Architectural Value
MOST150 at VW/AUDI – Rollout into All Models
Samsung Central Station
CNET: "The Samsung monitor features a number of connection options and the display performs well; USB Super Charging is a welcome bonus."
ViewSpan ASP = $10
Laptop Magazine: "Move your notebook near this ingenious device, and voila–you've got an extra screen. What's more, the Central Station can accommodate up to four USB peripherals, including three USB 3.0 devices."
PC Customer Acquisition Through Unique Solutions
. ..
20
.
. ... .
2007 Predominately Serving Two Major PC Customers
Today Serving 12 Major PC OEMS Worldwide
Engineers Delivering Differentiated Solutions “A Global R&D Footprint� >650 Engineers Across the Globe Key SMSC Sites Karlsruhe Pforzheim
New York
85: Automotive
Sofia 20: Analog
150: USB & Computing
.. .
Tucson Phoenix
.
60: Mixed Signal & Analog
.. . ..
. .
Shenzhen 15: Analog
Singapore 25: Wireless Audio
Austin
100: USB & Automotive
Chennai Bangalore 140: Hardware/Software Solutions & Wireless Audio
27% 10% 11% 21
25%
27%
Full Systems Solution Capability Mixed Signal & Analog Design Support Applications Systems Software
Sustaining 55% Gross Margin Achieved World Class Operations Performance $46M $32M Cumulative Cost Savings
$14M
FY10
FY11
t s o C s n u o atio u in iz t n tim o C Op
FY12
FY12 ACTIONS COMPLETED Test Move Supply Chain Optimization Qualification of Low Cost Sources Wafer Fabs
22
Non-GAAP Measures
Assembly
Gold to Copper Production Multisite x16 Test Ramp Acquisition Supply Chain Optimization More Efficient Support Functions Test
An Exciting & Achievable Business Model 20% Long Term Revenue Growth Opportunity ~30%
Automotive & Wireless
~15%
USB, Networking & Computing
...while Managing Costs and Investing in the Future
Drives an Attractive Target Model 20% Operating Margin at $145M in Revenue Per Quarter
Revenue/Qtr
$145M
Gross Margin
55%
R&D
20%
SG&A
15%
OPERATING MARGIN 23 Non-GAAP Measures
20%
Driving to a 25% Operating Margin at $175M - $200M in Revenue Per Quarter
SMSC is a GROWTH Company Attractive Markets Growing Content Product Differentiation With Leading Customers Which Drives
PROFITABILITY & EARNINGS
24
THE NETWORKED AUTOMOBILE
Christian Thiel, VP & GM
Multiple SMSC Automotive Growth Drivers
MOST has been adopted as the de facto high bandwidth infotainment networking standard
Recent design wins of VW and GM give MOST a potential reach of close to 50% of cars produced worldwide.
Architectural Value + One-Stop-Shop Model
Potential Future Adopters 26
Multiple SMSC Automotive Growth Drivers HEADUNIT Video IO Function Content Protection
K2L Gateway Software & Software Framework
Power Management MOST Base Node
USB
Ethernet
Kleer
SMSC’s content opportunity per infotainment device has grown from $3 to $28. Reach extended to non-MOST cars
MOST has been adopted as the de facto high bandwidth infotainment networking standard 27
©SMSC 2011. All rights reserved.
Multiple Automotive Network Opportunities Kleer Headphones Rear Seat NAS Entertainment Displays
WLAN Rear View Camera Module
In Cabin Camera Module
Side View Camera Module Driver Assist Processing Unit
TV Tuner Box Rear Seat Entertainment HU Side View Camera Module Instrument Cluster Front View Camera Module
28
USB Interface Infotainment HU
Infotainment MOST BUS Driver Assistance MOST BUS
WIRELESS AUDIO: AN EMERGING GROWTH MARKET
Gene Sheridan, Senior VP & GM
A Major Transformation in Audio is Underway Massive content waiting to be “unlocked”… 10B music downloads from iTunes® >90% of music downloads are illegal . . . that’s 100B music files! Almost all “locked” to the PC or smart phone A dramatic shift from download to streaming . . . iTunes® Download Rates Millions
18 15 12
0
2011 2012 2013 2014 2015 2016
9 250
6
Internet Radio Growth Projections
200
Millions
Daily Track Download in Millions
Mobile Music Streaming Subscribers
180
3 0
150 100 50
’04
‘05
‘06
‘07
‘08
‘09
’10
0 2005
2006
2007
2008
2009 2010 2015 2020
The Seven Market Enablers to a $1B Market Enablers
30
Market Need
&
Content
Your music . . . & the world’s music
✔
Interoperability
WiFi standards-based + AirPlay & DLNA
✔
Easy-to-use
Simple set-up & intuitive GUI
✔
Quality
Quality of Service, Quality of Audio
✔
Power
A full day of listening on one charge
✔
Cost
Sub $5 incremental costs
✔
Consumer Awareness
Great marketing!
✔
A Leader in Wireless Audio Solutions HD Audio Delivered Wirelessly Connecting to a New World of Entertainment
Automo<ve Audio 50Mu/yr, $250M/yr Opportunity
SpeakerDocks
33Mu/yr, $215M/yr Opportunity
Low Cost. Simple. Robust. Low Power.
Global Market Opportunity Over 200Mu/yr Over $1B/yr
Home Theater, SoundBars & Home Speakers 25Mu/yr, $175M/yr Opportunity
31
Your Music & the World’s Music ...from Any Device, Anytime & Anywhere
Hear the Difference!
Headphones & Headsets 105Mu/yr, $265M/yr Opportunity
AVR & Mini-‐Systems 16Mu/yr, $100M/yr Opportunity
NEW TRENDS IN CONNECTIVITY
Robert Hollingsworth, Senior VP & GM
Expanding Connectivity Platforms Drive SMSC's Growth Market Units 300
200
100
100
600
240
150
75
75
450
100
50
50
300
50
25
25
150
180 120 60 2011 2012 2013
0
Notebooks
2011 2012 2013
0
0
2011 2012 2013
2011 2012 2013
0
2011 2012 2013
Desktops
Smart TV’s
Tablets
Smart Phones
Desktops
Smart TV’s
Tablets
Smart Phones
Key Applications
Notebooks Embedded Controller USB Charging Docking Ethernet Security
Embedded Controller USB Charging Security
USB Charging Ethernet Graphics
USB Charging Docking
USB Charging Docking Ethernet Security
Content Per Platform $0.35 - $3.00
$0.35 - $10.00 2011
SMSC Revenue Projection Notebook PCs Desktop PCs Smartphones Tablets Set-top Box/TVs
33
$0.65 - $10.00
$0.30 - $7.00
$0.30 - $3.00
2012
2013 13%
12% 2% 11%
9% 10% 15%
13% 66%
Source: Mobile Thinking, IDC, Techspot, InStat & SMSC Estimates
6% 10% 62%
13%
58%
0
USB Evolution Continues USB Generation
Speed Grades
USB Next Gen.
25,000Mbit
USB3
5,000Mbit 480Mbit
USB2 11Mbit
USB1
1996
2000
2004
2008
2012
2018
10
100
1k
10k
Growth of USB Market Key Adoption Factors:
A Differential Opportunity
4 Billion
Units
Backward Compatibility Power Enhancements Open Standard >10x Speed Improvement per step ASP Increase ~ 2-3x per step
100k
90%
3 Billion
Commodity 2 Billion
10%
1 Billion
SMSC’s Focus 2011
2013
2012 USB 2.0
USB 3.0
SMSC’s Play in USB
Revenue % CY13 Projection 34
HUBS
POWER
45%
27%
Source: InStat & SMSC Estimates
GRAPHICS
TRANSCEIVERS
NETWORKING
SECURITY
AUTOMOTIVE
10%
6%
5%
4%
4%
SMSC: GROWTH IN EARNINGS
Kris Sennesael, SVP & CFO
Revenue: SMSC is a “GROWTH” Company $120
113.0 104.1
$100
107.0 101.2
97.2 87.2
$80
103.5
83.0
Revenue in Millions
75.1 $60
62.5
$40
$20
$0
37
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12*
*SMSC Guidance Represents Midpoint
Acquisitions Enhance SMSC's Leadership & Growth “New Products & Customers • Valuable IP • Additional Skill Sets”
Wireless Audio
Organic SMSC Business FY11
BridgeCo STS Kleer
23%
Auto Software Tools
Networking
38%
K2L
Computing
USB IP & Skills
17%
Symwave
FY12*
Automotive
22% USB
18%
Networking
32%
Computing
17%
Automotive
23%
USB
10%
Audio 38
Unaudited Data
*SMSC Estimate
Continuing to Drive Healthy Gross Margins Organic SMSC Business FY11
~70%
Networking
~50%
Computing
~60%
USB
Automotive
FY12*
~55% ~70%
Networking
~50%
Computing
~65%
Automotive
~60% USB
~40% Audio
39
Unaudited Data Based on Non-GAAP Gross Margin; See Reconciliations from GAAP to Non-GAAP Measures at the End of this Presentation
*SMSC Estimate
Sustaining Target Gross Margins
60 %
Target at 55%
55 %
50 %
45 % Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12*
Total Gross Margin Organic Gross Margin, Excluding K2L, Kleer, STS, Symwave & BridgeCo Acquisitions
40
Non-GAAP Measures
*SMSC Guidance
Opex: Focus on R&D to Support the “GROWTH” $50
$40
$30
$20
$10
$0 Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12*
Acquisitions (K2L, Kleer, STS, Symwave & BridgeCo) R&D SG&A
41
Non-GAAP Measures
*SMSC Guidance
Improvement of Operating Margins 25 %
20 %
15 %
10 %
5%
0%
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12*
Total Operating Margin Organic Gross Margin, Excluding K2L, Kleer, STS, Symwave & BridgeCo Acquisitions
42 Non-GAAP Measures
*SMSC Guidance
Achieved 16% Target Model Organically
Investment in New Opportunities Enhanced Growth But Initially Dilutive to Model July 2009: Analyst Day Model at $100M/Q
FY11
$100M
$385.8M
$409.5M
Gross Margin
55%
56.3%
55.1%
R&D
20%
20.7%
21.9%
SG&A
19%
19.3%
19.1%
Operating Margin
16%
16.3%
14.1%
Revenue
Organic Data Excludes K2L, Kleer, STS and Symwave acquisitions.
43
FY11 Organic
Unaudited Data; Non-GAAP Measures
20% Target Model Achievable at $145M/Q Including Acquired R&D Investments AND in the Same Timeframe as Our Previous Target at $120M/Q
Driving to 25% Longterm Model Through Revenue Growth with Efficient & Disciplined Spending Target Model
$145M
$175-200M
Gross Margin
55%
56%
R&D
20%
18%
SG&A
15%
13%
Operating Margin
20%
25%
Revenue/Q
44 Non-GAAP Measures
Longterm Model
Maintaining a Strong Balance Sheet $200
$150
$100
$50
$0 Feb 10
May 10
Aug 10
Nov 10
Investments Cash
45
Acquired Companies After 3/1/10
Cash Paid
STS
$22.0M
BridgeCo
$40.0M
Feb 11
May 11
International Structure Live
Implementation of International Structure Operating company in Hong Kong IP holding company in Luxembourg Business Process Reengineering of sales and operations
Target Non-GAAP Effective Tax Rate Reduction FY12 38%
→
FY13 25%
→
FY14 20%
→
FY15 18%
Illustration of Potential Benefit (Non-GAAP Basis) Revenue Operating Margin @20% Tax with ETR @38%
46
$600M $120M $45M
ETR Tax Savings
@25% $30M $15M
@20% $24M $21M
@18% $22M $23M
EPS Increase
$0.65
$0.90
$1.00
On Track for Significant Earnings Growth SMSC is a Growth Company Organic Growth Market Growth Market Share Gains New Product Introductions Growth through acquisitions
SMSC is a “Profitable” Growth Company Overachieved “organic” target operating model Acquisitions accelerated revenue growth
Non-GAAP EPS Upside Opportunity Top line growth + operating leverage = 20% non-GAAP operating margin Lower Effective Tax Rate
47
Non-GAAP to Organic Achievements Reconciliation Gross Profit, Expense and Operating Margins (in thousands)
Three Months Ended May 31, 2009 Acquisition Organic Non-GAAP Adjustments* Achievements
Three Months Ended August 31, 2009 Acquisition Organic Non-GAAP Adjustments* Achievements
Three Months Ended November 30, 2009 Acquisition Organic Non-GAAP Adjustments* Achievements
Three Months Ended February 28, 2010 Acquisition Organic Non-GAAP Adjustments* Achievements
Twelve Months Ended February 28, 2010 Acquisition Organic Non-GAAP Adjustments* Achievements
Sales & Revenues
62,479
62,479
75,075
75,075
87,236
(263)
86,973
82,989
(672)
82,317
307,778
(935)
306,843
Costs of Goods Sold
33,105
33,105
35,871
35,871
39,370
(35)
39,335
37,902
(345)
37,557
146,247
(380)
146,627
29,374
39,204
39,204
47,866
(228)
47,638
45,087
(327)
44,760
161,531
(555)
160,216
(1,116)
145,956
Gross Profit G.P. % (incl IP Revenues)
29,374
-
47.0%
47.0%
-
52.2%
52.2%
54.9%
54.8%
54.3%
54.4%
52.5%
Operating Expenses
34,768
-
34,768
36,372
-
36,372
37,062
(315)
36,747
38,886
(801)
38,085
147,072
Operating (Loss) Profit
(5,394)
-
(5,394)
2,832
-
2,832
10,804
87
10,891
6,201
474
6,675
14,459
Three Months Ended May 31, 2010 Acquisition Organic Non-GAAP Adjustments* Achievements
Three Months Ended August 31, 2010 Acquisition Organic Non-GAAP Adjustments* Achievements
Three Months Ended November 30, 2010 Acquisition Organic Non-GAAP Adjustments* Achievements
Three Months Ended February 28, 2011 Acquisition Organic Non-GAAP Adjustments* Achievements
52.2% 561
14,260
Twelve Months Ended February 28, 2011 Acquisition Organic Non-GAAP Adjustments* Achievements
Sales & Revenues
97,159
(2,204)
94,955
104,084
(4,394)
99,690
107,025
(7,478)
99,547
101,211
(9,605)
91,606
409,479
(23,681)
385,798
Costs of Goods Sold
43,459
(954)
42,505
44,381
(2,814)
41,567
47,758
(5,924)
41,834
48,392
(5,723)
42,669
183,991
(15,415)
168,576
53,700
(1,250)
52,450
59,703
(1,580)
58,123
59,267
(1,554)
57,713
52,819
(3,882)
48,937
225,488
(8,266)
217,222
Gross Profit G.P. % (incl IP Revenues)
55.3%
Operating Expenses
41,011
Operating Profit
12,689
55.2% (1,758) 508
57.4%
58.3%
(3,910)
39,515
43,431
(5,135)
38,296
167,742
(13,497)
154,245
13,197
19,828
1,114
20,942
15,842
2,356
18,198
9,388
1,253
10,641
57,746
5,231
62,977
(8,554)
94,941
(5,473)
39,623
58,399
(3,081)
55,318
(3,599)
40,141
Operating Profit
14,659
58.3% 518
15,177
Note: * - Acquisition adjustments are to exclude the activity related to the acquisitions of K2L, Kleer, STS, Symwave and BridgeCo from the organic acheivement results.
48
56.3%
43,425
45,096
43,740
55.1%
37,181
103,495
Operating Expenses
53.4%
(2,694)
Sales & Revenues
56.4%
52.2%
39,875
Costs of Goods Sold
G.P. % (incl IP Revenues)
58.0%
39,253
Three Months Ended May 31, 2011 Acquisition Organic Non-GAAP Adjustments* Achievements
Gross Profit
55.4%
Supplemental Reconciliation of GAAP Results to Non-GAAP Financial Measures (in thousands, except per share amounts) FY 10 Q3
Q1
Q2
Gross profit - GAAP basis Stock-based compensation (a) Amortization of intangible assets Accelerated depreciation on test equipment Release of goods received liability Impact of inventory write-off (Symwave) Impact of inventory write-up on acquisitions Gross profit - non-GAAP basis
$ 27,712 550 1,112 $ 29,374
$ 35,543 904 1,058 1,699 $ 39,204
Income (loss) from operations – GAAP basis
$ (14,597) $ (10,056) $
FY 10
Q4
$ 45,034 $ 44,688 $ 152,923 (342) 281 1,394 941 1,140 4,304 2,233 3,932 (1,022) (1,022) $ 47,866 $ 45,087 $ 161,531 9,439
$
1,227
$ (13,987)
Q1
FY 11 Q3
Q2
$ 51,795 782 1,078 45 $ 53,700
$ 58,658 $ 55,755 (491) 1,980 1,376 1,432 160 100 $ 59,703 $ 59,267
$
$ 22,346
1,802
$
FY 11
Q4 $ 48,685 290 1,545 2,234 65 $ 52,819
(8,186) $
2,685
$
$
214,894 2,561 5,431 2,234 368 225,488
$
18,647
FY 12 Q1 $ 55,785 317 1,585 588 124 $ 58,399 $
7,669
Non-GAAP adjustments: Stock-based compensation included in: Costs of Goods Sold Research & Development Selling, general and administrative Amortization of intangible assets included in: Costs of Goods Sold Selling, general and administrative Other non-GAAP adjustments: Acquisition termination fee gain Restructuring charges Accelerated depreciation on test equipment Settlement charge Transaction costs - mergers and acquisitions Release of goods received liability Impact of inventory write-off (Symwave) Impact of inventory write-up on acquisitions Executive transition costs Impact of revaluation of contingent acquisition liabilities Gain on equity investment in Canesta Impairment loss on equity investment (Symwave) Compensation expense on acquisitions Impairment loss on intangibles Income (loss) from operations – non-GAAP basis
$
Net (loss) income – GAAP basis Non-GAAP adjustments (as scheduled above)
550 1,482 3,393
904 2,384 5,698
(342) (559) (1,889)
281 968 1,717
1,394 4,274 8,918
782 2,224 4,639
(491) (1,546) (3,395)
1,980 5,370 11,528
290 701 1,300
2,561 6,748 14,074
317 1,042 1,971
5,425
8,986
(2,790)
2,966
14,586
7,645
(5,432)
18,878
2,291
23,383
3,330
1,112 395
1,058 496
941 478
1,140 691
4,304 2,007
1,078 687
1,376 701
1,432 809
1,545 837
5,431 3,034
1,585 806
1,507
1,554
1,419
1,831
6,311
1,765
2,077
2,241
2,382
8,465
2,391
649 1,699 2,832
393 2,233 (31) 141 $ 10,804 $
821 182 45 429 $ 12,689
47 173 160 457 $ 19,828
(9,196)
(6,534)
6,806
627
12,902
(4,574)
9,203
12,888
1,365
(2,518)
24,028
221 2,050 (5,394) $
Net income (loss) – non-GAAP basis
$
(3,313) (3,306) $
Net income (loss) per share – diluted GAAP
$
(0.42) $
$
(0.15) $
Tax effect of non-GAAP adjustments
Non-GAAP Weighted average common shares outstanding - diluted: GAAP Non-GAAP
21,901 21,901 21,901
860 2,123 3,932 2,019 339 480 (1,022) (1,022) 6,201 $ 14,442 946 4,974
(4,640) 1,714 $
7,680
$
4,129
(0.30) $
0.30
$
0.34
$
0.08
$
(7,978)
(491)
(1,791)
28,429
10,887
(3,919) 1,198 7,595 $ 11,582
146 477 100 (1,083) (249) 3,208 310 $ 15,842 $
(10,234) $ 10,217
$
0.04
$
(0.36)
$
0.03
$
0.57
$
0.18
$
0.46
$
0.33
$
0.51
$
(7,700) 4,703 4,203 2,234 368 920 (4,206) (320) 3,208 310 3,531 57,746
1,672
(0.20) $ $
49
6,177
39,099
(2,344) 6,031 $
(12,548) 37,178
6,990 (2,145) $ 11,022
0.07
$
0.46
$
0.26
0.26
$
1.61
$
0.47
22,054
22,442
22,579
22,133
22,787
22,756
22,679
23,158
23,108
23,557
22,191
22,442
22,579
22,310
22,787
22,756
23,081
23,158
23,108
23,557
Management believes that non-GAAP financial measures assist it in evaluating operational trends, financial performance, and cash generating capacity. Management believes these non-GAAP measures allow investors to evaluate SMSC's financial performance using some of the same measures as management. However, the non-GAAP financial measures should not be regarded as a replacement for corresponding, similarly captioned, GAAP measures. (a)
343 118 588 124 17 79 $ 14,659
10,627
6,703
(7,484) $ 11,970 $
0.52
(7,700) 3,689 3,371 2,234 65 491 (3,580) (71) 3,531 9,388 $
To eliminate compensation expense for Stock Appreciation Rights (“SARs”), employee stock purchase plan, restricted stock units and stock options as recorded under GAAP applicable in each period presented. The amount of cash paid in connection with the exercise of SARs is contained in the earnings release for each applicable period, which can be found on the Company's website. The Company does not include charges related to restricted stock awards in these non-GAAP adjustments, as they were issued primarily in connection with the Company’s prior annual employee incentive compensation program.