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Entropic Reports Second Quarter 2014 Results
Conference Call to be Webcast Today at 1:30 p.m. Pacific Time

SAN DIEGO, July 30, 2014 (GLOBE NEWSWIRE) -- Entropic (Nasdaq:ENTR), a world leader in semiconductor solutions for the connected home, today reported its second quarter results for the period ended June 30, 2014. Entropic reported second quarter net revenues of $50.2 million. This compares to net revenues of $55.7 million in the first quarter of 2014, and $70.6 million in the second quarter of 2013.

In accordance with U.S. generally accepted accounting principles (GAAP), the Company's second quarter net loss was $21.8 million, or $(0.24) per share (basic and diluted). This compares with GAAP net loss of $23.3 million, or $(0.26) per share (basic and diluted) in the first quarter of 2014, and GAAP net loss of $39.9 million, or $(0.44) per share (basic and diluted) in the second quarter of 2013.

Non-GAAP net loss in the second quarter was $10.4 million, or $(0.12) per share (basic and diluted), compared to non-GAAP net loss of $15.3 million, or $(0.17) per share (basic and diluted) in the first quarter of 2014, and non-GAAP net income of $0.6 million, or $0.01 (basic and diluted), in the second quarter of 2013.

"We are actively taking steps to improve our overall financial position while we work to ramp existing design-wins and pursue new designs that will drive future revenue growth," said Patrick Henry, president and chief executive officer, Entropic. "In early June, we implemented a plan to lower our operating expenses and drive deeper engineering and operational efficiencies in order to accelerate our path to profitability. We believe these actions, coupled with a healthy design-win pipeline and strong product roadmap, will allow us to transition the company to the next stage of growth."

   
  Three Months Ended
(In millions, except per share data) June 30, 2014 March 31, 2014 June 30, 2013
Net revenues  $ 50.2  $ 55.7  $ 70.6
GAAP net loss $ (21.8) $ (23.3) $ (39.9)
GAAP net loss per share (basic and diluted) $ (0.24) $ (0.26) $ (0.44)
Non-GAAP net (loss) income1 $ (10.4) $ (15.3)  $ 0.6
Non-GAAP net (loss) income per share1 (diluted) $ (0.12) $ (0.17)  $ 0.01
       
1. Please refer to "Non-GAAP Financial Measures" below and the financial statements portion of this press release for an explanation of the non-GAAP financial measures contained in the table above and a reconciliation of such measures to the comparable GAAP financial measures.

RECENT HIGHLIGHTS

Corporate News

  • On June 9, 2014, Entropic Announced its Plan to Sharpen its Engineering and R&D Resource Focus and Consolidate Global Offices to Improve Efficiencies and Reduce Costs

Awards and Milestones

  • Entropic's EN2810, its Second-generation, Single-chip Multimedia over Coax Alliance (MoCA®) 2.0 System Solution, Received a 2014 Cable Spotlight Product of the Year Award from Cable.TMCnet.com, a TMC Sponsored Cable Technology Website

Technology Innovation

  • Entropic Unveiled its EN5500-series, which is Recognized as the Industry's Lowest Power, Smallest Size and Highest Performance Digital Channel Stacking Switch (dCSS) Integrated Circuits (ICs) for the Worldwide Direct Broadcast Satellite Market

New Designs

  • Inverto Developed its Unicable II Digital Satellite Outdoor Unit Products Featuring Entropic's EN5520, which is Part of Entropic's Advanced Second-Generation dCSS Product Family

New Partnerships

  • Entropic and Cryptography Research, the Security Division of Rambus (NASDAQ:RMBS) Signed a Patent License Agreement Allowing for the Use of the Cryptography Research Side-channel Attack Countermeasures in Entropic's ICs
  • Entropic Selected OmniPhy's High-Speed Physical Interface Solution for its Next-Generation Set-top Box System-on-a-Chip Designs
  • Entropic Licensed Excellicon's Constraints Products to Develop a Robust, Efficient Timing Constraint Development Methodology for its Build Flow

For More Information

Entropic management will be holding a conference call today, July 30, 2014 at 1:30 p.m. Pacific Time/4:30 p.m. Eastern Time to discuss the Company's results for the second quarter of fiscal 2014, and to provide guidance for the third quarter.

You may access the conference call via any of the following:

Teleconference:  888-680-0890
Access Code: 68776322
Web Broadcast:  http://events.entropic.com/
Replay:  888-286-8010
Replay Passcode: 37340882

About Entropic

Entropic™ (Nasdaq:ENTR) is a world leader in semiconductor solutions for the connected home. The Company transforms how traditional HDTV broadcast and IP-based streaming video content is seamlessly, reliably, and securely delivered, processed, and distributed into and throughout the home. Entropic's next-generation Set-top Box (STB) System-on-a-Chip (SoC) and Connectivity solutions enable Pay-TV operators to offer consumers more captivating whole-home entertainment experiences by transforming the way digital entertainment is delivered, connected and consumed – in the home and on the go. For more information, please visit Entropic at: www.entropic.com, read our blog Entropic Topics, or get social with us at @Entropic_News, or on Facebook, Google+, YouTube and LinkedIn.

The Entropic logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4255

Non-GAAP Financial Measures

This press release and the accompanying tables contain the following non-GAAP financial measures: net (loss) income and net (loss) income per share. These non-GAAP financial measures exclude the effects on the Statement of Operations of all forms of stock-based compensation, transaction and integration costs, amortization of intangible assets, losses related to equity method investment, impairment of investment, the impact of fair value adjustments related to contingent consideration payable in the acquisition of PLX Technology assets, the deferred tax asset valuation allowance, the cash tax difference, IP litigation costs and restructuring charges.

Management uses these non-GAAP financial measures to manage the Company's business, including setting operating budgets and executive compensation plans. These non-GAAP measures are also used to (i) supplement the financial results and forecasts reported to the Company's board of directors, (ii) evaluate the Company's operating performance, (iii) compare the Company's performance to internal forecasts, and (iv) manage the Company's business and benchmarking performance internally. The non-GAAP measures have been made available to stockholders consistently in the past to provide transparency on how management manages the Company's operating performance. Management believes that these non-GAAP operating measures are useful to investors, when used as a supplement to GAAP measures, in evaluating the Company's ongoing operational performance.

The non-GAAP financial measures disclosed by the Company should not be considered in isolation or a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

Forward-Looking Statements

Statements in this press release that are not strictly historical in nature constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements include, but are not limited to, statements regarding our financial position, our design wins and engineering and operational efficiencies and our ability to drive future revenue growth and accelerate our path to profitability. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause Entropic's actual results to be materially different from historical results or from any results expressed or implied by such forward-looking statements. These factors include, but are not limited to, our dependence on a limited number of supply chain partners for the manufacture of our products and other factors that could affect our ability to meet customer demand; our dependence on a limited number of customers and, ultimately, service providers for a substantial portion of our revenues; risks associated with adverse U.S. and international economic conditions; the ability of our customers or the service providers who purchase their products to successfully compete and continue to grow in their markets; the continued development of the market for High Definition (HD) video and other multi-media content delivery and networking solutions; risks associated with competing against larger and more established companies and our ability to compete successfully in the connected home entertainment market; risks associated with timely development and introduction of new or enhanced products including those associated with IP Video delivery; risks related to international operations; risks related to intellectual property, including third party licensing or patent infringement claims; and other factors discussed in the "Risk Factors" section of Entropic's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.  All forward-looking statements are qualified in their entirety by this cautionary statement. Entropic is providing this information as of the date of this release and does not undertake any obligation to update any forward-looking statements contained in this release as a result of new information, future events or otherwise.

Copyright © 2014 Entropic. All rights reserved. All other product or company names mentioned are used for identification purposes only and may be trademarks of their respective owners.

ENTROPIC COMMUNICATIONS, INC.
GAAP Condensed Consolidated Statements of Operations
(In thousands, except for per share information)
           
  Three Months Ended Year Ended
  June 30, 2014 March 31, 2014 June 30, 2013 June 30, 2014 June 30, 2013
  (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
           
Net revenues  $ 50,200  $ 55,655  $ 70,612  $ 105,855  $ 145,069
Cost of net revenues  26,662  29,593  36,356  56,255  75,974
Gross profit  23,538  26,062  34,256  49,600  69,095
Operating expenses:          
Research and development  31,216  35,266  28,334  66,482  56,404
Sales and marketing  5,878  7,445  6,017  13,323  12,472
General and administrative  6,121  6,132  5,456  12,253  11,539
Amortization of intangibles  290  443  495  733  1,425
Restructuring charges  1,796  --  1,763  1,796  1,763
Total operating expenses  45,301  49,286  42,065  94,587  83,603
Loss from operations  (21,763)  (23,224)  (7,809)  (44,987)  (14,508)
Loss related to equity method investment  --  --  (335)  --  (1,115)
Impairment of investment  --  --  (4,780)  --  (4,780)
Other income, net  192  81  255  273  683
Loss before income taxes  (21,571)  (23,143)  (12,669)  (44,714)  (19,720)
Income tax provision  278  110  27,244  388  22,597
Net loss  $ (21,849)  $ (23,253)  $ (39,913)  $ (45,102)  $ (42,317)
           
Net loss per share - basic and diluted  $ (0.24)  $ (0.26)  $ (0.44)  $ (0.50)  $ (0.47)
Weighted average number of shares used to compute net loss per share - basic and diluted  89,566  89,705  90,281  89,635  89,795
           
           
ENTROPIC COMMUNICATIONS, INC.
GAAP Condensed Consolidated Balance Sheets
(In thousands)
       
  June 30 March 31 December 31
  2014 2014 2013
  (unaudited) (unaudited) (unaudited)
ASSETS      
Current assets:      
Cash and cash equivalents  $ 11,054  $ 11,453  $ 16,298
Marketable securities  73,835  94,821  71,922
Accounts receivable  30,879  33,726  30,204
Inventory  13,907  14,479  13,503
Deferred tax assets, current  51  51  51
Prepaid expenses and other current assets  17,797  18,706  18,739
Total current assets  147,523  173,236  150,717
Property and equipment, net  19,454  18,174  17,994
Long-term marketable securities  36,005  30,740  69,534
Intangible assets, net  41,159  44,166  47,326
Goodwill  4,688  4,688  4,688
Other long-term assets  5,734  4,767  5,001
Total assets  $ 254,563  $ 275,771  $ 295,260
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
Accounts payable  $ 10,522  $ 15,225  $ 8,601
Accrued expenses and other current liabilities  6,380  5,711  6,318
Accrued payroll and benefits  8,525  8,489  7,077
Total current liabilities  25,427  29,425  21,996
Deferred rent  1,991  1,858  1,751
Other long-term liabilities  2,060  1,848  1,688
Stockholders' equity  225,085  242,640  269,825
Total liabilities and stockholders' equity  $ 254,563  $ 275,771  $ 295,260
       
       
ENTROPIC COMMUNICATIONS, INC.
Unaudited Reconciliation of Non-GAAP Adjustments
(In thousands, except for per share information)
           
This press release contains the following non-GAAP financial measures: net (loss) income and net (loss) income per share. The presentation of such measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Our non-GAAP net (loss) income and net (loss) income per share exclude the items listed below.
           
The following table sets forth such non-GAAP measures for the applicable periods as well as the reconciliation of such measures to the directly comparable GAAP measures for the periods shown.
           
  Three Months Ended Six Months Ended
  June 30, 2014 March 31, 2014 June 30, 2013 June 30, 2014 June 30, 2013
   (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
GAAP net loss  $ (21,849)  $ (23,253)  $ (39,913)  $ (45,102)  $ (42,317)
Non-GAAP adjustments:          
Stock-based compensation:          
Cost of net revenues  88  167  230  255  431
Research and development  3,535  3,202  1,975  6,737  3,964
Sales and marketing  772  562  516  1,334  814
General and administrative  1,167  937  1,054  2,104  2,020
Total stock-based compensation  5,562  4,868  3,775  10,430  7,229
Amortization of intangible assets:          
Cost of net revenues  2,717  2,717  2,228  5,434  4,456
Operating expenses  290  443  495  733  1,425
Transaction and integration costs  --  --  244  --  244
Loss related to equity method investment  --  --  335  --  1,115
Impairment of investment  --  --  4,780  --  4,780
Adjustments to the fair value of PLX acquisition contingent consideration  --  --  (143)  --  (131)
Income tax effects of pre-tax adjustments  --  --  2,591  --  --
Cash tax difference (1)  134  (113)  (2,274)  21  (4,371)
IP litigation costs (2)  935  21  --  956  --
Deferred tax asset valuation allowance  --  --  26,695  --  26,695
Restructuring charges (3)  1,796  --  1,763  1,796  1,763
Total of non-GAAP adjustments  11,434  7,936  40,489  19,370  43,205
Non-GAAP net (loss) income  $ (10,415)  $ (15,317)  $ 576  $ (25,732)  $ 888
           
Weighted average shares (basic)  89,566  89,705  90,281  89,635  89,795
Adjustment for dilutive shares  --  --  2,152  --  2,500
Weighted average shares (diluted)  89,566  89,705  92,433  89,635  92,295
           
GAAP net loss per share (basic)  $ (0.24)  $ (0.26)  $ (0.44)  $ (0.50)  $ (0.47)
Non-GAAP adjustments detailed above  0.12  0.09  0.45  0.21  0.48
Non-GAAP net (loss) income per share (diluted)  $ (0.12)  $ (0.17)  $ 0.01  $ (0.29)  $ 0.01
           
(1) Non-GAAP net (loss) income per share is calculated using the cash tax rate of (1)%, (1)%, and 29% for the three month periods ended June 30, 2014, March 31, 2014 and June 30, 2013, respectively, and (1)% and 24% for the six month periods ended June 30, 2014 and 2013, respectively. The estimated cash tax rate is the estimated tax payable on our projected tax returns as a percentage of estimated annual non-GAAP pre-tax net income (loss). We use an estimated cash tax rate to adjust for the historical variation in the effective book tax rate associated with the valuation allowance adjustments, the utilization of research and development tax credits, and the utilization of loss carryforwards which currently have an overall effect of reducing taxes payable. We believe that the cash tax rate provides a more transparent view of our operating results. The effective tax rate used for the purposes of calculating GAAP net loss was (1)%, 0%, and (215)% for the three month periods ended June 30, 2014, March 31, 2014 and June 30, 2013, respectively, and (1)% and (115)% for the six month periods ended June 30, 2014 and 2013, respectively.
(2) While litigation may arise in the ordinary course of our business, we nevertheless consider the current IP litigation to be an unusual, non-recurring and unplanned activity and therefore exclude this charge when presenting non-GAAP financial measures.
(3) In June 2014, we announced a corporate restructuring plan to accelerate our path to profitability. The restructuring plan includes the closures and consolidations of several global facilities including facilities located in Austin, Texas; India; Taiwan and Israel. We expect that approximately 150 positions will be eliminated in connection with the restructuring plan, representing about 23% of our work force. We recorded restructuring charges of $1.8 million during the three months ended June 30, 2014. We expect to incur a total restructuring charge of approximately $6.4 million, the majority of which is expected to be cash expenditures.

In June 2013, we incurred a restructuring charge of $1.8 million pursuant to a plan to rebalance our operations in an attempt to leverage synergies from our acquisitions and refine our business operations. This plan resulted in a reduction of our personnel by 66 employees, or approximately 10% of our work force.
           
CONTACT: Investor Contact:
         Debra Hart
         +1 858.768.3852
         debra.hart@entropic.com

         Media/Industry Analyst Contact:
         Chris Fallon
         + 1 858.768.3827
         chris.fallon@entropic.com

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