Conexant Reports Financial Results for the Third Quarter of Fiscal 2009

NEWPORT BEACH, Calif. — (BUSINESS WIRE) — July 30, 2009 Conexant Systems, Inc. (NASDAQ: CNXT) today announced that financial results for the third quarter of fiscal 2009 exceeded guidance provided at the beginning of the quarter. The company also said it expects to complete the transaction to sell its Broadband Access business in the current fiscal quarter.

Third Fiscal Quarter Financial Results

Conexant presents financial results based on Generally Accepted Accounting Principles (GAAP) as well as select non-GAAP financial measures intended to reflect its core results of operations. The company believes these core financial measures provide investors with additional insight into its underlying operating results. Core financial measures exclude certain non-cash and other non-core items as fully described in the GAAP to non-GAAP reconciliation in the accompanying financial data.

On April 22, 2009 Conexant announced the planned sale of its Broadband Access product lines to Ikanos Communications, Inc. (NASDAQ: IKAN) for $54 million. The company expects to close the transaction in the current quarter, and the financial results of the Broadband Access business unit have been classified as discontinued operations in Conexant’s third fiscal quarter financial statements. Because the company’s guidance for the third fiscal quarter included expected financial results for Broadband Access, third fiscal quarter non-GAAP financial measures including and excluding the Broadband Access business have been provided in the accompanying financial tables.

Including results from discontinued operations related to the Broadband Access business, Conexant’s revenues for the third quarter of fiscal 2009 were $84.6 million, slightly above the top end of the guidance range provided in April. Core gross margins of 54.5 percent of revenues were 150 basis points better than the high end of the guidance range, and core operating expenses of $38.8 million were below the range anticipated. Core operating income was $7.3 million, compared to the expectation of core operating income in a range between $3 million and $5 million. Core net income was $1.9 million, or $0.04 per share, compared to the core net loss of $0.03 to $0.06 per share the company anticipated.

Excluding results from discontinued operations related to the Broadband Access business, Conexant’s core net revenues for the third quarter of fiscal 2009 were $50.8 million. Core gross margins were 59.8 percent of revenues. Core operating expenses were $26.8 million, and core operating income was $3.6 million. Core net loss was $1 million, or $0.02 per diluted share.

On a GAAP basis, net revenues for the third quarter of fiscal 2009 were $50.8 million. GAAP gross margins were 59.6 percent of revenues. GAAP operating expenses were $29.0 million. GAAP operating income was $1.3 million, and GAAP loss from continuing operations was $0.8 million, or $0.02 per share. GAAP net income, including discontinued operations, was $2.7 million, or $0.05 per diluted share.

The company ended the quarter with $123.4 million in cash and cash equivalents, a sequential increase of $13.1 million due to improvements in working-capital management, the receipt of an escrow payment, the release of restricted cash, and the sale of equity investments.

Financial-performance and Business Perspective

“For the third fiscal quarter, the combined Conexant team delivered performance that exceeded our expectations on all financial metrics, including revenues, core gross margin, and core operating expenses,” said Scott Mercer, Conexant’s chairman and chief executive officer. “For the company that will continue after we complete the sale of our Broadband Access business, third fiscal quarter revenues of $50.8 million increased 16 percent from second quarter revenues of $43.9 million. Third quarter core gross margin of 59.8 percent was 260 basis points higher than core gross margin of 57.2 percent in the previous quarter due primarily to product mix, and core operating expenses of $26.8 million compared to $28.4 million in the previous quarter. Core operating income was $3.6 million, and the core net loss from continuing operations was $1 million, or $0.02 per share.

“With our Broadband Access business categorized as discontinued operations, our core operating expenses are higher than they will be for our continuing company, particularly in our shared-services groups,” Mercer said. “We plan to initiate actions this quarter to reduce core operating expenses by several million dollars per quarter for our continuing company, and we expect to realize the full benefit of these actions exiting this calendar year.

“Once the Broadband Access transaction closes, the continuing Conexant will be exclusively focused on providing solutions for imaging, audio, video, and various embedded-modem-based applications, and we have established leadership positions in each of these segments,” Mercer said. “I’d like to note that our imaging and audio product lines, where we have focused our product-development and acquisitions efforts, delivered third quarter sequential growth of 30 percent and accounted for more than 50 percent of total revenues for the continuing Conexant. On a year-over-year basis, growth for these two key businesses was 12 percent.”

Fourth Fiscal Quarter Business Outlook

Excluding results from discontinued operations related to the company’s Broadband Access business, Conexant expects revenues for the fourth quarter of fiscal 2009 to be approximately $54 million. The company anticipates that its imaging and audio product lines will grow about 20 percent sequentially and account for more than 60 percent of total revenues in the fourth quarter. Core gross margins for the fourth quarter are expected to be about 60 percent of revenues. The company expects core operating expenses to be approximately $27 million, assuming the Broadband Access transaction closes on schedule. As a result, the company anticipates that fourth fiscal quarter core operating income will be approximately $6 million, with core net income of $0.01 to $0.02 per share.

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