Q1 2011 Earnings Call
April 28, 2011 4:30 pm ET
Michael Zellner - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance
David Climie - Vice President of Marketing Communications and Investor Relations
Gregory Lang - Chief Executive Officer, President and Director
Cody Acree - Williams Financial Group, Inc.
William Harrison - Signal Hill Capital Group LLC
James Schneider - Goldman Sachs Group Inc.
Harlan Sur - JP Morgan Chase & Co
Srini Pajjuri - Credit Agricole Securities (USA) Inc.
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Thank you. Good afternoon, everyone, and thank you for attending our investor conference call. With us on the call today is Greg Lang, President and CEO; and Mike Zellner, Vice President and CFO. Please note that our first quarter 2011 earnings release was disseminated today via BusinessWire after market close, and a copy of the release can be downloaded from our website.
Before we begin, I'd like to point out that during the course of this conference call, we'll be making forward-looking statements that involve a number of risks and uncertainties. These risks and uncertainties include but are not limited to product demand, inventory levels, pricing, exchange rates, taxation rates and other risk factors that are detailed in the company's Securities and Exchange Commission filings. Actual results may differ materially from the company's projections. For further information about these risks and uncertainties, please read the company's SEC filings, including our forms 10-K and 10-Q.
If you're asking a question during the Q&A session of today's call, we request that you limit yourself to one question. If you'd like to ask a second question, please re-queue with the operator. Thank you, and I will now turn the call over to Mike Zellner.
Thanks, Dave. I'll review our first quarter 2011 results and financial position, and then turn it over to Greg to discuss our business activity in detail. Revenue in the first quarter was at the high end of our outlook and slightly lower on a sequential basis at $157.4 million. This represents a decrease of $1.9 million or about 1% compared with Q4 revenue of $159.3 million. This was anticipated mainly as a result of customers working down inventory and was largely offset by having a full quarter of revenue from our acquisition of Wintegra, which we completed in November last year. Greg will provide further details around revenue in his comments to follow. In Q1, we have one customer that represented greater than 10% of our revenue calculated on a 12-month basis, namely HP. Non-GAAP gross margin in the first quarter was again slightly at the high-end of our outlook of 68.3, up slightly from 68.2 in Q4. On a non-GAAP basis, operating expenses increased by $3.5 million from $72.4 million in Q4 to $75.9 million in Q1. This increase, which was in-line with our outlook, was primarily the result of having a full quarter of operating costs for Wintegra in Q1 compared with only five weeks in Q4. Also we had the effects of the annual reset of employee benefits at the beginning of the calendar year in completion of planned investments and R&D projects. In Q1, our non-GAAP operating margin was 20% compared with 23% in Q4. We expect to return to our targeted range of 25% to 30% within the year.
Non-GAAP tax provision was lower sequentially at $1.4 million compared to $2.5 million in Q4 mainly due to a change in mix of income across our foreign subsidiaries. Non-GAAP net income for Q1 was $30.6 million or $0.13 per share on a diluted basis compared to $34.6 million or $0.15 per share generated in Q4.
Q1 GAAP net loss per share was $0.03 versus $0.05 diluted net income per share in Q4. The decrease was mainly the result of acquisition-related costs, including a full quarter of amortization of purchased intangible assets and lease termination expenses recorded in Q1.
Please note that for each of the historical non-GAAP financial measures mentioned on this call, a full reconciliation to the most comparable GAAP financial measures is included in our press release issued today. In addition, a GAAP to non-GAAP reconciliation of financial measures that will provide an outlook will be posted on our website under the Financial Report section of the Investor Relations tab.
The primary reconciling items for Q1 are as follows: $11 million in the amortization of purchased intangible assets, $6.3 million in stock-based compensation expense, $900,000 of non-cash interest expense, $10.4 million of acquisition-related costs, $3.4 million accrual for lease termination costs for an exited facility and $4.5 million of income tax-related adjustments as described in our press release.
Turning to the balance sheet. We ended the quarter with over $413 million of cash and cash equivalents, short-term investments and investment securities. Our cash position at the end of Q1, net of the $68.3 million face value of our convertible notes with $345.4 million, an increase of $11.2 million in Q4. This increase primarily relates to $9.4 million of positive cash flow generated from operations adjusted for non-cash items, $7.1 million of cash from employee-related stock issuances, offset by $4.2 million of IP purchases and capital expenditures. Our cash flow generated from operations in Q1 was lower than typical mainly due to timing differences in settlement of receivables and payables. For example, $13 million of accounts receivables was collected in the five days following a fiscal quarter end.