3rd Quarter Results
3rd Quarter Results
LONDON--(BUSINESS WIRE)--Oct. 24, 2002--
ARC International PLC
Results for the Third Quarter Ended 30 September 2002
ARC International plc (LSE: ARK), a world leader in semiconductor and
software technology licensing, announces its unaudited financial
results for the third quarter ended 30 September 2002.
Financial and Operational Highlights:
Third Quarter ended 30 September 2002
- Turnover up 37% to £2.8 million (Q3 2001: £2.0m), 2% down
sequentially at constant exchange rates excluding 6% currency
impact (Q2 2002: £3.0 million)
- Pre-exceptional net loss decreased 22% to £5.3 million (Q3 2001:
£6.8m)
- Quarterly cash outflow at £3.8 million 30% lower than Q3 2001
(£5.4 million)
- 7 new design licences and 4 additional customers won for
ARCtangent(TM) processor (6 of these licenses were the new A5
version)
- Strong results on new USB Now(TM) product sales, booked 7 licenses
with 5 for USB On-The-Go
- Software and development tools products shipped to more than 50
customers
- Consolidation of Ottawa office to streamline operations and reduce
costs
Nine months ended 30 September 2002
- Turnover down 7% to £8.5 million (2001: £9.2 million)
- Significant cost reductions implemented during year; operating
expenses down 21% to £22.1 million (2001: £28 million)
- Pre-exceptional net loss reduced by 15% to £15.5 million (2001:
£18.2 million)
- Strong cash position; £108 million
- New management team now complete
- 23 design wins and 16 new customers in the year to date
Commenting on the results, Mike Gulett, Chief Executive Officer, said:
"I am pleased with our results, considering the very difficult trading
conditions, where we saw customers holding onto orders and delaying
new development projects. I am especially encouraged with the positive
reception our new USB Now product has received. We were able to sign
up 7 licenses for USB in addition to 7 licenses for the ARCtangent
processor and we are encouraged by the sales performance of our
software and development tools product line.
Despite the continuing turbulence in the worldwide semiconductor
industry, we expect to achieve sequential growth in turnover this
quarter. The Company expects that its financial performance for 2002
will be within the current range of published analyst forecasts."
In light of rapidly changing and uncertain market conditions, and as
part of its ongoing responsibilities to shareholders, the Board
continually evaluates the Company's strategic options with a view to
maximizing shareholder value.
For further information, please contact:
ARC International plc
Mike Gulett Chief Executive Officer, +44 (0) 20 8236 2800
Monica Johnson Chief Financial Officer, +44 (0) 20 8236 2800
Natalie Godfrey Senior Communications Executive, +44 (0) 20 8236 2838
ARC's management will be available on +44 (0) 20 7353 4200 on 24 October 2002.
Tulchan Communications
Julie Foster Consultant, +44 (0) 20 7353 4200
*T
The Company is holding a conference call meeting for securities
analysts at GMT 0900 on 24 October 2002. The analyst presentation may
be accessed on the Investor Relations section of ARC's website at
www.ARC.com from GMT 0830 on 24 October. A recording of this meeting
will also be available on the ARC website until 24 November 2002.
Chief Executive's Review
Overview
ARC's turnover has been essentially flat over the last quarter and
grew significantly compared to the same quarter a year ago. Our new
USB Now product was very well received as we signed 7 licensees with 5
of these taking the On-The-Go option. I am very pleased with these
results as we only introduced this product in June of this year.
During the third quarter of this year, we saw increased evidence of
customers delaying new product development projects. As a direct
consequence, on 1st October 2002, we announced that a number of
licensing deals would be deferred into the fourth quarter and
turnover, prior to currency translation, would be broadly similar to
the previous quarter.
We have today recorded third quarter turnover of £2.8m, a decrease of
8% quarter on quarter, although prior to the impact of the negative
currency translations, turnover was broadly flat. Compared to the same
quarter last year, turnover increased 37%.
During the quarter, we added 7 new ARCtangent processor licensees,
bringing the total in the nine months of this year to 23 design
license wins and 16 new customers. We also shipped software and
development tools products to more than 50 customers during the
quarter - an indication of the strength of our software and
development tools product line. These customers use our software and
tools for ARM(R) and Motorola(R) processors as well as the ARCtangent
processor.
We indicated at the interim results in July that we would see a
marginal increase in total operating expenses during the third quarter
as we increased our R&D spend. Total operating expenses (before
amortisation, depreciation and exceptional items) came in according to
plan at £7.3 million (Q2 2002: £7.2 million) and we expect it to
remain at a similar level going forward.
We have reduced our costs by more than £1m per quarter over the past
year and we continue to drive costs down and run the business more
efficiently.
Licensee Update
ARCtangent Processor
At the core of our business is our ARCtangent RISC/DSP configurable,
extensible processor. The new A5 version of the ARCtangent processor
has been very successful in its first quarter of availability and we
have signed 6 new A5 ARCtangent license agreements and one A4 license
agreement. This week we have launched a new version of the
ARCtangent-A5 processor that features improved DSP extensions whilst
retaining the ability to keep memory code footprint low thereby
reducing system costs.
USB Now
In early June, we announced a new product, USB Now, the world's first
integrated and optimised Universal Serial Bus for system-on-chip (SoC)
intellectual property (IP) platforms. USB Now includes On-The-Go (OTG)
functionality for Hi-Speed USB 2.0 peer-to-peer communications between
mobile and consumer electronics devices. This new product became
available in August this year and we have already booked 7 licenses, 5
of them with OTG functionality. We are very encouraged by the level of
interest that has been generated in this leading edge product.
Strategic Alliances
Strategic alliances are very important for ARC to achieve the goal of
building a long-term sustainable business. We have announced several
strategic alliances this year; some of these alliances such as the
Metrowerks software alliance directly contributed to results this
quarter and are expected to grow in the coming quarters.
Product Development Update
So far this year, we have launched two new products as discussed above
and we have been successful in selling and shipping both these
products as soon as they became available. We currently have two new
versions of the ARCtangent processor in development and intend to
announce further details as these products become available.
In addition, we will soon be introducing an 802.11 product which, like
USB Now, is another application specific system product that allows
our customers to create new SoC solutions in less time, at a lower
cost and lower risk than alternatives. The wireless LAN market
continues to be a bright spot in the current economic environment. The
802.11 standard is generating tremendous interest and innovation.
According to the Dell'Oro Group, the Wireless LAN 802.11 market is
forecasted to grow from $1.2 B in 2001 to $3.1 B in 2006. Wireless LAN
networks are being deployed in the home, at the enterprise and in
public "hot spots" such as airports, hotels and cafes. Novel product
concepts such as 802.11 voice-activated phones illustrate the breadth
of the innovation associated with this market.
ARC is well-positioned to benefit from these trends. This quarter we
made significant progress in the development of our Wireless LAN
platform solution. Our fully synthesizable, cost effective solution
will support multiple configurations and includes an embedded
ARCtangent processor. Employing our processor technology in the
solution permits us to 'future-proof' the customer's investment.
Easily made software changes will keep our solution current with
rapidly evolving standards and market requirements. We will begin
802.11 customer engagements in the fourth quarter.
Our business strategy is to license products, which make it easy for
our customers to create embedded systems, usually a SoC. We do this by
simplifying the complexity of designing, testing and producing
integrated circuits and the software that runs on these integrated
circuits, with a proprietary system that results from the integration
of ARC's RISC/DSP processors, MetaWare(R) tools, VAutomation
peripherals, Precise software and other IP that we import, integrate,
then deliver to our customers as an embedded system solution.
Business Integration
We recently announced our plan to consolidate ARC's software
engineering teams. This will promote synergies in software product
development and reduce the overall cost structure of the Group. This
will neither interrupt the development of new products nor affect the
continued high levels of service we offer to our software customers.
The transition, which has already begun, is expected to be complete by
the end of January 2003.
ARC's engineering facility in Ottawa will close and it is expected
that a portion of the Ottawa-based RTOS and Protocol Software group
will be relocated to Santa Cruz, California, where ARC's Software
Development team is headquartered. The Elstree operations in the UK
and the Nashua, New Hampshire engineering locations will not be
affected. Following the transition, overall headcount is expected to
decrease by approximately 7%. As a result of these initiatives, the
Company will take an exceptional charge in the range of £2.4 million,
of which approximately £1.4 million will be cash spend.
People
We continue to invest in people who will drive the business towards
profitability and have recently announced the appointment of Andrew
Haines as Sr. Vice President of Marketing. This is an excellent
addition to the team as Andy has more than 25 years experience in
marketing management at leading technology companies.
Total company headcount at 30 September 2002 is 200 compared to 230 at
Q3 2001.
Outlook
Despite the continuing turbulence in the worldwide semiconductor
industry, we expect to achieve sequential growth in turnover this
quarter. Management expects to close the deferred deals from the third
quarter during the fourth quarter and is encouraged by the strong
forward pipeline. The Company therefore expects that its financial
performance for the year ended 31 December 2002 will fall within the
current range of published analyst forecasts.
We also believe that we can support significantly higher levels of
turnover with our current infrastructure. As a result, we believe we
will continue to make meaningful progress towards achieving EBITDA
breakeven.
Financial Review
Third Quarter ended 30 September 2002
Turnover
Total turnover for the third quarter was £2.8 million, up 37% from the
prior year quarter (Q3 2001: £2.0 million) and down 8% from the second
quarter revenue of £3.0 million. Prior to currency translation, with
virtually all sales in US$, underlying turnover was down 2% over Q2
2002. License income was 10% lower than the previous quarter at £2.1
million (Q2 2002: £2.4 million). Maintenance and service income was
the same as that in the previous quarter at £0.5million (Q2 2002: £0.5
million). Royalty income increased slightly to £0.2 million (Q2 2002:
£0.1 million). Within the turnover base, 34% of sales were in Europe,
63% in North America and the remaining 3% in Asia. From a product
perspective, 44% were processor shipments, software sales represented
39% of sales and the remaining 17% was peripheral products.
Costs
Cost of sales declined to £0.2 million (Q2 2002: £0.3 million), which
resulted in an increase in gross margin to 91% (Q2 2002: 89%). Total
operating expenses (excluding exceptional costs, amortisation of
goodwill and depreciation) came in at plan at £7.3 million (Q2 2002:
£7.2 million, Q3 2001: £8.6 million).
The Company had 200 employees at 30 September 2002 compared with 230
at 30 September 2001. Research and development costs increased to £3.6
million (Q2 2002: £3.1 million) to fund development projects related
to upcoming product releases. Sales and marketing costs decreased 15%
to £2.2 million (Q2 2002: £2.6 million) and general and administration
costs were up slightly at £1.3 million (Q2 2002: £1.2 million).
Interest
Interest income was unchanged at £1.1 million (Q2 2002: £1.1 million).
Net loss
The net loss prior to restructuring increased 7% sequentially to £5.3
million and decreased 22% from the year ago quarter (Q2 2002: £4.9
million Q3 2001: £6.8 million). Loss per share prior to restructuring
increased slightly to (1.8)p (Q2 2002:(1.7)p). Net loss including the
net restructuring charge of £2.2 million was £7.5 million. (Q2 2002:
£4.9 million, Q3 2001: £11.2 million).
Cash flow and balance sheet
The net cash outflow from operations was £4.5 million, (Q2 2002 an
outflow of £4.8 million). Capital expenditure was £0.2 million. The
movement in net funds during the quarter was an outflow of £3.8
million. Net assets at 30 September 2002 were £119.1 million,
including net cash of £108 million.
Nine months ended 30 September 2002
Total turnover at £8.5 million was down 7% from the previous year
(2001: £9.2 million). Licence income was £6.6 million (2001: £7.2
million). Maintenance and service income was £1.6 million (2001: £1.6
million) and royalties were £0.3 million (2001: £0.4 million).
Costs
Cost of sales was £1.0 million (2001: £1.3 million), resulting in a
gross margin of 88% (2001: 86%). Total operating expenses (excluding
exceptional costs, amortisation of goodwill and depreciation)
decreased 21% to £22.1 million (2001: £28 million).
Total headcount in the business at 30 September 2002 was 200 employees
compared with 230 at 30 September 2001. Research and development costs
were down 2% to £9.8 million (Q3 2001: £9.9 million), sales and
marketing costs were down 34% to £7.5 million (Q3 2001: £11.4 million)
and general and administration costs were down 28% to £3.8 million (Q3
2001: £5.3 million).
Interest
Interest income was £3.4 million (2001: £5.3 million).
Net loss
The net loss before exceptional costs was £15.5 million (2001: £18.2
million). Including net exceptional charges of to £2.2 million, net
loss decreased 29% to £17.8 million (2001: £25.0 million).
Cash flow and balance sheet
The net cash outflow from operations was £15.3 million (2001: £20.2
million). Capital expenditure was £1.7 million (2001: £4.9 million).
The movement in net funds was a £13.9 million outflow. Net assets at
30 September 2002 were £119.1 million (2001: £140.7 million),
including net cash of £108 million.
Dividend
No interim dividend payment will be made in respect of the nine months
ended 30 September 2002.
ARC International plc
Consolidated profit and loss account
for the nine months ended 30 September 2002
---------------------------------
3 months ended 3 months ended 9 months ended 9 months ended Year ended
30 Sept 30 Sept 30 Sept 30 Sept 31 December
2002 2001 2002 2001 2001
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
£'000 £'000 £'000 £'000 £'000
Turnover 2,764 2,016 8,507 9,178 11,450
Less: Operating costs
-------------------------------------------------------------------- ------------------------------------------------
Goodwill amortisation 1,024 1,019 3,069 3,058 4,075
Exceptional costs 2,240 4,619 2,240 7,909 5,526
Other operating costs 8,117 9,162 24,338 28,496 38,277
-------------------------------------------------------------------- ------------------------------------------------
11,381 14,800 29,647 39,463 47,878
Loss before interest and tax 8,617 12,784 21,140 30,285 36,428
Add: Interest receivable and similar income 1,113 1,581 3,355 5,302 6,586
Less: Interest payable and similar charges - - - - 2
------------------------- ------------------------------------------------
Loss on ordinary activities before tax 7,504 11,203 17,785 24,983 29,844
Less: Tax on loss on ordinary activities - 1 - 4 81
------------------------- ------------------------------------------------
Retained loss for the period 7,504 11,204 17,785 24,987 29,925
========================= ================================================
Basic loss per share 2.53p 4.03p 5.99p 8.99p 10.83p
Diluted loss per share 2.53p 4.03p 5.99p 8.99p 10.83p
-------------------------
Summary of operating expenses
------------------------
Operating costs
Cost of sales 244 415 980 1,306 1,683
Research and development 3,617 3,171 9,766 9,945 13,291
Sales and marketing 2,196 3,360 7,502 11,403 14,294
General and administration 1,291 1,694 3,811 5,326 6,583
Depreciation of fixed assets 769 714 2,279 1,608 2,426
Amortisation of goodwill 1,024 1,019 3,069 3,058 4,075
Exceptional costs - NIC on share options - 192 - (1,092) (1,026)
Exceptional costs - Provision release (160) - (160) - -
Exceptional costs - restructuring 2,400 4,619 2,400 7,909 6,552
------------------------ ------------------------------------------------
Total operating expenses 11,381 14,800 29,647 39,463 47,878
------------------------ ------------------------------------------------
ARC International plc
Consolidated statement of total recognised gains and losses
for the nine months ended 30 September 2002
----------------------------------
3 months ended 3 months ended 9 months ended 9 months ended Year ended
30 Sept 30 Sept 30 Sept 30 Sept 31 December
2002 2001 2002 2001 2001
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
£'000 £'000 £'000 £'000 £'000
Loss for the period (7,504) (11,204) (17,785) (24,987) (29,925)
Currency translation difference (96) (58) (274) 189 71
---------------------------------- ------------------------------------------------
Total loss for the period (7,600) (11,262) (18,059) (24,798) (29,854)
---------------------------------- ================================================
ARC International plc
Consolidated balance sheet
as at 30 September 2002
30 Sept 30 Sept 31 December
2002 2001 2001
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Fixed assets
Intangible assets 9,289 13,296 12,280
Tangible assets 5,984 7,403 6,702
------------------------------------------------
15,273 20,699 18,982
------------------------------------------------
Current assets
Stock 154 451 156
Debtors 4,556 5,589 3,710
Investments - bank deposits 105,265 124,892 119,401
Cash at bank and in hand 2,690 1,759 1,449
------------------------------------------------
112,665 132,691 124,716
Creditors - amounts fully due within one year (4,731) (12,732) (5,198)
------------------------------------------------
Net current assets 107,934 119,959 119,518
Total assets less current liabilities 123,207 140,658 138,500
Creditors - amounts fully due after more than
one year (2) - (2)
Provisions for liabilities and charges (4137) - (2,433)
------------------------------------------------
Net assets 119,068 140,658 136,065
================================================
Capital and reserves
Called up share capital 296 278 283
Share premium account 152,448 149,850 151,033
Exchangeable shares 4,040 5,025 4,286
Merger reserve 107 107 107
Other reserves 24,582 24,688 24,702
Profit and loss account (62,405) (39,290) (44,346)
------------------------------------------------
Total shareholders' funds 119,068 140,658 136,065
================================================
ARC International plc
Consolidated cash flow statement
for the nine months ended 30 September 2002
--------------------------------
Note 3 months ended 3 months ended 9 months ended 9 months ended Year ended
30 Sept 30 Sept 30 Sept 30 Sept 31 December
2002 2001 2002 2001 2001
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
£'000 £'000 £'000 £'000 £'000
Net cash outflow from operating
activities 1 (4,529) (5,996) (15,321) (20,182) (27,304)
Returns on investments and
servicing of finance
Interest received 933 1,737 3,177 5,037 6,365
Bank interest paid - - - - -
Interest element on finance
lease rentals - - - - (2)
----------------------------- -----------------------------------------------
933 1,737 3,177 5,037 6,363
----------------------------- -----------------------------------------------
Capital expenditure and
financial investment
Purchase of tangible fixed assets (227) (1,246) (1,732) (4,891) (5,315)
Sale of tangible fixed assets - - - - 8
----------------------------- -----------------------------------------------
(227) (1,246) (1,732) (4,891) (5,307)
----------------------------- -----------------------------------------------
Net cash outflow before
management of liquid resources
and financing (3,823) (5,505) (13,876) (20,036) (26,248)
----------------------------- -----------------------------------------------
Management of liquid resources
Movement on term deposits 3 4,714 5,997 14,136 18,396 23,888
----------------------------- -----------------------------------------------
Financing
Financing - issue of ordinary
share capital - IPO and options 163 159 1,184 795 1,243
Capital element of finance lease
rentals (1) (5) (5) (19) (20)
Decrease in borrowings - 1 - (17) (17)
----------------------------- -----------------------------------------------
Net cash inflow from financing 162 155 1,179 759 1,206
----------------------------- -----------------------------------------------
(Decrease)/Increase in cash
during the period 3 1,053 647 1,439 (881) (1,154)
----------------------------- -----------------------------------------------
1. Reconciliation of operating profit to net cash flow from operating activities
----------------------------------
3 months ended 3 months ended 9 months ended 9 months ended Year ended
30 Sept 30 Sept 30 Sept 30 Sept 31 December
2002 2001 2002 2001 2001
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
£'000 £'000 £'000 £'000 £'000
Operating loss (8,617) (12,784) (21,140) (30,285) (36,428)
Depreciation 769 714 2,279 1,608 2,426
Amortisation of goodwill 1,024 1,019 3,069 3,058 4,075
Loss on disposal of fixed assets - - 44 - 237
Share option grant credit 7 10 24 26 39
(Increase) in stocks (1) (72) (4) (455) (159)
(Increase)/ decrease in debtors (750) 2,334 (1,411) 1,102 2,911
Increase/(decrease) in creditors 854 2,783 115 4,764 (2,838)
(Decrease)/increase in provisions 2185 - 1,703 - 2,433
---------------------------------- ------------------------------------------------
Net cash flow from operating
activities (4,529) (5,996) (15,321) (20,182) (27,304)
---------------------------------- ------------------------------------------------
2. Analysis of net funds
(unaudited) Cash at bank Investments - Finance Total
bank deposits leases
£000 £000 £000 £000
At 31 December 2001 1,449 119,401 (7) 120,843
Exchange (198) - - (198)
Cash flow 1,439 (14,136) 5 (12,692)
-------------- ----------------- ------------ ------------
At 30 September 2002 2,690 105,265 (2) 107,953
-------------- ----------------- ------------ ------------
3. Reconciliation of net cash flow to movement in net funds
----------------------------------
3 months ended 3 months ended 9 months ended 9 months ended Year ended
30 Sept 30 Sept 30 Sept 30 Sept 31 December
2002 2001 2002 2001 2001
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
£'000 £'000 £'000 £'000 £'000
(Decrease)/increase in cash
in the period 1,053 (5,351) 1,439 (6,879) (1,154)
Cash (inflow)/outflow from
increase in liquid resources (4,714) - (14,136) (12,399) (23,888)
---------------- --------------- --------------- --------------- -------------
(3,661) (5,351) (12,697) (19,278) (25,042)
Movement in borrowings 1 4 5 36 37
Exchange movements (107) (82) (198) 69 32
---------------- --------------- --------------- --------------- -------------
Movement in funds (3,767) (5,429) (12,890) (19,173) (24,973)
Net funds at beginning of period 111,720 132,072 120,843 145,816 145,816
---------------- --------------- --------------- --------------- -------------
Net funds at end of period 107,953 126,643 107,953 126,643 120,843
---------------- --------------- --------------- --------------- -------------
*T
Notes
About ARC International
ARC International is an industry-leading developer of embedded
user-customizable, high-performance 32-bit RISC/DSP processor cores,
with integrated development tools, peripherals, RTOS and software.
These integrated products and solutions are a result of the
acquisitions of MetaWare, VAutomation and Precise Software
Technologies. ARC's integrated intellectual property solutions assist
customers in rapidly developing next generation wireless, networking
and consumer electronics products, reducing the number of IP
suppliers, reducing time to market, reducing their cost, and reducing
their risk for System-on-Chip product development. Products based on
ARC's technology include digital still cameras, set-top boxes, and
network processors.
ARC International employs 200 people in research and development,
sales, and marketing offices across North America, Europe and Israel.
Full details of the company's locations and other information are on
the company's web site, www.ARC.com. ARC International is listed on
the London Stock Exchange as ARC International plc (LSE:ARK).
Statements made in this report that are not historical facts include
forward-looking statements that involve risks and uncertainties.
Important factors that could cause actual results to differ from those
indicated by such forward-looking statements include, among others,
market acceptance of the ARC technology; fluctuations in and
unpredictability of the Company's quarterly results; general economic
and business conditions; regulatory policies adopted by governmental
authorities; assumptions regarding the Company's future business
strategy; changes in technology; competition; ability to attract and
retain qualified personnel; risks associated with the Company's
international operations; and other uncertainties that are discussed
in the "Investment Considerations" section of the Company's listing
particulars dated 28 September 2000 filed with the United Kingdom
Listing Authority and the Registrar of Companies in England and Wales.
The Company disclaims any intention or obligation to update any
forward-looking statements as a result of developments occurring after
the date such statement was first made
ARC, the ARC logo, USB Now and ARCtangent are trademarks of ARC
International. All other brands or product names are the property of
their respective holders.
Short Name: Arc Intl PLC
Category Code: QRT
Sequence Number: 00001042
Time of Receipt (offset from UTC): 20021023T195820+0100
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