SYMM Symmetricom, Inc. (MM)

Symmetricom, Inc. (NASDAQ:SYMM), a worldwide leader in precision time and frequency technologies, today reported financial results for its fourth quarter and the fiscal year ended July 3, 2011.

Net revenue for the fourth quarter of fiscal 2011 was $60.7 million, up $9.5 million, or 18.5%, compared to the third quarter of fiscal 2011, driven by increases in customer orders and improvements in the company’s manufacturing supply. Net revenue for the fourth quarter of fiscal 2011 was up $5.0 million, or 9.0%, compared to the fourth quarter of fiscal 2010. Symmetricom reported a loss from continuing operations of $1.4 million, or $0.03 per share, for the fourth quarter of fiscal 2011, compared to income from continuing operations of $3.0 million, or $0.07 per share, in the third quarter of fiscal 2011. The loss from continuing operations for the fourth quarter of fiscal 2011 included income tax expense of $6.1 million, driven by a non-cash charge for a valuation allowance of $4.5 million recorded against California R&D tax credit deferred tax assets that are not considered realizable due principally to changes in California’s state income tax apportionment rules.

Non-GAAP income from continuing operations for the fourth quarter of fiscal 2011 was $5.4 million, or $0.12 per share, compared to $5.3 million, or $0.12 per share, reported for the third quarter. As compared to the prior quarter, non-GAAP income from continuing operations was impacted by investments in improving our manufacturing processes as well as a higher effective tax rate.

Net revenue for fiscal 2011 was $208.1 million, compared to $221.3 million for fiscal 2010. Symmetricom reported income from continuing operations of $1.2 million, or $0.03 per share, in fiscal 2011, compared to income from continuing operations of $2.5 million, or $0.06 per share, in fiscal 2010. The income from continuing operations for fiscal 2011 included $8.1 million of restructuring charges and $6.9 million of income tax expense, principally for the valuation allowance recorded against the company’s California R&D tax credit deferred tax assets. The income from continuing operations in fiscal 2010 included $10.3 million of restructuring charges and $7.0 million of non-cash charges related to the repayment of convertible notes. Non-GAAP income from continuing operations for fiscal 2011 was $17.7 million, or $0.40 per share, compared to $18.7 million, or $0.42 per share, reported for the prior year.

Cash, cash equivalents and short-term investments totaled $63.7 million as of July 3, 2011, a decrease of $11.6 million from the $75.3 million reported as of March 27, 2011. Net cash used in operating activities in the fourth quarter was $7.6 million and property, plant and equipment purchases were approximately $2.0 million, resulting in free cash outflow of approximately $9.6 million. Included in the net cash used in operating activities in the fourth quarter was a $17.6 million investment in inventories to improve and ensure supply continuity as we completed our manufacturing transition.

“During fiscal 2011 we made considerable progress capitalizing on the migration to next-generation networks and expanding into new markets,” said Dave Côté, president and chief executive officer of Symmetricom. “Our government business generated record revenue and bookings, and our newest communications timing products for next generation networks gained significant traction. Full year revenue from our PackeTime® products grew more than 75 percent over the prior year and our PackeTime equipment is now deployed in more than 80 live Ethernet backhaul implementations globally.”

“While the manufacturing transition impacted our financial results in fiscal 2011, we have upgraded our production capabilities, and our operational and financial outlook for fiscal 2012 is positive,” continued Côté. “Operationally, we are now focused on leveraging our new manufacturing model into a strategic asset for the company. Financially, we expect important contributions in the coming year from new products as we ramp production capabilities for our QUANTUM™ SA.45s Chip Scale Atomic Clock and begin to generate revenue from our other new offerings, including embedded PTP soft clocks and timing products for the high frequency trading and power utility markets.”

Business Results

Revenue in the Communications Business in the fourth quarter of fiscal 2011 was $35.2 million, compared to $35.1 million reported in the same period last year and $30.4 million in the third quarter of this fiscal year. Revenue in the Government Business in the fourth quarter of fiscal 2011 was $25.5 million, compared to $20.6 million reported in the same period last year and $20.8 million in the third quarter of this fiscal year.

First Quarter 2012 Guidance

Symmetricom’s guidance for the first quarter of fiscal 2012 is as follows:

• Net revenue is expected to be in the range of $52 million to $57 million
• GAAP earnings per share from continuing operations is expected to be in the range of $0.02 to $0.06
• Non-GAAP earnings per share from continuing operations is expected to be in the range of $0.07 to $0.11

A reconciliation of GAAP and non-GAAP guidance is provided at the end of this press release.

Investor Conference Call

As previously announced, management will hold a conference call to discuss these results today, at 1:30 p.m. Pacific Time. Investors are invited to join the conference call by dialing +1-312-470-7356 and referencing “Symmetricom.” A live webcast will also be available on the investor relations section of the company’s website at www.symmetricom.com. An audio replay will be available for one week and can be accessed by dialing +1-402-344-6639.

About Symmetricom, Inc.

Symmetricom, a world leader in precise time solutions, sets the world's standard for time. The company generates, distributes and applies precise time for the communications, aerospace/defense, IT infrastructure and metrology industries. Symmetricom's customers, from communications service providers and network equipment manufacturers to governments and their suppliers worldwide, are able to build more reliable networks and systems by using the company's advanced timing technologies, atomic clocks, services and solutions. All products support today's precise timing standards, including GPS-based timing, IEEE 1588 (PTP), Network Time Protocol (NTP), Synchronous Ethernet and DOCSIS(R) timing. Symmetricom is based in San Jose, California, with offices worldwide. For more information, visit: http://www.symmetricom.com.

Non-GAAP Information

Certain non-GAAP financial information is included in this press release. In the reconciliation of GAAP to non-GAAP results, Symmetricom excludes certain items related to non-cash equity-based compensation, amortization of intangible assets, restructuring charges, manufacturing transition costs, loss on repayment of convertible notes, non-cash interest expense charges and non-cash income tax expenses for valuation allowances against deferred tax assets that the company does not consider indicative of its ongoing performance. The income tax effect after these non-GAAP adjustments is determined based upon Symmetricom’s estimate of its annual non-GAAP effective tax rate excluding these non-GAAP adjustments. Symmetricom believes that excluding such items provides investors, analysts and management with a representation of the Company’s core operating performance and with information useful in assessing, in conjunction with GAAP results, underlying trends in operating performance. Management uses such non-GAAP information to evaluate financial results and to establish operational goals. Non-GAAP information should not be considered superior to or as a substitute for data prepared in accordance with GAAP. A reconciliation of the non-GAAP results to the GAAP results is provided in the financial schedules portion of this press release.

Free cash flow is defined as net cash provided by or used in operating activities minus purchases of property, plant and equipment. Symmetricom believes this metric provides useful information to its investors, analysts, and management about the level of cash generated by or used in normal business operations, including the use of cash for the purchase of property, plant and equipment. Management also views it as a measure of cash available to pay debt and return cash to stockholders. Free cash flow is not a GAAP financial measure and should not be considered superior to or a substitute for operating cash flow or other cash flow data prepared in accordance with GAAP.

Safe Harbor

This press release contains forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created by those sections. These forward-looking statements include statements concerning first quarter fiscal 2012 guidance and future performance, expectations regarding contributions of new products, and a positive operational and financial outlook for fiscal 2012 as well as the information regarding the usefulness of the non-GAAP financial information. The statements in this press release are made as of the date of this press release, even if subsequently made available by Symmetricom on its website or otherwise. Symmetricom expressly disclaims any obligation to update or revise any forward-looking statement contained herein, whether as a result of a change in its expectations, a change in any events, conditions or circumstances on which a forward-looking statement is based, or otherwise. Symmetricom's actual results could differ materially from those projected or suggested in these forward-looking statements. Factors that could cause future actual results to differ materially from the results projected in or suggested by such forward-looking statements include: reduced rates of demand for telecommunication products, cable products or test and measurement products, reduced rates or changes in government spending patterns, customers' ability and need to upgrade existing equipment, the company’s ability to fulfill delayed shipments, complications or difficulties in its transition to an outsourced manufacturing and logistics model, the company’s ability to maintain or reduce manufacturing and operating costs, timing of orders, cancellation or delay of customer orders, loss of customers, customer acceptance of new products, recessionary pressures, geopolitical risks such as terrorist acts and the risk factors listed from time to time in Symmetricom's reports filed with the Securities and Exchange Commission, including the annual report on Form 10-K for the fiscal year ended June 27, 2010 and subsequent Form 10-Q’s and 8-K's.

SYMM-F

  SYMMETRICOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (unaudited)     Three months ended     Twelve months ended July 3,   March 27,   June 27, July 3,   June 27,   2011     2011     2010     2011     2010     Net revenue $ 60,689 $ 51,234 $ 55,660 $ 208,146 $ 221,316 Cost of sales: Cost of products and services 31,384 26,778 28,101 107,990 116,889 Amortization of purchased technology 260 260 268 1,073 1,282 Restructuring charges   364     1,330     3,384     9,351     5,625   Total cost of sales   32,008     28,368     31,753     118,414     123,796   Gross profit 28,681 22,866 23,907 89,732 97,520 Gross margin 47.3 % 44.6 % 43.0 % 43.1 % 44.1 % Operating expenses: Research and development 6,984 6,717 6,190 27,045 23,701 Selling, general and administrative 16,620 13,592 14,560 56,607 56,743 Amortization of intangible assets 60 60 62 243 281 Restructuring charges   691     (1,142 )   2,657     (1,294 )   4,666   Total operating expenses   24,355     19,227     23,469     82,601     85,391   Operating income 4,326 3,639 438 7,131 12,129 Loss on repayment of convertible notes, net - - (7,026 ) - (7,026 ) Interest income, net of amortization (accretion)

of premium (discount) on investments

294 441 278 957 1,594 Interest expense   (3 )   -     (792 )   (58 )   (4,654 ) Income (loss) from continuing operations before income taxes 4,617 4,080 (7,102 ) 8,030 2,043 Income tax provision (benefit)   6,051     1,095     (3,521 )   6,861     (503 ) Income (loss) from continuing operations (1,434 ) 2,985 (3,581 ) 1,169 2,546 Income (loss) from discontinued operations, net of tax   157     19     (58 )   254     (20 ) Net income (loss) $ (1,277 ) $ 3,004   $ (3,639 ) $ 1,423   $ 2,526     Earnings (loss) per share - basic: Income (loss) from continuing operations $ (0.03 ) $ 0.07 $ (0.08 ) $ 0.03 $ 0.06 Income (loss) from discontinued operations   -     -     -     -     -   Net earnings (loss) $ (0.03 ) $ 0.07   $ (0.08 ) $ 0.03   $ 0.06     Weighted average shares outstanding - basic   42,897     43,153     43,593     43,188     43,380     Earnings (loss) per share - diluted: Income (loss) from continuing operations $ (0.03 ) $ 0.07 $ (0.08 ) $ 0.03 $ 0.06 Income (loss) from discontinued operations   -     -     -     -     -   Net earnings (loss) $ (0.03 ) $ 0.07   $ (0.08 ) $ 0.03   $ 0.06     Weighted average shares outstanding - diluted   42,897     43,859     43,593     43,782     43,897     SYMMETRICOM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (unaudited)     July 3,   June 27,   2011     2010     ASSETS Current assets: Cash and cash equivalents $ 20,318 $ 21,794 Short-term investments 43,340 53,825 Accounts receivable, net 40,511 40,075 Inventories, net 62,622 37,229 Prepaids and other current assets   14,004     15,108   Total current assets 180,795 168,031 Property, plant and equipment, net 23,255 23,077 Intangible assets, net 2,429 3,745 Deferred taxes and other assets   29,361     36,534   Total assets $ 235,840   $ 231,387     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 16,113 $ 6,768 Accrued compensation 13,743 18,731 Accrued warranty 1,601 2,900 Other accrued liabilities   14,683     10,506   Total current liabilities 46,140 38,905 Long-term obligations 5,212 8,296 Deferred income taxes   334     334   Total liabilities 51,686 47,535 Stockholders' equity: Common stock 201,002 202,450 Accumulated other comprehensive loss (29 ) (356 ) Accumulated deficit   (16,819 )   (18,242 ) Total stockholders' equity   184,154     183,852   Total liabilities and stockholders' equity $ 235,840   $ 231,387     SYMMETRICOM, INC. RECONCILIATION OF GAAP TO NON-GAAP RESULTS (In thousands, except per share amounts) (unaudited)     Three months ended     Twelve months ended July 3,   March 27,   June 27, July 3,   June 27,   2011     2011     2010     2011     2010   Reconciliation from GAAP to Non-GAAP GAAP Income (loss) from continuing operations $ (1,434 ) $ 2,985 $ (3,581 ) $ 1,169 $ 2,546   Add Non-GAAP adjustments: Equity-based compensation expense: Cost of products and services 296 253 161 802 809 Research and development 308 240 136 870 792 Selling, general and administrative   1,190     1,055     803     3,240     2,473   Total equity-based compensation expense 1,794 1,548 1,100 4,912 4,074   Amortization of intangible assets: Cost of products and services 260 260 268 1,073 1,282 Operating expenses   60     60     62     243     281   Total amortization of intangible assets 320 320 330 1,316 1,563   Restructuring charges 1,055 188 6,041 8,057 10,291 Loss on repayment of convertible notes, net - - 7,026 - 7,026 Manufacturing transition costs - 798 - 2,839 - Non-cash interest expense on convertible debt - - 500 - 2,844 Valuation allowance on Ca R&D tax credits 4,476 - - 4,476 - Income tax effect of Pretax Non-GAAP adjustments   (772 )   (586 )   (6,125 )   (5,086 )   (9,690 ) Non-GAAP Income from continuing operations $ 5,439   $ 5,253   $ 5,291   $ 17,683   $ 18,654     Earnings from continuing operations per share-diluted: GAAP income (loss) from continuing operations $ (0.03 ) $ 0.07   $ (0.08 ) $ 0.03   $ 0.06     Non-GAAP income from continuing operations $ 0.12   $ 0.12   $ 0.12   $ 0.40   $ 0.42     Shares used in diluted shares calculation   43,562     43,859     44,092     43,782     43,897     SYMMETRICOM, INC. RECONCILIATION OF GAAP TO NON-GAAP RESULTS (In thousands, except per share amounts) (unaudited)         Three months ended     Twelve months ended July 3,   March 27,   June 27, July 3,   June 27,   2011     2011     2010     2011     2010     GAAP Revenue $ 60,689 $ 51,234 $ 55,660 $ 208,146 $ 221,316   Reconciliation from GAAP to Non-GAAP Gross Margin: GAAP Gross profit (A) $ 28,681 $ 22,866 $ 23,907 $ 89,732 $ 97,520 GAAP Gross margin 47.3 % 44.6 % 43.0 % 43.1 % 44.1 %   Non-GAAP adjustments: Equity-based compensation expense 296 253 161 802 809 Amortization of intangible assets 260 260 268 1,073 1,282 Restructuring charges 364 1,330 3,384 9,351 5,625 Manufacturing transition costs   -     798     -     2,839     -   Non-GAAP Gross profit (B) $ 29,601   $ 25,507   $ 27,720   $ 103,797   $ 105,236   Non-GAAP Gross margin 48.8 % 49.8 % 49.8 % 49.9 % 47.6 %   Reconciliation from GAAP to Non-GAAP Operating Expense: GAAP Operating expenses (C) $ 24,355 $ 19,227 $ 23,469 $ 82,601 $ 85,391 Operating expense % to revenue 40.1 % 37.5 % 42.2 % 39.7 % 38.6 %  

Non-GAAP adjustments:

Equity-based compensation expense (1,498 ) (1,295 ) (939 ) (4,110 ) (3,265 ) Amortization of intangible assets (60 ) (60 ) (62 ) (243 ) (281 ) Restructuring charges   (691 )   1,142     (2,657 )   1,294     (4,666 ) Non-GAAP operating expenses (D) $ 22,106   $ 19,014   $ 19,811   $ 79,542   $ 77,179   Non-GAAP operating expenses % to revenue 36.4 % 37.1 % 35.6 % 38.2 % 34.9 %   Reconciliation from GAAP to Non-GAAP Operating Income: GAAP Operating income (A ) - (C) $ 4,326   $ 3,639   $ 438   $ 7,131   $ 12,129   Operating income % to revenue 7.1 % 7.1 % 0.8 % 3.4 % 5.5 %   Non-GAAP Operating income (B ) - (D) $ 7,495   $ 6,493   $ 7,909   $ 24,255   $ 28,057   Non-GAAP Operating income % to revenue 12.3 % 12.7 % 14.2 % 11.7 % 12.7 %   Symmetricom, Inc. RECONCILIATION OF FORWARD-LOOKING GUIDANCE FOR NON-GAAP FINANCIAL MEASURES TO PROJECTED GAAP REVENUE AND EPS (In thousands, except per share amounts) (Unaudited)       Three Months Ending October 2, 2011 Revenue  

Income (Loss) Per Share fromContinuing Operations

From   To From   To   GAAP Guidance $ 52,000 $ 57,000 $ 0.02 $ 0.06   Estimated Non-GAAP Adjustments Equity-based compensation expense 0.05 0.05 Amortization of intangible assets 0.01 0.01 Integration and restructuring charges 0.01 0.01 Income tax effect of non-GAAP adjustments         (0.02 )     (0.02 ) Total Non-GAAP Adjustments - - 0.05 0.05             Non-GAAP Guidance $ 52,000   $ 57,000 $ 0.07     $ 0.11