news digest ♦ compound semiconductor ♦ financial news Comments From Management
Bob Bruggeworth, president and CEO of RFMD, said, “The RFMD team delivered another quarter of outstanding execution, highlighted by year-over-year and sequential improvements in revenue, margin, EPS and free cash flow. Our performance was highlighted by strength in 3G devices, share gains in Asia, and the increasing adoption of RFMD’s products and technologies in SmartEnergy, point-to-point radio, CATV and other high-value markets. By focusing sharply on our core competencies in RF components and compound semiconductor technologies, RFMD is delivering substantial progress against key strategic initiatives related to product leadership, diversification and operational excellence.”
Dean Priddy, CFO and vice president of administration of RFMD, said, “RFMD achieved sequential increases in earnings per share and return on invested capital in each quarter of our fiscal 2010. Based on our performance over the past four quarters and the current outlook we have for the future, we are increasing our target non-GAAP financial model to 42% gross margin and 17% operating margin.”
Non-GAAP Financial Measures
In addition to disclosing financial results calculated in accordance with United States (U.S.) generally accepted accounting principles (GAAP), RFMD’s earnings release contains the following non-GAAP financial measures: (i) non-GAAP gross profit and gross margin, (ii) non-GAAP operating income and operating margin, (iii) non-GAAP net income, (iv) non- GAAP net income per diluted share, (v) non-GAAP operating expenses (research and development, marketing and selling and general and administrative), (vi) free cash flow, and (vii) return on invested capital (ROIC). Each of these non-GAAP financial measures is either adjusted from GAAP results to exclude certain expenses or derived from multiple GAAP measures, which are outlined in the “Reconciliation of GAAP to Non-GAAP
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Financial Measures” table on page 10 and the “Additional Selected Non-GAAP Financial Measures And Reconciliations” tables on pages 11 and 12.
In managing RFMD’s business on a consolidated basis, management develops an annual operating plan, which is approved by our Board of Directors, using non-GAAP financial measures. In developing and monitoring performance against this plan, management considers the actual or potential impact on these non-GAAP financial measures from actions taken to reduce unit costs with the goal of increasing gross margin and operating margin. In addition, management relies upon these non-GAAP financial measures to assess whether research and development efforts are at an appropriate level, and when making decisions about product spending, administrative budgets, and marketing programs. In addition, we believe that non-GAAP financial measures provide useful supplemental information to investors and enable investors to analyze the results of operations in the same way as management. We have chosen to provide this supplemental information to enable investors to perform additional comparisons of operating results, to assess our liquidity and capital position and to analyze financial performance excluding the effect of expenses unrelated to operations, certain non-cash expenses and share-based compensation expense, which may obscure trends in RFMD’s underlying performance.
We believe that these non-GAAP financial measures offer an additional view of RFMD’s operations that, when coupled with the GAAP results and the reconciliations to corresponding GAAP financial measures, provide a more complete understanding of RFMD’s results of operations and the factors and trends affecting RFMD’s business. However, these non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.
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