1st Quarter Results

Arc International PLC 2 May 2001 ARC INTERNATIONAL PLC RESULTS FOR THE FIRST QUARTER ENDED 31 MARCH 2001 TURNOVER UP 159% ON Q1 2000 AND UP 5% ON Q4 2000; NET LOSS REDUCED ON Q4 2000 Elstree, UK - 2 May 2001: ARC International plc (LSE: ARK.L), a leading designer and developer of customisable, high-performance microprocessors and related intellectual property solutions, today announced results for the first quarter ended 31 March 2001. The Company's turnover and licensee base experienced further growth during the quarter and the cash position remains strong. The Company has also today announced licence agreements with NeuriCam and Vaishali Semiconductor. Quarter Highlights * Turnover up 159% to £3.7 million (Q1 2000: £1.4 million); 5% higher than Q4 2000 * Licence income up 13% to £3.0 million from £2.7 million in Q4 2000 * Net loss reduced to £4.4 million from £4.7 million in Q4 2000 * Strong cash position; £140 million in hand * Seven design licences and six additional customers won in Q1 * Licence agreements announced with Jennic, Palmchip Corporation, CellGuide, Telesoft, NeuriCam and Vaishali Semiconductor * Strategic alliances with Corelis and Aptix Corporation * Release of Tangent-A4, the latest version of our configurable microprocessor Commenting on the results, Bob Terwilliger, Chief Executive Officer, said: 'I am pleased to announce continued turnover growth and good progress towards our commercial and financial goals during the first quarter. Our business model of licensing our intellectual property to customers who are developing next generation products limits our exposure to the stock adjustments and production cut-backs being experienced by many technology companies. 'Our configurable microprocessor's versatility and high-performance is generating increasing interest amongst system designers. We now have 50 customers with 80 design licenses and our technology is being used successfully in an ever-expanding range of products within our target markets. We remain confident about our prospects for the remainder of the year.' For further information, please contact: Bob Terwilliger CEO, ARC International plc 020 8236 2800 Simon Poulton CFO, ARC International plc 020 8236 2800 Peter Aubusson Investor Relations Manager, ARC International plc 020 8236 2800 Sue Pemberton Citigate Dewe Rogerson 020 7638 9571 ARC management will be available on 020 7638 9571 on 2 May. There will be a conference call for analysts and investors with ARC's management at 9.00 am UK time. The dial in number for participants will be: UK callers 020 8240 8241 International callers +44 (0) 20 8240 8241 Participants should quote ARC International. There will be a replay of the call available from approximately 10.30.a.m. on 2 May on +44 (0) 20 8288 4459 Access code: 684172. A recording of the call will also be audio streamed on the Investor Relations section of our website www.arccores.com from approximately 2.00 pm on 2 May. Chief Executive's Review We continue to develop the business successfully in line with the strategy laid down at the time of our IPO last September and the objectives we set ourselves for this year. Turnover growth We achieved further growth in turnover at a time when trading conditions in our customers' markets became significantly more challenging. Our exposure to the effects of the market slowdown is limited because our business model is built upon licensing our intellectual property to customers who are developing next generation products. By the end of the first quarter we had increased our total design licences to 80 licences from 50 customers compared with 33 licences and 21 customers at the end of the first quarter of 2000. We have announced the following companies as licensees since our Preliminary Results announcement on 28 February 2001: Jennic, Palmchip Corporation, CellGuide, Telesoft, NeuriCam and Vaishali Semiconductor. Important strategic alliances have been formed with Corelis to provide our customers with the first JTAG emulators for developing and testing a configurable processor and with Aptix Corporation to provide a prototyping and verification environment for ARC-based system-on-chip designs. Technological Leadership We continue to extend our technological leadership and devote significant resources to this at our research and development centres in the UK and North America. We recently moved our San Jose facility to larger premises, firmly establishing our Research Centre in Silicon Valley in addition to our resource at Santa Cruz. The Tangent-A4 version of our microprocessor was released on schedule during the first quarter. It provides customers with incremental product improvements by integrating hardware and software intellectual property elements of the technologies from our subsidiary businesses, Metaware, Precise Software Technologies and VAutomation, as well as third party partners. We will continue to enhance our configurable processor technology while at the same time extending it with configurable system technology. Increased Traction in the Market We are focused on three vertical markets: wireless telecommunications, wired networking and consumer products. The application of our technology is progressing well in a wide range of products across all three sectors as customers exploit the benefits of the configurability of ARC's microprocessor and the related intellectual property and tools from our subsidiary businesses. An increasing number of customers are using multiple ARC processors in a single chip. The ARC Tangent was designed to be suitable for multi-processing whereas most other central processing units and digital signal processors (DSPs) are fundamentally unsuited to multi-processing. The use of multiple ARC processors in a single chip further underlines the flexibility of the product as the technology can be used to perform a variety of functions including: protocol processing, encryption, DSP, housekeeping and user-interface. Outlook In the current trading climate we are firmly focused on ensuring that the business performs effectively and our strong balance sheet is enabling us to do this. Our intellectual property licensing business model and the positive feedback from our customers on the benefits of our technology gives us confidence about our prospects for the remainder of the year. Financial Review Total turnover for the first quarter was £3.7 million, up 159% on first quarter 2000 and up 5% on the previous quarter. Licence income was 13% higher at £3.0 million compared with £2.7 million in the previous quarter. This increase was principally attributable to the addition of six new customers and seven new licence agreements. Maintenance and service income was £546,000 compared with £679,000 in Q4 2000 and £534,000 in Q3 2000. The Q4 2000 figure included a one-off benefit resulting from the release of deferred maintenance income associated with a number of special contracts in North America. Royalties were £128,000 compared with £165,000 in the previous quarter. The number of designs being shipped by our customers and contributing to royalties was unchanged from the previous quarter at 12 but total royalty income was impacted by some products passing thresholds in their royalty payment scales. Cost of sales was unchanged from the previous quarter at £0.3 million, resulting in an identical gross margin of 92%. Total operating expenses, inclusive of costs of sales, amortisation of goodwill and depreciation, were £ 10.0 million, a reduction of 5% from £10.5 million in the previous quarter. Total employees in the business increased from 279 at 31 December 2000 to 302 at 31 March 2001. We continue to invest in developing the business but are adopting a prudent approach to costs and growth in our headcount. Research and development costs were £3.5 million compared with £3.6 million in the previous quarter. Engineering headcount rose by 6% to 170 during the first quarter and we continued to invest in developing our products. The small reduction in costs principally reflects lower recruitment costs than in the previous quarter. Sales and marketing costs were £3.8 million compared with £3.9 million in the previous quarter, during which we had particularly high expenditure on trade shows. Sales and marketing headcount increased by 6% to 82 during the first quarter. General and administration costs were slightly higher at £1.8 million compared with £1.7 million in the previous quarter, principally due to costs associated with an abortive acquisition project. The provision for National Insurance contributions on the exercise of share options was reduced by a credit of £0.8 million, compared with a credit of £ 0.2 million in the previous quarter. Total operating expenses excluding the provision for National Insurance contributions, depreciation and amortisation of goodwill remained unchanged from the previous quarter at £9.4 million. Interest income was £2.0 million, compared with £2.3 million in the previous quarter. The net loss in the quarter decreased to £4.4 million compared with £4.7 million in the previous quarter. Net assets at 31 March 2001 were £161 million, including net cash of £140 million. The net cash outflow from operations was £6.0 million. Capital expenditure was £1.6 million. The movement in net cash during the quarter was a £5.4 million outflow. ARC International plc Consolidated profit and loss account For the quarter ended 31 March 2001 3 months ended 3 months ended Year ended 31 March 31 March 31 December 2001 2000 2000 (unaudited) (unaudited) (audited) £'000 £'000 £'000 --------------- --------------- --------------- Turnover 3,673 1,416 10,564 Operating Costs Goodwill amortisation (1,019) (321) (3,379) Other operating costs (9,011) (3,290) (26,550) --------------- --------------- --------------- (10,030) (3,611) (29,929) Loss before interest and tax (6,357) (2,195) (19,365) Interest receivable and similar income 1,976 102 3,008 Interest payable and similar charges 0 (1) (18) --------------- --------------- --------------- Loss on ordinary activities before tax (4,381) (2,094) (16,375) Tax on loss on ordinary activities 0 0 - --------------- --------------- --------------- Retained loss for the period (4,381) (2,094) (16,375) --------------- ---------------- --------------- Loss per share (7.72)p Diluted loss per share (7.72)p Summary of operating expenses Operating costs Cost of sales (276) (74) (862) Research and development (3,511) (1,338) (9,298) Sales and marketing (3,782) (1,281) (10,218) General and administration (1,840) (458) (4,351) NIC on share options 780 (44) (1,116) Depreciation of fixed assets (382) (95) (705) Amortisation of goodwill (1,019) (321) (3,379) ------------- -------------- ------------- Total operating expenses (10,030) (3,611) (29,929) -------------- ---------------- --------------- ARC International plc Consolidated statement of total recognised gains and losses For the year ended 31 March 2001 3 months ended 3 months ended Year ended 31 March 31 March 31 December 2001 2000 2000 (unaudited) (unaudited) (audited) £'000 £'000 £'000 --------------- --------------- --------------- Loss for the period (4,381) (2,094) (16,375) Currency translation difference 286 (28) (381) --------------- --------------- --------------- Total loss for the period (4,095) (2,122) (16,756) --------------- --------------- --------------- ARC International plc Consolidated balance sheet as at 31 March 2001 As at As at 31 March 2001 31 December 2000 (unaudited) (audited) £'000 £'000 -------------------- ---------------------- Fixed Assets Intangible assets 15,336 16,355 Tangible assets 5,288 4,060 --------------------- ---------------------- 20,624 20,415 ------------------- ------------------- Current Assets Stock 470 174 Debtors 7,624 6,387 Cash at bank and in hand 3,426 2,569 Investments - bank deposits 137, 004 143, 289 ------------------- ----------------- 148,524 152,419 Creditors - amounts within one year (8,223) (8,180) ------------------- ------------------ Net current assets 140,301 144,239 Total assets less current liabilities 160,925 164,654 Creditors - Amounts after one year (17) (17) -------------------- ------------------- Net Assets 160,908 164,637 -------------------- --------------- Capital and reserves Called up share capital 274 273 Share premium account 149,405 149,061 Exchangeable shares 5,024 5,025 Merger reserve 107 107 Profit and loss account (18,592) (14,492) Other reserves 24,690 24,663 ------------------- ------------------- Total shareholders' funds 160,908 164,637 --------------------- ---------------------- ARC International plc Consolidated cash flow statement for the year ended 31 December 2000 3 months Year ended ended 31 March 31 December 2001 2000 note (unaudited) (audited) £'000 £'000 ------------ ----------- Net cash outflow from operating activities 1 (6,009) (14,299) Returns on investments and servicing of finance Interest received 1,724 2,869 Bank interest paid - (13) Interest element on finance lease rentals (1) (5) ------------ ----------- 1,723 2,851 ------------ ----------- Net cash inflow from returns on investments and servicing of finance 1,723 2,851 Capital expenditure and financial investment Purchase of tangible fixed assets (1,565) (3,820) Sale of tangible fixed assets - - ------------ ----------- (1,565) (3,820) ------------ ----------- Acquisitions Purchase of subsidiary undertakings - (3,167) Net cash acquired - 186 ------------ ----------- - (2,981) ------------ ----------- Net cash outflow before management of liquid resources and financing (5,851) (18,249) ----------- ------------ Management of liquid resources Movement on term deposits 6,285 (137,959) ------------ ----------- Financing Financing - issue of ordinary share capital - IPO and options 345 126,355 Financing - issue of ordinary share capital - Private placings - 31,971 Capital element of finance lease rentals (2) (8) Decrease in borrowings (9) (21) ------------ ----------- Net cash inflow from financing 334 158,297 ------------ ----------- Increase in cash during the period 768 2,089 ------------ ----------- 1. Reconciliation of operating profit to operating cash flow for the years ended 31 December 2000 and 1999 31 March 31 December 2001 2000 (unaudited) (audited) £'000 £'000 ----------------- ---------------- Operating profit (6,357) (19,365) Depreciation 382 705 Amortisation of goodwill 1,019 3,379 Share option grant credit 27 230 (Increase) in stocks (296) (174) (increase)/decrease in debtors (897) (4,015) Increase/(decrease) in creditors 113 4,941 ---------------- --------------- Net cash flow from operating activities (6,009) (14,299) ----------------- -------------- 2. Analysis of net funds (unaudited) Cash at Bank loans Investments Finance Total bank leases £000 £000 £000 £000 £000 At 31 December 2,569 (15) 143,289 (27) 145,816 2000 Exchange 89 (2) - - 87 Cash flow 768 9 (6,285) 2 (5,506) ------------ ------------ ------------- ----------- ----------- 3,426 (8) 137,004 (25) 140,397 ------------ ------------ ------------- ----------- ----------- 3. Reconciliation of net cash flow to movement in net funds Year ended Year ended 31 March 2001 31 December 1999 (unaudited) (audited) £000 £000 --------------- --------------- Increase in cash in the period 768 2,089 Cash (inflow)/outflow from increase in liquid resources (6,285) 137,959 --------------- --------------- (5,517) 140,048 Investments/(borrowings) acquired with subsidiaries - (56) Movement in borrowings 11 29 Exchange movements 87 (20) --------------- --------------- Movement in funds (5,419) 140,001 Net funds at beginning of period 145,816 5,815 --------------- --------------- Net funds at end of period 140,397 145,816 --------------- --------------- The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2000. The auditors reported on those accounts; their report was unqualified and did not contain statements under either Section 237 (2) or Section 237 (3) of the Companies Act 1985. Notes to editors ARC International plc, is a leading designer and developer of customisable, high-performance microprocessor cores and related intellectual property technology for telecommunications, voice and data networking, and consumer electronics embedded systems. ARC's TangentTM processor is an application specific processor (ASP) which can be customised for use in a wide variety of increasingly sophisticated products. The innovative configurability of the processor enables ARC to license its technology directly to original equipment manufacturers (OEMs) as well as to semiconductor merchant vendors. ARC's technology enables designers to reduce time to market and to work with the semiconductor manufacturers and technologies of their choice. ARC's licensees include: Austria Mikro Systeme, BrightCom, Chameleon Systems, Conexant, Fujitsu Microelectronics, Hyperchip, IBM, Infineon Technologies, SanDisk, Texas Instruments, Vtech Communications and Xemics. With headquarters in Elstree, England, ARC International plc and its group companies employ 302 people in research and development, sales, and marketing offices across North America and Europe. MetaWare Inc., Precise Software Technologies Inc. and VAutomation Inc. are wholly owned subsidiaries of ARC International, providing software development tools, hardware and software intellectual property and real time operating systems offering multiple integrated products for system on a chip development. ARC International plc is listed on the London Stock Exchange (LSE:ARK). The company's website is located at www.arccores.com Statements made in this press release 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. ARC International (UK) Ltd. and ARC Cores Inc., both of which are wholly owned subsidiaries of ARC International plc, trade under the name of ARC Cores. ARC Cores is a trademark of ARC International (UK) Limited. All other brands or product names are the property of their respective holders

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