ATI Technologies Inc. Announces First Quarter Results; First Quarter Sets Revenue Record of US$414 Million

Edge: Work-Group Computing Report, Jan 17, 2000

ATI Technologies Inc. (TSE:ATY) (Nasdaq:ATYT), the world leader in 3D graphics/video acceleration and multimedia solutions Thursday announced financial results for the company's first quarter ended November 30, 1999, achieving once again a record in revenues for the quarter.

Sales for the first three months were $413.5 million, an increase of 26% from $327.4 million for the same period last year. Adjusted net income for the first quarter, which excludes the amortization of acquired intangibles, rose 5% to $54.5 million or 25 cents per share compared with $52.0 million or 24 cents per share for the same period last year. (All per share amounts are expressed on a fully diluted basis.)

Actual net income for the first quarter, including the amortization of acquired intangibles, was $53.6 million or 25 cents per share, compared with $50.1 million or 23 cents per share for the same period last year.

"Once again we have delivered a strong start to a new year", said K.Y. Ho, ATI's president and CEO. "ATI approaches a bright future with growth prospects not only in our traditional PC business, but in new and burgeoning markets like consumer electronics appliances. We look forward to the year 2000 as these new markets continue to emerge."

Financial Highlights

Sales in the first quarter reflected solid demand for ATI's RAGE 128 and RAGE MOBILITY products, which comprised a greater percentage of corporate revenues than in prior quarters. Demand for the company's XPERT series of board products was exceptionally robust. This quarter also mirrored a traditionally strong PC season, in addition to the company's quick reaction to manage the impact of the earthquake in Taiwan. Gross margins declined to 34.1% for the first quarter compared with 36.6% for the same quarter last year. The aforementioned shifting in product mix, as well as increased material costs used in the company's products, contributed to gross margin decreases.

In-line with increased activity and sales, operating costs (excluding the amortization of intangibles) in the first quarter increased 43% year-over-year to $73.1 million, up from $51.0 million for the first quarter in 1999. Increased operating costs were largely attributable to incremental sales, marketing and R&D expenses to support an increased number of product programs including desktop, mobile and set-top components and boards. During the quarter the company's operating tax rate decreased to 21%. Net earnings after taxes rose to $53.6 million or 13.0% of sales versus $50.1 million or 15.3% of sales for the corresponding quarter of 1999.

For the first quarter, the company's cash position increased by $7.0 million after financing and investing activities to stand at $102.5 million at November 30, 1999. During the quarter, working capital increased from $294.4 million at the end of the fourth quarter to $340.1 million at the end of the first quarter of fiscal 2000. Accounts receivable and inventory balances increased during the quarter to $261.4 million and $212.0 million, respectively. Days sales in accounts receivable decreased to 46 days in the first quarter from 47 days in the fourth quarter of 1999.

Also during the quarter, ATI repurchased 725,300 of its common shares for cancellation via a normal course issuer bid at prices ranging from Cdn$14.08 to Cdn$14.14. The excess of the cost of repurchasing the company's shares over their stated capital has been charged to retained earnings.

Operational Highlights

During the quarter, ATI announced a number of new products to much critical acclaim from industry analysts and the media alike. An example, and to support the company's target as the number one mobile graphics vendor, ATI announced the RAGE MOBILITY 128. Pin compatible with previous MOBILITY products, the MOBILITY 128 provides OEMs with an effective migration path to the world's fastest graphics subsystem for notebook PCs. ATI also announced the ALL-IN-WONDER 128 PRO, the latest generation of the company's highly successful combination TV-tuner and video/graphics multimedia board. ATI introduced the XPERT 2000 PRO add-in board, a low cost 32MB 2D, 3D and DVD board for the SI, OEM and mainstream market, and the RAGE FURY MAXX, a dual-chip accelerator board judged the fastest on the market and aimed at the influential "power gamer" market segment.

ATI set an industry record in October, shipping more than two million boards in the month and unveiled an extensive range of AGP 4X products to coincide with the newly-announced Intel i820 AGP 4X chipset. ATI also announced its endorsement of the Open Source movement and its official support for the Linux operating system (OS), ensuring future products will support systems featuring the Linux OS.

ATI continued on its quest to become the undisputed leader in the mobile market, announcing one million MOBILITY graphics accelerators had been shipped during the most recent four-month period. The company also unveiled a further series of design wins, including Gateway, NEC, several of Dell's latest systems, and the entire HP OmniBook 4150 and 900 notebook PC lines. ATI was also chosen for an IBM notebook PC for the first time, putting ATI mobile graphics in products from nine of the top ten notebook OEMs.