The following non-GAAP results exclude merger-related expenses, restructuring and related costs, amortization of purchased intangibles, equity-based compensation expense, acquisition-related charges, provision for the TAOS litigation, gain on recovery of auction rate securities, and related tax effects.
On a non-GAAP basis, the company reported a further improvement in gross margin, which increased again sequentially by 110 basis points to 60.7% even with an increased mix of C&C revenue. This highlights the improved margins within C&C as new products increase as a proportion of revenue. Non-GAAP operating expenses for the third quarter declined to $48.7 million. Non-GAAP R&D expense was $28.5 million and non-GAAP SG&A expense was $20.2 million. Third quarter non-GAAP operating margin increased to 25.7% as a result of revenue growth, strong gross margin and lower operating expenses. This enabled the company to exceed its non-GAAP operating margin target of 25%. Non-GAAP net income increased to $31.3 million in Q3, which resulted in a sequential increase in non-GAAP earnings per share of 29% to $0.22.
"From the beginning of the Intersil transformation, we have talked about gross margin being a key measure of differentiation. Clearly we have successfully increased the competitiveness of our products given the approximately 500 basis point difference in gross margin we reported compared to the same period in 2013, the first year of the turnaround," said Rick Crowley, senior vice president and chief financial officer for Intersil. "When combined with spending discipline and strong cash generation, the recent results and early achievement of our target operating model are a tangible proof point for the strategy we have patiently pursued."
For a complete reconciliation of GAAP and non-GAAP results, please see the "Non-GAAP Results" tables included at the end of this release.
Cash and cash equivalents increased by $27 million at the end of the third quarter to $284 million, compared to the second quarter of 2016. Inventories declined in absolute dollars and channel inventory remained balanced.
Intersil's board of directors authorized payment of a quarterly dividend of $0.12 per share of common stock. The payment of this dividend will be made on or about November 28, 2016 to stockholders of record as of the close of business on November 15, 2016.
On September 12, 2016 Renesas Electronics Corporation, a premier supplier of advanced semiconductor solutions, and Intersil Corporation announced they had signed a definitive agreement for Renesas to acquire Intersil for US$22.50 per share in cash, representing an aggregate equity value of approximately US$3.2 billion. Closing of the transaction is expected in the first half of 2017, conditioned on approval by Intersil stockholders and the relevant governmental authorities.
Outlook and Third Quarter Earnings Call
Given the pending acquisition by Renesas, Intersil will not be providing guidance for the fourth quarter and will not be holding a third quarter results conference call.
Intersil Corporation is a leading provider of innovative power management and precision analog solutions. The company's products form the building blocks of increasingly intelligent, mobile and power hungry electronics, enabling advances in power management to improve efficiency and extend battery life. With a deep portfolio of intellectual property and a rich history of design and process innovation, Intersil is the trusted partner to leading companies in some of the world's largest markets, including industrial and infrastructure, mobile computing, automotive and aerospace. For more information about Intersil, visit our website at www.intersil.com.
Some of the statements included in this press release constitute forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. You should not place undue reliance on these statements. These forward-looking statements include statements that reflect the current expectations, estimates, beliefs, assumptions, and projections of our senior management about future events with respect to our business and our industry in general. Statements that include words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "potential," "continue," "goals," "targets," and variations of these words (or negatives of these words) or similar expressions of a future or forward-looking nature identify forward-looking statements. In addition, any statements that refer to projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.
Forward-looking statements include, but are not limited to, statements in the quote from our CEO, including the statement regarding the expected centrality of Intersil products to the evolution of next-generation electronics, references to the anticipated benefits of the proposed acquisition by Renesas and the expected date of closing of the acquisition, as well as our industry in general. These forward-looking statements are not guarantees of future performance and are subject to many risks, uncertainties, and assumptions that are difficult to predict. Therefore, there are or will be important factors that could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement. We believe that the factors that may affect our business, future operating results, and financial condition include, but are not limited to, the following: the inability to complete the merger due to the failure to obtain stockholder approval for the merger or the failure to satisfy other conditions to completion of the merger, including the receipt of all regulatory approvals related to the merger; uncertainties as to the timing of the consummation of the merger and the ability of each party to consummate the merger; risks that the proposed merger disrupts our current plans and operations, including our ability to retain and hire key personnel; competitive responses to the proposed merger; unexpected costs, charges, or expenses resulting from the merger; the outcome of any legal proceedings that could be instituted against us or our directors related to the merger agreement; potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger; and legislative, regulatory and economic developments; any faltering or uncertainty in global economic conditions; the highly cyclical nature of the semiconductor industry; intense competition in the semiconductor industry; unsuccessful product development or failure to obtain market acceptance of our products; downturns in the end markets we serve; failure to make or deliver products in a timely manner; unavailability of raw materials, services, supplies, or manufacturing capacity; delays in production or in implementing new production techniques, product defects, or unreliability of products; and adverse results in litigation matters. These risks, as well as other risks associated with the proposed merger, are more fully discussed in the preliminary proxy statement that is included in the Schedule 14A filed with the Securities and Exchange Commission ("SEC") in connection with the proposed merger on October 12, 2016 and the other documents that we have filed or may filed from time-to-time with the SEC. These forward-looking statements are made only as of the date of this communication and Intersil undertakes no obligation to update or revise these forward-looking statements.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
This communication may be deemed to be soliciting material in respect of the proposed transaction involving Intersil and Renesas. Intersil has filed with the SEC a preliminary proxy statement in connection with the proposed transaction with Renesas as well as other documents regarding the proposed transaction. The definitive proxy statement will be sent or given to the stockholders of Intersil and will contain important information about the proposed transaction and related matters. INTERSIL'S SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The proxy statement and other relevant materials (when they become available), and any other documents filed by Intersil with the SEC, may be obtained free of charge at the SEC's website, at www.sec.gov. In addition, security holders of Intersil will be able to obtain free copies of the proxy statement through Intersil's website, www.intersil.com, or by contacting Intersil by mail at Attn: Corporate Secretary, 1001 Murphy Ranch Road, Milpitas, California 95035.
PARTICIPANTS IN THE SOLICITATION