Vitesse Reports First Quarter Fiscal Year 2013 Results

  Vitesse Reports First Quarter Fiscal Year 2013 Results

  *New product revenue on track to exceed 30% of revenue in fiscal year 2013
  *Net revenues totaled $25.7 million for first quarter of fiscal year 2013
  *Strengthened capital structure with $17.1 million net proceeds from
    follow-on offering; adds leverage to resolving debt maturities due in 2014
  *Increased cash balance to $37.1 million at December 31, 2012

Business Wire

CAMARILLO, Calif. -- February 5, 2013

Vitesse Semiconductor Corporation (NASDAQ: VTSS), a leading provider of
advanced IC solutions for Carrier and Enterprise networks, reported its
financial results for the first quarter fiscal year 2013, ended December 31,
2012.

“At Vitesse, we are focused on running operations as efficiently as possible
while investing in our future. New product revenues in the first quarter
fiscal year 2013 are in line with our expectations. We are driving revenue
growth from our new products in 2013 and beyond,” said Chris Gardner, CEO of
Vitesse. “During the quarter, we made significant progress on our goal to
manage our capital structure. We raised net proceeds of $17.1 million in a
follow-on offering. This strengthened our balance sheet and provides us with
additional options and flexibility to address our debt maturities due in
2014.”

“For the second quarter, we expect solid growth in bookings for new products.
We continue to project new product revenue to double to $30.0 million in
fiscal year 2013 from fiscal year 2012, and double again in fiscal year 2014.”

First Quarter Fiscal Year 2013 Financial Results Summary

  *Total net revenues were $25.7 million, compared to $29.5 million in the
    fourth quarter of fiscal year 2012 and $30.0 million in the first quarter
    of fiscal year 2012.

       *Product revenues were $23.9 million, compared to $28.1 million in the
         fourth quarter of fiscal year 2012 and $28.9 million in the first
         quarter of fiscal year 2012.
       *The product lines contributed the following as a percentage of
         product revenue as compared to the fourth quarter of fiscal year
         2012:

            *Carrier networking products: 58.5% versus 51.6%
            *Enterprise networking products: 40.4% versus 45.6%
            *Core Carrier and Enterprise networking products: 98.9% versus
              97.2%
            *Non-core products: 1.1% versus 2.8%

       *Intellectual property revenues totaled $1.8 million, compared to $1.4
         million in the fourth quarter of fiscal year 2012 and $1.0 million in
         the first quarter of fiscal year 2012.

  *Product margins were 54.1%, compared to 55.9% in the fourth quarter of
    fiscal year 2012 and 58.0% in the first quarter of fiscal year 2012.
  *Operating expenses were $18.6 million. This compares to $16.6 million net
    of a restructuring and impairment credit of $1.5 million in the fourth
    quarter of fiscal year 2012 and $19.9 million in the first quarter of
    fiscal year 2012.
  *Operating loss was $3.8 million, compared to operating income of $531,000
    in the fourth quarter of fiscal year 2012 and an operating loss of $2.1
    million in the first quarter of fiscal year 2012.
  *Non-GAAP operating loss was $2.5 million, compared to operating income of
    $308,000 in the fourth quarter of fiscal year 2012 and non-GAAP operating
    loss of $1.0 million in the first quarter of fiscal year 2012.
  *Net loss was $5.0 million, or $0.18 per basic and fully diluted share.
    This compares to net income of $1.2 million, or $0.05 per basic and fully
    diluted share, in the fourth quarter of fiscal year 2012; and net loss of
    $0.8 million, or $0.03 per basic share and fully diluted share, in the
    first quarter of fiscal year 2012.
  *Non-GAAP net loss was $4.5 million or $0.16 per basic and fully diluted
    share, compared to non-GAAP net loss of $130,000, or breakeven per basic
    and fully diluted share, for the fourth quarter of fiscal year 2012; and
    non-GAAP net loss of $3.0 million, or $0.12 per basic and fully diluted
    share, in the first quarter of fiscal year 2012.

Balance Sheet Data at December 31, 2012 as Compared to September 30, 2012

  *Cash balance increased to $37.1 million, compared to $23.9 million;
  *Accounts receivable totaled $9.6 million, compared to $9.4 million;
  *Inventory totaled $12.6 million, compared to $12.1 million; and
  *Working capital increased to $42.0 million, compared to $28.7 million.

Financial Outlook

For the second quarter of fiscal year 2013, ending March 31, 2013, Vitesse
expects revenues to be in the range of $25.0 million to $28.0 million and
product margins are expected to be between 51% and 54%. Operating expenses are
expected to be between $18.0 million and $19.0 million.

February 5, 2013 Conference Call Information

A conference call is scheduled for today, February 5, 2013, at 1:30 p.m.
Pacific Time / 4:30 p.m. Eastern Time to report financial results for the
first quarter fiscal year 2013.

To listen to the conference call via telephone, dial 888-401-4668 (U.S.
toll-free) or 719-325-2495 (International) and provide the passcode 8174566.
Participants should dial in at least 10 minutes prior to the start of the
call. To listen via the Internet, the webcast can be accessed through the
investor section of the Vitesse corporate web site at
investor.vitesse.com/events.cfm.

The playback of the conference call will be available approximately two hours
after the call concludes and will be accessible on the Vitesse corporate web
site or by calling 877-870-5176 (U.S. toll-free) or 858-384-5517
(International) and entering the passcode 8174566. The audio replay will be
available for seven days.

About Vitesse

Vitesse (NASDAQ: VTSS) designs a diverse portfolio of high-performance
semiconductor solutions for Carrier and Enterprise networks worldwide. Vitesse
products enable the fastest-growing network infrastructure markets including
Mobile Access/IP Edge, Cloud Computing and SMB/SME Enterprise Networking.
Visit www.vitesse.com or follow us on Twitter @VitesseSemi.

Vitesse is a registered trademark of Vitesse Semiconductor Corporation in the
United States and other jurisdictions. All other trademarks or registered
trademarks mentioned herein are the property of their respective holders.

VTSS-F

Cautions Regarding Forward Looking Statements

All statements included or incorporated by reference in this release and the
related conference call for analysts and investors, other than statements or
characterizations of historical fact, are forward-looking statements that are
based on our current expectations, estimates and projections about our
business and industry, management’s beliefs, and certain assumptions made by
us, all of which are subject to change. Forward-looking statements can often
be identified by words such as “anticipates,” “believes,” “estimates,”
“expects,” “intends,” “plans,” “predicts,” and similar terms, and variations
or negatives of these words. Examples of forward-looking statements in this
release include the Company’s financial outlook for its second fiscal quarter
of 2013, projected revenues from design wins and anticipated revenue growth.
Forward-looking statements are not guarantees of future performance and the
Company’s actual results may differ significantly from the results discussed
in the forward-looking statements. Factors and uncertainties that could affect
the Company’s forward-looking statements include, among other things:
identification of feasible new product initiatives, management of R&D efforts
and the resulting successful development of new products and product
platforms; acceptance by customers of the Company’s products; reliance on key
suppliers; rapid technological change in the industries in which the Company
operates; and competitive factors, including pricing pressures and the
introduction by others of new products with similar or better functionality
than the Company’s products. These and other risks are more fully described in
the Company’s filings with the Securities and Exchange Commission, including
the Company’s most recently filed Annual Report on Form 10-K and Quarterly
Report on Form 10-Q, which should be read in conjunction herewith for a
further discussion of important factors that could cause actual results to
differ materially from those in the forward-looking statements. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.

Non-GAAP Measures

A non-GAAP financial measure is a numerical measure of a company’s
performance, financial position, or cash flows that either excludes or
includes amounts that are not normally excluded or included in the most
directly comparable measure calculated and presented in accordance with GAAP.
Non-GAAP measures are not in accordance with, nor are they a substitute for,
GAAP measures.Other companies may use different non-GAAP measures and
presentation of results.

We provide non-GAAP measures of non-GAAP income (loss) from operations and
non-GAAP net income (loss) as a supplement to financial results based on GAAP
income from operations and GAAP net income. The Company believes that the
additional non-GAAP measures are useful to investors for the purpose of
financial analysis.We believe the presentation of non-GAAP measures provides
investors with additional insight into underlying operating results and
prospects for the future by excluding gains, losses and other charges that are
considered by management to be outside of the Company’s core operating
results. Management uses these measures internally to evaluate the Company’s
in-period operating performance before taking into account these non-operating
gains, losses and charges.In addition, the measures are used for planning and
forecasting of the Company’s performance in future periods.

In deriving non-GAAP income (loss) from operations from GAAP income (loss)
from operations, we exclude stock-based compensation charges, amortization of
intangible assets, as well as restructuring and impairment charges. In
deriving non-GAAP net income (loss) from GAAP net income (loss), we further
exclude gain or loss on the embedded derivative and loss on extinguishment of
debt. Stock-based compensation charges, amortization of intangible assets,
gain or loss on the embedded derivative and loss on extinguishment of debt
represent charges that recur in amounts unrelated to the Company’s operations.
Restructuring and impairment costs relate to strategic initiatives that result
in short term increases in costs that end with the fulfillment of the
initiative and cost reductions in future periods.

The non-GAAP financial measures we provide have certain limitations because
they do not reflect all of the costs associated with the operation of our
business as determined in accordance with GAAP. Non-GAAP income (loss) from
operations and Non-GAAP net income (loss) are in addition to, and are not a
substitute for or superior to, income (loss) from operations and net income
(loss), which are prepared in accordance with GAAP and may be different from
non-GAAP measures used by other companies. A detailed reconciliation of the
non-GAAP measures to the most directly comparable GAAP measure is set forth
below. Investors are encouraged to review these reconciliations to
appropriately incorporate the non-GAAP measures and the limitations of these
measures into their analyses. For complete information on stock-based
compensation, amortization of intangible assets, restructuring and impairment
charges, and the change in the fair value of our embedded derivatives, please
see our Form 10-K for the year ended September 30, 2012.


VITESSE SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS

                                             December 31,     September 30,
                                              2012              2012
                                              (in thousands, except par value)
ASSETS
Current assets:
Cash                                          $  37,078         $ 23,891
Accounts receivable, net                         9,601            9,403
Inventory, net                                   12,646           12,060
Prepaid expenses and other current assets       2,914          2,125      
Total current assets                             62,239           47,479
Property, plant and equipment, net               3,373            3,832
Other intangible assets, net                     1,078            1,175
Other assets                                    4,046          4,130      
                                              $  70,736        $ 56,616     
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable                              $  7,513          $ 5,726
Accrued expenses and other current               11,431           12,188
liabilities
Deferred revenue                                1,325          871        
Total current liabilities                        20,269           18,785
Other long-term liabilities                      478              574
Long-term debt, net                              15,967           15,852
Compound embedded derivative                     -                2,899
Convertible subordinated debt, net              42,983         42,521     
Total liabilities                               79,697         80,631     
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.01 par value: 10,000
shares authorized; Series B Non Cumulative,
Convertible, 135 shares outstanding at           1                1
December 31, 2012 and September 30, 2012,
respectively
Common stock, $0.01 par value: 250,000
shares authorized; 36,770 and 25,812 shares      368              258
outstanding at December 31, 2012 and
September 30, 2012, respectively
Additional paid-in-capital                       1,849,952        1,829,976
Accumulated deficit                             (1,859,282 )    (1,854,250 )
Total stockholders' deficit                     (8,961     )    (24,015    )
                                              $  70,736        $ 56,616     



VITESSE SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                           
                                         Three Months Ended December 31,
                                         2012                   2011
                                         (in thousands, except per share data)
Net revenues:
Product revenues                         $     23,905           $   28,942
Intellectual property revenues                1,822              1,049   
Net revenues                                  25,727             29,991  
Costs and expenses:
Cost of product revenues                       10,975               12,163
Engineering, research and development          10,504               12,425
Selling, general and administrative            7,970                7,452
Amortization of intangible assets             97                 67      
Costs and expenses                            29,546             32,107  
Loss from operations                           (3,819   )           (2,116  )
Other expense (income):
Interest expense, net                          1,970                1,948
Gain on compound embedded derivative           (803     )           (3,298  )
Other expense (income), net                   (31      )          12      
Other expense (income), net                   1,136              (1,338  )
Loss before income tax expense                 (4,955   )           (778    )
Income tax expense                            77                 66      
Net loss                                 $     (5,032   )       $   (844    )
                                                                
Net loss per common share - Basic and    $     (0.18    )       $   (0.03   )
diluted
                                                                
Weighted average shares outstanding-           28,059               24,512
Basic and diluted



VITESSE SEMICONDUCTOR CORPORATION
UNAUDITED RECONCILIATION OF GAAP NET (LOSS) INCOME TO NON-GAAP NET LOSS

                          Three Months Ended
                           December 31, 2012   December 31,    September 30,
                                                2011             2012
                           (in thousands, except per share data)
                                                                 
GAAP net (loss) income     $    (5,032   )      $  (844    )     $  1,217   
                                                                 
Adjustments:
Stock-based                     1,143              1,063            1,141
compensation charges
Amortization of                 97                 67               96
intangible assets
Restructuring and               53                 28               (1,460  )
impairment charges
Gain on compound               (803     )        (3,298  )       (1,124  )
embedded derivative
Total GAAP to non-GAAP         490              (2,140  )       (1,347  )
adjustments
Non-GAAP net loss          $    (4,542   )      $  (2,984  )     $  (130    )
                                                                 
Net (loss) income per
common share
Basic:
GAAP net (loss) income     $    (0.18    )      $  (0.03   )     $  0.05
Adjustments *                  0.02             (0.09   )       (0.05   )
Non-GAAP net (loss)        $    (0.16    )      $  (0.12   )     $  -       
income
                                                                 
Net (loss) income per
common share
Diluted:
GAAP net (loss) income     $    (0.18    )      $  (0.03   )     $  0.05
Adjustments *                  0.02             (0.09   )       (0.05   )
Non-GAAP net (loss)        $    (0.16    )      $  (0.12   )     $  -       
income
                                                                 
UNAUDITED RECONCILIATION OF GAAP (LOSS) INCOME FROM OPERATIONS
TO NON-GAAP (LOSS) INCOME FROM OPERATIONS
                                                                 
GAAP (loss) income from    $    (3,819   )      $  (2,116  )     $  531     
operations
Adjustments:
Stock-based                     1,143              1,063            1,141
compensation charges
Amortization of                 97                 67               96
intangible assets
Restructuring and              53               28             (1,460  )
impairment charges
Total GAAP to non-GAAP          1,293              1,158            (223    )
adjustments
                                                               
Non-GAAP (loss) income     $    (2,526   )      $  (958    )     $  308     
from operations
                                                                 
* Included in the adjustments are calculations required by the two class
method relative to participation rights of our preferred shares.


Contact:

Company Contact:
Vitesse Semiconductor
Marty McDermut, +1-805-388-3700
invest@vitesse.com
or
Agency Contact:
LHA
Cathy Mattison, +1-415-433-3777
VTSS@lhai.com
 
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