TranSwitch Corporation Announces Second Quarter 2013 Financial Results

  TranSwitch Corporation Announces Second Quarter 2013 Financial Results

Business Wire

SHELTON, Conn. -- August 14, 2013

TranSwitch Corporation (NASDAQ: TXCC), a leading provider of semiconductor
solutions for multimedia connectivity and processing, today announced
financial results for the second quarter ended June 30, 2013.

Net revenues for the second quarter of 2013 were approximately $2.8 million,
as compared to net revenues of $4.6 million for the first quarter of 2013 and
$3.8 million for the second quarter of 2012. Net loss for the second quarter
of 2013 was ($3.8) million, or ($0.08) per basic and diluted common share, as
compared to a net loss of ($3.1) million, or ($0.08) per basic and diluted
common share for the first quarter of 2013, and a net loss of ($6.0) million,
or ($0.19) per basic and diluted common share for the second quarter of 2012.

The GAAP gross margin for the second quarter was 73%. This is compared to the
Company's GAAP gross margin of 81% for the first quarter of 2013, and 67% for
the second quarter of 2012.

Total non-GAAP operating expenses for the second quarter of 2013 were $5.2
million, as compared to $5.9 million in the first quarter of 2013 and $7.4
million in the second quarter of 2012. Non-GAAP operating expenses for the
second quarter of 2013 exclude $0.1 million in amortization of purchase price
intangibles, $0.4 million in stock-based compensation and $0.6 million in
restructuring charges, along with a benefit of $0.4 million from the reversal
of accrued royalties. Total GAAP operating expenses for the second quarter of
2013 were $5.9 million, as compared to $6.6 million in the first quarter of
2013 and $8.5 million in the second quarter of 2012.

Non-GAAP operating loss for the second quarter of 2013 was ($3.1) million,
compared to a non-GAAP operating loss of ($2.2) million for the first quarter
of 2013 and a non-GAAP operating loss of ($4.9) million for the second quarter
of 2012. On a GAAP basis, the operating loss for the second quarter of 2013
was ($3.8) million, compared to an operating loss of ($2.9) million for the
first quarter of 2013 and an operating loss of ($5.9) million for the second
quarter of 2012.

Non-GAAP net loss for the second quarter of 2013 was ($3.1) million, or
($0.07) per share, compared with a non-GAAP net loss of ($2.4) million, or
($0.07) per share, for the first quarter of 2013 and a non-GAAP net loss of
($5.0) million, or ($0.16) per share, for the second quarter of 2012.

Further information about non-GAAP measures is provided below and a
reconciliation of the non-GAAP measures to the comparable GAAP results is
provided after the financial statements attached to this release.

“We had lower than anticipated sales in the second quarter due to the push out
of some IP licensing opportunities,” stated Dr. M. Ali Khatibzadeh, President
and CEO of TranSwitch Corporation. “We continue to negotiate these
opportunities with prospective customers towards reaching agreements soon. As
a result of lower sales in the quarter, we have taken decisive restructuring
actions to further reduce our operating expenses. Starting in the current
quarter, we now estimate our quarterly non-GAAP operating expenses to run in
the range of $4.3-$4.8 million. On the business front, we continued to make
progress in expanding our HDplay™ traction with 13 customers so far reaching
design-win stage and we anticipate orders from many of them in the second half
of this year. In addition to the current design wins, our new HDplay™ products
with MHL and MyDP video connectivity features are getting designed in by a
number of new customers, including tier-1 electronics OEMs for
pico-projectors, active cables, tablets and digital TVs. Based on customer
projections, we expect these opportunities to reach the design-win stage and
production starting as early as the fourth quarter of 2013.”

Additional details on TranSwitch’s second quarter 2013 financial results will
be discussed during a conference call regarding this announcement today at
5:30 pm Eastern time. To listen to the live call, investors can dial
785-830-7992 and reference confirmation code: 7201860. The call will be
recorded and a replay will be available two hours after the conclusion of the
live broadcast through August 24, 2013. To access the replay, dial
719-457-0820 and enter confirmation code: 7201860. Investors can also access
an audio webcast which will be broadcast through Vcall’s Investor Calendar at
www.investorcalendar.com or the Company’s website at www.transwitch.com. This
audio webcast will also be available on a replay basis for 10 business days.

About TranSwitch Corporation

TranSwitch Corporation (Nasdaq:TXCC) provides innovative integrated circuit
(IC) and intellectual property (IP) solutions that deliver core functionality
for video, voice, and data communications equipment for the customer premises
and network infrastructure markets. For the customer-premises market, we offer
multi-standard, high-speed interconnect solutions enabling the distribution
and presentation of high-definition (HD) video and data content for consumer
electronics applications. We also provide a family of best-in-class
communications processors. For the network infrastructure market we provide
integrated multi-core network processor System-on-a-Chip (SoC) solutions for
Fixed, 3G and 4G Mobile, VoIP and Multimedia applications. TranSwitch’s
customers are leading consumer electronics and telecom equipment companies
around the globe. For more information, please visit www.transwitch.com.

Forward-looking statements in this release, including statements regarding
management's expectations for future financial results and the markets for
TranSwitch's products, are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned that
these forward-looking statements regarding TranSwitch, its operations and its
financial results, involve risks and uncertainties that could cause actual
results to differ materially from those contained in the forward-looking
statements, including without limitation the risks associated with downturns
in economic conditions generally and in the telecommunications and data
communications markets and the semiconductor industry specifically; risks in
product development and market acceptance of and demand for TranSwitch’s
products and products developed by TranSwitch’s customers; risks associated
with foreign sales and high customer concentration; risks associated with
competition and competitive pricing pressures; risks in technology development
and commercialization; risks of failing to attract and retain key managerial
and technical personnel; risks relating to TranSwitch’s available cash; risks
associated with acquiring new businesses; risks of dependence on third-party
VLSI fabrication facilities; risks related to intellectual property rights and
litigation; and other risks detailed in TranSwitch's filings with the
Securities and Exchange Commission.

TranSwitch expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any such statements to reflect any change
in expectations or any change in events, conditions or circumstances on which
any such statement is based.

TranSwitch is a registered trademark of TranSwitch Corporation.

Reconciliation of Non-GAAP Financial Measures to Comparable U.S. GAAP Measures
(Unaudited)

Pursuant to the requirements of Regulation G, the Company has provided a
reconciliation of each non-GAAP financial measure used in this earnings
release and related conference call or webcast to the most directly comparable
financial measure prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”). The reconciliation for historic
non-GAAP measures is provided herein on a quantitative basis and for non-GAAP
measures that are forward-looking is provided herein on a qualitative basis.

The non-GAAP measures used in this earnings release and related conference
call differ from GAAP in that they exclude expenses related to stock-based
compensation, amortization of intangible assets, the effects of special
charges such as asset impairments, restructuring charges and benefits from the
reversal of accrued royalties. The Company’s basis for these adjustments is
described below. Management uses these non-GAAP measures for internal
reporting and forecasting purposes. The Company has provided these non-GAAP
financial measures in addition to GAAP financial results because it believes
that these non-GAAP financial measures provide useful information to certain
investors and financial analysts for comparison across accounting periods not
influenced by certain non-cash items that are not used by management when
evaluating the Company’s historical and prospective financial performance.

Management uses these non-GAAP financial measures when evaluating the
Company’s operating performance and believes that such measures are useful to
investors and financial analysts in assessing the Company’s operating
performance as the Company believes that the presentation of non-GAAP measures
that adjust for the impact of stock-based compensation expenses, amortization
of intangible assets, the effects of special charges such as asset impairments
and restructuring charges and benefits from the reversal of accrued royalties
provides investors and financial analysts with a consistent basis for
comparison across accounting periods and, therefore, are useful to investors
and financial analysts in helping them to better understand the Company’s
operating results and underlying operational trends.

We do not provide forward-looking GAAP measures or a reconciliation of the
forward-looking non-GAAP measures to GAAP measures because of our inability to
project special charges, asset impairments, employee separation costs and
stock-based compensation related expenses.

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. The non-GAAP measures are in
addition to, and not a substitute for, or superior to, measures of financial
performance prepared in accordance with GAAP and may be different from
non-GAAP measures used by other companies. We endeavor to compensate for the
limitations of these non-GAAP measures by providing GAAP financial statements,
descriptions of the reconciling items and a reconciliation of the non-GAAP
measures to the most directly comparable GAAP measures so that investors can
appropriately incorporate the non-GAAP measures and their limitations into
their analyses. Please see our financial statements and "Management's
Discussion and Analysis of Results of Operations and Financial Condition" that
will be included in the periodic report we expect to file with the SEC with
respect to the financial periods discussed herein.


TranSwitch Corporation
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except for per share amounts)

                  Three Months Ended                              Six Months Ended
                     Jun 30,       Mar 31,       Jun 30,          Jun 30,      Jun 30,
                     2013             2013             2012             2013           2012
Net revenues:
Product              $ 2,514          $ 2,098          $ 2,374          $ 4,612        $ 5,536
revenues
Intellectual
property and          323            2,545          1,451          2,868        1,970   
service
revenues
Total net              2,837            4,643            3,825            7,480          7,506
revenues
                                                                                       
Cost of
revenues:
Cost of
product                438              686              866              1,124          1,985
revenues
Provision for
excess and             66               82               220              148            451
obsolete
inventories
Cost of
service               271            119            175            390          336     
revenues
Total cost of         775            887            1,261          1,662        2,772   
revenues
Gross profit           2,062            3,756            2,564            5,818          4,734
                                                                                       
Operating
expenses:
Research and           2,994            3,781            4,678            6,775          9,014
development
Marketing and          902              975              1,317            1,877          2,959
sales
General and            1,747            1,784            1,930            3,531          4,062
administrative
Restructuring          665              254              1,001            919            1,001
charges
Reversal of
accrued               (433   )        (179   )        (442   )        (612   )      (500    )
royalties
Total
operating             5,875          6,615          8,484          12,490       16,536  
expenses
Operating loss         (3,813 )         (2,859 )         (5,920 )         (6,672 )       (11,802 )
(Note 1)
                                                                                       
Other
(expense)
income:
Other
(expense)              (9     )         (20    )         57               (29    )       (44     )
income
Change in fair
value of               246              -                -                246            -
derivative
liability
Interest
income
(expense):
Interest               9                3                17               12             40
income
Interest              (28    )        (58    )        (32    )        (86    )      (41     )
expense
Interest              (19    )        (55    )        (15    )        (74    )      (1      )
(expense), net
Total other
income                218            (75    )        42             143          (45     )
(expense), net
                                                                                       
Loss before            (3,595 )         (2,934 )         (5,878 )         (6,529 )       (11,847 )
income taxes
Income tax            192            173            119            365          233     
expense
Net loss             $ (3,787 )       $ (3,107 )       $ (5,997 )       $ (6,894 )     $ (12,080 )
                                                                                       
Net loss per
common share –       $ (0.08  )       $ (0.08  )       $ (0.19  )       $ (0.17  )     $ (0.39   )
basic and
diluted
                                                                                       
Weighted
average common
shares                 45,961           36,873           31,617           41,417         31,151
outstanding –
basic and
diluted
                                                                                       
                                                                                       
Note 1:
Stock-based
compensation
expense
included in
cost of
revenues and
operating
expenses is as
follows:
Cost of              $ (5     )         7                (14    )         2              (8      )
revenues
Research and           46               153              78               199            198
development
Marketing and          45               127              39               172            150
sales
General and           346            287            283            633          578     
administrative
Total                $ 432            $ 574            $ 386            $ 1,006        $ 918
                                                                                                 

TranSwitch Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)

                                              June 30,      December 31,
                                                 2013             2012
ASSETS
Current assets:
Cash, cash equivalents, restricted cash          $ 838            $   2,244
and short-term investments
Accounts receivable, net                           3,386              4,238
Inventories                                        1,073              748
Prepaid expenses and other current assets         1,406            1,409
                                                                  
Total current assets                               6,703              8,639
                                                                  
Property and equipment, net                        1,013              1,111
Goodwill                                           5,271              5,271
Other intangible assets, net                       482                548
Other assets                                      1,950            2,028
                                                                  
Total assets                                     $ 15,419        $   17,597
                                                                  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank debt                                        $ 1,700          $   2,432
Accounts payable, accrued expenses and             10,614             10,457
other current liabilities
Current portion of restructuring                  2,099            2,016
liabilities

Total current liabilities                          14,413             14,905
                                                                  
Restructuring liabilities                          1,359              1,463
Derivative liability                              927              -
                                                                  
Total liabilities                                 16,699           16,368
                                                                  
Total stockholders’ (deficit) equity              (1,280 )          1,229
                                                                  
Total liabilities and stockholders’              $ 15,419        $   17,597
(deficit) equity
                                                                      

TRANSWITCH CORPORATION
Supplemental Reconciliation of GAAP Results to Non-GAAP
(Unaudited)
(In thousands, except per share data)

                  Three Months Ended                              Six Months Ended
                     Jun 30,       Mar 31,       Jun 30,          Jun 30,       Jun 30,
                     2013             2013             2012             2013             2012
GAAP gross           $ 2,062          $ 3,756          $ 2,564          $ 5,818          $ 4,734
profit
Add:
Stock-based           (5     )        7              (14    )        2              (8      )
compensation
Non-GAAP gross       $ 2,057         $ 3,763         $ 2,550         $ 5,820         $ 4,726   
profit
                                                                                         
GAAP gross             72.7   %         80.9   %         67.0   %         77.8   %         63.1    %
margin
Stock-based           -0.2   %        0.2    %        -0.4   %        0.0    %        -0.1    %
compensation
Non-GAAP gross        72.5   %        81.0   %        66.7   %        77.8   %        63.0    %
margin
                                                                                         
GAAP research
and                  $ 2,994          $ 3,781          $ 4,678          $ 6,775          $ 9,014
development
expenses
Less:
Amortization
of purchase            8                7                42               15               77
accounting
intangibles
Stock-based           46             153            78             199            198     
compensation
Non-GAAP
research and         $ 2,940         $ 3,621         $ 4,558         $ 6,561         $ 8,739   
development
expenses
                                                                                         
GAAP selling,
general, and         $ 2,649          $ 2,759          $ 3,247          $ 5,408          $ 7,021
administrative
expenses
Less:
Amortization
of purchase            25               25               36               50               79
accounting
intangibles
Stock-based           391            414            322            805            728     
compensation
Non-GAAP
selling,
general, and         $ 2,233         $ 2,320         $ 2,889         $ 4,553         $ 6,214   
administrative
expenses
                                                                                         
GAAP operating       $ 5,875          $ 6,615          $ 8,484          $ 12,490         $ 16,536
expenses
Less:
Amortization
of purchase            33               32               78               65               156
accounting
intangibles
Stock-based            437              567              400              1,004            926
compensation
Reversal of
accrued                (433   )         (179   )         (442   )         (612   )         (500    )
royalties and
other
Restructuring         665            254            1,001          919            1,001   
charges
Non-GAAP
operating            $ 5,173         $ 5,941         $ 7,447         $ 11,114        $ 14,953  
expenses
Non-GAAP             $ (3,116 )       $ (2,178 )       $ (4,897 )       $ (5,294 )       $ (10,227 )
operating loss
                                                                                         
GAAP net loss        $ (3,787 )       $ (3,107 )       $ (5,997 )       $ (6,894 )       $ (12,080 )
Add:
Amortization
of purchase            33               32               78               65               156
accounting
intangibles
Stock-based            432              574              386              1,006            918
compensation
Reversal of
accrued                (433   )         (179   )         (442   )         (612   )         (500    )
royalties and
other
Restructuring         665            254            1,001          919            1,001   
charges
Non-GAAP net         $ (3,090 )       $ (2,426 )       $ (4,974 )       $ (5,516 )       $ (10,505 )
loss
                                                                                         
Non-GAAP basic
net loss per         $ (0.07  )       $ (0.07  )       $ (0.16  )       $ (0.13  )       $ (0.34   )
share
Basic shares
used to
calculate              45,961           36,873           31,617           41,417           31,151
non-GAAP net
loss per share

Contact:

TranSwitch Corporation
Robert A. Bosi, 203-929-8810 ext. 2465
Vice President and Chief Financial Officer
or
Mary Lombardo, 203-929-8810 ext. 2254
Investor Relations
 
Press spacebar to pause and continue. Press esc to stop.