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Vitesse Reports Second Quarter Fiscal Year 2014 Results

  Vitesse Reports Second Quarter Fiscal Year 2014 Results

  *Net revenues totaled $25.6 million, increase of 3% from the second quarter
    last year
  *New product revenue of $11.5 million, up 29% sequentially and up 63% from
    the second quarter of fiscal year 2013
  *New product design wins grew over 40% in first half of fiscal year
    compared to same period last year

Business Wire

CAMARILLO, Calif. -- May 6, 2014

Vitesse Semiconductor Corporation (NASDAQ: VTSS), a leading provider of
advanced IC solutions for Carrier, Enterprise and Internet of Things (IoT)
networks, reported its financial results for the second quarter of fiscal year
2014, ended March 31, 2014.

“Vitesse’s new product revenue was $11.5 million, up 29% sequentially, and now
46% of product revenue. We expect new product revenue to sustain strong growth
in the second half and throughout 2015,” said Chris Gardner, CEO of Vitesse.

“We are very pleased with the traction of our new product portfolio in the
market. Our success in converting design wins to growing new product revenue,
expanding relationships with existing customers and winning new major
customers has given us increased confidence in our position in the market and
our business model going forward. Design win performance is the primary
leading indicator for future growth. In the first half of 2014, total new
product wins increased more than 40% from the year ago period. Vitesse’s
Carrier Ethernet switch engines are leading our success, with wins for just
these products up nearly 100% from last year. Strong momentum is being driven
by our core Carrier and Enterprise markets, as well as accelerating traction
in Ethernet-based IoT, which now represent over 25% of our design wins.”

Second Quarter Fiscal Year 2014 Financial Results Summary

  *Total net revenue was $25.6 million, compared to $27.1 million in the
    first quarter of fiscal year 2014 and $24.8 million in the second quarter
    of fiscal year 2013.
  *Product revenue was $24.9 million, compared to $24.9 million in the first
    quarter of fiscal year 2014 and $24.7 million in the second quarter of
    fiscal year 2013.

       *The product lines contributed the following as a percentage of
         product revenue as compared to the first quarter of fiscal year 2014:

            *Carrier networking products: 47.6% versus 52.1%
            *Enterprise networking products: 51.7% versus 47.3%

       *Intellectual property revenue totaled $0.7 million, compared to $2.2
         million in the first quarter of fiscal year 2014 and $0.1 million in
         the second quarter of fiscal year 2013.

  *Product margins were 55.9%, compared to 57.1% in the first quarter of
    fiscal year 2014 and 54.0% in the second quarter of fiscal year 2013.
  *Operating expenses were $19.0 million, compared to $18.6 million in the
    first quarter of fiscal year 2014 and $17.3 million in the second quarter
    of fiscal year 2013.
  *Operating loss was $4.4 million, compared to operating loss of $2.2
    million in the first quarter of fiscal year 2014 and $3.9 million in the
    second quarter of fiscal year 2013.
  *Non-GAAP operating loss was $2.7 million, compared to non-GAAP operating
    loss of $0.9 million in the first quarter of fiscal year 2014 and non-GAAP
    operating loss of $2.8 million in the second quarter of fiscal year 2013.
  *Net loss was $5.8 million, or $0.10 per basic and fully diluted share.
    This compares to net loss of $5.4 million, or $0.09 per basic and fully
    diluted share, in the first quarter of fiscal year 2014, and net loss of
    $4.8 million, or $0.13 per basic and fully diluted share, in the second
    quarter of fiscal year 2013.
  *Non-GAAP net loss was $4.1 million, or $0.07 per basic and fully diluted
    share, compared to non-GAAP net loss of $2.4 million, or $0.04 per basic
    and fully diluted share, for the first quarter of fiscal year 2014, and
    non-GAAP net loss of $3.8 million, or $0.10 per basic and fully diluted
    share, in the second quarter of fiscal year 2013.

Balance Sheet Data at March 31, 2014 as Compared to September 30, 2013

  *Cash balance was $48.2 million, compared to $68.9 million.
  *Accounts receivable was $9.9 million, compared to $9.8 million.
  *Inventory was $11.3 million, compared to $10.7 million.
  *Total debt was $48.3 million, compared to $60.8 million.

Financial Outlook

For the third quarter of fiscal year 2014, ending June 30, 2014, Vitesse
expects revenue to be in the range of $26.5 million to $28.5 million and
product margins to be between 54% and 56%. GAAP operating expenses are
expected to be between $17.0 million and $18.0 million.

May 6, 2014 Conference Call Information

A conference call is scheduled for today, May 6, 2014, at 1:30 p.m. Pacific
Time / 4:30 p.m. Eastern Time to review the financial results for the second
quarter of fiscal year 2014.

To listen to the conference call via telephone, dial 888.438.5453 (U.S.
toll-free) or 719.325.2469 (International) and provide the passcode 7602530.
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 www.vitesse.com.

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 7602530. 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, SMB/SME Enterprise and IoT Networking.
Visit www.vitesse.com or follow us on Twitter @VitesseSemi.

Vitesse is a 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 third quarter and full
year of fiscal 2014, projected revenues from new products 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 operating expenses, non-GAAP income
(loss) from operations and non-GAAP net income (loss) as a supplement to
financial results based on GAAP operating expenses, GAAP income (loss) from
operations and GAAP net income (loss). 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 operating expenses from GAAP operating expenses, we
exclude stock-based compensation charges and amortization of intangible
assets. In deriving non-GAAP income (loss) from operations from GAAP income
(loss) from operations, we exclude stock-based compensation charges and
amortization of intangible assets. In deriving non-GAAP net income (loss) from
GAAP net income (loss), we further exclude loss on extinguishment of debt and
gain on the embedded derivative. Stock-based compensation charges,
amortization of intangible assets, loss on extinguishment of debt, and gain on
the embedded derivative represent charges that recur in amounts unrelated to
the Company’s operations.

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 operating expenses,
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, operating expenses,
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, loss on extinguishment of debt, and the change in the fair value of
our embedded derivatives, please see our Form 10-Q for the quarterly period
ended March 31, 2014 and Form 10-K for the year ended September 30, 2013.

                                                         
VITESSE SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
                                                            
                                           March 31, 2014   September 30, 2013
                                           (in thousands, except par value)
ASSETS
Current assets:
Cash                                       $    48,201      $     68,863
Accounts receivable                        9,921            9,807
Inventory, net                             11,347           10,692
Prepaid expenses and other current         2,067           1,897          
assets
Total current assets                       71,536           91,259
Property, plant and equipment, net         3,308            3,107
Other intangible assets, net               1,502            1,170
Other assets                               3,652           3,425          
                                           $    79,998     $     98,961   
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable                           $    7,748       $     7,436
Accrued expenses and other current         12,588           12,245
liabilities
Current portion of debt, net               32,031           —
Deferred revenue                           3,529           2,215          
Total current liabilities                  55,896           21,896
Other long-term liabilities                497              407
Long-term debt, net                        16,243           16,366
Convertible subordinated debt, net         —               44,384         
Total liabilities                          72,636           83,053
Stockholders’ equity:
Preferred stock, $0.01 par value: 10,000
shares authorized; no shares issued or     —                —
outstanding
Common stock, $0.01 par value: 250,000
shares authorized; 58,716 and 57,545       587              575
shares outstanding at March 31, 2014 and
September 30, 2013, respectively
Additional paid-in-capital                 1,894,305        1,891,661
Accumulated deficit                        (1,887,530   )   (1,876,328     )
Total stockholders’ equity                 7,362           15,908         
                                           $    79,998     $     98,961   
                                                                           

                                                  
VITESSE SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                    
                     Three months ended March 31,   Six Months Ended March 31,
                     2014           2013         2014          2013     
                     (in thousands, except per share data)
Net revenues:
Product revenues     $  24,869        $  24,689     $  49,732       $ 48,594
Intellectual         723             64           2,943          1,886    
property revenues
Net revenues         25,592          24,753       52,675         50,480   
Costs and expenses:
Cost of product      10,979           11,369        21,655          22,344
revenues
Engineering,
research and         10,896           9,777         21,575          20,281
development
Selling, general and 8,005            7,390         15,859          15,360
administrative
Amortization of      91              89           179            186      
intangible assets
Costs and expenses   29,971          28,625       59,268         58,171   
Loss from operations (4,379     )     (3,872    )   (6,593      )   (7,691   )
Other expense
(income):
Interest expense,    1,492            1,966         3,196           3,936
net
Gain on compound     —                —             —               (803     )
embedded derivative
Loss on
extinguishment of    —                —             1,594           —
debt
Other expense        32              5            93             (26      )
(income), net
Other expense, net   1,524           1,971        4,883          3,107    
Loss before income   (5,903     )     (5,843    )   (11,476     )   (10,798  )
tax benefit
Income tax benefit   (72        )     (996      )   (274        )   (919     )
Net loss             $  (5,831  )     $  (4,847 )   $  (11,202  )   $ (9,879 )
                                                                             
Net loss per common
share - basic and    $  (0.10   )     $  (0.13  )   $  (0.19    )   $ (0.30  )
diluted
Weighted average
common shares        58,327           37,215        57,965          32,587
outstanding - basic
and diluted
                                                                             

                                                  
VITESSE SEMICONDUCTOR CORPORATION
UNAUDITED RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS
                                                                      
                     Three Months Ended March 31,   Six Months Ended March 31,
                    2014           2013         2014          2013     
                     (in thousands, except per share data)
UNAUDITED RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET LOSS
                                                                             
GAAP net loss        $  (5,831  )     $  (4,847 )   $  (11,202  )   $ (9,879 )
                                                                             
Adjustments:
Stock-based
compensation         1,615            1,006         2,880            2,149
charges
Amortization of      91               89            179              186
intangible assets
Gain on compound     —                —             —                (803   )
embedded derivative
Loss on
extinguishment of    —               —            1,594           —      
debt
Total GAAP to
non-GAAP             1,706           1,095        4,653           1,532  
adjustments
                                                                             
Non-GAAP net loss    $  (4,125  )     $  (3,752 )   $  (6,549   )   $ (8,347 )
                                                                             
Net loss per common
share - basic and
diluted:
GAAP net loss per    $  (0.10   )     $  (0.13  )   $  (0.19    )   $ (0.30  )
common share
Adjustments          0.03           0.03         0.08            0.05   
Non-GAAP net loss    $  (0.07   )     $  (0.10  )   $  (0.11    )   $ (0.25  )
per common share
                                                                             
UNAUDITED RECONCILIATION OF GAAP LOSS FROM OPERATIONS TO NON-GAAP
LOSS FROM OPERATIONS
                                                                             
GAAP loss from       $  (4,379  )     $  (3,872 )   $  (6,593   )   $ (7,691 )
operations
Adjustments:
Stock-based
compensation         1,615            1,006         2,880            2,149
charges
Amortization of      91              89           179             186    
intangible assets
Total GAAP to
non-GAAP             1,706           1,095        3,059           2,335  
adjustments
                                                                             
Non-GAAP loss from   $  (2,673  )     $  (2,777 )   $  (3,534   )   $ (5,356 )
operations
                                                                             
UNAUDITED RECONCILIATION OF GAAP OPERATING EXPENSES TO NON-GAAP
OPERATING EXPENSES
                                                                             
GAAP operating
expenses:
Engineering,
research and         $  10,896        $  9,777      $  21,575       $ 20,281
development
Selling, general and 8,005            7,390         15,859           15,360
administrative
Amortization of      91              89           179             186    
intangible assets
Total GAAP           18,992          17,256       37,613          35,827 
operating expenses
Adjustments:
Stock-based
compensation         1,390            862           2,471            1,851
charges
Amortization of      91              89           179             186    
intangible assets
Total GAAP to
non-GAAP             1,481           951          2,650           2,037  
adjustments
                                                                             
Non-GAAP operating   $  17,511       $  16,305    $  34,963      $ 33,790 
expenses

Contact:

Company Contact:
Vitesse Semiconductor
Marty McDermut
1.805.388.3700
invest@vitesse.com
www.vitesse.com
or
Agency Contact:
LHA
Kirsten Chapman
1.415.433.3777
VTSS@lhai.com
www.lhai.com
 
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