TranSwitch Corporation Announces Second Quarter 2013 Financial Results

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,
2013

     

Mar 31,
2013

     

Jun 30,
2012

Jun 30,
2013

   

Jun 30,
2012

Net revenues:
Product revenues

$

2,514

$

2,098

$

2,374

$

4,612

$

5,536

Intellectual property and service revenues   323     2,545     1,451     2,868     1,970  
Total net revenues 2,837 4,643 3,825 7,480 7,506
 
Cost of revenues:
Cost of product revenues 438 686 866 1,124 1,985
Provision for excess and obsolete inventories 66 82 220 148 451
Cost of service revenues   271     119     175     390     336  
Total cost of revenues   775     887     1,261     1,662     2,772  
Gross profit 2,062 3,756 2,564 5,818 4,734
 
Operating expenses:
Research and development 2,994 3,781 4,678 6,775 9,014
Marketing and sales 902 975 1,317 1,877 2,959
General and administrative 1,747 1,784 1,930 3,531 4,062
Restructuring charges 665 254 1,001 919 1,001
Reversal of accrued royalties  

(433

)

 

(179

)

 

(442

)

 

(612

)

 

(500

)

Total operating expenses   5,875     6,615     8,484     12,490     16,536  
Operating loss (Note 1)

(3,813

)

(2,859

)

(5,920

)

(6,672

)

(11,802

)

 
Other (expense) income:
Other (expense) income

(9

)

(20

)

57

(29

)

(44

)

Change in fair value of derivative liability 246 - - 246 -
Interest income (expense):
Interest income 9 3 17 12 40
Interest expense  

(28

)

 

(58

)

 

(32

)

 

(86

)

 

(41

)

Interest (expense), net  

(19

)

 

(55

)

 

(15

)

 

(74

)

 

(1

)

Total other income (expense), net   218    

(75

)

  42     143     (45

)

 
Loss before income taxes

(3,595

)

(2,934

)

(5,878

)

(6,529

)

(11,847

)

Income tax expense   192     173     119     365     233  
Net loss

$

(3,787

)

$

(3,107

)

$

(5,997

)

$

(6,894

)

$

(12,080

)

 
Net loss per common share – basic and diluted

$

(0.08

)

$

(0.08

)

$

(0.19

)

$

(0.17

)

$

(0.39

)

 
Weighted average common shares outstanding – basic and diluted 45,961 36,873 31,617 41,417 31,151
 
 
Note 1: Stock-based compensation expense included in cost of revenues and operating expenses is as follows:
Cost of revenues

$

(5

)

7

(14

)

2

(8

)

Research and development 46 153 78 199 198
Marketing and sales 45 127 39 172 150
General and administrative   346     287     283     633     578  
Total

$

432

$

574

$

386

$

1,006

$

918

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

June 30,
2013

     

December 31,
2012

ASSETS
Current assets:
Cash, cash equivalents, restricted cash and short-term investments

$

838

$

2,244

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 other current liabilities 10,614 10,457
Current portion of restructuring liabilities   2,099     2,016

 

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’ (deficit) equity

$

15,419

 

$

17,597

 
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,
2013

     

Mar 31,
2013

     

Jun 30,
2012

Jun 30,
2013

     

Jun 30,
2012

GAAP gross profit

$

2,062

$

3,756

$

2,564

$

5,818

$

4,734

Add:
Stock-based compensation   (5 )   7     (14 )   2     (8 )
Non-GAAP gross profit

$

2,057

 

$

3,763

 

$

2,550

 

$

5,820

 

$

4,726

 
 
GAAP gross margin 72.7 % 80.9 % 67.0 % 77.8 % 63.1 %
Stock-based compensation   -0.2 %   0.2 %   -0.4 %   0.0 %   -0.1 %
Non-GAAP gross margin   72.5 %   81.0 %   66.7 %   77.8 %   63.0 %
 
GAAP research and development expenses

$

2,994

$

3,781

$

4,678

$

6,775

$

9,014

Less:
Amortization of purchase accounting intangibles 8 7 42 15 77
Stock-based compensation   46     153     78     199     198  
Non-GAAP research and development expenses

$

2,940

 

$

3,621

 

$

4,558

 

$

6,561

 

$

8,739

 
 
GAAP selling, general, and administrative expenses

$

2,649

$

2,759

$

3,247

$

5,408

$

7,021

Less:
Amortization of purchase accounting intangibles 25 25 36 50 79
Stock-based compensation   391     414     322     805     728  
Non-GAAP selling, general, and administrative expenses

$

2,233

 

$

2,320

 

$

2,889

 

$

4,553

 

$

6,214

 
 
GAAP operating expenses

$

5,875

$

6,615

$

8,484

$

12,490

$

16,536

Less:
Amortization of purchase accounting intangibles 33 32 78 65 156
Stock-based compensation 437 567 400 1,004 926
Reversal of accrued royalties and other (433 ) (179 ) (442 ) (612 ) (500 )
Restructuring charges   665     254     1,001     919     1,001  
Non-GAAP operating expenses

$

5,173

 

$

5,941

 

$

7,447

 

$

11,114

 

$

14,953

 
Non-GAAP operating loss

$

(3,116

)

$

(2,178

)

$

(4,897

)

$

(5,294

)

$

(10,227

)

 
GAAP net loss

$

(3,787

)

$

(3,107

)

$

(5,997

)

$

(6,894

)

$

(12,080

)

Add:
Amortization of purchase accounting intangibles 33 32 78 65 156
Stock-based compensation 432 574 386 1,006 918
Reversal of accrued royalties and other (433 ) (179 ) (442 ) (612 ) (500 )
Restructuring charges   665     254     1,001     919     1,001  
Non-GAAP net loss

$

(3,090

)

$

(2,426

)

$

(4,974

)

$

(5,516

)

$

(10,505

)

 
Non-GAAP basic net loss per share

$

(0.07

)

$

(0.07

)

$

(0.16

)

$

(0.13

)

$

(0.34

)

Basic shares used to calculate non-GAAP net loss per share 45,961 36,873 31,617 41,417 31,151




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