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Vitesse Reports First Quarter Fiscal Year 2014 Results

CAMARILLO, CA -- (Marketwired) -- Feb 04, 2014 -- Vitesse Semiconductor Corporation (NASDAQ: VTSS)

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 2014, ended December 31, 2013.

"We started strong in fiscal 2014, with net revenue of $27.1 million and exceeded our guidance for revenue, margins, and expenses," said Chris Gardner, CEO of Vitesse. "New products delivered $8.9 million in revenue and intellectual property revenues were $2.2 million. Total gross margin reached 60.6% due to overall product mix combined with cost improvements. Additionally, we amended the terms of our senior secured term loan and reduced our total debt by $13.7 million, providing flexibility for accelerating new product revenue growth and increasing stockholder value."

"We reiterate our financial goals for fiscal year 2014: to achieve non-GAAP operating profitability in the fiscal third quarter and to grow new product revenue to $55 million by year end."

"This quarter, we launched CEServices™, the industry's first field-proven, turnkey software solution for Carrier Ethernet service delivery. Already licensed by over 40 OEMs, CEServices fortifies our leading position in Ethernet-based ICs for 4G/LTE Mobile and Cloud Access for Carrier and Enterprise networks as well as creates access to adjacent markets, such as the Internet of Things."

First Quarter Fiscal Year 2014 Financial Results Summary

Balance Sheet Data at Dec. 31, 2013 as Compared to Sept. 30, 2013
On Nov. 5, 2013, Vitesse strengthened its long-term working capital by amending its senior secured loan agreement and reducing total indebtedness by repurchasing $13.7 million of convertible second lien debentures.

Financial Outlook
For the second quarter of fiscal year 2014, ending March 31, 2014, Vitesse expects revenue to be in the range of $25.0 million to $27.5 million and product margins to be between 55% and 57%. GAAP operating expenses are expected to be between $18.5 million and $19.5 million.

February 4, 2014 Conference Call Information
A conference call is scheduled for today, February 4, 2014, at 1:30 p.m. Pacific Time / 4:30 p.m. Eastern Time to report financial results for the first quarter of fiscal year 2014.

To listen to the conference call via telephone, dial 888.430.8705 (U.S. toll-free) or 719.325.2215 (International) and provide the passcode 6663122. 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 6663122. 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 registered trademark and CEServices 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 second fiscal quarter, first half 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 December 31, 2013 and Form 10-K for the year ended September 30, 2013.

                                                                            
                                                                            
                     VITESSE SEMICONDUCTOR CORPORATION                      
                   UNAUDITED CONSOLIDATED BALANCE SHEETS                    
                                                                            
                                             December 31,    September 30,  
                                                 2013             2013      
                                           ---------------  --------------- 
                                           (in thousands, except par value) 
                  ASSETS                                                    
Current assets:                                                             
  Cash                                     $        48,355  $        68,863 
  Accounts receivable, net                          11,406            9,807 
  Inventory, net                                    12,544           10,692 
  Prepaid expenses and other current                                        
   assets                                            2,946            1,897 
                                           ---------------  --------------- 
    Total current assets                            75,251           91,259 
  Property, plant and equipment, net                 3,559            3,107 
  Other intangible assets, net                       1,169            1,170 
  Other assets                                       3,372            3,425 
                                           ---------------  --------------- 
                                           $        83,351  $        98,961 
                                           ===============  =============== 
                    LIABILITIES AND STOCKHOLDERS' EQUITY                    
Current liabilities:                                                        
  Accounts payable                         $         9,449  $         7,436 
  Accrued expenses and other current                                        
   liabilities                                      11,422           12,245 
  Current portion of debt, net                      31,694                - 
  Deferred revenue                                   2,728            2,215 
                                           ---------------  --------------- 
    Total current liabilities                       55,293           21,896 
  Other long-term liabilities                          374              407 
  Long-term debt, net                               16,163           16,366 
  Convertible subordinated debt, net                     -           44,384 
                                           ---------------  --------------- 
    Total liabilities                               71,830           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; 57,829 and 57,545                                     
   shares outstanding at December 31, 2013                                  
   and September 30, 2013, respectively                578              575 
  Additional paid-in-capital                     1,892,642        1,891,661 
  Accumulated deficit                           (1,881,699)      (1,876,328)
                                           ---------------  --------------- 
    Total stockholders' equity                      11,521           15,908 
                                           ---------------  --------------- 
                                           $        83,351  $        98,961 
                                           ===============  =============== 
                                                                            
                                                                            
                                                                            
                     VITESSE SEMICONDUCTOR CORPORATION                      
              UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS               
                                                                            
                                            Three Months Ended December 31, 
                                           -------------------------------- 
                                                 2013             2012      
                                           ---------------  --------------- 
                                            (in thousands, except per share 
                                                         data)              
Net revenues:                                                               
  Product revenues                         $        24,863  $        23,905 
  Intellectual property revenues                     2,220            1,822 
                                           ---------------  --------------- 
    Net revenues                                    27,083           25,727 
                                           ---------------  --------------- 
Costs and expenses:                                                         
  Cost of product revenues                          10,676           10,975 
  Engineering, research and development             10,679           10,504 
  Selling, general and administrative                7,854            7,970 
  Amortization of intangible assets                     88               97 
                                           ---------------  --------------- 
    Costs and expenses                              29,297           29,546 
                                           ---------------  --------------- 
Loss from operations                                (2,214)          (3,819)
Other expense (income) :                                                    
  Interest expense, net                              1,704            1,970 
  Gain on compound embedded derivative                   -             (803)
  Loss on extinguishment of debt                     1,594                - 
  Other expense (income), net                           61              (31)
                                           ---------------  --------------- 
    Other expense, net                               3,359            1,136 
                                           ---------------  --------------- 
Loss before income tax (benefit) provision          (5,573)          (4,955)
Income tax provision (benefit)                        (202)              77 
                                           ---------------  --------------- 
Net loss                                   $        (5,371) $        (5,032)
                                           ===============  =============== 
                                                                            
Net loss per common share - basic and                                       
 diluted                                   $         (0.09) $         (0.18)
Weighted average common shares outstanding                                  
 - basic and diluted                                57,610           28,059 
                                                                            
                                                                            
                                                                            
                     VITESSE SEMICONDUCTOR CORPORATION                      
        UNAUDITED RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS        
                                                                            
                                                Three Months Ended          
                                      ------------------------------------- 
                                        December     December    September  
                                        31, 2013     31, 2012     30, 2013  
                                      -----------  -----------  ----------- 
                                      (in thousands, except per share data) 
                                                                            
UNAUDITED RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET LOSS              
                                                                            
GAAP net loss                         $    (5,371) $    (5,032) $    (5,765)
                                      -----------  -----------  ----------- 
                                                                            
Adjustments:                                                                
Stock-based compensation charges            1,265        1,143        1,091 
Amortization of intangible assets              88           97           81 
Gain on compound embedded derivative            -         (803)           - 
Loss on extinguishment of debt              1,594            -            - 
                                      -----------  -----------  ----------- 
Total GAAP to non-GAAP adjustments          2,947          437        1,172 
                                                                            
                                      -----------  -----------  ----------- 
Non-GAAP net loss                     $    (2,424) $    (4,595) $    (4,593)
                                      ===========  ===========  =========== 
                                                                            
Net loss per common share - basic and                                       
 diluted:                                                                   
GAAP net loss per common share        $     (0.09) $     (0.18) $     (0.10)
Adjustments                                  0.05         0.02         0.02 
                                      -----------  -----------  ----------- 
Non-GAAP net loss per common share    $     (0.04) $     (0.16) $     (0.08)
                                      ===========  ===========  =========== 
                                                                            
                                                                            
UNAUDITED RECONCILIATION OF GAAP LOSS FROM OPERATIONS TO NON-GAAP LOSS FROM 
 OPERATIONS                                                                 
                                                                            
GAAP loss from operations             $    (2,214) $    (3,819) $    (3,492)
                                      -----------  -----------  ----------- 
Adjustments:                                                                
Stock-based compensation charges            1,265        1,143        1,091 
Amortization of intangible assets              88           97           81 
                                      -----------  -----------  ----------- 
Total GAAP to non-GAAP adjustments          1,353        1,240        1,172 
                                                                            
                                      -----------  -----------  ----------- 
Non-GAAP loss from operations         $      (861) $    (2,579) $    (2,320)
                                      ===========  ===========  =========== 
                                                                            
                                                                            
UNAUDITED RECONCILIATION OF GAAP OPERATING EXPENSES TO NON-GAAP OPERATING   
 EXPENSES                                                                   
                                                                            
GAAP operating expenses:                                                    
Engineering, research and development $    10,679  $    10,504  $     9,940 
Selling, general and administrative         7,854        7,970        7,593 
Amortization of intangible assets              88           97           81 
                                      -----------  -----------  ----------- 
Total GAAP operating expenses              18,621       18,571       17,614 
Adjustments:                                                                
Stock-based compensation charges            1,081          989          939 
Amortization of intangible assets              88           97           81 
                                      -----------  -----------  ----------- 
Total GAAP to non-GAAP adjustments          1,169        1,086        1,020 
                                                                            
                                      -----------  -----------  ----------- 
Non-GAAP operating expenses           $    17,452  $    17,485  $    16,594 
                                      ===========  ===========  =========== 


Company Contact: 
Marty McDermut 
Vitesse Semiconductor 

www.vitesse.com 
+1.805.388.3700 

invest@vitesse.com 

Agency Contact:
Becky Herrick
LHA

www.lhai.com
+1.415.433.3777

VTSS@lhai.com