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Vitesse Reports Operating Profitability With Second Quarter Fiscal Year 2010 Results

^{Published on 2010-05-17 03:23:15 - Market Wire}
 

CAMARILLO, Calif.--([ BUSINESS WIRE ])--Vitesse Semiconductor Corporation (Pink Sheets:VTSS), a leading provider of advanced IC solutions for Carrier and Enterprise networks, today reported its financial results for the second quarter of fiscal year 2010, ended March 31, 2010.

"We continue to realize strong operating leverage reflecting the efficiencies we implemented last year that have improved our margins and held our operating expenses in check."

Second Quarter 2010 Financial Highlights

• Net revenues of $43.9 million, compared with $34.6 million in the second quarter of fiscal year 2009.
• Operating income of $3.0 million, compared with an operating loss of $6.4 million in the second quarter of fiscal year 2009.
• Net loss of $34.1 million, compared with a net loss of $7.1 million in the second quarter of fiscal year 2009. Included in the second quarter of fiscal year 2010 net loss is a $30.4 million non-cash embedded derivative expense. Excluding this non-cash expense, the second quarter of fiscal year 2010 net loss would have been $3.7 million.

CEO Commentary

aWe are very pleased that we returned to solid operating profitability on growing revenues and continued tight expense control. Second quarter revenue was up over 5.4% compared to the first quarter, reflecting continued improvement in the global economy and strength in our markets,a said Chris Gardner, CEO of Vitesse. aWe continue to realize strong operating leverage reflecting the efficiencies we implemented last year that have improved our margins and held our operating expenses in check.

aWea™re optimistic about the future. We are in the early stages of a new product cycle in our Carrier and Enterprise markets. We continue to leverage our focused R&D investments to bring new, leading-edge products to market. We introduced 12 new products so far during this fiscal year, and wea™re on track to meet our goal of 30 new product introductions in 2010.a

Second Quarter 2010 Financial Results Summary

Net revenues for the second quarter of fiscal year 2010 were $43.9 million, an increase of 27.0% compared with $34.6 million reported for the second quarter of fiscal year 2009, and an increase of 5.4% compared with $41.7 million in the first quarter of fiscal year 2010. Product revenues were $43.7 million, a 26.3% increase from the same quarter in fiscal year 2009, and a 4.9% increase over $41.6 million reported for the first quarter of fiscal year 2010. Revenues from licensing intellectual property were $250,000, compared with zero in the second quarter of fiscal year 2009, and $40,000 in the first quarter of fiscal year 2010.

Cost of revenues increased $1.1 million to $19.4 million in the second quarter of fiscal year 2010, compared with $18.2 million in the same quarter in fiscal year 2009. Product margins increased to 55.7% in the second quarter of fiscal year 2010 from 47.3% in the second quarter of fiscal year 2009 as a percent of product revenues.

R&D expenses were $12.3 million for the second quarter of fiscal year 2010, compared with $10.9 million a year ago, an increase of $1.3 million or 12.2%. Selling, general and administrative expenses were $9.1 million for the second quarter of fiscal year 2010 compared with $9.9 million in the second quarter of fiscal year 2009.

Income from operations was $3.0 million in the second quarter of fiscal year 2010, compared with an operating loss of $6.4 million in the second quarter of fiscal year 2009.

The Companya™s second quarter of fiscal year 2010 net loss was $34.1 million, or $0.08 per share, compared with a net loss of $7.1 million, or $0.03 per share, in the second quarter of fiscal year 2009. Included in the second quarter net loss is a $30.4 million non-cash embedded derivative expense. Excluding this non-cash expense, the second quarter net loss would have been $3.7 million. This non-cash derivative expense is the change in the fair value of the derivative related to the Companya™s 2014 debentures.

Balance Sheet Overview

Cash and cash equivalents totaled $37.2 million at March 31, 2010, a decrease of $20.4 million from September 30, 2009. This reduction is primarily the result of the pay down of the Companya™s Senior Term Loan of $5.0million, repayment of a portion of the 2024 Debentures of $10.0million and approximately $6.0million in legal and other fees to complete the debt restructuring transaction on October 30, 2009. Inventory at March 31, 2010 totaled $19.9 million, an increase of $1.0 million from September 30, 2009.

Second Quarter 2010 New Product Introductions

Vitesse introduced nine new products in the second quarter of fiscal year 2010:

The Jaguar Family (four devices): Vitesse launched the Jaguar Family of Ethernet devices designed specifically for service provider Carrier Ethernet applications. Utilizing a new architecture from Vitesse, this family offers an optimized feature set that is critical for transitioning todaya™s TDM circuit-switched networks to modern, packet-based Ethernet networks. This transition enables carriers worldwide to provide expanded services to users of wired and wireless networks.

High-Density 40G/100G Optical Systems Chipset: The industrya™s first complete chipset solution for line cards, CXP and CFP optical transceivers used in next-generation servers, routers and OTN transport equipment. The chipset provides module and system OEMs a development path for building scalable, compact, high-performance optical systems and delivers on the highly anticipated benefits of integrated electronics with optics called Photonic Integrated Circuits.

eFEC for ASICS or FPGAs: This patented Continuously Interleaved BCH (CI-BCHa") eFEC code offers the highest performing hard decision eFEC available today and is the industrya™s only eFEC implementable in single FPGA form at 100G.

[ VSC8247 ]: Supporting speeds of 8.5 Gbps to 11.3 Gbps, the VSC8247 makes possible low-cost, multi-lane implementations of metro and long-haul 40G links while supporting optional feedback from a forward error correction (FEC) device.

VSC3308: Boasting the highest capacity in the industrya™s smallest footprint currently available, the VSC3308 is an 8-port asynchronous crosspoint switch that enables bandwidth upgrade by 75-percent over existing solutions.

[ VSC8248 ]: Whether transporting traffic across a backplane, a line card, an optical fiber, or a copper cable, the VSC8248 provides superior signal integrity, speed flexibility ranging from 1 Gbps to 11.3 Gbps, integrated diagnostics for remote monitoring, fault isolation, and scalability to over 100,000 ports. Targeted applications include: Storage, Server, Router, and Optical Transport Equipment.

Outlook and Goals

Vitesse expects to see continuing industry recovery in 2010. The Company is confident its R&D investment in new generations of products is positioning it for growth in 2011 and beyond. In 2010, Vitesse plans to increase product introductions to an average of six per quarter from three per quarter in 2009, and complete the transition of its California test facility to its subcontractors in Asia.

The Company reiterates its long-term operating targets which call for the following as a percentage of revenue: gross margin of 55% to 60%; R&D of 25% to 28%; SG&A of 11% to 14%; income from operations of 11% to 16%; and EBITDA of 17% to 22%. Further, the Company is targeting annual inventory turns of five times and accounts payable and accounts receivable in line with normal industry levels.

Investor Conference Participation

Vitesse will present at the following two conferences:

• 11th Annual B. Riley & Co. Investor Conference, scheduled for Monday, May 24 through Wednesday, May 26, 2010 at the Loews Santa Monica Beach Hotel in Southern California.
• ThinkEquitya™s 1st Annual Semiconductor Conference being held June 3, 2010, at The Princeton Club in New York.

Conference Call Information

A conference call is scheduled for Monday, May 17, 2010 at 1:30 p.m. Pacific Time / 4:30 p.m. Eastern Time, to discuss second quarter fiscal year 2010 results. To listen to the conference call via telephone, dial 866-393-5524 (U.S. toll-free) or 973-638-3372 (International) and provide the pass code 76098751. 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 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 800-642-1687 (U.S. toll-free) or 706-645-9291 (International) and entering the pass code 76098751. The audio replay will be available for seven days.

About Vitesse

Vitesse designs, develops and markets a diverse portfolio of high-performance, cost-competitive semiconductor solutions for Carrier and Enterprise networks worldwide. Engineering excellence and dedicated customer service distinguish Vitesse as an industry leader in high-performance Ethernet LAN, WAN, and RAN, Ethernet-over-SONET/SDH, Optical Transport, and best-in-class Signal Integrity and Physical Layer products for Ethernet, Fibre Channel, Serial Attached SCSI, InfiniBand(R), Video, and PCI Express applications. Additional Company and product information is available at [ www.vitesse.com ].

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

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. These forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current facts. These forward-looking statements are based on our current expectations, estimates and projections about our business and industry, managementa™s beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements are not guarantees of future performance and the Companya™s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those referenced in the subsection entitled aRisk Factorsa in our Annual Report on Form10-K for the year ended September30, 2009 and our Quarterly Report on Form 10-Q for the period ended March 31, 2010 filed with the SEC. The Company undertakes no obligation to update the information provided herein.