TranSwitch Corporation Announces Fourth Quarter 2012 Financial Results

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												Twelve Months Ended
				Dec 31, 2012				Sep 30, 2012				Dec 31, 2011				Dec 31, 2012					Dec 31, 2011
Net revenues:
Product revenues				$	3,148			$	1,631			$	5,018			$	10,315				$	19,700
Intellectual property and service revenues					2,472				3,121				1,292				7,563					8,555
Total net revenues					5,620				4,752				6,310				17,878					28,255
Cost of revenues:
Cost of product revenues					1,045				694				2,131				3,724					6,641
Provision for excess and obsolete inventories					264				154				42				869					228
Cost of service revenues					94				844				499				1,274					3,454
Total cost of revenues					1,403				1,692				2,672				5,867					10,323
Gross profit					4,217				3,060				3,638				12,011					17,932
Operating expenses:
Research and development					3,553				3,325				5,158				15,892					18,885
Marketing and sales					928				1,144				1,499				5,031					7,335
General and administrative					1,838				1,851				1,758				7,751					7,457
Restructuring charges					426				—				(6,949	)			1,427					(5,558	)
Impairment of goodwill and other intangibles					648				—				14,312				648					14,312
Reversal of accrued royalties					(171	)			(332	)			(333	)			(1,003	)				(2,363	)
Total operating expenses					7,222				5,988				15,445				29,746					40,068
Operating loss (Note 1)					(3,005	)			(2,928	)			(11,807	)			(17,735	)				(22,136	)
Other (expense) income:
Other income (expense)					(30	)			41				8				(33	)				18
Interest income (expense):
Interest income					(14	)			32				25				58					125
Interest expense					(46	)			(37	)			(6	)			(124	)				(243	)
Interest (expense) income, net					(60	)			(5	)			19				(66	)				(118	)
Total other income (expense), net					(90	)			36				27				(99	)				(100	)
Loss before income taxes					(3,095	)			(2,892	)			(11,780	)			(17,834	)				(22,236	)
Income tax expense					47				108				157				388					636
Net loss				$	(3,142	)		$	(3,000	)		$	(11,937	)		$	(18,222	)			$	(22,872	)
Net loss per common share – basic and diluted				$	(0.09	)		$	(0.09	)		$	(0.39	)		$	(0.55	)			$	(0.82	)
Weighted average common shares outstanding – basic and diluted					35,907				34,269				30,555				33,130					27,911
Note 1: Stock-based compensation expense included in cost of revenues   and operating expenses is as follows:
Cost of revenues				$	7			$	8			$	6			$	7				$	54
Research and development					198				147				156				543					780
Marketing and sales					131				93				107				374					468
General and administrative					376				259				269				1,213					1,172
Total				$	712			$	507			$	538			$	2,137				$	2,474

TranSwitch Corporation CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands)
						December 31, 2012						December 31, 2011
ASSETS
Current assets:
Cash, cash equivalents, restricted cash and short-term investments						$	2,244					$	7,554
Accounts receivable, net							4,238						6,375
Inventories							748						1,988
Prepaid expenses and other current assets							1,409						1,876
Total current assets							8,639						17,793
Property and equipment, net							1,111						1,355
Goodwill							5,271						5,271
Other intangible assets, net							548						1,461
Other assets							2,028						1,738
Total assets						$	17,597					$	27,618
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank debt						$	2,432					$	—
Accounts payable, accrued expenses and other current liabilities							10,457						10,932
Current portion of restructuring liabilities							2,016						1,995
Total current liabilities							14,905						12,927
Restructuring liabilities							1,463						2,485
Total liabilities							16,368						15,412
Total stockholders’ equity							1,229						12,206
Total liabilities and stockholders’ equity						$	17,597					$	27,618

TRANSWITCH CORPORATION
Supplemental Reconciliation of GAAP Results to Non-GAAP
(Unaudited)
(In thousands, except per share data)
									Three Months Ended													Twelve Months Ended
									Dec 31,				Sep 30,				Dec 31,					Dec 31,				Dec 31,
									2012				2012				2011					2012				2011
GAAP gross profit								$	4,217			$	3,060			$	3,638				$	12,011			$	17,932
Add:
Stock-based compensation									7				8				6					7				54
Non-GAAP gross profit								$	4,224			$	3,068			$	3,644				$	12,018			$	17,986
GAAP gross margin									75.0	%			64.4	%			57.7	%				67.2	%			63.5	%
Stock-based compensation									0.1	%			0.2	%			0.1	%				0.0	%			0.2	%
Non-GAAP gross margin									75.2	%			64.6	%			57.7	%				67.2	%			63.7	%
GAAP research and development expenses								$	3,553			$	3,325			$	5,158				$	15,892			$	18,885
Less:
Amortization of purchase accounting intangibles									7				38				39					122				379
Stock-based compensation									198				147				156					543				780
Non-GAAP research and development expenses								$	3,348			$	3,140			$	4,963				$	15,227			$	17,726
GAAP selling, general, and administrative expenses								$	2,766			$	2,995			$	3,257				$	12,782			$	14,792
Less:
Amortization of purchase accounting intangibles									25				39				127					143				976
Stock-based compensation									507				352				376					1,587				1,640
Non-GAAP selling, general, and administrative expenses								$	2,234			$	2,604			$	2,754				$	11,052			$	12,176
GAAP operating expenses								$	7,222			$	5,988			$	15,445				$	29,746			$	40,068
Less:
Amortization of purchase accounting intangibles									32				77				166					265				1,355
Stock-based compensation									705				499				532					2,130				2,420
Reversal of accrued royalties and other									(171	)			(332	)			(333	)				(1,003	)			(2,363	)
Impairment of goodwill and intangibles									648				-				14,312					648				14,312
Restructuring charges									426				-				(6,949	)				1,427				(5,558	)
Non-GAAP operating expenses								$	5,582			$	5,744			$	7,717				$	26,279			$	29,902
Non-GAAP operating loss								$	(1,358	)		$	(2,676	)		$	(4,073	)			$	(14,261	)		$	(11,916	)
GAAP net loss								$	(3,142	)		$	(3,000	)		$	(11,937	)			$	(18,222	)		$	(22,872	)
Add:
Amortization of purchase accounting intangibles									32				77				166					265				1,355
Stock-based compensation									712				507				538					2,137				2,474
Reversal of accrued royalties and other									(171	)			(332	)			(333	)				(1,003	)			(2,363	)
Impairment of goodwill and intangibles									648				-				14,312					648				14,312
Restructuring charges									426				-				(6,949	)				1,427				(5,558	)
Non-GAAP net loss								$	(1,495	)		$	(2,748	)		$	(4,203	)			$	(14,748	)		$	(12,652	)
Non-GAAP basic net loss per share								$	(0.04	)		$	(0.08	)		$	(0.14	)			$	(0.45	)		$	(0.45	)
Basic shares used to calculate non-GAAP net loss per share									35,907				34,269				30,555					33,130				27,911

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