TranSwitch Corporation Announces Third Quarter 2011 Financial Results

TranSwitch Corporation (NASDAQ: TXCC), a leading provider of semiconductor solutions for the converging voice, data and video network, today announced financial results for the third quarter ended September 30, 2011.

Net revenues for the third quarter of 2011 were approximately $6.7 million, as compared to net revenues of $7.1 million for the second quarter of 2011 and $12.8 million for the third quarter of 2010. Net loss for the third quarter of 2011 was ($4.8) million, or ($0.16) per basic and diluted common share, as compared to a net loss of ($3.0) million, or ($0.11) per basic and diluted common share for the second quarter of 2011, and a net loss of ($1.8) million, or ($0.08) per basic and diluted common share for the third quarter of 2010.

The GAAP gross margin for the third quarter was 65%. This is compared to the Company's GAAP gross margin of 67% for the second quarter of 2011, and 56% for the third quarter of 2010.

Total non-GAAP operating expenses for the third quarter of 2011 were $7.4 million, as compared to $7.5 million in the second quarter of 2011 and $6.6 million in the third quarter of 2010. Non-GAAP operating expenses for the third quarter of 2011 exclude $0.4 million in amortization of purchase price intangibles, $0.6 million in stock-based compensation and $0.9 million in restructuring charges along with a benefit of $0.5 million from the reversal of accrued royalties. Total GAAP operating expenses for the third quarter of 2011 were $8.8 million.

Non-GAAP operating loss for the third quarter of 2011 was ($3.1) million, compared to a non-GAAP operating loss of ($2.7) million for the second quarter of 2011 and non-GAAP operating income of $0.6 million for the third quarter of 2010. On a GAAP basis, the operating loss for the third quarter of fiscal 2011 was ($4.5) million, compared to an operating loss of ($2.9) million for the second quarter of fiscal 2011 and an operating loss of($0.4) million for the third quarter of 2010.

Non-GAAP net loss for the third quarter of 2011 was ($3.4) million, or ($0.11) per share compared with a non-GAAP net loss of ($2.8) million, or ($0.10) per share, for the second quarter of 2011 and a non-GAAP net loss of ($0.8) million, or ($0.04) per share, for the third quarter of 2010.

Further information about non-GAAP measures and reconciliation to the GAAP results is provided after the financial statements attached to this release.

“We continue to make progress on the development of new products for multimedia connectivity and processing,” stated Dr. M. Ali Khatibzadeh, President and CEO of TranSwitch Corporation. “During the quarter, we launched a complete reference design for LTE fixed wireless applications in the growing 4G wireless broadband market. This reference design includes our Atlanta 2000 processor and software in partnership with LTE modem providers. The emerging 4G LTE fixed-wireless gateway market represents a significant growth opportunity for our telecom business.”

Additional details on TranSwitch’s third quarter 2011 financial results will be discussed during a conference call regarding this announcement today at 5:30 pm Eastern time. To listen to the live call, investors can dial 719-325-2298 and reference confirmation code: 4229642. The call will be recorded and a replay will be available two hours after the conclusion of the live broadcast through November 15, 2011. To access the replay, dial 719-457-0820 and enter confirmation code: 4229642. Investors can also access an audio webcast which will be broadcast through Vcall’s Investor Calendar at www.investorcalendar.com or the Company’s website at www.transwitch.com. This audio webcast will also be available on a replay basis for 10 business days.

About TranSwitch Corporation

TranSwitch Corporation (NASDAQ: TXCC) designs, develops and supplies innovative semiconductor and intellectual property (IP) solutions that provide core functionality for voice, data and video communications equipment for network, enterprise and customer premises applications. Founded in 1988, TranSwitch® is headquartered in Shelton,CT. The Company provides integrated multi-core network processor System-on-a-Chip (SoC) solutions and software solutions for fixed, 3G and 4G Mobile, VoIP and Multimedia Infrastructures. For the customer premises market the Company offers a family of communications processors that provide best-in-class performance for a range of applications and also provide interoperable connectivity solutions that enable the reliable distribution and presentation of high-definition (HD) content for consumer electronics and personal computer markets. Our intellectual property (IP) products are compliant with global industry standards such as HDMI and DisplayPort and also feature our proprietary HDP™ and AnyCable™ technologies. For more information, please visit www.transwitch.com

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 due to the following factors:
  • 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 Nine Months Ended

Sep. 30,2011
     

June 30,2011
     

Sep. 30,2010

Sep. 30,2011
     

Sep. 30,2010
Net revenues:
Product revenues $ 4,855 $ 4,016 $ 11,017 $ 14,682 $ 34,838
Service revenues 1,810 3,037 1,828 7,263 4,890
Total net revenues 6,665 7,053 12,845 21,945 39,728
 
Cost of revenues:
Cost of product revenues 1,425 1,305 4,941 4,510 15,500
Provision for excess and obsolete inventories 26 96 186 657
Cost of service revenues 917 1,034 673 2,955 2,202
Total cost of revenues 2,368 2,339 5,710 7,651 18,359
Gross profit 4,297 4,714 7,135 14,294 21,369
 
Operating expenses:
Research and development 4,672 4,490 3,714 13,727 11,422
Marketing and sales 1,772 2,076 1,938 5,836 5,670
General and administrative 1,925 1,915 1,881 5,699 5,711
Restructuring charges 924 (4 ) 1,391 398
Reversal of accrued royalties (455 ) (825 ) (2,030 )
Total operating expenses 8,838 7,656 7,529 24,623 23,201
Operating loss (Note 1) (4,541 ) (2,942 ) (394 ) (10,329 ) (1,832 )
 
Other (expense) income:
Other (expense) income 23 (8 ) (869 ) 10 101
Interest income (expense):
Interest income 8 68 17 100 54
Interest expense (44 ) (68 ) (173 ) (237 ) (547 )
Interest expense, net (36 ) (156 ) (137 ) (493 )
Total other expense, net (13 ) (8 ) (1,025 ) (127 ) (392 )
 
Loss before income taxes (4,554 ) (2,950 ) (1,419 ) (10,456 ) (2,224 )
Income tax expense 233 49 392 479 557
Net loss $ (4,787 ) $ (2,999 ) $ (1,811 ) $ (10,935 ) $ (2,781 )
 
Net loss per common share – basic and diluted $ (0.16 ) $ (0.11 ) $ (0.08 ) $ (0.40 ) $ (0.13 )
 

Weighted average common shares outstanding – basic and     diluted
30,475 26,853 23,326 27,019 21,735
 
 

Note 1: Stock-based compensation expense included in cost of revenues  and operating expenses is as follows:
Cost of revenues $ 11 $ 16 $ 34 $ 48 $ 72
Research and development 195 218 195 624 607
Marketing and sales 111 122 101 361 237
General and administrative 286 295 251 903 678
Total $ 603 $ 651 $ 581 $ 1,936 $ 1,594

               

TranSwitch Corporation

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands)
 

September 30,2011

December 31,2010
ASSETS
Current assets:
Cash, cash equivalents, restricted cash and short-term investments $ 11,104 $ 7,835
Accounts receivable, net 6,665 7,907
Inventories 2,172 2,555
Prepaid expenses and other current assets   2,773     2,089
 
Total current assets 22,714 20,386
 
Property and equipment, net 1,313 1,239
Goodwill 14,144 14,144
Other assets   8,790     10,049
 
Total assets $ 46,961   $ 45,818
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, accrued expenses and other current liabilities $ 11,580 $ 14,120
Current portion of restructuring liabilities 1,805 891
Current portion of 5.45% Convertible Notes       3,758

 
Total current liabilities 13,385 18,769
 
Restructuring liabilities   9,783     10,317
 
Total liabilities   23,168     29,086
 
Total stockholders’ equity   23,793     16,732
 
Total liabilities and stockholders’ equity $ 46,961   $ 45,818
                               
TRANSWITCH CORPORATION
Supplemental Reconciliation of GAAP Results to Non-GAAP
(Unaudited)
(In thousands, except per share data)
 
Three Months Ended Nine Months Ended
Sep 30, June 30, Sep 30, Sep 30, Sep 30,
2011         2011         2010 2011         2010
GAAP gross profit $ 4,297 $ 4,714 $ 7,135 $ 14,294 $ 21,369
Add:
Stock-based compensation 11   16   34   48   72  
Non-GAAP gross profit $ 4,308   $ 4,730   $ 7,169   $ 14,342   $ 21,441  
 
GAAP gross margin 64.5 % 66.8 % 55.5 % 65.1 % 53.8 %
Stock-based compensation 0.2 % 0.2 % 0.3 % 0.2 % 0.2 %
Non-GAAP gross margin 64.6 % 67.1 % 55.8 % 65.4 % 54.0 %
 
GAAP research and development expenses $ 4,672 $ 4,490 $ 3,714 $ 13,727 $ 11,422
Less:
Amortization of purchase accounting intangibles 114 113 113 340 340
Stock-based compensation 195   218   195   624   607  
Non-GAAP research and development expenses $ 4,363   $ 4,159   $ 3,406   $ 12,763   $ 10,475  
 
GAAP selling, general, and administrative expenses $ 3,697 $ 3,991 $ 3,819 $ 11,535 $ 11,381
Less:
Amortization of purchase accounting intangibles 283 283 283 849 849
Stock-based compensation 397   417   352   1,264   915  
Non-GAAP selling, general, and administrative expenses $ 3,017   $ 3,291   $ 3,184   $ 9,422   $ 9,617  
 
GAAP operating expenses $ 8,838 $ 7,656 $ 7,529 $ 24,623 $ 23,201
Less:
Amortization of purchase accounting intangibles 397 396 396 1,189 1,189
Stock-based compensation 592 635 547 1,888 1,522
Reversal of accrued royalties (455 ) (825 ) - (2,030 ) -
Restructuring charges 924   -   (4 ) 1,391   398  
Non-GAAP operating expenses $ 7,380   $ 7,450   $ 6,590   $ 22,185   $ 20,092  
Non-GAAP operating (loss) income $ (3,072 ) $ (2,720 ) $ 579   $ (7,843 ) $ 1,349  
 
GAAP net loss $ (4,787 ) $ (2,999 ) $ (1,811 ) $ (10,935 ) $ (2,781 )
Add:
Amortization of purchase accounting intangibles 397 396 396 1,189 1,189
Stock-based compensation 603 651 581 1,936 1,594
Reversal of accrued royalties (455 ) (825 ) - (2,030 ) -
Restructuring charges 924   -   (4 ) 1,391   398  
Non-GAAP net (loss) income $ (3,318 ) $ (2,777 ) $ (838 ) $ (8,449 ) $ 400  
 
Non-GAAP basic net (loss) income per share $ (0.11 ) $ (0.10 ) $ (0.04 ) $ (0.31 ) $ 0.02
Basic shares used to calculate non-GAAP net loss per share 30,475 26,853 23,326 27,019 21,735

Copyright Business Wire 2010

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