EZchip Announces First Quarter 2011 Results

(PRNewswire) — EZchip Semiconductor Ltd. (NASDAQ: EZCH), a leader in Ethernet network processors, today announced its results for the first quarter ended March 31, 2011.

First Quarter 2011 Highlights:

  • First quarter revenues of $13.2 million
  • Gross margin reached 75.1% on a GAAP basis and 78.5% on a non-GAAP basis
  • Net income was $1.5 million on a GAAP basis and $5.4 million on a non-GAAP basis
  • Operating cash flow of $4.9 million
  • End of quarter net cash was $108.5 million  

First Quarter 2011 Results:

Total revenues in the first quarter of 2011 were $13.2 million, a decrease of 3% compared to $13.6 million in the first quarter of 2010, and a decrease of 23% compared to $17.1 million in the fourth quarter of 2010.

Net income, on a GAAP basis, for the first quarter of 2011 was $1.5 million, or $0.05 per share (diluted), compared to net income of $2.9 million, or $0.11 per share (diluted), in the first quarter of 2010, and net income of $4.0 million, or $0.15 per share (diluted), in the fourth quarter of 2010.

Net income, on a non-GAAP basis, for the first quarter of 2011 was $5.4 million, or $0.19 per share (diluted), compared to non-GAAP net income of $6.0 million, or $0.23 per share (diluted), in the first quarter of 2010, and non-GAAP net income of $8.6 million, or $0.31 per share (diluted), in the fourth quarter of 2010.

Cash, cash equivalents and marketable securities as of March 31, 2011, totaled $108.5 million, compared to $101.3 million as of December 31, 2010. Cash generated from operations during the first quarter was $4.9 million, cash used in investing activities was $0.1 million, cash provided by financing activities (resulting from the exercise of options) was $2.5 million and a decrease of $0.1 million resulted from unrealized loss on marketable securities.

Eli Fruchter, CEO of EZchip commented, "During the first quarter we saw a significant inventory adjustment by two of our largest customers resulting in a 3% decline in revenues compared to the first quarter of 2010. We believe that revenues in the second quarter of 2011 will be close to our record revenues in the fourth quarter of 2010. Looking ahead, we are on track on moving the NP-4 to production in the second half of the year and we continue to believe that NP-4 represents a revenue opportunity that is four times the size of our NP-2 and NP-3 opportunity combined."  

Conference Call

The Company will be hosting a conference call later today, May 4, 2011, at 10:00am ET, 7:00am PT, 3:00pm UK time and 5:00pm Israel time. On the call, management will review and discuss the results, and will be available to answer investor questions.

To participate through the live webcast, please access the investor relations section of the Company's web site at:   http://www.ezchip.com/investor_relations.htm, at least 10 minutes before the conference call commences. If you intend to ask a question on the call, please contact the investor relations team for the telephone dial in numbers.

For those unable to listen to the live call, a replay of the call will be available the day after the call under the 'Investor Relations' section of the website.

Use of Non-GAAP Financial Information

In addition to disclosing financial results calculated in accordance with United States generally accepted accounting principles (GAAP), this release of operating results also contains non-GAAP financial measures, which EZchip believes are the principal indicators of the operating and financial performance of its business.  The non-GAAP financial measures exclude the effects of stock-based compensation expenses recorded in accordance with FASB ASC 718, amortization of intangible assets and taxes benefit (taxes on income).  Management believes the non-GAAP financial measures provided are useful to investors' understanding and assessment of the Company's on-going core operations and prospects for the future, as the charges eliminated are not part of the day-to-day business or reflective of the core operational activities of the Company.  Management uses these non-GAAP financial measures as a basis for strategic decisions, forecasting future results and evaluating the Company's current performance.  However, such measures should not be considered in isolation or as substitutes for results prepared in accordance with GAAP.  Reconciliation of the non-GAAP measures to the most comparable GAAP measures are provided in the schedules attached to this release.

About EZchip

EZchip is a fabless semiconductor company that provides Ethernet network processors for networking equipment.  EZchip provides its customers with solutions that scale from 1-Gigabit to 200-Gigabits per second with a common architecture and software across all products.  EZchip's network processors provide the flexibility and integration that enable triple-play data, voice and video services in systems that make up the new Carrier Ethernet networks.  Flexibility and integration make EZchip's solutions ideal for building systems for a wide range of applications in telecom networks, enterprise backbones and data centers.  For more information on our company, visit the web site at http://www.ezchip.com.

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements are statements that are not historical facts and may include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance.  These statements are only predictions based on EZchip's current expectations and projections about future events.  There are important factors that could cause EZchip's actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements.  Those factors include, but are not limited to, the impact of general economic conditions, competitive products, product demand and market acceptance risks, customer order cancellations, reliance on key strategic alliances, fluctuations in operating results, delays in development of highly-complex products and other factors indicated in EZchip's filings with the Securities and Exchange Commission (SEC).  For more details, refer to EZchip's SEC filings and the amendments thereto, including its Annual Report on Form 20-F filed on March 31, 2011 and its Current Reports on Form 6-K. EZchip undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in our expectations, except as may be required by law.


EZchip Semiconductor Ltd.

Condensed Consolidated Statements of Operations

(U.S. Dollars in thousands, except per share amounts)

(Unaudited)




Three Months Ended




March 31,


December 31,


March 31,




2011


2010


2010










Revenues


$        13,179


$        17,136


$        13,588


Cost of revenues


2,979


4,461


3,705


Amortization of purchased technology


299


453


496


Gross profit


9,901


12,222


9,387


Operating expenses:








Research and development, net


4,399


3,577


3,280


Selling, general and administrative


2,944


2,617


2,360


Total operating expenses


7,343


6,194


5,640










Operating income


2,558


6,028


3,747


Financial income, net


326


312


261


Income before taxes



2,884


6,340


4,008


Taxes on income


(1,411)


(2,314)


(1,140)


Net income


$         1,473


$         4,026


$          2,868










Net income per share:








Basic


$           0.06


$           0.16


$            0.12


Diluted


$           0.05


$           0.15


$            0.11


Weighted average shares used in per share calculation:








Basic


26,199,053


25,877,546


24,719,609


Diluted


27,495,138


27,130,392


25,629,047






















EZchip Semiconductor Ltd.

Reconciliation of GAAP to Non-GAAP Measures

(U.S. Dollars in thousands, except per share amounts)

(Unaudited)











Three Months Ended




March 31,


December 31,


March 31,




2011


2010


2010










GAAP gross profit


$      9,901


$      12,222


$        9,387


Stock-based compensation


140


133


52


Amortization of purchased technology


299


453


496










Non-GAAP gross profit


$      10,340


$      12,808


$        9,935










GAAP gross profit as percentage of revenues


75.1%


71.3%


69.1%


Non-GAAP gross profit as percentage of revenues


78.5%


74.7%


73.1%


















GAAP operating expenses


$        7,343


$        6,194


$        5,640


Stock-based compensation:








   Research and development


(1,126)


(782)


(668)


   Selling, general and administrative


(830)


(717)


(576)


Amortization of purchased intangible assets:








   Selling, general and administrative


(95)


(193)


(193)










Non-GAAP operating expenses


$        5,292


$        4,502


$        4,203


















GAAP operating income


$        2,558


$        6,028


$        3,747










Non-GAAP operating income


$        5,048


$        8,306


$        5,732










GAAP net income


$        1,473


$        4,026


$      2,868


Stock-based compensation


2,096


1,632


1,296


Amortization of purchased intangible assets


394


646


689


Taxes on income*


1,411


2,314


1,140










Non-GAAP net income


$        5,374


$        8,618


$        5,993










Non-GAAP net income per share - Diluted


$          0.19


$          0.31


$          0.23


Non-GAAP weighted average shares -Diluted**


28,003,376


27,596,018


26,017,203




* Taxes on income represent the non-cash utilization of a deferred tax asset with respect to the Company's estimate of its accumulated taxable income in accordance with FASB ASC 740.  Once the Company completes the  utilization of the deferred tax asset, the Company expects to be exempt from Israeli companies taxes for a period of ten years due to benefits provided to the Company pursuant to the Company's Israeli approved and privileged enterprise programs.


** In calculating diluted non-GAAP net income per share, the diluted weighted average number of shares outstanding excludes the effects of stock-based compensation expenses in accordance with FASB ASC 718.





EZchip Semiconductor Ltd.

Condensed Consolidated Balance Sheet

(U.S. Dollars in thousands)








March 31,


December 31,



2011


2010



(Unaudited)


(Audited)

ASSETS





CURRENT ASSETS:





Cash, cash equivalents and marketable securities


$     108,473


$     101,310

Trade receivables, net


7,520


8,988

Other receivables


1,542


1,178

Inventories


5,948


4,522

Deferred tax assets, net


2,080


3,443

Total current assets


125,563


119,441






NON CURRENT ASSETS:





Severance pay fund


5,445


5,209

Long term investment and others


352


335

Total non current assets


5,797


5,544






PROPERTY AND EQUIPMENT, NET


452


419






Goodwill


96,276


96,276

Intangible assets, net


787


1,181






TOTAL ASSETS


$   228,875


$   222,861





LIABILITIES AND SHAREHOLDERS' EQUITY





CURRENT LIABILITIES:





Trade payables


$       1,184


$       1,289

Other payables and accrued expenses


6,075


6,569

Total current liabilities


7,259


7,858






LONG TERM LIABILITIES:





Accrued severance pay


6,388


5,974






SHAREHOLDERS'   EQUITY:





Share capital


151


149

Additional paid-in capital


276,526


271,959

Accumulated other comprehensive income


697


540

Accumulated deficit


(62,146)


(63,619)

Total shareholders' equity


215,228


209,029






TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY


$   228,875


$   222,861















EZchip Semiconductor Ltd.

Selected Condensed Consolidated Cash Flow Data

(U.S. Dollars in thousands)

(Unaudited)



Three Months Ended




March 31,


December 31,


March 31,




2011


2010


2010










Cash flows from operating activities:
















Net income


$      1,473


$      4,026


$     2,868


Adjustments to reconcile net income to net cash provided by operating activities:








Depreciation and amortization


450


696


741


Decrease (increase) in trade and other receivables, net


1,295


(1,677)


4,995


Increase in inventory


(1,426)


(913)


(319)


Decrease in deferred tax asset


1,403


2,303


1,109


Decrease in trade payables and other accrued liabilities, net


(385)


(608)


(5,202)


Stock-based compensation


2,096


1,632


1,296










Net cash provided by operating activities


4,906


5,459


5,488










Cash flows from investing activities:
















Purchase of property and equipment


(125)


(74)


(219)










Net cash used in investing activities


(125)


(74)


(219)










Cash flows from financing activities:
















Proceeds from issuance of share capital


--


--


1,072


Proceeds from exercise of options


2,473


2,890


1,558










Net cash provided by financing activities


2,473


2,890


2,630










Unrealized loss on marketable securities, net


(91)


(99)


(88)










Increase in cash, cash equivalents and marketable securities


7,163


8,176


7,811


Cash, cash equivalents and marketable securities at the beginning of the period


101,310


93,134


67,238


Cash, cash equivalents and marketable securities at the end of the period


$  108,473


$  101,310


$   75,049














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