EZchip Announces Record Third Quarter 2010 Results; Third Quarter Revenues Increase 54% Year-Over-Year to $16.4 Million

Oct 28, 2010, 08:11 ET from EZchip Semiconductor Ltd.

YOKNEAM, Israel, Oct. 28 /PRNewswire-FirstCall/ -- EZchip Semiconductor Ltd. (Nasdaq: EZCH), a leader in Ethernet network processors, today announced its results for the third quarter ended September 30, 2010.

Third Quarter 2010 Highlights

  • Third quarter revenues increased 54% year-over-year and 10% sequentially, reaching $16.4 million
  • Gross margin reached 73.7% on a GAAP basis and 76.9% on a non-GAAP basis
  • Net income was $4.5 million on a GAAP basis, 28% of revenues
  • Net income was $8.7 million on a non-GAAP basis, 53% of revenues
  • Operating cash flow of $7.0 million
  • End of quarter net cash was $93.1 million

Third Quarter 2010 Results

Total revenues in the third quarter of 2010 were $16.4 million, an increase of 54% compared to $10.7 million in the third quarter of 2009, and an increase of 10% compared to $14.9 million in the second quarter of 2010.

Net income, on a GAAP basis, for the third quarter of 2010 was $4.5 million (which included utilization of a deferred tax asset of $2.0 million) or $0.17 per share (diluted), compared to net income of $1.8 million, or $0.07 per share (diluted), in the third quarter of 2009, and net income of $2.2 million (which included utilization of a deferred tax asset of $2.7 million), or $0.09 per share (diluted), in the second quarter of 2010.

Net income, on a non-GAAP basis, for the third quarter of 2010 was $8.7 million, or $0.32 per share (diluted), compared to non-GAAP net income of $3.9 million, or $0.15 per share (diluted), in the third quarter of 2009, and non-GAAP net income of $7.1 million, or $0.26 per share (diluted), in the second quarter of 2010.

Cash, cash equivalents and marketable securities as of September 30, 2010, totaled $93.1 million, compared to $83.3 million as of June 30, 2010.  Cash generated from operations during the third quarter was $7.0 million, cash used in investing activities was $0.3 million, cash provided by financing activities (resulting from the exercise of options) was $2.8 million and an additional $0.3 million increase resulted from unrealized gains in marketable securities.

First Nine Months 2010 Results

Total revenues for the nine months ended September 30, 2010 were $44.9 million, a year-over-year increase of 65% compared to $27.2 million for the nine months ended September 30, 2009. Net income on a GAAP basis for the nine months ended September 30, 2010 was $9.6 million (which include utilization of a deferred tax asset of $5.9 million), or $0.37 per share (diluted), compared to net income of $2.5 million, or $0.09 per share (diluted), for the nine months ended September 30, 2009. Net income on a non-GAAP basis for the nine months ended September 30, 2010 was $21.8 million or $0.82 per share (diluted), compared with non-GAAP net income of $8.5 million, or $0.33 per share (diluted), for the nine months ended September 30, 2009.

Eli Fruchter, CEO of EZchip, commented, "The third quarter of 2010 continues our growth trend and was another record quarter for EZchip in all our financial parameters. NP-4 continued to win in the marketplace and has already accumulated over twice as many important design wins as NP-2 and NP-3 combined, garnering design wins from the vast majority of high volume CESR platforms that use high-speed merchant NPUs. Our NPA access network processor is now in production and can benefit from the transition of the access market to Ethernet, similar to the transition that took place in the high speed market. All in all we believe we have established a strong base for a continued strong growth over the long term."

Conference Call

The Company will be hosting a conference call later today, October 28, 2010, at 10:00am ET, 7:00am PT, 3:00pm UK time and 4:00pm Israel time. On the call, management will review and discuss the results, and will be available to answer investor questions.

To participate through live webcast, please access the investor relations' section of EZchip's corporate website, http://www.ezchip.com, at least 5 minutes before the conference call commences.

To participate through dial-in, please call one of the following teleconferencing numbers. Please begin placing your calls at least 10-15 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.

US Dial-in Number: 1 888 668 9141

UK Dial-in Number: 0 800 917 5108

International Dial-in Number (Israel): +972 3 918 0609

Israel Dial-in Number: 03 918 0609

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 ASC 718 (originally issued as SFAS 123R), amortization of intangible assets, benefit from (provision for) taxes on income, and net loss (income) attributable to noncontrolling interest.  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 25, 2010 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.

-- Financial Tables Follow --

EZchip Semiconductor Ltd.

Condensed Consolidated Statements of Operations

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

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2010

2010

2009

2010

2009

Revenues

$        16,377

$        14,897

$         10,651

$     44,862

$     27,172

Cost of revenues

3,833

3,669

2,970

11,207

7,636

Amortization of purchased technology

471

495

496

1,462

1,489

Gross profit

12,073

10,733

7,185

32,193

18,047

Operating expenses:

Research and development, net

3,177

3,631

3,361

10,088

9,882

Selling, general and administrative

2,651

2,373

2,150

7,384

6,316

Total operating expenses

5,828

6,004

5,511

17,472

16,198

Operating income

6,245

4,729

1,674

14,721

1,849

Financial income, net

299

258

232

818

721

Income before taxes on income

6,544

4,987

1,906

15,539

2,570

Taxes on income

2,043

2,739

--

5,922

--

Income before noncontrolling interest

4,501

2,248

1,906

9,617

2,570

Less: Net income attributable to noncontrolling interest

--

--

(85)

--

(51)

Net income

$         4,501

$         2,248

$          1,821

$        9,617

$        2,519

Net income per share:

Basic

$           0.18

$           0.09

$            0.08

$        0.38

$        0.11

Diluted

$           0.17

$           0.09

$            0.07

$        0.37

$        0.09

Weighted average shares used in per share calculation:

Basic

25,421,522

25,093,667

23,357,356

25,080,837

23,350,765

Diluted

26,524,702

26,193,255

23,363,095

25,810,870

23,364,395

EZchip Semiconductor Ltd.

Reconciliation of GAAP to Non-GAAP Measures

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

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2010

2010

2009

2010

2009

GAAP gross profit

$      12,073

$      10,733

$        7,185

$        32,193

$      18,047

Stock-based compensation

58

59

51

169

144

Amortization of purchased intangible assets

471

495

496

1,462

1,539

Non-GAAP gross profit

$      12,602

$      11,287

$        7,732

$        33,824

$      19,730

GAAP gross profit as percentage of revenues

73.7%

72.0%

67.5%

71.8%

66.4%

Non-GAAP gross profit as percentage of revenues

76.9%

75.8%

72.6%

75.4%

72.6%

GAAP operating expenses

$        5,828

$        6,004

$        5,511

$        17,472

$      16,198

Stock-based compensation:

   Research and development

(754)

(737)

(676)

(2,159)

(2,042)

   Selling, general and administrative

(677)

(617)

(543)

(1,870)

(1,551)

Amortization of purchased intangible assets

   Selling, general and administrative

(194)

(193)

(210)

(580)

(630)

Non-GAAP operating expenses

$        4,203

$        4,457

$        4,082

$        12,863

$      11,975

GAAP operating income

$        6,245

$        4,729

$        1,674

$        14,721

$        1,849

Non-GAAP operating income

$        8,399

$        6,830

$        3,650

$        20,961

$        7,755

GAAP net income

$        4,501

$        2,248

$        1,821

$          9,617

$        2,519

Stock-based compensation

1,489

1,413

1,270

4,198

3,737

Amortization of purchased intangible assets

665

688

706

2,042

2,169

Taxes on income*

2,043

2,739

--

5,922

--

Net income attributable to noncontrolling interest

--

--

85

--

51

Non-GAAP net income

$        8,698

$        7,088

$        3,882

$        21,779

$        8,476

Non-GAAP net income per share - Diluted

$          0.32

$          0.26

$          0.15

$            0.82

$          0.33

Non-GAAP weighted average shares - Diluted**

27,130,452

26,816,945

23,467,558

26,427,024

23,452,991

* 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 ASC 740 (originally issued as SFAS 109).  Once the Company completes the utilization of the deferred tax asset, the Company expects to be exempt from Israeli companies taxes for at least 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 ASC 718 (originally issued as SFAS 123R).

EZchip Semiconductor Ltd.

Condensed Consolidated Balance Sheet

(U.S. Dollars in thousands)

September 30,

December 31,

2010

2009

(Unaudited)

(Audited)

ASSETS

CURRENT ASSETS:

Cash, cash equivalents and marketable securities

$     93,134

$     67,238

Trade receivables, net

7,265

6,340

Other receivables

1,538

6,065

Inventories

3,609

1,533

Deferred tax asset, net

5,421

6,038

Total current assets

110,967

87,214

NON CURRENT ASSETS:

Severance pay fund

4,792

4,099

Long term deferred tax asset

344

5,571

Long term investment and others

305

--

Total non current assets

5,441

9,670

PROPERTY AND EQUIPMENT, NET

350

394

Goodwill

96,276

96,276

Intangible assets, net

1,826

3,869

TOTAL ASSETS

$   214,860

$   197,423

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Trade payables

$       2,486

$      1,963

Other payables and accrued expenses

5,847

10,218

Total current liabilities

8,333

12,181

LONG TERM LIABILITIES:

Accrued severance pay

5,644

4,779

SHAREHOLDERS'  EQUITY:

Share capital

147

140

Additional paid-in capital

267,807

257,078

Accumulated other comprehensive income

574

507

Accumulated deficit

(67,645)

(77,262)

Total shareholders' equity

200,883

180,463

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$   214,860

$   197,423

EZchip Semiconductor Ltd.

Selected Condensed Consolidated Cash Flow Data

(U.S. Dollars in thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2010

2010

2009

2010

2009

Cash flows from operating activities:

Net income

$      4,501

$     2,248

$     1,821

$      9,617

$      2,519

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

Depreciation and amortization

712

738

753

2,191

2,323

Decrease (increase) in trade and other receivables, net

(1,199)

14

(1,100)

3,810

(296)

Decrease (increase) in inventory

(922)

(835)

1,149

(2,076)

1,725

Decrease in deferred tax asset

2,011

2,739

--

5,859

--

Increase (decrease) in trade payables and other accrued liabilities, net

403

1,330

825

(3,469)

1,193

Stock-based compensation

1,489

1,413

1,270

4,198

3,737

Net income attributable to noncontrolling interest

--

--

85

--

51

Net cash provided by operating activities

6,995

7,647

4,803

20,130

11,252

Cash flows from investing activities:

Purchase of property and equipment

(46)

(46)

(17)

(311)

(94)

Long term investment and others

(200)

--

--

(200)

--

Net cash used in investing activities

(246)

(46)

(17)

(511)

(94)

Cash flows from financing activities:

Proceeds from issuance of share capital

--

--

--

1,072

--

Proceeds from exercise of options

2,795

745

158

5,098

279

Net cash provided by financing activities

2,795

745

158

6,170

279

Unrealized gain (loss) on marketable securities, net

288

(93)

253

107

1,005

Increase in cash, cash equivalents and marketable securities

9,832

8,253

5,197

25,896

12,442

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

83,302

75,049

55,360

67,238

48,115

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

$    93,134

$   83,302

$   60,557

$    93,134

$    60,557

Contact:

Ehud Helft

CCG Investor Relations

ezchip@ccgisrael.com

Tel: (US) 1 646 201 9246

SOURCE EZchip Semiconductor Ltd.



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http://www.ezchip.com