EZchip Semiconductor Ltd. (NASDAQ: EZCH), a leader in Ethernet network processors, today announced its results for the fourth quarter and full year ended December 31, 2011.
Fourth Quarter and Full Year 2011 Highlights:
- Annual revenues for 2011 of $63.5 million
- Fourth quarter revenues of $14.3 million
- Fourth quarter gross margin was 6.6% on a GAAP basis, including a one-time charge due to early repayment of $9.9 million to the Israeli Office of Chief Scientist (OCS)
- Fourth quarter gross margin on a non-GAAP basis reached 76.8%
- Net income of $7.9 million, on a GAAP basis, for 2011 and net loss of $6.0 million for the fourth quarter (including a one-time charge due to early repayment of $9.9 million to the OCS)
- Net income was $31.0 million, on a non-GAAP basis, for 2011 (49% of revenues) and $6.3 million for the fourth quarter (44% of revenues)
- Non-GAAP operating cash flow of $9.0 million for the quarter and $28.8 million for 2011
- End of 2011 net cash was $126.8 million
Fourth Quarter 2011 Results:
Total revenues in the fourth quarter of 2011 were $14.3 million, a decrease of 17% compared to $17.1 million in the fourth quarter of 2010, and a decrease of 24% compared to $18.7 million in the third quarter of 2011.
Net loss, on a GAAPbasis, for the fourth quarter of 2011 was $6.0 million, which includes a one-time charge due to early repayment of $9.9 million to the Israeli Office of Chief Scientist (OCS), or $0.22 per share, compared to net income of $4.0 million, or $0.15 per share (diluted), in the fourth quarter of 2010, and net income of $7.7 million, or $0.27 per share (diluted), in the third quarter of 2011.
Net income, on a non-GAAP basis, for the fourth quarter of 2011 was $6.3 million, or $0.22 per share (diluted), compared to non-GAAP net income of $8.6 million, or $0.31 per share (diluted), in the fourth quarter of 2010, and non-GAAP net income of $9.9 million, or $0.35 per share (diluted), in the third quarter of 2011.
Cash, cash equivalents and marketable securities as of December 31, 2011, totaled $126.8 million, compared to $127.6 million as of September 30, 2011. Cash generated from operations during the fourth quarter was $9.0 million, cash used in investing activities was $0.6 million, cash provided by financing activities (resulting from the exercise of options) was $0.7 million and additional $9.9 million used for the repayment of OCS grants.
Full Year 2011 Results
Total revenues for the year ended December 31, 2011 were $63.5 million, a year-over-year increase of 2% compared to $62.0 million in 2010.
Net income on a GAAP basis for 2011 was $7.9 million, or $0.28 per share (diluted), compared to net income of $13.6 million, or $0.52 per share (diluted), in 2010.
Net income on a non-GAAP basis for 2011was $31.0 million or $1.09 per share (diluted), compared with non-GAAP net income of $30.4 million, or $1.14 per share (diluted), in 2010.
Repayment of OCS Grants
During December 2011 we made a one-time early payment of $9.9 million to the Israeli Office of Chief Scientist, representing the full balance of the contingent liability related to the NP-4 and NPA grants received. Upon making this payment, we have eliminated all future royalty obligations related to our anticipated NP-4 and NPA revenues and saved the associated future interest payments related to such obligations.
Eli Fruchter, CEO of EZchip, commented, "2011 was a transition year for EZchip: a transition to Cisco as our largest customer, to NP-3 as our largest revenue generator and to NP-4 becoming our fastest growing product ever, accounting for 21% of 2011 revenues with over 90% related to sample shipments. NP-5 is well along in its development cycle and leading tier-1 customers have selected to continue the EZchip path with the NP-5. We believe that substantially all NP-4 customers will select the NP-5 for their next generation platforms. We are making good progress with our new product development in Kiryat Gat and we believe that we are building an extremely competitive, strongly differentiated product that will open a new market for EZchip and more than double our total addressable market. On the financial side in 2011, excluding our largest NP-2 customer (which declined 40% year over year), EZchip's revenues grew over 30% in a challenging year with global economy worries. We were also able to grow our gross margin and net income during the year.
"Looking ahead, we believe that the NP-4 can significantly increase our revenues in the coming years based on more platform wins, higher ASP and the forecasted demand. In the shorter term, we expect continued growth in 2012, mainly in the second half of the year when all NP-4 based systems are likely to be in production and when carriers are expected to resume strong investments in Internet infrastructure."
The Company will be hosting a conference call later today, February 8, 2012, 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 would like 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 webcast, a replay of the webcast 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, one-time charge due to early repayment of OCS grants and 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.