Vitesse Reports Third Quarter Fiscal Year 2014 Results

In deriving non-GAAP operating expenses from GAAP operating expenses, we exclude stock-based compensation charges and amortization of intangible assets. In deriving non-GAAP income (loss) from operations from GAAP income (loss) from operations, we exclude stock-based compensation charges and amortization of intangible assets. In deriving non-GAAP net income (loss) from GAAP net income (loss), we further exclude loss on extinguishment of debt and gain on the embedded derivative. Stock-based compensation charges, amortization of intangible assets, loss on extinguishment of debt, and gain on the embedded derivative represent charges that recur in amounts unrelated to the Company’s operations.

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. Non-GAAP operating expenses, non-GAAP income (loss) from operations and non-GAAP net income (loss) are in addition to, and are not a substitute for or superior to, operating expenses, income (loss) from operations and net income (loss), which are prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. A detailed reconciliation of the non-GAAP measures to the most directly comparable GAAP measure is set forth below. Investors are encouraged to review these reconciliations to appropriately incorporate the non-GAAP measures and the limitations of these measures into their analyses. For complete information on stock-based compensation, amortization of intangible assets, loss on extinguishment of debt, and the change in the fair value of our embedded derivatives, please see our Form 10-Q for the quarterly period ended June 30, 2014 and Form 10-K for the year ended September 30, 2013.


VITESSE SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS

	June 30, 2014			September 30, 2013
	(in thousands, except par value)
ASSETS
Current assets:
Cash	$	70,812		$	68,863
Accounts receivable	10,101			9,807
Inventory, net	11,237			10,692
Restricted cash	793			101
Prepaid expenses and other current assets	2,175			1,796
Total current assets	95,118			91,259
Property, plant and equipment, net	2,944			3,107
Other intangible assets, net	1,569			1,170
Other assets	3,548			3,425
	$	103,179		$	98,961
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,693		$	7,436
Accrued expenses and other current liabilities	12,060			12,245
Current portion of debt, net	32,375			—
Deferred revenue	3,030			2,215
Total current liabilities	55,158			21,896
Other long-term liabilities	470			407
Long-term debt, net	16,328			16,366
Convertible subordinated debt, net	—			44,384
Total liabilities	71,956			83,053
Stockholders’ equity:
Preferred stock, $0.01 par value: 10,000 shares authorized; no shares issued or outstanding	—			—
Common stock, $0.01 par value: 250,000 shares authorized; 67,342 and 57,545 shares outstanding at June 30, 2014 and September 30, 2013, respectively	673			575
Additional paid-in-capital	1,922,468			1,891,661
Accumulated deficit	(1,891,918		)	(1,876,328		)
Total stockholders’ equity	31,223			15,908
	$	103,179		$	98,961


VITESSE SEMICONDUCTOR CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three months ended June 30,						Nine Months Ended June 30,
	2014			2013			2014			2013
	(in thousands, except per share data)
Net revenues:
Product revenues	$	26,012		$	26,285		$	75,744		$	74,879
Intellectual property revenues	1,139			133			4,082			2,019
Net revenues	27,151			26,418			79,826			76,898
Costs and expenses:
Cost of product revenues	12,254			11,666			33,909			34,010
Engineering, research and development	10,006			11,706			31,581			31,987
Selling, general and administrative	7,330			7,257			23,189			22,617
Amortization of intangible assets	88			80			267			266
Costs and expenses	29,678			30,709			88,946			88,880
Loss from operations	(2,527		)	(4,291		)	(9,120		)	(11,982		)
Other expense (income):
Interest expense, net	1,510			1,983			4,706			5,919
Gain on compound embedded derivative	—			—			—			(803		)
Loss on extinguishment of debt	—			—			1,594			—
Other expense, net	18			31			111			5
Other expense, net	1,528			2,014			6,411			5,121
Loss before income tax expense (benefit)	(4,055		)	(6,305		)	(15,531		)	(17,103		)
Income tax expense (benefit)	333			129			59			(790		)
Net loss	$	(4,388	)	$	(6,434	)	$	(15,590	)	$	(16,313	)

Net loss per common share - basic and diluted	$	(0.07	)	$	(0.17	)	$	(0.27	)	$	(0.47	)
Weighted average common shares outstanding - basic and diluted	59,965			38,630			58,631			34,601


VITESSE SEMICONDUCTOR CORPORATION
UNAUDITED RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS

	Three Months Ended June 30,						Nine Months Ended June 30,
	2014			2013			2014			2013
	(in thousands, except per share data)
UNAUDITED RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET LOSS

GAAP net loss	$	(4,388	)	$	(6,434	)	$	(15,590	)	$	(16,313	)

Adjustments:
Stock-based compensation charges	1,586			1,156			4,466			3,305
Amortization of intangible assets	88			80			267			266
Gain on compound embedded derivative	—			—			—			(803		)
Loss on extinguishment of debt	—			—			1,594			—
Total GAAP to non-GAAP adjustments	1,674			1,236			6,327			2,768

Non-GAAP net loss	$	(2,714	)	$	(5,198	)	$	(9,263	)	$	(13,545	)

Net loss per common share - basic and diluted:
GAAP net loss per common share	$	(0.07	)	$	(0.17	)	$	(0.27	)	$	(0.47	)
Adjustments	0.03			0.04			0.11			0.08
Non-GAAP net loss per common share	$	(0.04	)	$	(0.13	)	$	(0.16	)	$	(0.39	)

UNAUDITED RECONCILIATION OF GAAP LOSS FROM OPERATIONS TO NON-GAAP LOSS FROM OPERATIONS

GAAP loss from operations	$	(2,527	)	$	(4,291	)	$	(9,120	)	$	(11,982	)
Adjustments:
Stock-based compensation charges	1,586			1,156			4,466			3,305
Amortization of intangible assets	88			80			267			266
Total GAAP to non-GAAP adjustments	1,674			1,236			4,733			3,571

Non-GAAP loss from operations	$	(853	)	$	(3,055	)	$	(4,387	)	$	(8,411	)

UNAUDITED RECONCILIATION OF GAAP OPERATING EXPENSES TO NON-GAAP OPERATING EXPENSES

GAAP operating expenses:
Engineering, research and development	$	10,006		$	11,706		$	31,581		$	31,987
Selling, general and administrative	7,330			7,257			23,189			22,617
Amortization of intangible assets	88			80			267			266
Total GAAP operating expenses	17,424			19,043			55,037			54,870
Adjustments:
Stock-based compensation charges	1,376			995			3,847			2,846
Amortization of intangible assets	88			80			267			266
Total GAAP to non-GAAP adjustments	1,464			1,075			4,114			3,112

Non-GAAP operating expenses	$	15,960		$	17,968		$	50,923		$	51,758

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