EZchip Announces First Quarter 2015 Results; Provides Update On Status Of NPS Adoption

YOKNEAM, Israel, May 13, 2015 /PRNewswire/ -- EZchip Semiconductor Ltd. (NASDAQ: EZCH), a leader in high-performance processing solutions for carrier and data center networks, today announced its results for the first quarter ended March 31, 2015 and is updating on the status of NPS adoption by its major customers.

First Quarter 2015 Highlights:

• First quarter revenues of $26.9 million
• Gross margin reached 74.0% on a non-GAAP basis
• Gross margin reached 34.2% on a GAAP basis, including a one-time charge due to early repayment of $9.6 million to the Israeli Office of Chief Scientist (OCS)
• Net income, on a non-GAAP basis, was $7.5 million
• Net loss, on a GAAP basis, was $8.3 million (including a one-time charge due to early repayment of $9.6 million to the OCS)
• Operating cash flow of $7.7 million
• Net cash at end of quarter was $184.1 million

First Quarter 2015 Results:

Total revenues in the first quarter of 2015 were $26.9 million, an increase of 33% compared to $20.3 million in the first quarter of 2014, and an increase of 20% compared to $22.4 million in the fourth quarter of 2014.

Net loss, on a GAAP basis, for the first quarter of 2015 was $8.3 million, which includes a one-time charge due to early repayment of $9.6 million to the Israeli Office of Chief Scientist (OCS), or $0.28 per share, compared to net income of $6.1 million, or $0.21 per share (diluted), in the first quarter of 2014, and net loss of $7.3 million (reduced by expenses of $10.5 million related to the Tilera acquisition), or $0.25 per share, in the fourth quarter of 2014.

Net income, on a non-GAAP basis, for the first quarter of 2015 was $7.5 million, or $0.24 per share (diluted), compared to non-GAAP net income of $10.0 million, or $0.33 per share (diluted), in the first quarter of 2014, and non-GAAP net income of $7.2 million, or $0.23 per share (diluted), in the fourth quarter of 2014.

Cash, cash equivalents, marketable securities and deposits as of March 31, 2015, totaled $184.1 million, compared to $185.8 million as of December 31, 2014. Cash generated from operations was $7.7 million, cash used in investing activities was $0.1 million, cash provided by financing activities was $0.3 million, resulting from the exercise of options, and an additional $9.6 million was used for the early repayment of OCS grants.

Early Repayment of OCS Grants

During February 2015 we made a one-time early payment of $9.6 million to the Israeli Office of Chief Scientist, representing the full balance of the contingent liability related to the NP-5 grants received. Upon making this payment, we have eliminated all future royalty obligations related to our anticipated NP-5 revenues and saved the associated future interest payments related to such obligations.

Status of NPS Adoption by Major Customers

With respect to EZchip's largest customer and that customer's plans for next generation line cards used in its routing platform, we are updating that EZchip's NPS-400 is currently not the plan of record for that customer's next generation line cards. This customer's routing platform has recently begun production shipments with EZchip's NP-5 network processor, and based upon our current information, we do not believe a next generation successor for the NP-5 is likely to ship for approximately three years.

We believe our customer's next generation line cards will require the NP-5 successor to provide higher throughput than the NPS-400 and that the customer is currently developing such a solution in-house. In parallel EZchip is also developing its successor to the NPS-400 with higher throughput that is expected to be available at the same time frame.

Based on our experience in prior NPU generations, each NPU generation serves a customer's platform for approximately three years before the next generation NPU arrives, and then over time, begins to take the leading position in customer shipments. Accordingly, if our largest customer does not change its current plan to use an in-house solution for the NP-5 successor, EZchip's revenues from sales to that customer are expected to start being affected only after this three year period elapses, which is the timeframe estimated to develop a new chip, bring it to production, and start gradual replacement of the NP-5. We believe the NP-5 will continue generating revenues at this customer for several more years beyond this three year period.

It should be noted that the NPS-400 is being considered for other substantial platforms at this same customer. Further, the NPS-400 is currently under consideration across a broad base of customers, including multiple Tier-1 customers, who are awaiting NPS samples during the second half of 2015 in order to become confirmed design wins for a variety of platforms and applications, in carrier networks, large data centers and networking appliances.

Eli Fruchter, CEO of EZchip, commented,

"The first quarter of 2015 was a record quarter for revenues for EZchip with yet another strong quarter ahead of us. We view this as a significant achievement considering the soft carrier spending environment", said Eli Fruchter, CEO of EZchip. "EZchip's revenues remain poised to see further growth in the coming years in light of the significant adoption of NP-5 by customers, including at our largest routing customer, combined with the higher ASP for NP-5, as well as the revenues from NPS expected to begin in 2016.

"As we estimate it may be three years before an NP-5 successor becomes available at our largest customer through internally developed silicon, there is ample time for EZchip to complete our development of the NPS-400 successor, the NPS-1000, a 1-Terabit throughput NPU (2.5x faster than the NPS-400). The NPS-1000 is currently under development, and we believe it may be possible to sample within our current largest customer's expected product development cycle and exceed the required throughput for its next generation line cards. NPS-1000 could then potentially lead to an opportunity to reengage our current largest customer regarding its choice to use internally developed silicon.

"As for the NPS-400, it is important to note that several Tier-1 service providers and data center operators, as well as Tier-1 networking vendors, have already selected the NPS-400 and at this time are waiting for the NPS-400 to sample in order to start their product designs, transitioning towards confirmed design wins. We hope to be able to report future design win traction shortly after the NPS-400 tapes out during the third quarter, with samples during the fourth quarter.

"In addition, our upcoming TILE-Mx multicore CPU furthers our push into new and expanding multicore opportunities. We believe that both the NPS-400 and the TILE-Mx favorably position EZchip to become a key processor supplier to address the new SDN/NFV market dynamics, selling not only to equipment vendors, but also directly to the large service providers and data center operators, and expanding our TAM six fold to an estimated $2.2B by 2017", added Mr. Fruchter.

Conference Call
The Company will be hosting a conference call later today, May 13, 2015, 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/?ezchip=527, 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, acquisition related costs, amortization of purchased intangible assets and one-time charge due to early repayment of OCS grants. 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 high-performance processing solutions for a wide range of applications for the carrier, cloud and data center networks. EZchip's broad portfolio of solutions scales from a few to hundreds of Gigabits-per-second, and includes network processors, multi-core processors, intelligent network adapters, high-performance appliances and a comprehensive software ecosystem. EZchip's processing solutions excel at providing great flexibility and high performance coupled with superior integration and power efficiency. 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 based on its current knowledge.  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 (including in-house customer developed 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, the integration of Tilera's business 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, 2015 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.

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Contact:
Jeffrey A Schreiner
[email protected]
Tel: (US) 1 408 520 3676

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SOURCE EZchip Semiconductor Ltd.

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