Vitesse Reports Fourth Quarter and Fiscal Year 2014 Results

Growth in New Product Revenues of 11% Sequentially and 73% Year-over-Year, Driven by Ethernet Everywhere Strategy, Represents 57% of Total Product Revenues
Increased Gross Margins to 63.1% from 52.5% in Fourth Quarter of Fiscal Year 2013
Reached Non-GAAP Operating Profit of $1.0 Million for the Fourth Quarter
Added Over 130 New Customers in Fiscal Year 2014, Resulting in Greater Diversification to Support Future Revenue Growth
Achieved Record Design Win Success in Fiscal Year 2014
Strengthened Balance Sheet with Repayment of 2014 Convertible Debentures

CAMARILLO, Calif. — (BUSINESS WIRE) — December 4, 2014 — Vitesse Semiconductor Corporation (Nasdaq: VTSS), a leading provider of IC solutions to advance “Ethernet Everywhere” in Carrier, Enterprise and Internet of Things (IoT) networks, reported its financial results for the fourth quarter and fiscal year 2014, ended September 30, 2014.

“We are very pleased with the success of Vitesse’s ‘Ethernet Everywhere’ strategy and our execution is increasingly evident as demonstrated by our revenue growth, the upward trend in gross margins, design win success, and now, achieving non-GAAP operating profitability,” said Chris Gardner, CEO of Vitesse.

“In 2014, design wins for our new products reached record highs. Major wins in Carrier and Enterprise continued accumulating steadily, while those in emerging markets, such as Industrial-IoT and Storage, accelerated dramatically. IoT experienced a 200% increase in design wins in the year, now representing 37% of the total. IoT was also a major contributor to our 130 new customers in the year. We believe this growth in IoT will continue as the need to network all things escalates, expanding our served market by nearly $400 million. This market provides multiple avenues to create substantial revenue growth and literally transform Vitesse. Accordingly, we have updated our reporting structure to breakout our IoT business as a third core market.”

“To address our growing opportunities, we invested in our development organizations, adding critical industry expertise in hardware and software, and in our marketing and sales organizations, including hiring additional sales representatives and distributors. We also achieved a financial milestone by eliminating the dilution overhang with the repayment of our convertible debentures. While our legacy business has declined over the past several years, our new business is growing rapidly. We are increasingly confident that this growth, combined with strengthening gross margins, the high degree of operating leverage in our business, and our improved balance sheet, will generate significant shareholder value.”

Fourth Quarter Fiscal Year 2014 Financial Results Summary

Total net revenues were $28.7 million, compared to $27.2 million in the third quarter of fiscal year 2014 and $26.9 million in the fourth quarter of fiscal year 2013.
- Product revenues were $27.0 million, compared to $26.0 million in the third quarter of fiscal year 2014 and $26.5 million in the fourth quarter of fiscal year 2013.
- Product revenues by market, excluding non-core revenues of $1.2 million, contributed the following as a percentage of product revenues as compared to the third quarter of fiscal year 2014:
  - Carrier networking products: 47.1% versus 43.9%
  - Enterprise networking products: 41.7% versus 43.1%
  - Industrial-IoT networking products: 11.2% versus 13.0%
- Intellectual property revenues totaled $1.7 million, compared to $1.1 million in the third quarter of fiscal year 2014 and $0.4 million in the fourth quarter of fiscal year 2013.
Product margins were 60.9%, compared to 52.9% in the third quarter of fiscal year 2014 and 51.8% in the fourth quarter of fiscal year 2013. Total gross margins were 63.1%, compared to 54.9% in the third quarter of fiscal year 2014 and 52.5% in the fourth quarter of fiscal year 2013.
Operating expenses were $18.8 million, compared to $17.4 million in the third quarter of fiscal year 2014 and $17.6 million in the fourth quarter of fiscal year 2013.
Operating loss was $0.7 million, compared to operating loss of $2.5 million in the third quarter of fiscal year 2014 and $3.5 million in the fourth quarter of fiscal year 2013.
Non-GAAP operating income was $1.0 million, compared to non-GAAP operating loss of $0.9 million in the third quarter of fiscal year 2014 and non-GAAP operating loss of $2.3 million in the fourth quarter of fiscal year 2013.
Net loss was $2.5 million, or $0.04 per basic and fully diluted share. This compares to net loss of $4.4 million, or $0.07 per basic and fully diluted share, in the third quarter of fiscal year 2014, and net loss of $5.8 million, or $0.10 per basic and fully diluted share, in the fourth quarter of fiscal year 2013.
Non-GAAP net loss was $0.8 million, or $0.01 per basic and fully diluted share, compared to non-GAAP net loss of $2.7 million, or $0.04 per basic and fully diluted share, for the third quarter of fiscal year 2014, and non-GAAP net loss of $4.6 million, or $0.08 per basic and fully diluted share, in the fourth quarter of fiscal year 2013.

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