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,

2015

2015

2014

2015

2014

GAAP gross profit

$       22,753

$       21,354

$       15,874

$       53,304

$       50,176

Stock-based compensation

102

102

75

307

225

Amortization of purchased intangible
assets

233

233

--

1,439

--

Repayment of OCS grants*

--

--

--

9,636

--

Non-GAAP gross profit

$      23,088

$      21,689

$      15,949

$       64,686

$       50,401

GAAP gross profit as percentage of revenues

74.1%

75.5%

82.5%

62.1%

81.4%

Non-GAAP gross profit as percentage of revenues

75.2%

76.7%

82.9%

75.3%

81.8%

GAAP operating expenses

$       17,851

$       16,422

$       12,013

$       52,027

$       34,759

Stock-based compensation:

    Research and development

(2,964)

(2,996)

(2,360)

(8,894)

(7,048)

    Selling, general and administrative

(1,670)

(1,787)

(1,590)

(5,222)

(4,826)

Acquisition related costs

    Selling, general and administrative

(899)

--

(320)

(899)

(980)

Amortization of purchased intangible assets - Selling, general and administrative

(347)

(347)

--

(1,041)

--

Non-GAAP operating expenses

$       11,971

$       11,292

$         7,743

$       35,971

$       21,905

GAAP operating income

$         4,902

$         4,932

$         3,861

$      1,277

$       15,417

Non-GAAP operating income

$       11,117

$       10,397

$         8,206

$       28,715

$       28,496

GAAP net income

$         5,234

$         5,419

$         4,199

$      2,387

$       16,499

Stock-based compensation

4,736

4,885

4,025

14,423

12,099

Acquisition related costs

899

--

320

899

980

Amortization of purchased intangible assets

580

580

--

2,480

--

Income taxes

31

--

--

31

--

Repayment of OCS grants*

--

--

--

9,636

--

Non-GAAP net income

$       11,480

$       10,884

$        8,544

$       29,856

$       29,578

Non-GAAP net income per share - Diluted

$          0.36

$          0.34

$          0.28

$           0.94

$           0.96

Non-GAAP weighted average shares - Diluted**

31,616,888

31,811,176

30,784,673

31,657,220

30,678,851

* During February 2015 the Company 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, the Company eliminated all future royalty obligations related to its anticipated NP-5 revenues and saved the associated future interest payments related to such obligations. This amount was excluded from the non-GAAP statements of operations as it represents future royalty obligations.

** 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 FASB ASC 718.

EZchip Semiconductor Ltd.

Condensed Consolidated Balance Sheet

(U.S. Dollars in thousands)

September 30,

December 31,

2015

2014

(Unaudited)

(Audited)

ASSETS

CURRENT ASSETS:

Cash, cash equivalents, marketable securities and deposits

$      200,381

$      185,757

Trade receivables, net

13,513

10,865

Other receivables

3,106

4,735

Inventories

5,941

6,459

Total current assets

222,941

207,816

NON CURRENT ASSETS:

Severance pay fund

7,346

7,091

Long term investment and others

1,013

348

Total non current assets

8,359

7,439

PROPERTY AND EQUIPMENT, NET

2,857

3,601

INTANGIBLE ASSETS, NET

16,142

17,312

GOODWILL

127,706

127,355

TOTAL ASSETS

$      378,005

$      363,523

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Trade payables

$          2,970

$          2,664

Other payables and accrued expenses

13,752

13,726

Total current liabilities

16,722

16,390

ACCRUED SEVERANCE PAY

8,155

7,815

SHAREHOLDERS' EQUITY:

Share capital

170

169

Additional paid-in capital

364,794

349,050

Treasury shares at cost

(4,748)

--

Accumulated other comprehensive loss

(305)

(731)

Accumulated deficit

(6,783)

(9,170)

Total shareholders' equity

353,128

339,318

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$        378,005

$        363,523

EZchip Semiconductor Ltd.

Selected Condensed Consolidated Cash Flow Data on a Non-GAAP Basis

(U.S. Dollars in thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2015

2015

2014

2015

2014

Cash flows from operating activities:

Net income

$     5,234

$     5,419

$     4,199

$    2,387

$     16,499

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

Repayment of OCS grants*

--

--

--

9,636

--

Depreciation and amortization

1,364

1,372

175

4,519

509

Decrease (increase) in trade and other receivables, net

(1,900)

2,351

5,315

(654)

3,747

Decrease (increase) in inventory

1,279

(1,640)

1,645

518

1,640

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

1,457

(2,024)

(1,233)

(596)

(1,663)

Stock-based compensation

4,736

4,885

4,025

14,423

12,099

Net cash provided by operating activities

12,170

10,363

14,126

30,233

32,831

Cash flows from investing activities:

Purchase of property and equipment

(282)

(240)

(318)

(605)

(538)

Purchase of technology

(250)

(250)

--

(500)

(2,415)

Long term investment and others

(740)

(351)

(10,000)

(1,091)

(10,000)

Net cash used in investing activities

(1,272)

(841)

(10,318)

(2,196)

(12,953)

Cash flows from financing activities:

Proceeds from exercise of options

646

359

498

1,322

902

Purchase of treasury shares

--

(4,748)

--

(4,748)

--

Net cash provided by (used in) financing activities

646

(4,389)

498

(3,426)

902

Repayment of OCS grants*

--

--

--

(9,636)

--

Cash adjustment of marketable securities, net**

(143)

(274)

(85)

(351)

(205)

Increase in cash, cash equivalents, marketable securities and deposits

11,401

4,859

4,221

14,624

20,575

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

188,980

184,121

219,219

185,757

202,865

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

$   200,381

$  188,980

$   223,440

$   200,381

$   223,440

* During February 2015 the Company 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, the Company eliminated all future royalty obligations related to its anticipated NP-5 revenues and saved the associated future interest payments related to such obligations. This amount was excluded from the non-GAAP operating cash flow as it represents future royalty obligations.

** Including unrealized loss on marketable securities, accumulated interest accretion and amortization of discount and premium on marketable securities.