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.