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Radisys Reports Third Quarter 2012 Results

Radisys® and Trillium® are registered trademarks of Radisys.

 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2012    

2011 (a)

2012    

2011 (a)

Revenues $ 63,725 $ 97,876 $ 216,796 $ 251,359
Cost of sales:
Cost of sales 43,687 66,610 142,234 173,777
Amortization of purchased technology 2,390   3,283   7,223   5,610  
Gross margin 17,648 27,983 67,339 71,972
Operating expenses:
Research and development 11,845 12,955 36,104 31,562
Selling, general and administrative 11,793 15,610 33,966 37,520
Intangible assets amortization 1,303 1,234 3,911 1,618
Impairment of goodwill 29,748 29,748
Restructuring and acquisition-related charges, net (2,717 ) 5,758 (234 ) 8,279
Gain on the liquidation of a foreign subsidiary  

(2,081

)

    (2,081 )  
Loss from operations (34,324 ) (5,493 ) (36,156 ) (4,926 )
Interest expense (436 ) (458 ) (1,279 ) (1,410 )
Other income (expense), net 22   333   312   284  
Loss before income tax expense (benefit) (34,738 ) (5,618 ) (37,123 ) (6,052 )
Income tax expense (benefit) 373   (11,079 )   1,496   (11,174 )  
Net income (loss) $ (35,111 ) $ 5,461   $ (38,619 ) $ 5,122  
 
Net income (loss) per share:
Basic $ (1.28 ) $ 0.21   $ (1.43 ) $ 0.20  

Diluted (I), (II)

$ (1.28 ) $ 0.19   $ (1.43 ) $ 0.20  
Weighted average shares outstanding
Basic 27,534   26,432   26,985   25,038  
Diluted (I),(II) 27,534   31,657   26,985   25,595  
 

(I) For the three months ended September 30, 2011, the computation of diluted earnings per share includes interest costs totaling $456 related to dilutive equity shares underlying the Company's 2013 convertible senior notes. For the three and nine months ended September 30, 2012 and the nine months ended September 30, 2011, the computation of diluted earnings per share excludes the effects of the Company's 2013 and 2015 convertible senior notes, as they are anti-dilutive.

(II) For the three and nine months ended September 30, 2011, the computation of diluted earnings per share includes the effects of stock options, restricted stock units and escrow shares. For the three and nine months ended September 30, 2012, the computation of earnings per share excludes the effects of stock options, restricted stock units and escrow shares, as they are anti-dilutive.

(a) In accordance with ASC 805-10, the Company's statements of operations and cash flows for the three and nine months ended September 30, 2011 have been revised to reflect the impact of additional tax-related adjustments to our purchase accounting for Continuous Computing. These adjustments occurred during the measurement period and relate to matters existing on the date of acquisition. Additional discussion of these measurement period adjustments was provided in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.

 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
 
      September 30,     December 31,
2012

2011 (a)

ASSETS
Current assets:
Cash and cash equivalents $ 31,828 $ 47,770
Accounts receivable, net 50,930 49,212
Inventories and inventory deposit, net 29,967 35,454
Other current assets 12,729   14,623  
Total current assets 125,454 147,059
Property and equipment, net 17,871 15,366
Goodwill and intangible assets, net 73,909 114,791
Other assets, net 19,799   20,057  
Total assets $ 237,033   $ 297,273  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,408 $ 37,874
Deferred income 8,928 11,602
Other accrued liabilities 18,340 27,003
Convertible senior notes, net 16,919    
Total current liabilities 85,595   76,479  
Convertible senior notes, net 18,000 45,000
Other long-term liabilities 3,912   9,061  
Total liabilities 107,507   130,540  
Shareholders' equity:
Common stock 302,616 301,225
Accumulated deficit (174,831 ) (136,212 )
Accumulated other comprehensive income 1,741   1,720  
Total shareholders’ equity 129,526   166,733  
Total liabilities and shareholders’ equity $ 237,033   $ 297,273  

 

(a) In accordance with ASC 805-10, the Company's December 31, 2011 balance sheet has been revised to reflect the impact of additional tax-related adjustments to our purchase accounting for Continuous Computing. These adjustments occurred during the measurement period and relate to matters existing on the date of acquisition. Additional discussion of these measurement period adjustments was provided in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.

 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2012     2011 (a) 2012     2011 (a)
Cash flows from operating activities:
Net income (loss) $ (35,111 ) $ 5,461 $ (38,619 ) $ 5,122

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 5,628 6,321 16,800 11,535
Impairment of goodwill 29,748 29,748
Stock-based compensation expense 978 1,901 394 4,038
Other adjustments 720 (11,271 ) 2,749 (10,168 )
Changes in operating assets and liabilities:
Accounts receivable (2,542 ) 3,379 (1,718 ) (2,514 )
Inventories and inventory deposit 463 (9,998 ) 4,079 (12,185 )
Accounts payable 2,916 9,638 3,895 18,151
Deferred income 170 (277 ) (3,002 ) 2,574
Other operating assets and liabilities (3,596 ) (732 ) (11,697 ) (2,638 )
Net cash provided by (used in) operating activities (626 ) 4,422   2,629   13,915  
Cash flows from investing activities:
Capital expenditures (3,264 ) (2,147 ) (9,095 ) (4,289 )
Other investing activities, net (368 ) (79,298 ) (368 ) (79,798 )
Net cash used in investing activities (3,632 ) (81,445 ) (9,463 ) (84,087 )
Cash flows from financing activities:
Repurchases of common stock (2,662 ) (3,920 )
Proceeds from issuance of common stock 290 410 1,100 1,324
Repurchase of convertible senior notes (10,081 ) (10,081 )
Other financing activities, net (98 ) (261 ) (140 ) (408 )
Net cash used in financing activities (9,889 ) (2,513 ) (9,121 ) (3,004 )
Effect of exchange rate changes on cash and cash equivalents 123   (194 ) 13    
Net decrease in cash and cash equivalents (14,024 ) (79,730 ) (15,942 ) (73,176 )
Cash and cash equivalents, beginning of period 45,852   135,632   47,770   129,078  
Cash and cash equivalents, end of period $ 31,828   $ 55,902   $ 31,828   $ 55,902  
 

(a) In accordance with ASC 805-10, the Company's statements of operations and cash flows for the three and nine months ended September 30, 2011 have been revised to reflect the impact of additional tax-related adjustments to our purchase accounting for Continuous Computing. These adjustments occurred during the measurement period and relate to matters existing on the date of acquisition. Additional discussion of these measurement period adjustments was provided in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.

 
REVENUES BY GEOGRAPHY
(In thousands, unaudited)
 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2012     2011 2012     2011
North America $ 22,036     34.6 % $ 30,188     30.8 % $ 77,987     36.0 % $ 73,137     29.1 %
Europe, the Middle East and Africa (“EMEA”) 15,277 24.0 21,337 21.8 47,096 21.7 63,133 25.1
Asia Pacific 26,412     41.4   46,351     47.4   91,713     42.3   115,089     45.8  
Total $ 63,725     100.0 % $ 97,876     100.0 % $ 216,796     100.0 % $ 251,359     100.0 %
 
REVENUES BY PRODUCT GROUP
(In thousands, unaudited)
 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2012     2011 2012     2011
ATCA Platforms $ 27,687     43.4 % $ 44,928     45.9 % $ 101,869     47.0 % $ 95,198     37.9 %
COM Express and Rackmount Server 13,861 21.8 16,846 17.2 37,963 17.5 43,947 17.5
Software-Solutions (I) 11,584 18.2 9,055 9.3 39,746 18.3 22,588 9.0
Other Products 10,593     16.6   27,047     27.6   37,218     17.2   89,626     35.7  
Total Revenues $ 63,725     100.0 % $ 97,876     100.0 % $ 216,796     100.0 % $ 251,359     100.0 %
 

(I) For the three months September 30, 2012 and 2011, Software-Solutions revenues include a reduction in revenue of $0 and $1,377 for purchase accounting adjustments. For the nine months September 30, 2012 and 2011, Software-Solutions revenues include a reduction in revenue of $300 and $1,377 for purchase accounting adjustments. Refer to the description of non-GAAP financial measures for detail of this adjustment.

 
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES AND AS A PERCENT OF REVENUES
(In thousands, except per share amounts, unaudited)
 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2012     2011 2012     2011
REVENUES:                
GAAP revenues $ 63,725         $ 97,876         $ 216,796         $ 251,359        
(a) Purchase accounting adjustments         1,377         300         1,377        
Non-GAAP revenues $ 63,725         $ 99,253         $ 217,096         $ 252,736        
 
GROSS MARGIN:
GAAP gross margin $ 17,648       27.7 % $ 27,983       28.6 % $ 67,339       31.1 % $ 71,972       28.6 %
(a) Purchase accounting adjustments 1,544 300 1,544
(b) Amortization of acquired intangible assets 2,390 3,283 7,223 5,610
(c) Stock-based compensation 107 217 (98 ) 572
(d) Restructuring and acquisition-related charges, net         212         62         212        
Non-GAAP gross margin $ 20,145       31.6 % $ 33,239       33.5 % $ 74,826       34.5 % $ 79,910       31.6 %
 
RESEARCH AND DEVELOPMENT:
GAAP research and development $ 11,845       18.6 % $ 12,955       13.2 % $ 36,104       16.7 % $ 31,562       12.6 %
(c) Stock-based compensation (284 )       (464 )       (315 )       (1,070 )      
Non-GAAP research and development $ 11,561       18.1 % $ 12,491       12.6 % $ 35,789       16.5 % $ 30,492       12.1 %
 
SELLING, GENERAL AND ADMINISTRATIVE:
GAAP selling, general and administrative $ 11,793       18.5 % $ 15,610       15.9 % $ 33,966       15.7 % $ 37,520       14.9 %
(c) Stock-based compensation (587 )       (1,220 )       (177 )       (2,396 )      
Non-GAAP selling, general and administrative $ 11,206       17.6 % $ 14,390       14.5 % $ 33,789       15.6 % $ 35,124       13.9 %
 
INCOME FROM OPERATIONS:
GAAP income (loss) from operations $ (34,324 )     (53.9 )% $ (5,493 )     (5.6 )% $ (36,156 )     (16.7 )% $ (4,926 )     (2.0 )%
(a) Purchase accounting adjustments 1,544 300 1,544
(b) Amortization of acquired intangible assets 3,693 4,517 11,134 7,228
(c) Stock-based compensation 978 1,901 394 4,038
(d) Restructuring and acquisition-related charges, net (2,717 ) 5,970 (172 ) 8,491
(e) Impairment of goodwill 29,748 29,748
(f) Gain on the liquidation of a foreign subsidiary         (2,081 )               (2,081 )      
Non-GAAP income from operations $ (2,622 )     (4.1 )% $ 6,358       6.4 % $ 5,248       2.4 % $ 14,294       5.7 %
 
NET INCOME:
GAAP net income (loss) $ (35,111 )     (55.1 )% $ 5,461       5.6 % $ (38,619 )     (17.8 )% $ 5,122       2.0 %
(a) Purchase accounting adjustments 1,544 300 1,544
(b) Amortization of acquired intangible assets 3,693 4,517 11,134 7,228
(c) Stock-based compensation 978 1,901 394 4,038
(d) Restructuring and acquisition-related charges, net (2,717 ) 5,970 (172 ) 8,491
(e) Impairment of goodwill 29,748 29,748
(f) Gain on the liquidation of a foreign subsidiary (2,081 ) (2,081 )
(g) Income taxes (II) 45         (11,300 )       690         (11,619 )      
Non-GAAP net income $ (3,364 )     (5.3 )% $ 6,012       6.1 % $ 3,475       1.6 % $ 12,723       5.0 %
 
GAAP weighted average diluted shares 27,534 31,657 26,985 25,595
Escrow shares 750 1,146

Dilutive equity awards included in non-GAAP earnings per share

662 792 436
Convertible senior notes dilutive shares (I)                         3,837        
Non-GAAP weighted average diluted shares (I) 28,284         32,319         28,923         29,868        
GAAP net income (loss) per share (diluted) $ (1.28 ) $ 0.19 $ (1.43 ) $ 0.20
Non-GAAP adjustments detailed above 1.16         0.01         1.55         0.27        
Non-GAAP net income per share (diluted) (I) $ (0.12 )       $ 0.20         $ 0.12         $ 0.47        
 

(I) For the three and nine months ended September 30, 2012, the diluted earnings per share calculation excludes the effects of the Company's convertible senior notes, as they are anti-dilutive. For the three and nine months ended September 30, 2011, the diluted earnings per share calculation includes interest costs, net of tax benefit, totaling $456 and $1,368 related to dilutive equity shares underlying our 2013 convertible senior notes.

(II) As disclosed in the Company's second quarter 2012 earnings release during the period ended June 30, 2012 the Company modified its calculation of non-GAAP income tax expense. For comparability purposes we have revised all prior periods presented to align with our new methodology. Refer to the following table for impact of this change to prior periods.

 
RECONCILIATION OF CHANGE IN NON-GAAP TAX EXPENSE METHODOLOGY
(In thousands, except per share amounts, unaudited)
 
      Q1 2012                
As         As                                
Reported Adjustment Adjusted
 
Non-GAAP income tax expense (benefit) $ 269 $ (98 ) $ 171
Non-GAAP net income 1,526 98 1,624
Non-GAAP net income per share (diluted) 0.05 0.01 0.06
 
 
Q1 2011 Q2 2011 Q3 2011 Q4 2011 FY 2011
As As As As As As As As As As
Reported Adjustment Adjusted Reported Adjustment Adjusted Reported Adjustment Adjusted Reported Adjustment Adjusted Reported Adjustment Adjusted
 
Non-GAAP income tax expense (benefit) $ (11 ) $ 2 $ (9 ) $ 32 $ 201 $ 233 $ (318 ) $ 539 $ 221 $ 130 $ (57 ) $ 73 $ (167 ) $ 685 $ 518
Non-GAAP net income 2,230 (2 ) 2,228 4,684 (201 ) 4,483 6,551 (539 ) 6,012 1,362 57 1,419 14,828 (685 ) 14,143
Non-GAAP net income per share (diluted) 0.09 0.09 0.18 (0.01 ) 0.17 0.22 (0.02 ) 0.20 0.05 0.05 0.55 (0.02 ) 0.53
 
RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE
NET INCOME (LOSS) PER SHARE
(In millions, except per share amounts, unaudited)
 
      Three Months Ended
December 31, 2012
Low End     High End
GAAP net loss $ (6.9 ) $

(5.1

)
(b) Amortization of acquired intangible assets 3.6 3.6
(c) Stock-based compensation 1.2 1.2
(d) Restructuring and acquisition-related charges, net 0.1 0.1
(g) Income taxes 0.2   0.2  
Total adjustments 5.1   5.1  
Non-GAAP net income $ (1.8 ) $

0.0

 

 
GAAP weighted average shares 27,800 27,800
Non-GAAP adjustments    
Non-GAAP weighted average shares (diluted) (I) 27,800   27,800  
 
GAAP net loss per share $ (0.25 ) $

(0.18

)
Non-GAAP adjustments detailed above 0.19  

0.18

 
Non-GAAP net income per share (diluted) (I) $ (0.06 ) $

0.00

 

 

(I) For the three months ended December 31, 2012 guidance for the diluted earnings per share calculation excludes the effects of the shares underlying our convertible senior notes as the inclusion would be are anti-dilutive.

 
RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE
GROSS MARGIN
(unaudited)
 
      Estimates at the
midpoint of the

guidance range

Three Months Ended
December 31, 2012
GAAP 29.5 %
(b) Amortization of acquired intangible assets 3.3
(c) Stock-based compensation 0.2  
Non-GAAP 33.0 %
 
 
RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE
RESEARCH AND DEVELOPMENT EXPENSE AND
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
(In millions, unaudited)
 
      Estimates at the

midpoint of the

guidance range
Three Months Ended
December 31, 2012
GAAP $ 22.7  
(c) Stock-based compensation (1.0 )
Non-GAAP $ 21.7  
 

The Company excludes the following expenses, reversals, gains and losses from its non-GAAP financial measures, when applicable:

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