Dialogic Inc. Reports Second Quarter 2012 Financial Results

Dialogic Inc. (NASDAQ: DLGC), a leading provider of products and technologies that enable operators to provide – and subscribers to enjoy - an enhanced mobile experience, today announced second quarter financial results for the period ending June 30, 2012.

On a GAAP basis, Dialogic achieved the following financial results for the second quarter of 2012 as compared to the second quarter of 2011 and the first quarter of 2012.
  • Total revenue for the second quarter of 2012 was $38.6 million, compared to $55.8 million in the second quarter of 2011 and $41.1 million in the first quarter of 2012.
  • Gross margin for the second quarter of 2012 was 45.9%, compared to 58.6% in the second quarter of 2011 and 60.5% in the first quarter of 2012.
  • Operating expense for the second quarter of 2012 was $35.5 million, compared to $38.2 million in the second quarter of 2011 and $32.1 million in the first quarter of 2012.
  • Net loss for the second quarter of 2012 was ($18.0) million, or ($0.57) per share, compared to ($11.3) million, or ($0.36) per share, in the second quarter of 2011 and ($14.8) million, or ($0.47) per share, in the first quarter of 2012.

As reflected below in the Reconciliation of Condensed Consolidated Statements of Operations to Adjusted EBITDA Results, on a non-GAAP basis, Dialogic achieved the following financial results for the second quarter of 2012, as compared to the second quarter of 2011 and to the first quarter of 2012.
  • Total revenue for the second quarter of 2012 was $39.3 million, compared to $58.7 million in the second quarter of 2011 and $41.6 million in the first quarter of 2012.
  • Gross margin for the second quarter of 2012 was 65.1%, compared to 62.2% in the second quarter of 2011 and 64.9% in the first quarter of 2012.
  • Operating expense for the second quarter of 2012 was $27.5 million, compared to $33.4 million in the second quarter of 2011 and $29.5 million in the first quarter of 2012.
  • Adjusted EBITDA for the second quarter of 2012 was ($2.0) million, compared to $3.1 million in the second quarter of 2011 and ($2.5) million in the first quarter of 2012.

“This quarter’s slowdown in global telecom spending has created a challenging revenue environment that directly impacted topline performance. In the face of these headwinds, we continue to take proactive steps to ensure the long-term success of our Next-Gen portfolio including Bandwidth Optimization Mobile Backhaul for 2G/3G and LTE networks, Core Switching, Session Border Controllers, Mobile Video and our PowerMedia Media Server software,” said Kevin Cook, newly appointed President and Chief Executive Officer.

“As we review our non-GAAP financial results for the second quarter of 2012 as compared to the second quarter of 2011, we are encouraged to report a 290 basis point increase in gross margins, our third consecutive quarter of year over year improvement,” said Cook. “We also delivered our third consecutive quarter of year over year reduced operating expenses as we target annualized savings of $18-$20 million by the fourth quarter of 2012.”

In addition, Dialogic announced that, on August 8, 2012, its stockholders voted to approve the previously announced debt exchange whereby the company converted $39.7 million of convertible notes into approximately 40.1 million shares of Dialogic Common Stock.

Conference Call Information

Dialogic will hold its second quarter earnings conference call at approximately 9:00 a.m. Eastern Time on Friday, August 10, 2012. Dialogic will offer a live webcast of the conference call on its website at www.dialogic.com, which will also include forward-looking information. For parties in the United States, call 1-800-860-2442 to access the conference call. International parties can access the call at 412-858-4600. A replay of the webcast will be accessible from the "Investor Relations" section of the Dialogic website. A telephonic replay of the conference call will also be available one hour after the call and will run for 30 days. To hear the telephonic replay, parties in the United States should call 1-877-344-7529 and enter passcode 10017310#. International parties should call 1-412-317-0088 and enter passcode 10017310#. In addition, Dialogic's press release will be distributed via Business Wire and posted on the Dialogic website before the conference call begins (DLGC-IR).

About Dialogic

Dialogic (NASDAQ: DLGC) is a leading provider of products and technologies that enable operators to provide — and subscribers to enjoy - an enhanced mobile experience. Whether our products are used in mobile value-added service solutions or to transform, connect and optimize communications services, Dialogic understands that mobile experience matters. Our technology touches over two billion mobile subscribers a day and our network solutions carry more than 15 billion minutes of traffic per month.

For more information on Dialogic and the communications solutions built on Dialogic® technology, visit www.dialogic.com and www.dialogic.com/showcase.

This press release may contain forward-looking statements regarding future events that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results. These forward-looking statements involve risks and uncertainties, as well as assumptions that if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include but are not limited to our ability to generate positive cash flow, the potential market for and market acceptance of our products, industry and competitive market conditions, gross margin expansion, creating new revenue opportunities, reducing operating expenses and other risks and uncertainties described more fully in our documents filed with or furnished to the SEC. More information about these and other risks that may impact Dialogic's business is set forth in the "Risk Factors" section in our Quarterly Report on Form 10-Q for the three months ended March 31, 2012, as filed with the SEC. These filings are available on a website maintained by the SEC http://www.sec.gov/. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Dialogic is a registered trademark, and PowerMedia, a trademark, of Dialogic Inc. or a subsidiary. All other company and product names may be trademarks of the respective companies with which they are associated.

GAAP Financial Tables
DIALOGIC INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
       
Three Months Ended June 30,   Six Months Ended June 30,
  2012     2011     2012     2011  
Revenue:
Products $ 28,599 $ 45,614 $ 60,109 $ 81,824
Services   9,960     10,173     19,557     18,827  
Total revenue   38,559     55,787     79,666     100,651  
 
Cost of revenue:
Products 15,901 17,594 26,968 31,537
Services   4,978     5,507     10,149     10,857  
Total cost of revenue   20,879     23,101     37,117     42,394  
Gross profit   17,680     32,686     42,549     58,257  
 
Operating expenses:
Research and development, net 11,370 13,932 24,193 28,722
Sales and marketing 11,063 14,286 22,674 29,165
General and administrative 8,806 9,192 16,391 18,162
Restructuring charges   4,246     761     4,303     4,746  
Total operating expenses   35,485     38,171     67,561     80,795  
Loss from operations (17,805 ) (5,485 ) (25,012 ) (22,538 )
 
Other income (expense):
Interest and other income (expense), net (66 ) 24 (149 ) -
Interest expense (2,943 ) (4,964 ) (7,043 ) (8,532 )
Change in fair value of warrants 3,338 - 405 -
Foreign exchange loss, net   (667 )   (201 )   (769 )   (333 )
Total other expense, net   (338 )   (5,141 )   (7,556 )   (8,865 )
Loss before (benefit) provision for income taxes (18,143 ) (10,626 ) (32,568 ) (31,403 )
Income tax (benefit) provision   (112 )   643     248     1,145  
Net loss $ (18,031 ) $ (11,269 ) $ (32,816 ) $ (32,548 )
 
Net loss per share - basic and diluted $ (0.57 ) $ (0.36 ) $ (1.04 ) $ (1.04 )
Weighted average shares of common stock used in
calculation of net loss per share - basic and diluted   31,685     31,283     31,591     31,251  
   
DIALOGIC INC.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
 
June 30, 2012 December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents $ 5,044 $ 10,353
Restricted cash 1,000 1,497
Accounts receivable, net of allowance of $3,597 and $3,622, respectively 44,810 47,460
Inventory 12,345 20,127
Other current assets   9,307     9,157  
Total current assets 72,506 88,594
Property and equipment, net 6,955 7,947
Intangible assets, net 28,262 33,267
Goodwill 31,223 31,223
Other assets   1,822     2,311  
Total assets $ 140,768   $ 163,342  
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 24,745 $ 21,569
Accrued liabilities 22,729 22,449
Deferred revenue, current portion 18,287 14,872
Bank indebtedness 10,603 12,509
Income taxes payable 1,196 1,665
Interest payable, related parties   996     3,452  
Total current liabilities 78,556 76,516
Long-term debt, related parties, net of discount 95,818 94,675
Warrants 6,667 -
Other long-term liabilities   6,960     7,587  
Total liabilities   188,001     178,778  
Commitments and contingencies
Preferred stock, $0.001 par value:
Authorized - 10,000,000 shares; Issued and outstanding - 1 share - -
Stockholders' deficit:
Common stock, $0.001 par value:
Authorized - 200,000,000 shares; Issued and outstanding
31,855,872 and 31,476,152 shares, respectively 32 31
Additional paid-in capital 223,312 222,062
Accumulated other comprehensive loss (22,438 ) (22,206 )
Accumulated deficit   (248,139 )   (215,323 )
Total stockholders' deficit   (47,233 )   (15,436 )
Total liabilities and stockholders' deficit $ 140,768   $ 163,342  

Use of Non-GAAP Financial Measures

Some of the measures in this press release are non-GAAP financial measures within the meaning of the SEC Regulation G. Dialogic believes that presenting non-GAAP Adjusted EBITDA is useful to investors, because it reflects the operating performance of Dialogic. Dialogic management uses these non-GAAP measures as important indicators of the company's past performance and in planning and forecasting performance in future periods. Dialogic considers EBITDA, as adjusted, an important measure of its ability to generate cash flows to fund operating activities, service debt, fund capital expenditures and fund other corporate investing and financing activities. EBITDA, as adjusted, eliminates the non-cash effect of tangible asset depreciation and amortization of intangible assets and stock-based compensation, as well as certain nonrecurring expenses. EBITDA should be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities. The non-GAAP financial information Dialogic presents may not be comparable to similarly-titled financial measures used by other companies, and investors should not consider non-GAAP financial measures in isolation from, or in substitution for, financial information presented in compliance with GAAP. You are encouraged to review the reconciliation of non-GAAP financial measures to GAAP financial measures included elsewhere in this press release.

In respect of the foregoing, Dialogic provides the following supplemental information to provide additional context for the use and consideration of the non-GAAP financial measures used elsewhere in this press release:

"EBITDA" is defined as earnings before interest, taxes, depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA, plus adjustments for nonrecurring items or other adjustments. Adjusted EBITDA includes EBITDA and also restructuring and integration costs, product rationalization, non-cash stock compensation expense, purchase accounting adjustments, SEC inquiry expenses and other income (expense) items, which includes the change in the fair value of warrants and foreign exchange gain (loss). Dialogic considers Adjusted EBITDA as a key metric in evaluating its financial performance.

Non-GAAP Financial Tables
 
DIALOGIC INC.
Reconciliation of Condensed Consolidated Statement of Operations to Adjusted EBITDA Results
Three Months Ended June 30, 2012
(in thousands, except per share data)
(unaudited)
                 
Restructuring
Depreciation and Stock-based Purchase
and Integration Product Compensation Accounting SEC Other Adjusted
GAAP Amortization Costs Rationalization Expense Adjustments Inquiry Adjustments EBITDA
Revenue:
Products $ 28,599 - - - - 100 - - $ 28,699
Services 9,960 - - - - 596 - - 10,556
 
Cost of revenue:
Products 15,901 (2,052 ) - (4,821 ) (30 ) (215 ) - - 8,783
Services 4,978 - - - (44 ) - - - 4,934
 
Operating expenses:
Research and development, net 11,370 (430 ) - - (120 ) - - - 10,820
Sales and marketing 11,063 (833 ) - - (154 ) - - - 10,076
General and administrative 8,806 (289 ) (1,264 ) - (217 ) - (416 ) - 6,620
Restructuring charges 4,246 - (4,246 ) - -
 
Total other expense, net (338 ) - - - - - - 338 -
Income tax (benefit) provision   (112 ) -   -   -   -   -   -   112   -  
Net (loss) income $ (18,031 ) 3,604   5,510   4,821   565   911   416   226 $ (1,978 )
 
Net loss per share - basic and diluted $ (0.57 ) $ (0.06 )
Weighted average shares of common stock used in
calculation of net loss per share - basic and diluted   31,685     31,685  
 
DIALOGIC INC.
Reconciliation of Condensed Consolidated Statement of Operations to Adjusted EBITDA Results
Three Months Ended June 30, 2011
(in thousands, except per share data)
(unaudited)
               
Restructuring
Depreciation and Stock-based Purchase
and Integration Product Compensation Accounting SEC Other Non-
GAAP Amortization Costs Rationalization Expense Adjustments Inquiry Adjustments GAAP
Revenue:
Products $ 45,614 - - - - 2,350 - - $ 47,964
Services 10,173 - - - - 517 - - 10,690
 
Cost of revenue:
Products 17,594 (2,151 ) - - (46 ) 1,316 - - 16,713
Services 5,507 - - - (35 ) - - - 5,472
 
Operating expenses:
Research and development, net 13,932 (429 ) - - (182 ) - - - 13,321
Sales and marketing 14,286 (1,310 ) - - (377 ) - - - 12,599
General and administrative 9,192 (752 ) - - (176 ) - (827 ) - 7,437
Restructuring charges 761 - (761 ) - - - - - -
 
Total other expense, net (5,141 ) - - - - - - 5,141 -
Income tax (benefit) provision   643   -   -   - -   - -   (643 )   -
Net (loss) income $ (11,269 ) 4,642   761   - 816   1,551 827   5,784   $ 3,112
 
Net (loss) income per share - basic and diluted $ (0.36 ) $ 0.10
Weighted average shares of common stock used in
calculation of net (loss) income per share - basic and diluted   31,283     31,283
                 
DIALOGIC INC.
Reconciliation of Condensed Consolidated Statement of Operations to Adjusted EBITDA Results
Three Months Ended March 31, 2012
(in thousands, except per share data)
(unaudited)
 
Restructuring
Depreciation and Stock-based Purchase
and Integration Product Compensation Accounting SEC Other
GAAP Amortization Costs Rationalization Expense Adjustments Inquiry Adjustments Non-GAAP
Revenue:
Products $ 31,510 - - - - 169 - - $ 31,679
Services 9,597 - - - - 308 - - 9,905
 
Cost of revenue:
Products 11,067 (1,566 ) - - (33 ) - - - 9,468
Services 5,171 - - - (51 ) - - - 5,120
 
Operating expenses:
Research and development, net 12,823 (352 ) - - (240 ) - - - 12,231
Sales and marketing 11,611 (815 ) - - (222 ) - - - 10,574
General and administrative 7,585 (578 ) (448 ) - (140 ) - 237 - 6,656
Restructuring charges 57 - (57 ) - - - - - -
 
Total other expense, net (7,218 ) - - - - - - 7,218 -
Income tax (benefit) provision   360   -   -   - -   - -   (360 )   -  
Net (loss) income $ (14,785 ) 3,311   505   - 686   477 (237 ) 7,578   $ (2,465 )
 
Net loss per share - basic and diluted $ (0.47 ) $ (0.08 )
Weighted average shares of common stock used in
calculation of net loss per share - basic and diluted   31,495     31,495  
 
DIALOGIC INC.
Reconciliation of Condensed Consolidated Statement of Operations to Adjusted EBITDA Results
Six Months Ended June 30, 2012
(in thousands, except per share data)
(unaudited)
                 
Restructuring
Depreciation and Stock-based Purchase
and Integration Product Compensation Accounting SEC Other Non-
GAAP Amortization Costs Rationalization Expense Adjustments Inquiry Adjustments GAAP
Revenue:
Products $ 60,109 - - - - 269 - - $ 60,378
Services 19,557 - - - - 904 - - 20,461
 
Cost of revenue:
Products 26,968 (3,618 ) - (4,821 ) (63 ) (215 ) - - 18,251
Services 10,149 - - - (95 ) - - - 10,054
 
Operating expenses:
Research and development, net 24,193 (782 ) - - (360 ) - - - 23,051
Sales and marketing 22,674 (1,648 ) - - (376 ) - - - 20,650
General and administrative 16,391 (867 ) (1,712 ) - (357 ) - (179 ) - 13,276
Restructuring charges 4,303 - (4,303 ) - - - - - -
 
Total other expense, net (7,556 ) - - - - - - 7,556 -
Income tax (benefit) provision   248   -   -   -   -   -   -   (248 )   -  
Net (loss) income $ (32,816 ) 6,915   6,015   4,821   1,251   1,388   179   7,804   $ (4,443 )
 
Net loss per share - basic and diluted $ (1.04 ) $ (0.14 )
Weighted average shares of common stock used in
calculation of net loss per share - basic and diluted   31,591     31,591  
 
DIALOGIC INC.
Reconciliation of Condensed Consolidated Statement of Operations to Adjusted EBITDA Results
Six Months Ended June 30, 2011
(in thousands, except per share data)
(unaudited)
                 
Restructuring
Depreciation and Stock-based Purchase
and Integration Product Compensation Accounting SEC Other Non-
GAAP Amortization Costs Rationalization Expense Adjustments Inquiry Adjustments GAAP
Revenue:
Products $ 81,824 - - - - 2,509 - - $ 84,333
Services 18,827 - - - - 1,388 - - 20,215
 
Cost of revenue:
Products 31,537 (4,326 ) - - (93 ) 1,266 - - 28,384
Services 10,857 - - - (63 ) - - - 10,794
 
Operating expenses:
Research and development, net 28,722 (861 ) - - (326 ) - - - 27,535
Sales and marketing 29,165 (2,619 ) - - (541 ) (389 ) - - 25,616
General and administrative 18,162 (1,592 ) - - (545 ) - (827 ) - 15,198
Restructuring charges 4,746 - (4,746 ) - - - - - -
 
Total other expense, net (8,865 ) - - - - - - 8,865 -
Income tax (benefit) provision   1,145   -   -   - -   -   -   (1,145 )   -  
Net (loss) income $ (32,548 ) 9,398   4,746   - 1,568   3,020   827   10,010   $ (2,979 )
 
Net loss per share - basic and diluted $ (1.04 ) $ (0.10 )
Weighted average shares of common stock used in
calculation of net loss per share - basic and diluted   31,251     31,251  

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