Attached files
| file | filename |
|---|---|
| 8-K - 8-K - RADISYS CORP | q312pressreleaseform8-k.htm |
| EX-10.1 - SVB AMENDMENT NO. 2 - RADISYS CORP | svbamendmentno2.htm |
Exhibit 99.1
NEWS RELEASE
For more information, contact:
Allen Muhich
Interim Chief Financial Officer
503-615-1616
allen.muhich@radisys.com
RADISYS REPORTS THIRD QUARTER 2012 RESULTS
HILLSBORO, OR - October 30, 2012 - Radisys Corporation (NASDAQ: RSYS), a leading provider of embedded wireless infrastructure solutions for telecom, aerospace, defense and public safety applications, announced revenues for the third quarter of $63.7 million and a GAAP net loss of $35.1 million or $1.28 per share. Included in the GAAP net loss is a $29.7 million non-cash goodwill impairment charge resulting from the recent reduction in the Company's market capitalization. Third quarter non-GAAP net loss was $3.4 million or $0.12 per diluted share. Third quarter non-GAAP results exclude the impact of purchase accounting adjustments, amortization of acquired intangible assets, goodwill impairment charges, stock-based compensation, restructuring and acquisition-related charges and non-cash tax expense. A reconciliation of GAAP to non-GAAP results is located in the tables below.
Commenting on the third quarter results, Brian Bronson, Radisys' Chief Executive Officer stated, “Our third quarter revenue, while disappointing, did meet the revised expectations we set on October 1st. The macro telecommunications spending environment remains constrained and impacted our third quarter revenue. Despite the soft demand environment, the market reaction we've seen for our products has resulted in strong design wins over the last fifteen months. Specifically, third quarter design wins are estimated to result in greater than $90 million in revenue over the next five years and included:
• | Security, Femto and LTE Gateway design wins. These gateway solutions combine our unique telecom hardware and software expertise, and truly differentiate us from our traditional hardware and software only competitors. |
• | The market response to our next-generation ATCA based MPX-12000 continues to exceed our expectations and has resulted in a growing funnel of opportunities. Last week, the MPX-12000 was selected as the overall winner in the Best of 4G World Awards, Mobile Broadband Technology category. Also, during the quarter we shipped our first units to a Tier 1 customer for use in enabling video and voice content over next generation LTE networks and expect the pace of shipments to accelerate in the coming quarters. |
• | Our first deep packet inspection solution design win with the RMS-220, our new network appliance, the industry's leading performance platform with Intel Data Plane Developer Kit (DPDK). |
We continue to believe our growing design win portfolio and unique combination of hardware and software capabilities position us exceptionally well for improved financial performance when the macro telecommunications demand environment improves.”
Third Quarter Financial Highlights
▪ | Revenue was $63.7 million. ATCA and Software-Solutions revenues were $39.3 million, representing 62% of total revenue. |
▪ | GAAP gross margin was 27.7%. Non-GAAP gross margin was 31.6%. An unfavorable revenue mix from sequentially lower Software-Solutions revenue and an unfavorable mix within ATCA products temporarily reduced overall gross margin. |
▪ | Total GAAP Research and Development (R&D) and Selling, General and Administrative (SG&A) expenses were $23.6 million and non-GAAP R&D and SG&A expenses were $22.8 million, representing a $0.5 million sequential reduction when compared to the second quarter. |
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▪ | Operating expense included a $29.7 million non-cash goodwill impairment charge. The Company is considered a single reporting unit from an accounting perspective and the recent decline in its stock price triggered an impairment analysis of the Company's goodwill. As a result of this analysis, it was concluded that the fair value of the tangible and intangible assets was greater than its current market value leaving no value for an allocation to goodwill. The Company was required to write-off its entire goodwill balance. |
▪ | Cash used in operating activities was $0.6 million as later than normal shipments grew accounts receivable, despite the reduction in overall revenue levels. |
▪ | The Company repurchased $10.1 million of its convertible debt at a modest discount, leaving a balance of $16.9 million due in February of 2013 and $18.0 million due in February of 2015. |
▪ | Cash and cash equivalents were $31.8 million at the end of the third quarter. |
Fourth Quarter 2012 Outlook
▪ | Revenue: Fourth quarter revenue is expected to be between $61 million and $69 million. |
▪ | Gross Margin: Fourth quarter non-GAAP gross margin rate is expected to increase to approximately 33% of sales. |
▪ | Operating Expenses: Fourth quarter non-GAAP R&D and SG&A expenses are expected to decrease sequentially by approximately $1.0 million from third quarter levels. |
▪ | EPS: Fourth quarter non-GAAP net income is expected to be between a loss of $0.06 per diluted share and breakeven. |
▪ | Operating Cash Flow: The Company expects to generate positive operating cash flow in the fourth quarter. |
Mr. Bronson continued, “The Board and I are 100% aligned on a fundamental belief that the Company needs focus. This does not mean we are going to take another year to define a new strategy or address new markets with different products. In several areas, we already have market leading products. Now is the time to focus our investments to ensure the success of those products that create the most long-term differentiation and value for our shareholders and enable a sustainable return to non-GAAP profitability and cash generation. ”
Conference Call and Webcast Information
Radisys will host a conference call on Tuesday, October 30, 2012 at 5:00 p.m. ET to discuss the third quarter 2012 results and the financial and business outlook for the fourth quarter.
To participate in the live conference call, dial (888) 333-0027 in the U.S. and Canada or (706) 634-4990 for all other countries and reference conference ID# 43428775. The live conference call will also be available via webcast on the Radisys investor relations website at http://investor.radisys.com/.
A replay of the conference call will be available two hours after the call is complete until 11:59 p.m. ET on Tuesday, November 13, 2012. To access the replay, dial (855) 859-2056 or (404) 537-3406 with conference ID# 43428775. A replay of the webcast will be available for an extended period of time on the Radisys investor relations website at http://investor.radisys.com/.
Forward-Looking Statements
This press release contains forward-looking statements, including statements about the Company's business strategy, financial outlook and expectations for the fourth quarter of 2012 and statements related to expense savings or reductions, operational and administrative efficiencies, revenue growth, margin improvement, financial performance and other attributes of the Company. These forward-looking statements are based on the Company's expectations and assumptions, as of the date such statements are made, regarding the Company's future operating performance and financial condition, the economy and other future events or circumstances. Actual results could differ materially from the outlook guidance and expectations in these forward-looking statements as a result of a number of risk factors, including, among others, (a) the Company's dependence on certain customers and high degree of customer concentration, (b) the Company's use of one contract manufacturer for a significant portion of the production of its products, (c) the anticipated amount and timing of revenues from design wins due to the
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Company's customers' product development time, cancellations or delays, (d) fluctuations in currency exchange rates, (e) the ability of the Company to successfully integrate the business and operations of Continuous Computing and higher than expected costs of integration, (f) the Company's ability to successfully manage the transition from 10G to 40G ATCA product technologies, (g) performance and customer acceptance of the Trillium line of products, (h) the combined Company's financial results and performance and (i) other factors listed in the Company's reports filed with the Securities and Exchange Commission (SEC), including those listed under “Risk Factors” in Radisys' Annual Report on Form 10-K for the year ended December 31, 2011 and in Radisys' subsequent Quarterly Reports on Form 10-Q, copies of which may be obtained by contacting the Company at 503-615-1100, from the Company's investor relations web site at http://investor.radisys.com/, or at the SEC's website at http://www.sec.gov. Although forward-looking statements help provide additional information about Radisys, investors should keep in mind that forward-looking statements are inherently less reliable than historical information. Should one or more of these risks or uncertainties materialize (or the other consequences of such a development worsen), or should underlying assumptions prove incorrect, actual outcomes may vary materially from those forecasted or expected. The Company believes its expectations and assumptions are reasonable, but there can be no assurance that the expectations reflected herein will be achieved. All information in this press release is as of October 30, 2012. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.
Non-GAAP Financial Measures
To supplement its consolidated financial statements in accordance with generally accepted accounting principles (GAAP), the Company's earnings release contains non-GAAP financial measures that exclude certain expenses, gains and losses, such as the effects of (a) purchase accounting adjustments, (b) amortization of acquired intangible assets, (c) stock-based compensation expense, (d) restructuring and acquisition-related charges (reversals), net, (e) impairment of goodwill, (f) gain on the liquidation of a foreign subsidiary, and (g) non-cash income tax expense. The Company believes that the use of non-GAAP financial measures provides useful information to investors to gain an overall understanding of its current financial performance and its prospects for the future. Specifically, the Company believes the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that the Company believes are not indicative of its core operating results. In addition, non-GAAP financial measures are used by management for budgeting and forecasting as well as subsequently measuring the Company's performance, and the Company believes that it is providing investors with financial measures that most closely align to its internal measurement processes. These non-GAAP measures are considered to be reflective of the Company's core operating results as they more closely reflect the essential revenue-generating activities of the Company and direct operating expenses (resulting in cash expenditures) needed to perform these revenue-generating activities. The Company also believes, based on feedback provided to the Company during its earnings calls' Q&A sessions and discussions with the investment community, that the non-GAAP financial measures it provides are necessary to allow the investment community to construct their valuation models to better align its results and projections with its competitors and market sector, as there is significant variability and unpredictability across companies with respect to certain expenses, gains and losses.
The non-GAAP financial information is presented using a consistent methodology from quarter-to-quarter and year-to-year. These measures should be considered in addition to results prepared in accordance with GAAP. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP financial measures.
A reconciliation of non-GAAP information to GAAP information is included in the tables below. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP, and reconciliations between GAAP and non-GAAP financial measures included in this earnings release should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.
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About Radisys
Radisys (NASDAQ: RSYS) is a leading provider of embedded wireless infrastructure solutions for telecom, aerospace, defense and public safety applications. Radisys' market-leading ATCA, IP Media Server and Com Express platforms coupled with world-renowned Trillium software, services and market expertise enable customers to bring high-value products and services to market faster with lower investment and risk. Radisys solutions are used in a wide variety of 3G & 4G / LTE mobile network applications including: Radio Access Networks (RAN) solutions from femtocells to picocells and macrocells, wireless core network applications, Deep Packet Inspection (DPI) and policy management; conferencing and media services including voice, video and data, as well as customized mobile network applications that support the aerospace, defense and public safety markets.
Radisys® and Trillium® are registered trademarks of Radisys.
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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. |
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CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
September 30, 2012 | December 31, 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. |
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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. |
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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. |
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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.
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RECONCILIATION OF CHANGE IN NON-GAAP TAX EXPENSE METHODOLOGY
(In thousands, except per share amounts, unaudited)
Q1 2012 | |||||||||||||||||||||||||||||||||||
As Reported | Adjustment | As 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 Reported | Adjustment | As Adjusted | As Reported | Adjustment | As Adjusted | As Reported | Adjustment | As Adjusted | As Reported | Adjustment | As Adjusted | As Reported | Adjustment | As 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 | |||||||||||||||||||||||||||||||||||||||||
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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 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 | ||
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The Company excludes the following expenses, reversals, gains and losses from its non-GAAP financial measures, when applicable:
(a) Purchase accounting adjustments: Purchase accounting adjustments consistent of the impact to revenues and cost of sales associated with adjusting deferred revenue and inventories of acquired companies to fair value. For deferred revenue, as is the case with our existing business, at the time of acquisition, the acquired business recorded deferred revenue related to past transactions for which revenue would have been recognized by the acquired entity in future periods as revenue recognition criteria were satisfied. However, purchase accounting rules require us to write down a portion of this deferred revenue to its then current fair value, which is equivalent to the cost to complete the outstanding obligations required to earn the deferred revenue plus a reasonable margin. Consequently, in post-acquisition periods, we do not recognize the full amount of this deferred revenue. When measuring the performance of our business, however, we add back non-GAAP revenue associated with deferrals for which no future obligations existed as well as obligations we assumed to provide maintenance or support to customers of the acquired business that were excluded as a result of these purchase accounting adjustments. We believe that the non-GAAP revenue disclosures enhance investors' ability to conduct period-over-period analyses of our results that reflect the full impact of the acquired business's results together with the results from our pre-existing products and services.
In addition, the non-GAAP financial results exclude the impact to cost of sales from the markup of inventories required by GAAP as part of the fair value adjustments required under purchase accounting for business combinations. This results from marking the acquired company's inventory to fair value at the time of acquisition. This charge is not factored into management's evaluation of potential acquisitions or our performance after completion of acquisitions, because it is not related to our core operating performance, and the frequency and amount of this type of charge can vary significantly based on the size and timing of our acquisitions. Excluding this data provides investors with a basis to compare the company against the performance of other companies without this variability.
(b) Amortization of acquired intangible assets: Amortization of acquisition-related intangible assets primarily relate to core and existing technologies, patents, trade name and customer relationships that were acquired with the acquisitions of Continuous Computing, Convedia, MCPD and Pactolus. The Company excludes the amortization of acquisition-related intangible assets because it does not reflect the Company's ongoing business and it does not have a direct correlation to the operation of the Company's business. In addition, in accordance with GAAP, the Company generally recognizes expenses for internally-developed intangible assets as they are incurred, notwithstanding the potential future benefit such assets may provide. Unlike internally-developed intangible assets, however, and also in accordance with GAAP, the Company generally capitalizes the cost of acquired intangible assets and recognizes that cost as an expense over the useful lives of the assets acquired. As a result of their GAAP treatment, there is an inherent lack of comparability between the financial performance of internally-developed intangible assets and acquired intangible assets. Accordingly, the Company believes it is useful to provide, as a supplement to its GAAP operating results, non-GAAP financial measures that exclude the amortization of acquired intangibles in order to enhance the period-over-period comparison of its operating results, as there is significant variability and unpredictability across companies with respect to this expense.
(c) Stock-based compensation: Stock-based compensation consists of expenses recorded under GAAP, in connection with stock awards such as stock options, restricted stock awards and restricted stock units granted under the Company's equity incentive plans and shares issued pursuant to the Company's employee stock purchase plan. The Company excludes stock-based compensation from non-GAAP financial measures because it is a non-cash measurement that does not reflect the Company's ongoing business and because the Company believes that investors want to understand the impact on the Company of the adoption of the applicable GAAP surrounding share based payments; the Company believes that the provision of non-GAAP information that excludes stock-based compensation improves the ability of investors to compare its period-over-period operating results, as there is significant variability and unpredictability across companies with respect to this expense.
(d) Restructuring and acquisition-related charges, net: Restructuring and acquisition-related charges, net: Restructuring primarily relates to activities engaged in by the Company's management to simplify and focus its infrastructure. Restructuring and other charges are excluded from non-GAAP financial measures because they are not considered core operating activities. Although the Company has engaged in various restructuring activities over the past several years, each has been a discrete event based on a unique set of business objectives. The Company does not engage in restructuring activities in the ordinary course of business. As such, the Company believes it is appropriate to exclude restructuring charges from its non-GAAP financial measures because it enhances the ability of investors to compare the Company's period-over-period operating results.
In addition to restructuring activities, we exclude certain other acquisition-related items including the following, when applicable: (i) integration related charges; and (ii) acquisition-related charges. Acquisitions result in non-recurring operating expenses, which would not otherwise have been incurred by us in the normal course of our business operations. Integration charges include, among other things, expenses associated with operational consolidation, training, rebranding and consulting. Acquisition-related charges include transaction fees and legal and professional service expenses incurred in connection with our acquisitions. We believe that providing non-GAAP information for acquisition-related expense items in addition to the corresponding GAAP information allows the users of our financial statements to better review and understand the historic and current results of our continuing operations, and also facilitates comparisons to less acquisitive peer companies.
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(e) Impairment of goodwill: The goodwill impairment charge relates to a write down of balances associated with previous acquisitions. The Company excludes the goodwill impairment charge because it is unusual in nature and does not reflect the operation of the Company's ongoing business. Additionally, its exclusion enhances the ability of investors to compare the Company’s period-over-period operating results.
(f) Gain on the liquidation of a foreign subsidiary: During the third quarter of 2011, as part of an update of our tax planning strategy, we completed the liquidation of Radisys Technology Ireland Limited (“RTIL”). As a result of this liquidation we recorded a gain to reflect the realization of accumulated foreign currency translation adjustments related to RTIL. This gain represents the net unrealized foreign currency translation gains accumulated from changes in exchange rates and the related effects from the translation of assets and liabilities of RTIL. The liquidation of foreign subsidiaries occurs on an infrequent basis and management does not view the impact of this non-cash charge as indicative of the ongoing performance of the Company. As such, the Company believes it is appropriate to exclude this gain from its non-GAAP financial measures because it enhances the ability of investors to compare the Company's period-over-period operating results.
(g) Income taxes: Non-GAAP income tax expense is equal to the Company's projected cash tax expense. Adjustments to GAAP income tax expense are required to eliminate the recognition of tax expense from profitable entities where we utilize deferred tax assets to offset current period tax liabilities. We believe that providing this non-GAAP figure is useful to our investors as it more closely represents the true economic impact of our tax positions.
During the third quarter of 2011 the Company recorded an income tax benefit of $10.3 million related to the partial reversal of the valuation allowance recorded on our deferred tax assets. The reversal is the direct result of the addition of deferred tax liabilities associated with the acquisition of Continuous Computing during the third quarter of 2011.
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