Radisys Reports Second Quarter Results and Completion of Its Strategic Assessment

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Radisys Reports Second Quarter Results and Completion of Its Strategic Assessment

  • Revenue of $65.4 million; ATCA and Software-Solutions of $44.3 million accounted for 68% of total revenue.
  • The Company was awarded four new and incremental Media Resource Function (MRF) design wins with multiple carriers across multiple geographies.
  • Trillium license and professional service pipeline increased by over 40% entering Q3 2013 when compared to the beginning of 2013.
  • Second quarter platform design wins expected to result in approximately $70 million of revenue over the next five years.
  • Announces the completion of its strategic assessment.
  • Cash flow of $2.2 million increases cash balance to $33.9 million.

HILLSBORO, Ore.--(BUSINESS WIRE)-- Radisys Corporation (NAS: RSYS) , a market leader enabling wireless infrastructure solutions for telecom, aerospace, and defense applications, announced second quarter 2013 revenues of $65.4 million and a GAAP net loss of $4.1 million or $0.14 per diluted share. Second quarter non-GAAP net income was $0.8 million or $0.03 per diluted share. Second quarter non-GAAP results exclude the amortization of acquired intangible assets, 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 included at the end of this press release.

Commenting on the second quarter results, Brian Bronson, Radisys' President and Chief Executive Officer, stated, "Radisys met or exceeded virtually all of our second quarter strategic, operational, and financial objectives. Our strategy to leverage our MRF in applications such as VoLTE, audio and video transcoding and in providing Rich Communications Services (RCS) is continuing to gain momentum with four new second quarter MRF design wins. Coupled with a 40% increase in our Trillium license and professional service opportunities compared to six months ago, our Software-Solutions revenue is positioned for strong growth in the second half of 2013. We also had another solid design win quarter for our Platforms products, generated a non-GAAP profit with positive cash flow and have put plans in place to make all product lines profitable in the future."


Other Second Quarter Financial Highlights

  • Total GAAP Research and Development (R&D) and Selling, General and Administrative (SG&A) expenses were $21.5 million and non-GAAP R&D and SG&A expenses were $20.6 million; representing a $1.0 million sequential reduction when compared to the first quarter of 2013 as the result of a $1.3 million gain associated with a license infringement settlement.
  • Cash and cash equivalents were $33.9 million at the end of the second quarter; a $2.2 million sequential increase from the first quarter. On July 29, 2013 the Company entered into an amended agreement with Silicon Valley Bank which extends the existing $40 million line of credit through July 2016. The amended line of credit allows the exclusion of $12 million in cash restructuring charges from the EBITDA covenant calculation and is designed to provide adequate access to capital as the Company completes planned restructuring activities and convertible debt repayment in February 2015.

Completion of Strategic Assessment

Mr. Bronson went on to comment about the completion of the Company's strategic assessment, "When my team and I took over the business back in the fall almost a year ago, I indicated we would conduct a thorough and relatively quick evaluation of the company's strategic direction. We concluded that we needed to do fewer things and do them very well. We needed to increase our focus and investment in our MRF product line and leverage our Trillium and software expertise into differentiated solutions, while at the same time canceling or selling non-core products lines. We also realized the organization and site structure was too complex resulting in too high a cost structure. We have delivered on the objectives set forth last year by:

  • Bringing cash back on the balance sheet through positive cash flow, excluding restructuring activities
  • Prioritizing our best market opportunities based on our strengths, overall technology, market position, and customer relationships
  • Testing the merits of potentially monetizing or managing for cash certain non-strategic product lines to drive overall company focus and bring cash onto the balance sheet. The actions completed or planned as of the earnings release date are:
    • OS-9 software divestiture;
    • Security gateway product cancellation;
    • Manage for cash our low end Com Express product line; and
    • Dramatically improve the profitability of Radisys through substantial cost reduction and quality improvement.

Our overall plan is to reduce annual gross expenses by approximately $20 million over the next 18 months, resulting in 2014 operating expense of approximately $80 million with an additional $6 million reduction to be realized as we exit 2014. We have and will continue to reduce the cost and complexity of our organization structure.

Our top three strategic priorities are:

  • At least double our MRF revenue in the next three years

We have a strong foundation in audio conferencing and are successfully leveraging our knowledge base to attack a broader market with our new carrier grade MPX-12000 and recently launched virtualized MPX-OS software. We are now in 14 trials supporting transcoding, Voice over LTE and Rich Communication Service applications with several expected to move to deployment as we enter 2014. We also are increasing our investments in this area to ensure we capture the market's momentum.

Given our solid incumbent position in audio conferencing, the demonstrated profitability profile, and our technology and product leadership in markets with accelerating growth, MRF alone has the opportunity to create meaningful Radisys shareholder value.

  • Grow our Trillium software and solutions revenue 20% per year

The 40% increase in our pipeline of new license and professional service opportunities has been enabled by focusing and leveraging our domain expertise in LTE software, especially small cells, and extending it into other adjacent markets and applications that leverage similar small cell technology.

Our goal is to become embedded and deeply intertwined in as many carrier radio access networks as possible while also providing differentiated telecom solutions to reduce network cost and complexity, thereby enhancing the value of Trillium software and solutions to our company.

  • Make our Platforms products profitable and focus investment on enabling a virtualized platform to capitalize on the market's transition to SDN or software defined networks and NFV or network function virtualization.

We have initiated plans to reduce annual gross expenses by approximately $20 million over the next 18 months, resulting in 2014 expense of approximately $80 million with an additional $6 million reduction to be realized as we exit 2014. In addition to returning the company to profitability, these reductions will enable us to make the desired MRF investments mentioned earlier."

Third Quarter 2013 Outlook

  • Revenue is expected to be between $55.0 million and $60.0 million resulting primarily from long expected decreases in our COMe/RMS and Other Legacy telecommunications revenue. ATCA will also reflect a modest sequential decrease and will be approximately flat year on year. Somewhat offsetting the decline in our Platforms products is an expected 15% to 20% increase in Software-Solutions.
  • Non-GAAP gross margin is expected to rise to approximately 34% to 36% of sales resulting from the expected sequential quarterly increase in high margin Software-Solutions revenue.
  • Non-GAAP R&D and SG&A expenses are expected to increase $0.5 million.
  • Non-GAAP net income is expected to be between a loss of $0.11 per share and earnings of $.01 per share.
  • An expected increase in Software-Solutions and ATCA revenue, combined with an approximate $1.0 million expense reduction is expected to enable the Company to restore non-GAAP profitability in the fourth quarter of 2013.

Mr. Bronson continued, "We are excited about the tangible momentum building for our Software-Solutions offerings and believe our strategy will build meaningful long-term shareholder value. I also feel very good about our plans to maintain our leadership position in carrier grade platforms, while at the same time improving the profitability of these products. We are building momentum and taking the necessary steps to transform Radisys into a profitable company with $240 to $250 million in revenue, approximately 40% gross margin, and 10% operating income as we exit 2014."

Conference Call and Webcast Information

Radisys will host a conference call on Tuesday, July 30, 2013 at 5:00 p.m. ET to discuss its second quarter 2013 results and the financial and business outlook for the third quarter 2013. To supplement the conference call Radisys will also be presenting a slide deck which may be accessed per the details included below.

To participate in the live conference call, dial 800-230-1085 in the U.S. and Canada or 612-288-0329 for all other countries and reference conference ID # 298591. To access the live presentation please visit https://www.webmeeting.att.com, and enter meeting # 5114686455 and participant code # 904731. 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. on Tuesday, August 13, 2013. To access the replay, dial 800-475-6701 or 320-365-3844 and reference conference ID# 298591. 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 third and fourth quarters of 2013 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 Company's customers' product development time, cancellations or delays, (d) matters affecting the embedded system industry, including changes in industry standards, changes in customer requirements and new product introductions, (e) actions by regulatory authorities or other third parties, (f) cash generation, (g) changes in tariff and trade policies and other risks associated with foreign operations, (h) fluctuations in currency exchange rates, (i) the ability of the Company to successfully complete any restructuring, acquisition or divestiture activities, (j) the Company's ability to successfully manage the transition from 10G to 40G ATCA product technologies, and (k) 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, 2012, 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 July 30, 2013. 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, and (f) 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.

About Radisys

Radisys (NAS: RSYS) is a market leader enabling wireless infrastructure solutions for telecom, aerospace, and defense 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.

        
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
 
 
Three Months EndedSix Months Ended
June 30,June 30,
2013  20122013  2012
Revenues$65,438  $77,584$133,616$153,071
Cost of sales:
Cost of sales43,75648,54290,06298,547
Amortization of purchased technology2,218   2,391 4,435 4,833 
Gross margin19,46426,65139,11949,691
Operating expenses:
Research and development12,02011,71323,55524,259
Selling, general and administrative9,52710,17320,62322,173
Intangible assets amortization1,3041,3042,6082,608
Restructuring and acquisition-related charges, net(114)  1,039 1,156 2,483 
Income (loss) from operations(3,273)2,422(8,823)(1,832)
Interest expense(281)(422)(613)(843)
Other income, net226   126 373 290 
Income (loss) before income tax expense(3,328)2,126(9,063)(2,385)
Income tax expense784   819 1,606 1,123 
Net income (loss)$(4,112)  $1,307 $(10,669)$(3,508)
 
Net income (loss) per share:
Basic$(0.14)  $0.05 $(0.37)$(0.13)

Diluted (I),(II)

$(0.14)  $0.05 $(0.37)$(0.13)
Weighted average shares outstanding
Basic28,669   26,759 28,570 26,708 
Diluted (I),(II)28,669   28,256 28,570 26,708 
 

(I) For all periods presented, 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 months ended June 30, 2012, the computation of earnings per share includes the effects of stock options, restricted stock units and escrow shares. For the three months ended June 30, 2013 and the six months ended June 30, 2013 and 2012, the computation of earnings per share excludes the effects of stock options, restricted stock units and escrow shares, as they are anti-dilutive.

                
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
 
 
June 30,December 31,
20132012
ASSETS
Current assets:
Cash and cash equivalents$33,926$33,182
Accounts receivable, net45,17651,289
Inventories and inventory deposit, net25,06028,907
Other current assets12,449 12,610 
Total current assets116,611125,988
Property and equipment, net16,93317,713
Intangible assets, net63,24270,284
Other assets, net14,171 18,409 
Total assets$210,957 $232,394 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable$36,408$41,191
Deferred income6,5349,222
Other accrued liabilities14,48316,769
Convertible senior notes, net16,919
Line of credit15,000  
Total current liabilities72,42584,101
Convertible senior notes, net18,00018,000
Other long-term liabilities4,328 4,851 
Total liabilities Read Full Story

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