Radisys Reports Third Quarter 2012 Results

Radisys Reports Third Quarter 2012 Results

HILLSBORO, Ore.--(BUSINESS WIRE)-- Radisys Corporation (NAS: 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 1^st. 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.

• 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 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.

About Radisys

Radisys (NAS: 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.

(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.

(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.