Radisys Reports Fourth Quarter Results and Returns to Non-GAAP Profitability

Radisys Reports Fourth Quarter Results and Returns to Non-GAAP Profitability

  • Revenue of $69.3 million; ATCA and Software-Solutions were 69% of total revenue and grew 21% sequentially versus the third quarter of 2012

  • Fourth quarter platform design wins expected to result in revenue of greater than $60 million over the next five years

  • Fourth quarter MRF (Media Resource Function) shipments enabled 23% annual MRF revenue growth versus 2012

  • Positive cash from operations of $3.0 million

HILLSBORO, Ore.--(BUSINESS WIRE)-- Radisys Corporation (NAS: RSYS) , a market leader enabling wireless infrastructure solutions for telecom, aerospace, and defense applications, announced fourth quarter 2012 revenues of $69.3 million and a GAAP net loss of $4.9 million or $0.18 per share. Fourth quarter non-GAAP net income was $0.9 million or $0.03 per diluted share. Fourth 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 bottom of this press release.

Commenting on the fourth quarter results, Brian Bronson, Radisys' President and Chief Executive Officer, stated, "Our fourth quarter revenue and profitability exceeded our expectations. Increased shipments in Software-Solutions, particularly within our MRF business, as well as our ATCA product lines enabled a 9% sequential quarterly increase in total revenue. This improved revenue performance, combined with solid expense management, enabled a return to non-GAAP profitability."


Fourth Quarter Financial Highlights

  • Revenue was $69.3 million; ATCA and Software-Solutions revenue accounted for 69% of revenue, growing 21% sequentially when compared to the third quarter of 2012.

  • Fourth quarter platform design wins spanned a number of different applications such as Femto Gateways, Load Balancers, and Edge Routing.

  • GAAP gross margin was 30%. Non-GAAP gross margin was 33%. Increased shipments of both Software-Solutions and ATCA products enabled a nearly two percentage point sequential gross margin improvement over the third quarter of 2012.

  • Total GAAP Research and Development (R&D) and Selling, General and Administrative (SG&A) expenses were $22.9 million and non-GAAP R&D and SG&A expenses were $22.0 million, representing an $0.8 million sequential reduction when compared to the third quarter.

  • Cash generated from operating activities was $3.0 million, resulting from improved profitability combined with lower working capital levels.

  • Cash and cash equivalents were $33.2 million at the end of the fourth quarter, a $1.4 million sequential increase from the third quarter.

Fourth Quarter Market & Operational Highlights

  • Software-Solutions: The market response to our MPX-12000 (Media Resource Function) continues to exceed expectations and when combined with our market-leading audio conferencing position, resulted in 2012 annual revenue growth of over 23% and a ramping funnel of opportunities in 2013. Trials and lab testing of the product's ability to process both voice and video over Next Generation LTE wireless networks at several large Tier 1 customers continue to progress well.

  • Advanced Telecommunications Computing Architecture (ATCA): During the fourth quarter we achieved a meaningful milestone by releasing to production our full suite of 40G ATCA T-Series products. The market acceptance and resulting product design wins have been strong over the last year and combined with a modestly improved demand environment resulted in a 25% sequential quarterly revenue increase when compared to the third quarter. This rebound came from customers in defense and aerospace as well as South Korean markets. Near-term demand has stabilized and we expect long-term shipments will continue to grow as carriers deploy next-generation networks to meet their customers' data requirements.

Mr. Bronson continued, "At the end of October, we outlined several areas of focus for the company moving forward.

  • Tighten the strategic focus of the Company - we want to do fewer things exceptionally well. We went through an accelerated strategic review process in the fourth quarter and agreed on our most important areas of investment which predominantly include software, complete hardware systems that are rich in software functionality, and complex solutions targeted primarily at the telecommunications infrastructure market. We have already taken actions as a result, and anticipate more in the future.

  • Restore profitability - I am pleased we returned to non-GAAP profitability in the fourth quarter.

  • Bring cash back on the balance sheet - during the fourth quarter we generated $3.0 million in cash from operations and have a number of focused actions in place to generate incremental cash.

  • Increase our operational focus - renewed focus on meeting customer deliverables enabled revenue at the high end of our guidance range and positive non-GAAP earnings.

We believe the operational improvements made over the last several months are sustainable, and as the macro telecom market demand continues to stabilize and ultimately improve, Radisys is well positioned to deliver continued sustainable profit growth."

First Quarter 2013 Outlook

  • Revenue is expected to be between $66 million and $71 million.

  • Non-GAAP gross margin rate is expected to approximate 32% of sales. A modest sequential quarter decrease in Software-Solutions revenue is expected to adversely affect overall gross margins.

  • Non-GAAP R&D and SG&A expenses are expected to remain relatively flat.

  • Non-GAAP net income from continuing operations is expected to be between a loss of $0.05 and a profit of $0.03 per diluted share.

  • The Company expects to generate positive cash flow from operations in the first quarter.

Conference Call and Webcast Information

Radisys will host a conference call on Tuesday, March 5, 2013 at 5:00 p.m. ET to discuss its fourth quarter 2012 results and the financial and business outlook for the first quarter of 2013.

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# 43441377. 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, March 19, 2013. To access the replay, dial (855) 859-2056 or (404) 537-3406 with conference ID# 43441377. 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) 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 acquisition or divestiture activities, (j) the Company's ability to successfully manage the transition from 10G to 40G ATCA product technologies, (k) performance and customer acceptance of the Trillium line of products, and (l) 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 March 5, 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, (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 market leader enabling wireless infrastructure solutions for telecom, aerospace, and defense applications. Radisys' market-leading ATCA, Media Resource Function 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 Ended

Year Ended

December 31,

December 31,

2012

2011(a)

2012

2011(a)

Revenues

$

69,300

$

79,506

$

286,096

$

330,865

Cost of sales:

Cost of sales

46,279

51,975

188,513

225,752

Amortization of purchased technology

2,321

2,738

9,544

8,348

Gross margin

20,700

24,793

88,039

96,765

Operating expenses:

Research and development

11,635

13,063

47,739

44,625

Selling, general and administrative

11,234

15,202

45,200

52,722

Intangible assets amortization

1,304

1,304

5,215

2,922

Impairment of goodwill

29,748

Restructuring and acquisition-related charges, net

117

1,701

(117

)

9,980

Gain on the liquidation of a foreign subsidiary

(2,081

)

Loss from operations

(3,590

)

(6,477

)

(39,746

)

(11,403

)

Interest expense

(443

)

(460

)

(1,722

)

(1,870

)

Other income (expense), net

272

328

584

612

Loss before income tax expense (benefit)

(3,761

)

(6,609

)

(40,884

)

(12,661

)

Income tax expense (benefit)

1,094

42

2,590

(11,132

)

Net loss

$

(4,855

)

$

(6,651

)

$

(43,474

)

$

(1,529

)

Net loss per share:

Basic

$

(0.18

)

$

(0.25

)

$

(1.60

)

$

(0.06

)

Diluted (I),(II)

$

(0.18

)

$

(0.25

)

$

(1.60

)

$

(0.06

)

Weighted average shares outstanding

Basic

27,738

26,502

27,174

25,413

Diluted (I),(II)

27,738

26,502

27,174

25,413

(I) For the three months and year ended December 31, 2012 and December 31, 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 months and year ended December 31, 2012 and December 31, 2011, 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 months and year ended December 31, 2011 have been revised to reflect the impact of additional tax-related adjustments to our purchase accounting for Continuous Computing. These adjustments occurred during the measurement period and relate to matters existing on the date of acquisition. Additional discussion of these measurement period adjustments was provided in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)

December 31,

December 31,

2012

2011(a)

ASSETS

Current assets:

Cash and cash equivalents

$

33,182

$

47,770

Accounts receivable, net

51,289

49,212

Inventories and inventory deposit, net

28,907

35,454

Other current assets

12,610

14,623

Total current assets

125,988

147,059

Property and equipment, net

17,713

15,366

Goodwill and intangible assets, net

70,284

114,791

Other assets, net

18,409

20,057

Total assets

$

232,394

$

297,273

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

41,191

$

37,874

Deferred income

9,222

11,602

Other accrued liabilities

16,769

26,375

Convertible senior notes, net

16,919

Total current liabilities

84,101

75,851

Convertible senior notes, net

18,000

45,000

Other long-term liabilities

4,851

9,689

Total liabilities

106,952

130,540

Shareholders' equity:

Common stock

303,724

301,225

Accumulated deficit

(179,686

)

(136,212

)

Accumulated other comprehensive income

1,404

1,720

Total shareholders' equity

125,442

166,733

Total liabilities and shareholders' equity

$

232,394

$

297,273

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

Three Months Ended

Year Ended

December 31,

December 31,

2012

2011(a)

2012

2011(a)

Cash flows from operating activities:

Net loss

$

(4,855

)

$

(6,651

)

$

(43,474

)

$

(1,529

)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

5,675

5,749

22,475

17,284

Impairment of goodwill

29,748

Stock-based compensation expense

997

1,679

1,391

5,717

Other adjustments

1,524

1,393

4,273

(8,775

)

Changes in operating assets and liabilities:

Accounts receivable

(364

)

9,660

(2,082

)

7,146

Inventories and inventory deposit

441