RBAK Redback Networks

Redback Networks Inc. (NASDAQ:RBAK), a leading provider of broadband networking systems, today announced its second quarter results for the period ended June 30, 2005. Net revenue for the second quarter of 2005 was $34.6 million, an increase of approximately one percent from the first quarter of 2005. Net revenue was up $2.2 million, or seven percent, over the second quarter of 2004. "I am pleased with the mix of strategic and financial results we achieved in the quarter," said Kevin DeNuccio, president and chief executive officer, Redback Networks. "The continued selection of our SmartEdge(R) platform by the world's leading carriers gives me a great deal of confidence that we will meet or exceed our financial goals for the year." GAAP net loss for the second quarter of 2005 was $7.2 million or $ (0.13) per share attributable to common stockholders compared to a GAAP net loss of $10.7 million or $ (0.20) per share in the second quarter of 2004. Non-GAAP net loss for the second quarter of 2005 was $2.9 million or $ (0.05) per share, compared to a non-GAAP net loss of $2.2 million or $ (0.04) per share for the second quarter of 2004. Excluded from the non-GAAP results for the second quarter of 2005 were charges relating to amortization of intangible assets, amortization of stock-based compensation, amortization of the fair value of warrants issued in connection with a lease agreement, accretion of a dividend payable to the preferred stockholders and loss from early retirement of software assets. See the attached table for a reconciliation of our non-GAAP results to GAAP results. Redback Networks will discuss these quarterly results in an investor conference call today at 1:45 p.m. Pacific Time. The conference telephone number is 1-847-619-6819. A live web cast is also available from the investor relations portion of the Redback's web site, www.redback.com/investors. A telephone replay of the conference call will be available later in the day. Replay information will be available at 1-630-652-3000, access code: 12160037. Information on these calls and web cast can also be found on the company's web site. About Redback Networks Redback Networks Inc., a leading provider of next-generation IP broadband networking equipment, enables carriers and service providers to build Smart Broadband Networks that can deliver simplified, personalized and portable subscriber services to consumers and businesses. The company's carrier-class, consumer-scale SmartEdge Router and Service Gateway platforms combine subscriber management, IP edge routing and Ethernet aggregation functions. In conjunction with the NetOp(TM) Element and Policy Manager platforms they provide a powerful, flexible infrastructure for managing both residential and business users and deploying a variety of value-added services. Founded in 1996 and headquartered in San Jose, Calif., with sales and technical support centers located worldwide, Redback Networks maintains a growing and global customer base of more than 500 carriers and service providers, including major local exchange carriers (LECs), inter-exchange carriers (IXCs), PTTs and service providers. For more information, visit Redback Networks at www.redback.com. REDBACK and SmartEdge are trademarks registered at the U.S. Patent and Trademark Office and in other countries. NetOp is a trademark of Redback Networks Inc. Note Regarding Forward Looking Statements The statements contained in this press release that are not purely historical are forward-looking statements that involve a number of risks and uncertainties, the outcome of which could materially and/or adversely affect Redback's actual future results. All forward-looking statements included in this document are based upon information available as of the date hereof, and Redback assumes no obligation to update these statements. These risks and other risks relating to Redback's business are set forth in the documents filed by Redback with the Securities and Exchange Commission (SEC), specifically the most recent report on Form 10-K, Form 10-Q and Form 8-K, and amendments thereto, and the other reports filed from time to time with the SEC. Non-GAAP Disclosure To supplement our consolidated financial statements presented in accordance with GAAP, we use non-GAAP financial results, which are adjusted from results based on GAAP to exclude certain items. These non-GAAP results are provided to enhance the user's overall understanding of our current financial performance and our prospects in the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain items that we believe are not indicative of our core operating results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with United States GAAP. -0- *T Redback Networks Inc. Condensed Consolidated Balance Sheets (In thousands) (unaudited) Successor ----------------------- June 30, December 31, 2005 2004 ---------- --------- Assets Assets: Cash and cash equivalents $ 40,330 $ 42,558 Accounts receivable, net 21,339 21,892 Inventories 10,561 7,420 Property and equipment, net 17,288 16,583 Goodwill 144,394 145,083 Intangibles, net 60,977 66,285 Other assets 7,572 7,614 -------- -------- Total assets $302,461 $307,435 ======== ======== Liabilities, Mandatory Redeemable Convertible Preferred Stock, and Stockholders' Equity Liabilities: Borrowings and capital lease obligations $ 2,499 $ - Accounts payable and accrued liabilities 40,066 36,633 Deferred revenue 14,593 17,546 Long term liabilities 1,828 2,181 -------- -------- Total liabilities 58,986 56,360 Mandatory redeemable convertible preferred stock 47,588 47,282 Stockholders' equity 195,887 203,793 -------- -------- Total liabilities, mandatory redeemable convertible preferred stock and stockholders' equity $302,461 $307,435 ======== ======== Redback Networks Inc. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (unaudited) Successor Successor Predecessor ------------------ -------------------- ---------- Three Three Six January 3 January 1 Months Months Months Through Through Ended Ended Ended June January June June June 30, 2, 30, 30, 30, 2004 2004 2005 2004 2005 --------- --------- --------- --------- --------- Net revenue $ 34,555 $ 32,315 $ 68,847 $ 62,481 $ - Cost of revenue, excluding amortization 12,914 11,922 26,470 25,736 - Amortization 2,722 2,728 5,444 5,456 - --------- --------- --------- --------- --------- Total cost of revenue 15,636 14,650 31,914 31,192 - --------- --------- --------- --------- --------- Gross profit 18,919 17,665 36,933 31,289 - --------- --------- --------- --------- --------- Operating expenses: Research and development 15,286 12,086 29,374 23,998 - Selling, general and administrative 10,035 10,762 19,991 20,529 - Reorganization items - - - 2,787 - Stock-based compensation 1,009 5,201 2,041 10,488 - --------- --------- --------- --------- --------- Total operating expenses 26,330 28,049 51,406 57,802 - --------- --------- --------- --------- --------- Loss from operations (7,411) (10,384) (14,473) (26,513) - Other income (expense), net 328 (118) 493 (187) - Net gain on discharge of debt - - - - 71,164 Fresh start adjustments - - - - (218,691) Induced conversion charge - - - - (335,809) --------- --------- --------- --------- --------- Loss before reorganization items (7,083) (10,502) (13,980) (26,700) (483,336) Reorganization items - - - - (1,539) --------- --------- --------- --------- --------- Net loss before deemed dividend and accretion on preferred stock (7,083) (10,502) (13,980) (26,700) (484,875) Deemed dividend and accretion on preferred stock (153) (150) (306) (16,971) - --------- --------- --------- --------- --------- Net loss attributable to common stockholders $ (7,236) $(10,652) $(14,286) $(43,671) $(484,875) ========= ========= ========= ========= ========== Net loss attributable to common stockholders per share - basic and diluted $ (0.13) $ (0.20) $ (0.27) $ (0.84) $ (2.65) ========= ========= ========= ========= ========== Shares used in computing net loss attributable to common stockholders per share (a) 54,119 52,148 53,795 51,761 183,009 ========= ========= ========= ========= ========== (a) Reflects a change in the capitalization of the Company as a result of the plan of reorganization effective as of January 2, 2004. Redback Networks Inc. Non-GAAP Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (unaudited) Successor Three Months Ended June 30, 2005 --------------------------------- Non-GAAP Reconciling GAAP (a) Items (b) -------- -------- -------- Net revenue $34,555 $ - $34,555 Cost of revenue, excluding amortization 12,914 - 12,914 Amortization - 2,654 (c) 2,654 - 68 (e) 68 ------- --------- ------- Total cost of revenue 12,914 2,722 15,636 -------- ---------- -------- Gross profit (loss) 21,641 (2,722) 18,919 -------- ---------- -------- Operating expenses: Research and development 14,933 353 (e,g) 15,286 Selling, general and administrative 9,935 100 (e) 10,035 Stock-based compensation - 1,009 (d) 1,009 -------- ---------- -------- Total operating expenses 24,868 1,462 26,330 -------- ---------- -------- Loss from operations (3,227) (4,184) (7,411) Other income (expense), net 328 - 328 -------- ---------- -------- Net loss before deemed dividend and accretion on preferred stock (2,899) (4,184) (7,083) Deemed dividend and accretion on preferred stock - (153)(f) (153) -------- ---------- -------- Net loss attributable to common stockholders $(2,899) $ (4,337) $(7,236) ======= ========= ======= Net loss attributable to common stockholders per share - basic and diluted $ (0.05) $ (0.13) ======= ======= Shares used in computing net loss attributable to common stockholders per share (h) 54,119 54,119 ======= ======= Successor Three Months Ended June 30, 2004 ----------------------------------- Non-GAAP Reconciling GAAP (a) Items (b) -------- ---------- -------- Net revenue $32,315 $ - $ 32,315 Cost of revenue, excluding amortization 11,922 11,922 Amortization - 2,654 (c) 2,654 - 74 (e) 74 -------- ---------- -------- Total cost of revenue 11,922 2,728 14,650 -------- ---------- -------- Gross profit (loss) 20,393 (2,728) 17,665 -------- ---------- -------- Operating expenses: Research and development 11,788 298 (e) 12,086 Selling, general and administrative 10,654 108 (e) 10,762 Stock-based compensation - 5,201 (d) 5,201 -------- ---------- -------- Total operating expenses 22,442 5,607 28,049 -------- ---------- -------- Loss from operations (2,049) (8,335) (10,384) Other income (expense), net (118) - (118) -------- ---------- -------- Net loss before deemed dividend and accretion on preferred stock (2,167) (8,335) (10,502) Deemed dividend and accretion on preferred stock - (150)(f) (150) -------- ---------- -------- Net loss attributable to common stockholders $(2,167) $(8,485) $(10,652) ======= ======= ======== Net loss attributable to common stockholders per share - basic and diluted $ (0.04) $ (0.20) ======= ======== Shares used in computing net loss attributable to common stockholders per share (h) 52,148 52,148 ======= ======== (a) Non-GAAP amounts exclude certain reconciling items including amortization of intangible assets, amortization of stock-based compensation, amortization of the fair value of warrants issued in connection with a lease agreement, accretion of a dividend payable to the preferred stockholders, and loss from early retirement of software license assets. (b) Reflects operating results based upon accounting principles generally accepted in the United States (GAAP). (c) Amount represents amortization of intangible assets. (d) Amount represents amortization of stock-based compensation. (e) Amount represents amortization of the fair value of warrants issued in connection with a lease agreement. (f) Amount represents accretion of a dividend payable to the preferred stockholders. (g) Amount represents loss from early retirement of software license assets. (h) Reflects a change in the capitalization of the Company as a result of the plan of reorganization effective January 2, 2004. To supplement our condensed consolidated financial statements presented in accordance with GAAP, we use non-GAAP financial results, which are adjusted from results based on GAAP to exclude certain items. These non-GAAP results are provided to enhance the user's overall understanding of our current financial performance and to help assess our prospects in the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain items that we believe are not indicative of our core operating results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with United States GAAP. Redback Networks Inc. Non-GAAP Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (unaudited) Successor ---------------------------------- Six Months Ended June 30, 2005 ---------------------------------- Non-GAAP Reconciling GAAP (a) Items (b) -------- ---------- -------- Net revenue $68,847 $ - $ 68,847 Cost of revenue, excluding amortization 26,470 - 26,470 Amortization - 5,308 (c) 5,308 - 136 (f) 136 -------- ---------- -------- Total cost of revenue 26,470 5,444 31,914 -------- ---------- -------- Gross profit (loss) 42,377 (5,444) 36,933 -------- ---------- -------- Operating expenses: Research and development 28,687 687 (f,h) 29,374 Selling, general and administrative 19,814 177 (f) 19,991 Reorganization items - - - Stock-based compensation - 2,041 (e) 2,041 -------- ---------- -------- Total operating expenses 48,501 2,905 51,406 -------- ---------- -------- Loss from operations (6,124) (8,349) (14,473) Other income (expense), net 354 139 (i) 493 -------- ---------- -------- Net loss before deemed dividend and accretion on preferred stock (5,770) (8,210) (13,980) Deemed dividend and accretion on preferred stock - (306) (g) (306) -------- ---------- -------- Net loss attributable to common stockholders $(5,770) $ (8,516) $(14,286) ======= ========= ======== Net loss attributable to common stockholders per share - basic and diluted $ (0.11) $ (0.27) ======= ======== Shares used in computing net loss attributable to common stockholders per share (j) 53,795 53,795 ======= ======== Successor ----------------------------------- January 3 Through June 30, 2004 ----------------------------------- Non-GAAP Reconciling GAAP (a) Items (b) -------- ---------- -------- Net revenue $ 62,481 $ - $ 62,481 Cost of revenue, excluding amortization 25,899 (163) (d) 25,736 Amortization - 5,308 (c) 5,308 - 148 (f) 148 -------- -------- -------- Total cost of revenue 25,899 5,293 31,192 -------- -------- -------- Gross profit (loss) 36,582 (5,293) 31,289 -------- -------- -------- Operating expenses: Research and development 23,402 596 (f) 23,998 Selling, general and administrative 20,313 216 (f) 20,529 Reorganization items 2,787 - 2,787 Stock-based compensation - 10,488 (e) 10,488 -------- -------- -------- Total operating expenses 46,502 11,300 57,802 -------- -------- -------- Loss from operations (9,920) (16,593) (26,513) Other income (expense), net (187) - (187) -------- -------- -------- Net loss before deemed dividend and accretion on preferred stock (10,107) (16,593) (26,700) Deemed dividend and accretion on preferred stock - (16,971) (g) (16,971) -------- -------- -------- Net loss attributable to common stockholders $(10,107) $(33,564) $(43,671) ======== ======== ======== Net loss attributable to common stockholders per share - basic and diluted $ (0.20) $ (0.84) ======== ======== Shares used in computing net loss attributable to common stockholders per share (j) 51,761 51,761 ======== ======== (a) Non-GAAP amounts exclude certain reconciling items including amortization of intangible assets, sale of inventory as scrap, amortization of stock-based compensation, amortization of the fair value of warrants issued in connection with a lease agreement, accretion of a dividend payable to the preferred stockholders, loss from early retirement of software license assets and partial recovery on certain investments that had been previously written down. (b) Reflects operating results based upon accounting principles generally accepted in the United States (GAAP). (c) Amount represents amortization of intangible assets. (d) Amount represents proceeds from sale of inventory as scrap. (e) Amount represents amortization of stock-based compensation. (f) Amount represents amortization of the fair value of warrants issued in connection with a lease agreement. (g) Amount represents accretion of a dividend payable to the preferred stockholders, including a beneficial conversion feature of $16.7M in the period from January 3 through June 30, 2004. (h) Amount represents loss from early retirement of software license assets. (i) Amount represents partial recovery on certain investments that had been previously written down. (j) Reflects a change in the capitalization of the Company as a result of the plan of reorganization effective January 2, 2004. To supplement our condensed consolidated financial statements presented in accordance with GAAP, we use non-GAAP financial results, which are adjusted from results based on GAAP to exclude certain items. These non-GAAP results are provided to enhance the user's overall understanding of our current financial performance and to help assess our prospects in the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain items that we believe are not indicative of our core operating results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with United States GAAP. Redback Networks Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Successor Successor Predecessor --------- --------- ----------- Six January 3 January 1 months Through Through ended June 30, January 2, June 30, 2004 2004 2005 --------- --------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss before deemed dividend and accretion on preferred stock $(13,980) $(26,700) $(484,875) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 13,006 11,066 - Stock-based compensation 2,040 10,488 - Net gain on discharge of debt, fresh-start accounting adjustments, and induced conversion charges - - 483,336 Changes in assets and liabilities: Accounts receivable, net 553 (4,534) - Inventories (5,193) (1,782) - Other assets (1,409) 566 - Accounts payable and accrued liabilities 4,799 (2,780) 1,539 Deferred revenue (2,953) 5,240 - Other long-term liabilities 146 1,947 - --------- --------- ----------- Net cash used in operating activities (2,991) (6,489) - --------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (6,057) (1,262) - Change in restricted cash, net - 478 - --------- --------- ----------- Net cash used in investing activities (6,057) (784) - --------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of stock and exercise of warrants 4,820 31,440 - Principal payments on capital lease obligations and borrowings - (335) - Proceeds from bank borrowings, net 2,000 - - --------- --------- ----------- Net cash provided by financing activities 6,820 31,105 - --------- --------- ----------- Net increase (decrease) in cash and cash equivalents (2,228) 23,832 - Cash and cash equivalents at beginning of period 42,558 20,519 20,519 --------- --------- ----------- Cash and Cash equivalents at end of period $40,330 $44,351 $20,519 ========= ========= =========== *T