RBAK Redback Networks

Redback Networks Inc. (NASDAQ:RBAK), a leading provider of broadband networking systems, today announced its third quarter results for the period ended September 30, 2005. Net revenue for the third quarter of 2005 was $36.4 million, an increase of five percent from the second quarter of 2005. Net revenue was up $15.4 million, or 73 percent, over the third quarter of 2004. "In the quarter, we have seen the rapid adoption of the new technology we announced just one quarter earlier," said Kevin DeNuccio, president and chief executive officer, Redback Networks. "The continued selection of our SmartEdge(R) platform as the intelligent IP platform for next generation services, such as IPTV and Video on Demand by the world's leading carriers gives me a great deal of confidence we have established a strong basis for continued growth going forward. Overall, I am pleased with the revenue increase and outlook as well as the strategic progress we made in the quarter." GAAP net loss for the third quarter of 2005 was $8.4 million or $(0.15) per share attributable to common stockholders compared to a GAAP net loss of $12.5 million or $ (0.24) per share in the third quarter of 2004. Non-GAAP net loss for the third quarter of 2005 was $4.2 million or $ (0.08) per share, compared to a non-GAAP net loss of $10.3 million or $ (0.20) per share for the third quarter of 2004. Excluded from the non-GAAP results for the third quarter of 2005 were charges relating to amortization of intangible assets, amortization of stock-based compensation, sale of inventory as scrap, amortization of the fair value of warrants issued in connection with a lease agreement, partial recovery on investment that had previously been written down, 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 2:45 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 1-630-652-3018, access code: 12850085. 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 --------------------- Sept. 30, Dec. 31, 2005 2004 ----------- --------- Assets Assets: Cash and cash equivalents $42,516 $42,558 Accounts receivable, net 18,582 21,892 Inventories 11,867 7,420 Property and equipment, net 15,146 16,583 Goodwill 144,610 145,083 Intangibles, net 58,324 66,285 Other assets 8,593 7,614 ----------- --------- Total assets $299,638 $307,435 =========== ========= Liabilities, Mandatory Redeemable Convertible Preferred Stock, and Stockholders' Equity Liabilities: Borrowings and capital lease obligations $2,399 $- Accounts payable and accrued liabilities 39,325 36,633 Deferred revenue 16,530 17,546 Long term liabilities 1,515 2,181 ----------- --------- Total liabilities 59,769 56,360 Mandatory redeemable convertible preferred stock 47,743 47,282 Stockholders' equity 192,126 203,793 ----------- --------- Total liabilities, mandatory redeemable convertible preferred stock and stockholders' equity $299,638 $307,435 =========== ========= Redback Networks Inc. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (unaudited) Successor Successor Predecessor -------------------- ------------------- ---------- Three Three Nine Jan. 3 Jan. 1 Months Months Months Through Through Ended Ended Ended Sept. 30, Jan. 2, Sept. 30, Sept. 30, Sept. 30, 2004 2004 2005 2004 2005 --------- ---------- --------- --------- ---------- Net revenue $36,431 $21,006 $105,277 $83,487 $- Cost of revenue, excluding amortization 15,618 9,367 42,088 35,103 - Amortization 2,726 2,728 8,170 8,184 - --------- ---------- --------- --------- ---------- Total cost of revenue 18,344 12,095 50,258 43,287 - --------- ---------- --------- --------- ---------- Gross profit 18,087 8,911 55,019 40,200 - --------- ---------- --------- --------- ---------- Operating expenses: Research and development 14,223 11,897 43,597 35,895 - Selling, general and adminis- trative 10,448 9,978 30,438 30,507 - Reorganization items - - - 2,787 - Stock-based compensation 984 4,880 3,025 15,368 - --------- ---------- --------- --------- ---------- Total operating expenses 25,655 26,755 77,060 84,557 - --------- ---------- --------- --------- ---------- Loss from operations (7,568) (17,844) (22,041) (44,357) - Other income (expense), net (677) 5,511 (184) 5,324 - Net gain on discharge of debt - - - - 71,164 Fresh start adjustments - - - - (218,691) Induced conversion charge - - - - (335,809) --------- ---------- --------- --------- ---------- Loss before reorganization items (8,245) (12,333) (22,225) (39,033) (483,336) Reorganization items - - - - (1,539) --------- ---------- --------- --------- ---------- Net loss before deemed dividend and accretion on preferred stock (8,245) (12,333) (22,225) (39,033) (484,875) Deemed dividend and accretion on preferred stock (155) (143) (461) (17,114) - --------- ---------- --------- --------- ---------- Net loss attributable to common stockholders $(8,400) $(12,476) $(22,686) $(56,147) $(484,875) ========= ========== ========= ========= ========== Net loss attributable to common stockholders per share - basic and diluted $(0.15) $(0.24) $(0.42) $(1.08) $(2.65) ========= ========== ========= ========= ========== Shares used in computing net loss attributable to common stockholders per share (a) 54,649 52,538 54,081 52,032 183,009 ========= ========== ========= ========= ========== (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 Successor Three Months Ended Three Months Ended September 30, 2005 September 30, 2004 -------------------------- ---------------------------- Non-GAAP Recon- GAAP Non-GAAP Recon- GAAP (a) ciling (b) (a) ciling (b) Items Items -------- -------- -------- --------- -------- --------- Net revenue $36,431 $- $36,431 $21,006 $- $21,006 Cost of revenue, excluding amortization 15,618 - 15,618 9,367 9,367 Amortization - 2,654(c) 2,654 - 2,654(c) 2,654 - 72(e) 72 - 74(e) 74 -------- -------- -------- --------- -------- --------- Total cost of revenue 15,618 2,726 18,344 9,367 2,728 12,095 -------- -------- -------- --------- -------- --------- Gross profit (loss) 20,813 (2,726) 18,087 11,639 (2,728) 8,911 -------- -------- -------- --------- -------- --------- Operating expenses: Research and development 13,896 327(e) 14,223 11,599 298(e) 11,897 Selling, general and adminis- trative 10,368 80(e) 10,448 9,870 108(e) 9,978 Stock-based compen- sation - 984(d) 984 - 4,880(d) 4,880 -------- -------- -------- --------- -------- --------- Total operating expenses 24,264 1,391 25,655 21,469 5,286 26,755 -------- -------- -------- --------- -------- --------- Loss from operations (3,451) (4,117) (7,568) (9,830) (8,014) (17,844) Other income (expense), net (720) 43(f) (677) (517) 6,028(f) 5,511 -------- -------- -------- --------- -------- --------- Net loss before deemed dividend and accretion on preferred stock (4,171) (4,074) (8,245) (10,347) (1,986) (12,333) Deemed dividend and accretion on preferred stock - (155)(g) (155) - (143)(g) (143) -------- -------- -------- --------- -------- --------- Net loss attributable to common stockholders $(4,171) $(4,229) $(8,400) $(10,347) $(2,129) $(12,476) ======== ======== ======== ========= ======== ========= Net loss attributable to common stockholders per share - basic and diluted $(0.08) $(0.15) $(0.20) $(0.24) ======== ======== ========= ========= Shares used in computing net loss attributable to common stockholders per share (h) 54,649 54,649 52,538 52,538 ======== ======== ========= ========= (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, partial recovery on investments that had been previously written down and accretion of a dividend payable to the preferred stockholders. (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 partial recovery on investment that had previously been written down. (g) Amount represents accretion of a dividend payable to the preferred stockholders. (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 Successor ----------------------------- ----------------------------- Nine Months Ended January 3 Through September 30, 2005 September 30, 2004 ----------------------------- ----------------------------- Non-GAAP Recon- GAAP Non-GAAP Recon- GAAP (a) ciling (b) (a) ciling (b) Items Items --------- --------- --------- --------- --------- --------- Net revenue $105,277 $- $105,277 $83,487 $- $83,487 Cost of revenue, excluding amort- ization 42,088 - 42,088 35,266 7,962(c) 43,228 Amort- ization - 7,962(c) 7,962 - (163)(d) (163) - 208(f) 208 - 222(f) 222 --------- --------- --------- --------- --------- --------- Total cost of revenue 42,088 8,170 50,258 35,266 8,021 43,287 --------- --------- --------- --------- --------- --------- Gross profit (loss) 63,189 (8,170) 55,019 48,221 (8,021) 40,200 --------- --------- --------- --------- --------- --------- Operating expenses: Research and develop- ment 42,583 1,014(f,i) 43,597 35,001 894(f) 35,895 Selling, general and adminis- trative 30,181 257(f) 30,438 30,183 324(f) 30,507 Reorgan- ization items - - - 2,787 - 2,787 Stock- based compen- sation - 3,025(e) 3,025 - 15,368(e) 15,368 --------- --------- --------- --------- --------- --------- Total opera- ting expenses 72,764 4,296 77,060 67,971 16,586 84,557 --------- --------- --------- --------- --------- --------- Loss from operations (9,575) (12,466) (22,041) (19,750) (24,607) (44,357) Other income (expense), net (366) 182(h) (184) (704) 6,028(h) 5,324 --------- --------- --------- --------- --------- --------- Net loss before deemed dividend and accretion on preferred stock (9,941) (12,284) (22,225) (20,454) (18,579) (39,033) Deemed dividend and accretion on preferred stock - (461)(g) (461) - (17,114)(g) (17,114) --------- --------- --------- --------- --------- --------- Net loss attri- butable to common stock- holders $(9,941) $(12,745) $(22,686) $(20,454) $(35,693) $(56,147) ========= ========= ========= ========= ========= ========= Net loss attri- butable to common stock- holders per share - basic and diluted $(0.18) $(0.42) $(0.39) $(1.08) ========= ========= ========= ========= Shares used in computing net loss attri- butable to common stock- holders per share (j) 54,081 54,081 52,032 52,032 ========= ========= ========= ========= (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, deemed dividend to the preferred stockholders due to a beneficial conversion feature and accretion of a dividend payable to the preferred stockholders, partial recovery on certain investments that had been previously written down, 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 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 beneficial conversion feature of $16.7M in the period from January 3 through September 30, 2004. (h) Amount represents partial recovery on certain investments that had been previously written down. (i) Amount represents loss from early retirement of software license assets. (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 ----------- ---------- ----------- Nine months Jan. 3 Jan. 1 ended Through Through Sept. 30, Sept. 30, Jan. 2, 2005 2004 2004 ----------- ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss before deemed dividend and accretion on preferred stock $(22,225) $(39,033) $(484,875) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 20,029 16,920 - Stock-based compensation 3,025 15,368 - Gain on sale of equity investment - (6,028) - Net gain on discharge of debt, fresh-start accounting adjustments, and induced conversion charges - 400 483,336 Changes in assets and liabilities: Accounts receivable, net 3,310 3,181 - Inventories (7,433) (5,612) - Other assets (2,112) 1,406 - Accounts payable and accrued liabilities 4,233 (4,088) 1,539 Deferred revenue (1,016) 3,162 - Other long-term liabilities (267) 2,116 - ----------- ---------- ----------- Net cash used in operating activities (2,456) (12,208) - ----------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (7,080) (1,728) - Proceeds from sale of equity investment - 6,028 - Change in restricted cash, net - 478 - ----------- ---------- ----------- Net cash (used in) provided by investing activities (7,080) 4,778 - ----------- ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of stock and exercise of warrants 7,663 32,419 - Principal payments on capital lease obligations and borrowings (2,169) (335) - Proceeds from bank borrowings, net 4,000 - - ----------- ---------- ----------- Net cash provided by financing activities 9,494 32,084 - ----------- ---------- ----------- Net increase (decrease) in cash and cash equivalents (42) 24,654 - Cash and cash equivalents at beginning of period 42,558 20,519 20,519 ----------- ---------- ----------- Cash and Cash equivalents at end of period $42,516 $45,173 $20,519 =========== ========== =========== *T