VRLK Verilink (MM)

Verilink Reports Fourth Quarter and Fiscal Year 2005 Financial Results Company Reports Q4 2005 Revenues of $13.9 Million; Annual Revenues Up 15% Year over Year to $53 Million CENTENNIAL, Colo., July 27 /PRNewswire-FirstCall/ -- Verilink Corporation (NASDAQ:VRLK), a leading provider of broadband access solutions, today reported its financial results for the fourth quarter and fiscal year ended July 1, 2005. Net sales for the quarter were $13.9 million as compared to $13.8 million in the previous quarter and $13.9 million in the year ago quarter. Net loss computed in accordance with generally accepted accounting principles (GAAP) for the fourth quarter of fiscal 2005 was $8.2 million, or $(0.36) per share, compared to a net loss of $2.6 million or $(0.11) per share for the previous quarter and a net loss of $538,000, or $(0.03) per share in the same quarter of fiscal 2004. For full-year fiscal 2005, revenues were $53.3 million and GAAP net loss was $37.5 million, or $(1.68) per share, compared to full year fiscal 2004 revenues of $46.2 million and GAAP net loss of $26,000 or nil per share. Fourth quarter GAAP results included acquisition-related and other items totaling $6.7 million, which includes impairment charges related to goodwill and intangible assets of $6.5 million, intangible assets amortization of $645,000, credit to restructuring charges of $(417,000), and change in valuation of warrants liability issued in connection with the March 2005 senior convertible notes of $(15,000). Excluding the effects of these items, non-GAAP loss was $1.5 million or $(0.07) per share, compared to a non-GAAP loss for the previous quarter of $2.3 million or $(0.10) per share. For the previous quarter, the net adjustments to reconcile to the GAAP loss were intangible assets amortization of $645,000, credit to restructuring charges of $(42,000), compensation expense related to restricted stock awards of $207,000, and change in valuation of warrants liability issued in connection with the March 2005 senior convertible notes of $(528,000). Fourth quarter fiscal 2004 non-GAAP income was $205,000 or $0.01 per share. For the year-ago quarter, the net adjustment to reconcile to GAAP net loss consisted of $314,000 of intangible assets amortization and compensation expense related to restricted stock awards of $439,000, net of a reduction in restructuring charges of $10,000 (see "Use of Non-GAAP Financial Measures" below). On an annual basis, GAAP results for fiscal 2005 included acquisition- related and other items totaling $29.5 million, which includes impairment charges related to goodwill and intangible assets of $26.5 million, intangible assets amortization of $2.5 million, compensation expense related to restricted stock awards of $476,000, change in valuation of warrants liability issued in connection with the March 2005 senior convertible notes of $(543,000), direct acquisition costs paid and expensed of $287,000, and restructuring charges of $275,000. Excluding the effects of these items, non-GAAP loss was $7.9 million or $(0.36) per share, compared to non-GAAP income for fiscal 2004 of $3.2 million or $0.21 per share. For fiscal 2004, net adjustments to reconcile to the GAAP loss totaled $3.3 million, including $1 million of intangible assets amortization, compensation expense related to expenses associated with the XEL acquisition of $1.85 million, and restructuring charges of $390,000 related to the consolidation of certain XEL functions into Madison, Alabama. "Our fiscal year ended with revenues up 15% to $53.3 million, the third consecutive year of increased revenues," said Leigh S. Belden, President and CEO of Verilink. "For the fourth quarter, revenues were $13.9 million. During the quarter, we continued to streamline our business following acquisitions completed during calendar 2004 and continued to position the company for growth as our carrier customers deploy the next generation of converged services. During the quarter, we announced a wireless access device, strengthening our position in the anticipated high-growth segments of the broadband access market." Verilink Fourth Quarter 2005 Summary: * Reported revenues of $13.9 million, up slightly from the prior quarter's revenues of $13.8 million * Launched the NetPath 2000 wireless access device for delivery of high-speed data services over cellular networks * Expanded the Optical Ethernet portfolio with the introduction of the Orion 7450 Ethernet Over SDH Multiservice Access Platform * 8000 Series VoIP IAD recognized as one of the "10 Hottest Technologies for 2005" by Telecommunications Magazine for advanced SIP technology * Introduced enhanced eLink-300(TM) IAD with dual T-1 capacity and advanced fail-safe technology * Reduced inventory from the prior quarter by $1.6 million, excluding changes in inventory reserves Verilink Fiscal Year 2005 Highlights: * Achieved revenues of $53.3 million for the fiscal year, an increase of 15% year-over-year and the third consecutive year of revenue growth * Completed the acquisition of Larscom, broadening product lines and expanding the customer base * Revenue growth and market expansion internationally within Asia Pacific and Europe * Achieved record shipments of SHARK IADs and increased Professional Services business related to a large RBOC customer * Engaged with over fifty carrier customers in evaluations and/or trials for the VoIP-enabled IADs * Significant interoperability certification activities with Broadsoft, General Bandwidth, Metaswitch, Nortel, Sylantro, and VocalData (Tekelec) and others * 8000 Series IAD awarded "Product of the Year" for 2004 by Internet Telephony Magazine; "Hot Products for 2005" by Xchange Magazine Conference Call Information Verilink will hold its regularly scheduled fourth quarter conference call today at 5:00 p.m. ET/3:00 p.m. MT, which will be available via webcast and can be accessed as follows: Live Webcast: http://phx.corporate-ir.net/phoenix.zhtml?p=irol- eventDetails&c=96086&eventID=1101924 A webcast replay of the conference call will be available approximately two hours following the end of the live call and can be accessed via the "Investor" section of the Company's website at http://www.verilink.com/. Use of Non-GAAP Financial Measures Non-GAAP income excludes intangible asset amortization, other acquisition- related expenses, impairment charges, restructuring charges, change in valuation of warrants liability and other items and is not a measure of financial performance under GAAP and should not be considered a substitute for or superior to GAAP net income or loss. Verilink's management uses non-GAAP income as a financial measure to evaluate operating performance. Management believes this measure presents the Company's results on a more comparable operational basis by excluding non-cash amortization expenses, non-operational expenses associated with mergers and acquisitions, and significant and unusual non-recurring items. Other companies may calculate non-GAAP income in a different manner, so this measure may not be comparable to similar measures presented by other companies. A reconciliation of Verilink's GAAP net income (loss) to non-GAAP income (loss) is set forth below. About Verilink Corporation Verilink Corporation is a leading provider of next-generation broadband access solutions for today's and tomorrow's networks. The company develops, manufactures and markets a broad suite of products that enable carriers (ILECs, CLECs, IXCs, and IOCs) and enterprises to build converged access networks to cost-effectively deliver next-generation communications services to their end customers. The company's products include a complete line of VoIP, VoATM, VoDSL and TDM-based integrated access devices (IADs), optical access products, wire-speed routers, and bandwidth aggregation solutions including CSU/DSUs, multiplexers and DACS. The company also provides turnkey professional services to help carriers plan, manage and accelerate the deployment of new services. Verilink is headquartered in Centennial, CO (metro Denver area) with operations in Madison, AL and Newark, CA and sales offices in the U.S., Europe and Asia. To learn more about Verilink, visit the company's website at http://www.verilink.com/ . "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 Except for the historical information contained herein, the matters set forth in this press release, including statements as to the pursuit of market opportunities, development and expansion of distribution and channel partnering relationships, continuation of certifications in the VoIP access space, expansion of international distribution and customer base, improvement and fluctuations in gross margins, anticipated decline in inventories, continued growth as a result of greater liquidity and working capital from issuance of senior convertible notes, ability to repay interest and note principal in cash, implementation of operating expense controls, expected benefits of acquisitions, future product offerings, expected synergies, cost savings, and margins, are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including, but not limited to, the ability to successfully integrate acquisitions and achieve expected synergies; the ability to develop and market successfully and in a timely manner new products and to predict market demand for particular products; the impact of competitive products and pricing and of alternative technological advances; the ability to increase sales of acquired product lines; the impact of cost-saving activities; the sufficiency of cash flow to fund operations; risks associated with the Company's low level of liquidity and "going concern" paragraph in the report of independent registered public accounting firm for the audited fiscal 2004 financial statements; possible negative effects on our customer base, employees and our ability to obtain additional financing; fluctuations in operating results and general industry and economic conditions; costs associated with internal controls; the impact of price and product competition; the impact of customer concentration and the financial strength of customers; and changes in demand for the Company's products. A discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements are included in Verilink's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. These forward-looking statements speak only as of the date hereof. Verilink disclaims any intention or obligation to update or revise any forward-looking statements. NOTE: Verilink, the Verilink logo are registered trademarks of Verilink Corporation. All other trademarks or registered trademarks are the property of the respective owners. VERILINK CORPORATION Condensed Consolidated Statements of Operations (Unaudited, in thousands, except per share amounts) Three Months Ended Year Ended July 1, July 2, July 1, July 2, 2005 2004 2005 2004 Net sales $13,911 $13,853 $53,292 $46,183 Cost of sales(1) 9,113 8,668 35,976 26,466 Gross profit 4,798 5,185 17,316 19,717 Operating expenses: Research and development(2) 1,662 1,895 7,454 6,876 Selling, general and administrative(3) 4,120 3,784 18,040 12,124 Amortization of acquired intangible assets 645 314 2,546 1,027 Impairment charges 6,500 -- 26,484 -- Restructuring charges (417) (10) 275 390 Income (loss) from operations (7,712) (798) (37,483) (700) Interest and other income, net(4) 169 292 1,164 927 Interest expense (705) (32) (1,133) (253) Income (loss) before provision for income taxes (8,248) (538) (37,452) (26) Provision for income taxes -- -- -- -- Net income (loss) $(8,248) $(538) $(37,452) $(26) Earnings (loss) per share: Basic $(0.36) $(0.03) $(1.68) $(0.00) Diluted $(0.36) $(0.03) $(1.68) $(0.00) Weighted average shares outstanding: Basic 23,011 16,131 22,316 15,170 Diluted 23,011 16,131 22,316 15,170 Notes: (1) Cost of sales includes the following: Cash bonuses $-- $-- $-- $50 Retention bonuses accrued -- 12 28 20 Compensation expense on stock awards -- 20 120 178 $-- $32 $148 $248 (2) Research and development expenses includes the following: Cash bonuses $-- $-- $-- $50 Retention bonuses accrued -- 13 29 21 Compensation expense on stock awards -- 12 110 170 $-- $25 $139 $241 (3) Selling, general and administrative expenses includes the following: Cash bonuses $-- $-- $-- $250 Retention bonuses accrued -- 146 61 188 Compensation expense on stock awards -- 407 246 1,147 Direct acquisition costs paid and expensed -- 314 287 579 $-- $867 $594 $2,164 (4) Interest and other income, net includes the following Income from reduction in convertible note due to accrual of retention bonuses noted above $-- $171 $118 $229 Change in valuation of warrants liability 15 -- 543 -- $15 $171 $661 $229 VERILINK CORPORATION Reconciliation of GAAP Net Income (Loss) to Pro Forma Non-GAAP Income (Loss) (Unaudited, in thousands) Three Months Ended Year Ended July 1, July 2, July 1, July 2, 2005 2004 2005 2004 GAAP net income (loss) $(8,248) $(538) $(37,452) $(26) Acquisition-related and other items: Cash bonuses paid in connection with XEL acquisition -- -- -- 350 Retention bonuses accrued in connection with XEL acquisition, net of impact from reduction in convertible notes -- -- -- -- Compensation expense related to stock and restricted stock awards -- 439 476 1,495 Amortization of acquired intangible assets 645 314 2,546 1,026 Impairment charges 6,500 -- 26,484 -- Restructuring charges (417) (10) 275 390 Change in valuation of warrants liability (15) -- (543) -- Direct acquisition costs paid and expensed -- -- 287 -- Pro forma non-GAAP income (loss) $(1,535) $205 $(7,927) $3,235 Pro forma non-GAAP adjustments: The pro forma non-GAAP adjustments above are based on our unaudited consolidated statements of operations for the periods shown. These adjustments relate to other intangible assets recorded as the result of the acquisition of TxPort, Inc. in November 1998, the acquisition of the 6000/8000 IAD product line in January 2003, the acquisition of the Miniplex product line in July 2003, the acquisition of XEL Communications, Inc. in February 2004, and the acquisition of Larscom Incorporated in July 2004; compensation expense recorded from stock grants and restricted stock grants awarded following the XEL acquisition; compensation expense related to bonuses to be paid to certain XEL employees after the acquisition, net of impact on convertible notes payable; impairment charges related to goodwill and intangible assets; restructuring charges related to the consolidation of certain operations, administrative, and engineering functions; direct acquisition costs paid and expensed related to the Larscom acquisition; and change in valuation of warrants liability issued in connection with the private placement in March 2005. Verilink has chosen to provide this supplemental information to investors to enable them to perform additional comparisons of operating results and to illustrate the results of on-going operations. Please see previous discussion regarding the use of non-GAAP measures. VERILINK CORPORATION GAAP Condensed Consolidated Balance Sheets (Unaudited, in thousands) July 1, July 2, 2005 2004 ASSETS Current assets: Cash and cash equivalents $3,504 $3,448 Restricted cash 333 -- Accounts receivable, net 10,068 7,881 Inventories, net 5,256 6,010 Other current assets 744 941 Total current assets 19,905 18,280 Property held for lease, net 6,076 6,269 Property, plant and equipment, net 1,697 1,381 Goodwill 1,114 9,887 Other intangible assets, net 13,253 9,182 Other assets 283 1,139 Total assets $42,328 $46,138 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $20,792 $15,502 Long-term liabilities 5,764 6,262 Stockholders' equity 15,772 24,374 Total liabilities and stockholders' equity $42,328 $46,138 VERILINK CORPORATION Tested Working Capital (as defined in the Company's Senior Convertible Notes) The terms of the Company's senior convertible notes require the Company to include the amount of its "tested working capital," as defined in the senior convertible notes, in the quarterly announcement of its operating results. At July 1, 2005, tested working capital was $8.88 million, which was greater than the $8 million target level under the terms of the notes. Tested working capital is a non-GAAP financial measure and is not provided as a measure of the company's operating performance or liquidity and is not used by the company as a measure of performance or liquidity. Tested working capital is provided herein solely as supplemental information with respect to the special installment payment requirements under the notes. For a description of the tested working capital requirements under the notes, see the company's Current Report on Form 8-K/A, dated April 19, 2005. A reconciliation of non-GAAP tested working capital to GAAP working capital as of July 1, 2005 is set forth below. Tested Working Capital: Cash and cash equivalents $3,504 Accounts receivable, net 10,068 Other receivables, included in other current assets 254 Less: Accounts payable (4,944) Tested Working Capital 8,882 Other components of GAAP working capital: Restricted cash 333 Inventories, net 5,256 Other current assets, excluding other receivables above 490 Less: Current liabilities other than accounts payable (15,848) GAAP working capital (deficit) $(887) DATASOURCE: Verilink Corporation CONTACT: Gary W. Gray of Verilink Corporation, +1-510-771-3354, or Web site: http://www.verilink.com/

Copyright