| [November 06, 2008] |
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NEI Announces Financial Results for the Fourth Quarter and Fiscal Year 2008
CANTON, Mass. --(Business Wire)-- NEI (NASDAQ: NENG), a leading provider of server appliance products and services for storage, security and communications software vendors, today reported financial results for its fiscal fourth quarter ended September 30, 2008.
Fourth Quarter Financial Performance
-- Net revenues of $40.9 million, an increase of 17 percent, compared to $35.1 million in the fiscal fourth quarter of 2007 and within guidance of $39 million to $41 million. The increase in net revenues for the fourth quarter of 2008 was primarily due to the acquisition of Alliance Systems, Inc. in October 2007.
-- Gross profit of 14.8 percent of net revenues compared to 18.8 percent in the fiscal fourth quarter of 2007 and above guidance of 13.5 percent to 14.5 percent.
-- Operating expenses were $15.8 million, including $8.7 million of goodwill impairment charges, $394,000 of stock-based compensation expense, $485,000 of amortization of acquired intangible assets, and $444,000 of restructuring charges. Operating expenses were in line with guidance of between $7.0 million to $7.2 million excluding goodwill impairment charges, which were excluded from the guidance previously provided. Operating expenses compared to $5.2 million, which included $535,000 of stock-based compensation, in the fiscal fourth quarter of 2007.
-- Operating loss of $(9.7) million compared to operating income of $1.4 million in the fiscal fourth quarter of 2007.
-- Net loss on a GAAP basis was $(9.7) million, or $(0.22) per share, which included $8.7 million of goodwill impairment charges that resulted from the annual impairment review of goodwill, $436,000 of stock-based compensation charges, $485,000 of amortization expenses, and $444,000 of restructuring charges. Excluding the goodwill impairment charge, which was excluded from guidance, the results were better than guidance of a net loss of $(1.3) million to $(1.7) million. Net loss on a GAAP basis compared to net income of $1.8 million, or $0.04 per share, in the fourth fiscal quarter of 2007.
-- Non-GAAP net income, which excludes goodwill impairment, stock-based compensation, amortization expenses, and restructuring charges, was $299,000, or $0.01 per share. Non-GAAP net income compared to $2.4 million, or $0.06 per share, in the fourth fiscal quarter of 2007.
Greg Shortell, President and Chief Executive Officer of NEI, commented, "The challenging economic environment had a negative effect on many of our customers during the fourth quarter. While we are not pleased with our financial results, we did bring in 23 new design wins in the last two quarters, exceeding our goal of 20 design wins during the second half of the year."
Mr. Shortell continued, "Fiscal 2008 was a productive year operationally for NEI. We successfully bought and integrated Alliance Systems, adding leadership positions in Telco and VOIP integration and diversifying our customer base. We broadened our product set; we now have robust offerings serving four separate market sectors - data storage, security, telecommunications and enterprise communications."
NEI had two customers that comprised more than 10 percent of revenue for the fiscal fourth quarter. EMC comprised 36 percent of total revenues during the fiscal fourth quarter, compared to 86 percent in the year ago quarter and 40 percent in the June 2008 quarter. This percentage decrease is primarily due to the October 2007 acquisition of Alliance Systems. A second NEI customer comprised 16 percent of revenue during the fourth quarter of 2008 and 12 percent in the June 2008 quarter.
NEI added 17 new appliance design wins during the quarter, including 7 that were with customers with run-rate businesses. These results support NEI's strategy to engage with customers that have established, revenue generating appliance solutions, which shortens the time-to-revenue from those engagements.
Mr. Shortell concluded, "As we look forward to fiscal 2009, we remain confident in our ability to reach our goals. We are in a strong financial position, and our value proposition to our customer remains sound. We have strong relationships with our customers, and a strategic plan in place to retain, up sell, and grow our client base. We remain focused on our long-term strengths as a preferred provider of purpose-built platforms, appliances and support services."
Fiscal Year 2008 Financial Performance
-- Net revenues for the year ended September 30, 2008 were $197.5 million, compared to $119.6 million for the year ended September 30, 2007.
-- Net loss for the year ended September 30, 2008 was $(8.5) million, or $(0.19) per share, and includes goodwill impairment charges of $8.7 million, stock compensation expense of $1.9 million, amortization of acquired intangible assets expense of $1.9 million and restructuring charges of $444,000. This compares to net income of $2.5 million, or $0.06 per share, including stock compensation expense of $2.4 million, for the fiscal year ended September 30, 2007.
Business Outlook
NEI currently anticipates the following results for its fiscal 2009 first quarter ending December 31, 2008 based on current forecasts from certain partners and historical trends.
-- Net revenues in the range of $35 million to $40 million.
-- Gross profit in the range of 13.0 percent to 14.5 percent of net revenues.
-- Operating expenses between $6.7 million and $7.2 million, including an estimated $410,000 of stock-based compensation expense and an estimated amortization of intangible assets of $440,000 related to the acquisition of Alliance Systems.
-- Net loss on a GAAP basis between $(1.4) million and $(2.0) million.
-- Net loss on a non-GAAP basis between $(500,000) and $(1.1) million, which excludes an estimated $450,000 of stock-based compensation expense and estimated amortization of identifiable intangible assets of $440,000.
"Our expected results for the first quarter of fiscal 2009 are consistent with the economic environment we are facing," stated Doug Bryant, Chief Financial Officer. "Because our visibility in this economic climate is more limited than normal, we have expanded our forecasted revenue range to account for this greater level of uncertainty."
Mr. Bryant continued, "In addition, we have decided to suspend our stock repurchase plan upon the expiration of our current 10b5-1 plan on November 7, 2008. While we still believe that the repurchase of our stock is a good investment, we believe it is more important in this economic environment to conserve cash. We will continue to identify areas for cost savings and evaluate operational efficiencies as we seek to effectively manage our business and improve profitability."
Conference Call Details
In conjunction with this announcement, NEI management will conduct a conference call at 9:00 a.m. (ET) today, November 6, to discuss the Company's operating performance and financial outlook. The conference call will be available live via the Internet by accessing the NEI web site at www.nei.com. Please go to the web site at least fifteen minutes prior to the call to register, download and install any necessary audio software.
To listen to the conference call via phone, please dial (866) 550-6338 or (347) 284-6930 and enter "1451467." For those who cannot access the live broadcast, a replay will be available by dialing (888) 203-1112 or (719) 457-0820 and entering "1451467" from three hours after the end of the call until 12:00 p.m. (ET) on November 13, 2008. The replay will also be available at the NEI web site.
Important Information About Non-GAAP References
References by NEI (the "Company") to non-GAAP net income or loss and non-GAAP per share information refer to net income or loss or per share information excluding stock-based compensation expense, amortization of intangible assets, goodwill impairment and restructuring charges. GAAP requires that these expenses and charges be included in determining net income or loss and per share information. The Company's management uses non-GAAP operating expenses, and associated non-GAAP net income or loss (which is the basis for non-GAAP per share information) to make operational and investment decisions, and the Company believes that they are among several useful measures for an enhanced understanding of its operating results for a number of reasons.
First, although the Company undertakes analyses to ensure that its stock-based compensation grants are in line with peer companies and do not unduly dilute shareholders, the Company allocates grants and measures them at the corporate level. Second, management excludes their financial statement effect when planning or measuring the periodic financial performance of the Company's functional organizations since they are episodic in nature and unrelated to its core operating metrics. In addition, the Company's management excludes the financial statement effect of these items in evaluating and compensating employees due to the fact that it is difficult to forecast these expenses. Lastly, we believe that providing non-GAAP per share information affords investors a view of results that may be more easily compared to peer companies and enables investors to consider the Company's results on both a GAAP and non-GAAP basis in periods when the Company is undertaking non-recurring activities.
The Company believes these non-GAAP measures will aid investors' overall understanding of the Company's results by providing a higher degree of transparency for certain expenses, and providing a level of disclosure that will help investors understand how the Company plans and measures its own business. However, non-GAAP net income or loss should be construed neither as an alternative to GAAP net income or loss or per share information as an indicator of our operating performance nor as a substitute for cash flow from operations as a measure of liquidity because the items excluded from the non-GAAP measures often have a material impact on the Company's results of operations. Therefore, management uses, and investors should use, non-GAAP measures only in conjunction with the Company's reported GAAP results.
About NEI
NEI, the partner of choice for software developers, OEMs and service providers worldwide, is a leading developer of comprehensive platforms, appliances and support services deployed to reduce time to market, development time and total lifecycle costs. Founded in 1997, NEI is headquartered in Canton, Massachusetts and trades on the NASDAQ exchange under the symbol NENG. For more information about NEI's products and services, visit www.nei.com.
Safe Harbor for Forward-Looking Statements
Statements in this press release regarding the Company's future financial performance, including statements regarding future net revenues, gross profits, operating expenses including stock-based compensation expenses, amortization of intangible assets, net loss, and any other statements about the Company's management's future expectations, beliefs, goals, plans or prospects, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company's actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including those factors contained in the Company's most recent Annual Report on Form 10-K for the year ended September 30, 2007 and the most recent Form 10-Q for the quarter ended June 30, 2008 under the section "Risk Factors" as well as other documents that may be filed by the Company from time to time with the Securities and Exchange Commission. Forward-looking statements include statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. The Company assumes no obligations to update the information included in this press release.
NEI
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended Year Ended
------------------- -------------------
September September September September
30, 30, 30, 30,
2008 2007 2008 2007
--------- --------- --------- ---------
Net revenues $40,935 $35,086 $197,495 $119,627
Cost of revenues 34,881 28,473 165,152 96,375
--------- --------- --------- ---------
Gross profit 6,054 6,613 32,343 23,252
--------- --------- --------- ---------
Operating expenses:
Research and development 1,820 2,094 8,643 8,723
Selling and marketing 2,273 1,402 11,099 6,265
General and administrative 2,091 1,723 10,310 7,596
Amortization of intangible
asset 485 - 1,891 -
Restructuring charges 444 - 444 -
Impairment of goodwill 8,669 - 8,669 -
--------- --------- --------- ---------
Total operating expenses 15,782 5,219 41,056 22,584
--------- --------- --------- ---------
(Loss) income from operations (9,728) 1,394 (8,713) 668
Interest and other income, net 60 520 436 1,953
--------- --------- --------- ---------
(Loss) income before income
taxes $(9,668) $ 1,914 $ (8,277) $ 2,621
Provision for income taxes 67 80 200 119
--------- --------- --------- ---------
Net (loss) income $(9,735) $ 1,834 $ (8,477) $ 2,502
========= ========= ========= =========
Net (loss) income per share -
basic and diluted $ (0.22) $ 0.04 $ (0.19) $ 0.06
========= ========= ========= =========
Shares used in computing basic
net (loss) income per share 43,672 40,990 43,856 40,637
Shares used in computing
diluted net (loss) income per
share 43,672 41,418 43,856 41,256
The amounts in the table above include employee stock-based
compensation as follows (in thousands):
Three Months Ended Year Ended
------------------- -------------------
September September September September
30, 30, 30, 30,
2008 2007 2008 2007
--------- --------- --------- ---------
Cost of revenues $ 42 $ 47 $ 183 $ 171
Research and development 152 292 725 1,169
Selling and marketing 70 62 323 305
General and administrative 172 181 715 801
--------- --------- --------- ---------
$ 436 $ 582 $ 1,946 $ 2,446
========= ========= ========= =========
NEI
Non-GAAP Financial Measures and Reconciliations
(in thousands, except per share data)
(unaudited)
Three Months Ended Year Ended
------------------- -------------------
September September September September
30, 30, 30, 30,
2008 2007 2008 2007
--------- --------- --------- ---------
GAAP net (loss) income $(9,735) $ 1,834 $(8,477) $ 2,502
Amortization of intangible
asset 485 - 1,891 -
Restructuring charges 444 - 444 -
Goodwill impairment charge 8,669 - 8,669 -
Stock-based compensation 436 582 1,946 2,446
--------- --------- --------- ---------
Non-GAAP net income $ 299 $ 2,416 $ 4,473 $ 4,948
========= ========= ========= =========
GAAP basic and diluted net
(loss) income per share $ (0.22) $ 0.04 $ (0.19) $ 0.06
Amortization of intangible
asset 0.01 - 0.04 -
Restructuring charges 0.01 - 0.01 -
Goodwill impairment charge 0.20 - 0.20 -
Stock-based compensation 0.01 0.02 0.04 0.06
--------- --------- --------- ---------
Non-GAAP basic and diluted net
income per share $ 0.01 $ 0.06 $ 0.10 $ 0.12
========= ========= ========= =========
Shares used in computing GAAP
and non-GAAP basic
net (loss) income per share 43,672 40,990 43,856 40,637
Shares used in computing GAAP
diluted
net (loss) income per share 43,672 41,418 43,856 41,256
Shares used in computing non-
GAAP diluted
net income per share 43,842 41,418 44,173 41,256
NEI
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
September 30, September 30,
2008 2007
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,003 $ 44,403
Restricted cash 47 247
Accounts receivable, net 26,403 17,511
Income tax receivable 2,585 -
Inventories 21,380 10,175
Prepaid expenses and other current assets 2,009 1,077
------------- -------------
Total current assets 62,427 73,413
Property and equipment, net 1,549 1,128
Intangible asset 9,884 -
Contingently returnable acquisition
consideration 4,022 -
Other assets 183 281
------------- -------------
Total assets $ 78,065 $ 74,822
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,745 $ 10,189
Accrued liabilities 4,549 5,001
Deferred revenue 5,173 2,839
------------- -------------
Total current liabilities 21,467 18,029
Deferred revenue 2,246 1,285
------------- -------------
Total
liabilities 23,713 19,314
------------- -------------
Stockholders' equity:
Common stock 468 436
Treasury stock (3,772) (2,838)
Additional paid-in capital 195,228 187,005
Accumulated deficit (137,572) (129,095)
------------- -------------
Total stockholders' equity 54,352 55,508
------------- -------------
Total
liabilities
and
stockholders'
equity $ 78,065 $ 74,822
============= =============
NEI
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended Year Ended
------------------- -------------------
September September September September
30, 30, 30, 30,
2008 2007 2008 2007
--------- --------- --------- ---------
Cash flows from operating
activities:
Net (loss) income $(9,735) $ 1,834 $ (8,477) $ 2,502
Adjustments to reconcile net
(loss) income to cash
provided by operating
activities:
Depreciation and amortization 813 224 3,302 846
Stock-based compensation 436 582 1,946 2,446
Goodwill impairment charge 8,669 - 8,669 -
Other adjustments 54 48 158 61
Changes in operating assets
and liabilities, net of
effects of acquisition: (1,326) 1,855 (4,351) 4,750
--------- --------- --------- ---------
Net cash (used in) provided
by operating activities (1,089) 4,543 1,247 10,605
Net cash (used in) provided by
investing activities (357) 25,000 (34,986) 23,655
Net cash (used in) provided by
financing activities (764) 164 (636) 2,129
Effect of exchange rate
differences on cash - - (25) -
--------- --------- --------- ---------
Net (decrease) increase in
cash and cash equivalents (2,210) 29,707 (34,400) 36,389
Cash and cash equivalents,
beginning of period 12,213 14,696 44,403 8,014
--------- --------- --------- ---------
Cash and cash equivalents, end
of period $10,003 $44,403 $ 10,003 $44,403
========= ========= ========= =========
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