SpectraLink Reports Fourth Quarter 2006 Financial Results

BOULDER, Colo., Feb. 7, 2007  /PRNewswire-FirstCall/ -- SpectraLink Corp. (NASDAQ:SLNK), the leader in workplace wireless telephony, today reported consolidated revenue of $37.5 million for the quarter ended Dec. 31, 2006. This represents a decline of 7 percent compared with consolidated pro forma revenue for the prior-year fourth quarter. Pro forma results assume the acquisition of KIRK telecom A/S occurred on Jan. 1, 2005. The revenue shortfall was primarily attributable to a decline in domestic and international OEM sales.

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Gross margin for the fourth quarter was $20.2 million compared to $24.4 million pro forma results for the fourth quarter of 2005. Gross margin for the quarter was 53.8 percent, compared to 60.7 percent for the previous year's pro forma results.

GAAP net income for the fourth quarter of 2006 was $573 thousand or 3 cents per diluted share compared to pro forma income of $4.9 million or 25 cents pro forma per diluted share for the same period in 2005.

Non-GAAP net income for the fourth quarter of 2006, which excludes amortization of intangibles of $1.5 million, share-based compensation expense of $729 thousand and a KIRK scantel A/S inventory write-off of $304 thousand, was $3.0 million, or 15 cents per diluted share, compared to non-GAAP pro forma income of $4.5 million, or 23 cents per diluted share for the fourth quarter of 2005.

For the year ended Dec. 31, 2006, revenue was $144.8 million with GAAP net loss of $39 thousand or 0 cents per diluted share. For the same period a year ago, pro forma revenue was $137.5 million generating $8.7 million in net income and 45 cents earnings per diluted share.

Calendar year 2006 non-GAAP net income was $8.3 million resulting in 43 cents per diluted share. For the same period in 2005, non-GAAP pro forma earnings were $14.0 million, or 72 cents per diluted share. Details of the reconciliation between GAAP and non-GAAP earnings are provided in the attached Reconciliation of Non-GAAP Measurement to GAAP financial table.

In a separate announcement, SpectraLink and Polycom, Inc. (NASDAQ:PLCM) today announced a definitive agreement whereby Polycom will acquire SpectraLink.  See today's press release titled, "POLYCOM TO ACQUIRE SPECTRALINK CORPORATION FOR APPROXIMATELY $220 MILLION IN CASH" available on http://www.spectralink.com/.  This joint release provides details of today's webcast discussing the announcement.

Non-GAAP Financial Measures

We provide all information required in accordance with GAAP, but believe that it is useful to provide non-GAAP earnings for reasons discussed below. We believe that non-GAAP earnings provide useful information to investors because it allows investors to measure and evaluate our performance without considering charges associated with our acquisition including amortization of intangible assets and the charge for in-process research and development related to the acquisition, and FAS 123R expense.  Beginning in the first quarter of 2006, our non-GAAP earnings exclude the effects of FAS 123R, amortization of intangible assets, purchased in-process R&D and an inventory write-off to allow investors to evaluate our current performance in relation to our historical performance.  We believe that it is in the best interest of our investors to provide this information to analysts and other users of our financial statements so that they more fully understand the results of our operations.

We use non-GAAP information internally to help our management more accurately assess our performance in the current period and in comparison to prior periods. Our use of non-GAAP earnings is intended to supplement, and not replace, our presentation of net income (loss) and other GAAP measures.  Like all non-GAAP measures, non-GAAP earnings are subject to inherent limitations because they do not include all the expenses that must be included under GAAP. We compensate for the inherent limitations of non-GAAP measures by not relying exclusively on non-GAAP measures, but rather by using such information to supplement GAAP financial measures.

About SpectraLink

SpectraLink, the leader in workplace wireless telephony, delivers the power of mobile voice and messaging applications to businesses worldwide. Seamlessly integrating with VoIP and traditional telephony platforms, SpectraLink's scalable technology provides instant access to people and business-critical information. SpectraLink handsets free on-premises employees to be more accessible, productive and responsive.  For more information, visit http://www.spectralink.com/ or call 1 800 676 5465.

This release contains forward-looking statements that are subject to many risks and uncertainties, including the unpredictable growth in international sales; the inability to close several large orders in the sales pipeline; OEM agreements with SpectraLink that impact margins and may not result in increased future sales of SpectraLink's products or services; adverse changes in economic and business conditions affecting SpectraLink's customers; the intensely competitive nature of the wireless communications industry, and a customer preference to buy all telephone communications systems from a single source provider that manufactures and sells PBX or key/hybrid systems; changes in rules and regulations of the FCC; and the anticipated growth of the market for on-premises wireless telephone systems. More information about potential risk factors that could affect our results is available in SpectraLink's filing with the Securities and Exchange Commission on Form 10-K for the year ended Dec. 31, 2005, and subsequent Form 10-Q filings.

                 SpectraLink Corporation and Subsidiaries
                  Condensed Consolidated Balance Sheets
                              (In thousands)
                               (Unaudited)

                                                   December 31, December 31,
                                                       2006         2005
                           ASSETS
  Current Assets:
     Cash and cash equivalents                        $15,080     $ 16,703
     Cash held in escrow for acquisition                   --       55,148
     Investment in marketable securities                5,639       14,088
     Trade accounts receivable, net of allowance
      of $206 and $343, respectively                   26,095       22,574
     Net inventories                                   18,409        8,940
     Deferred income taxes                              2,041        1,626
     Prepaids and other                                 1,823        1,201
           Total current assets                        69,087      120,280

  Property and equipment, net of accumulated
   depreciation of $14,321 and $11,110,
   respectively                                        14,127        8,422
  Intangible assets, net of accumulated
   amortization of $5,133 and $272, respectively       33,016          318
  Goodwill                                             26,525           --
  Other non-current assets                                586        1,772
           Total assets                              $143,341     $130,792

          LIABILITIES AND STOCKHOLDERS' EQUITY
  Current Liabilities:
     Accounts payable                                  $4,522       $1,478
     Accrued payroll, commissions and employee
      benefits                                          6,564        4,500
     Other accrued expenses and liabilities             9,989        6,380
     Deferred revenue                                  10,066        7,503
     Current portion long-term debt                     6,000       15,000
        Total current liabilities                      37,141       34,861

     Long-term debt                                     7,550       18,050
     Long-term deferred tax liabilities                 7,930           --
     Other long-term liabilities                        1,268          900
        Total liabilities                              53,889       53,811
  Commitments and contingencies
  Stockholders' equity:
     Preferred stock, 5,000 shares authorized,
      none issued and outstanding                          --           --
     Common stock, $0.01 par value, 50,000 shares
      authorized, 24,249 and 23,838 shares issued,
      respectively, and 19,517 and 19,106 shares
      outstanding, respectively                           242          238
     Additional paid-in capital                        88,191       81,751
     Retained earnings                                 32,344       32,383
     Other comprehensive income                         6,066           --
     Treasury stock, 4,732 shares, at cost            (37,391)     (37,391)
  Total stockholders' equity                           89,452       76,981
  Total liabilities and stockholders' equity         $143,341     $130,792



                  SpectraLink Corporation and Subsidiary
             Condensed Consolidated Statements of Operations
                 (In thousands, except per share amounts)
                               (Unaudited)

                         Three Months Ended         Twelve Months Ended
                             December 31,                December 31,
                       2006     2005     2005      2006      2005     2005
                                Pro                          Pro
                      Actual  forma(1)  Actual    Actual   forma(1)  Actual

  Sales:
     Product sales   $29,557  $33,463 $23,788  $114,201  $113,868  $74,812
     Service sales     7,956    6,843   6,525    30,571    23,671   22,962
        Net sales     37,513   40,306  30,313   144,772   137,539   97,774

  Cost of sales:
     Cost of
      product sales   13,276   12,360   7,472    48,022    42,320   22,107
     Cost of
      services sales   4,073    3,498   3,443    15,609    12,263   12,166
        Total cost
         of sales     17,349   15,858  10,915    63,631    54,583   34,273

        Gross margin  20,164   24,448  19,398    81,141    82,956   63,501

  Operating expenses:
     Research and
      development      4,127    5,065   3,631    20,527    16,359   11,279
     Marketing and
      selling          8,711    9,539   8,035    35,249    32,177   27,272
     General and
      administrative   3,894    2,878   1,989    15,174    10,911    6,772
     Acquired
      in-process
      research and
      development         --       --      --     2,021     2,021       --
     Amortization
      of intangible
      assets           1,478    1,117      29     4,863     4,466       83
        Total
         operating
         expenses     18,210   18,599  13,684    77,834    65,934   45,406

  Income from
   operations:         1,954    5,849   5,714     3,307    17,022   18,095
  Other (expense)
   income, net
     Interest
      (expense)
      income, net       (224)    (490)    228    (1,468)   (1,701)   1,359
     Other (expense)
      income, net        (32)    (115)   (226)       56      (146)    (369)
        Total other
         (expense)
         income, net    (256)    (605)      2    (1,412)   (1,847)     990

  Income before
   income taxes        1,698    5,244   5,716     1,895    15,175   19,085
  Income tax expense  (1,125)    (374) (2,115)   (1,934)   (6,434)  (7,061)
  Net income (loss)     $573   $4,870  $3,601      $(39)   $8,741  $12,024


  Basic earnings
   (loss) per share    $0.03    $0.26   $0.19       $--     $0.46    $0.63

  Basic weighted
   average shares
   outstanding        19,440   19,030  19,030    19,370    19,061   19,061

  Diluted earnings
   (loss) per share    $0.03    $0.25   $0.19       $--     $0.45    $0.62

  Diluted weighted
   average shares     19,570   19,320  19,320    19,370    19,370   19,370


  (1) Our pro forma results assume the acquisition of KIRK telecom occurred
      on Jan. 1, 2005.



                  SpectraLink Corporation and Subsidiary
         Condensed Non-GAAP Consolidated Statements of Operations
                 (In thousands, except per share amounts)
                               (Unaudited)


                             Three Months Ended       Twelve Months ended
                                December 31,              December 31,
                             2006         2005         2006        2005
                           (Actual)  (Pro forma)(1)  (Actual) (Pro forma)(1)

  Sales:
     Product sales          $29,557      $33,463     $114,201    $113,868
     Service sales            7,956        6,843       30,571      23,671
        Net sales            37,513       40,306      144,772     137,539

  Cost of sales:
     Cost of product sales   12,917       12,360       47,549      42,320
     Cost of services sales   4,073        3,498       15,609      12,263
        Total cost of sales  16,990       15,858       63,158      54,583

        Gross margin         20,523       24,448       81,614      82,956

  Operating expenses:
     Research and
      development             3,993        5,065       19,781      16,359
     Marketing and selling    8,568        9,539       34,736      32,177
     General and
      administrative          3,497        2,878       13,287      10,911
     Acquired in-process
      research and
      development                --           --           --          --
     Amortization of
      intangible assets          --           --           --          --
        Total operating
         expenses            16,058       17,482       67,804      59,447

  Income from operations:     4,465        6,966       13,810      23,509
  Other (expense) income,
   net
     Interest (expense)
      income, net              (224)        (490)      (1,468)     (1,701)
     Other (expense)
      income, net               (32)        (115)          56        (146)
        Total other
         (expense) income,
         net                   (256)        (605)      (1,412)     (1,847)

  Non-GAAP earnings before
   income taxes               4,209        6,361       12,398      21,662
  Income tax expense         (1,243)      (1,853)      (4,052)     (7,690)
  Non-GAAP earnings after
   taxes                     $2,966       $4,508       $8,346     $13,972

  Non-GAAP earnings per
   share - basic              $0.15        $0.24        $0.43       $0.73

  Basic weighted average
   shares outstanding        19,440       19,030       19,370      19,061

  Non-GAAP earnings per
   share - diluted            $0.15        $0.23        $0.43       $0.72

  Diluted weighted average
   shares                    19,570       19,320       19,480      19,370


  (1) Our pro forma results assume the acquisition of KIRK telecom occurred
      on Jan. 1, 2005.



                 SpectraLink Corporation and Subsidiaries
              Reconciliation of Non-GAAP Measurement to GAAP
                 (In thousands, except per share amounts)
                               (Unaudited)

                            Three months ended       Twelve months ended
                               December 31,              December 31,
                            2006         2005         2006         2005
                          (Actual)  (Pro forma)(1)  (Actual)  (Pro forma)(1)
  GAAP income before
   income taxes            $1,698       $5,244        $1,895      $15,175

  Adjustments:
     Acquired in-process
      research and
      development              --           --         2,021        2,021
     Amortization of
      intangible assets     1,478        1,117         4,863        4,466
     Share-based
      compensation
      expense                 729           --         3,315           --
     Scantel inventory
      write-off               304           --           304           --

  Non-GAAP earnings
   before income taxes      4,209        6,361        12,398       21,662
  Tax expense              (1,243)      (1,853)       (4,052)      (7,690)
  Non-GAAP earnings
   after taxes             $2,966       $4,508        $8,346      $13,972

  Non-GAAP earnings
   after taxes per
   share - diluted          $0.15        $0.23         $0.43        $0.72
  Weighted average
   shares outstanding
   - diluted               19,570       19,320        19,480       19,370


  (1) Our pro forma results assume the acquisition of KIRK telecom occurred
      on Jan. 1, 2005.



                            Three Months Ended       Twelve Months ended
                               December 31,              December 31,
                            2006         2005         2006         2005
                          (Actual)  (Pro forma)(1)  (Actual)  (Pro forma)(1)
  Non-GAAP Adjustments:
  Cost of sales:
     FAS 123R stock based
      compensation            $55          $--          $169          $--
  Operating expenses:
     Research and
      development
        FAS 123R stock
         based compensation   134           --           746           --
     Marketing and selling
        FAS 123R stock
         based compensation   143           --           513           --
     General and
      administrative
        FAS 123R stock
         based compensation   397           --         1,887           --
     Write-off Scantel
      inventory               304           --           304           --
     Acquired in-process
      research and
      development              --           --         2,021        2,021
     Amortization of
      intangible assets     1,478        1,117         4,863        4,466
  Total non-GAAP
   adjustments              2,511        1,117        10,503        6,487

  Income tax impact of
   non-GAAP adjustments      (118)      (1,479)       (2,118)      (1,256)
  After-tax impact of
   non-GAAP adjustments    $2,393        $(362)       $8,385       $5,231


  (1) Our pro forma results assume the acquisition of KIRK telecom occurred
      on Jan. 1, 2005.



  Use of Non-GAAP Financial Information


To supplement our consolidated financial statements presented on a GAAP basis, SpectraLink uses non-GAAP measures of operating results, net income (loss) and earnings (loss) per share, which are adjusted to exclude certain costs, expenses, gains and losses we believe appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our GAAP results are made with the intent of providing investors and other interested parties a more complete understanding of SpectraLink's underlying operational results and trends and our marketplace performance. For example, the non-GAAP results are an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results and are excluded by management for purposes of internal budgets and making operational decisions. In addition, these adjusted non-GAAP results are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or diluted earnings per share prepared in accordance with generally accepted accounting principles in the United States. 

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DATASOURCE: SpectraLink Corp.



CONTACT:  Bob Husted, Director of Investor Relations, or Ernest Sampias,

Chief Financial Officer, both of SpectraLink Corp., [phone]



Web site:  http://www.spectralink.com/

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