Stratex Networks Announces Q3 Fiscal 2006 Financial Results

Company Returns to Profitability; New Orders Grow Substantially 


SAN JOSE, Calif., Feb. 2  /PRNewswire-FirstCall/ -- Stratex Networks, Inc. (NASDAQ:STXN), a leading provider of wireless transmission solutions, today reported financial results for the third quarter of fiscal year 2006, ended December 31, 2005.

Revenues in the third quarter of fiscal 2006 were $55.5 million, compared with $56.6 million in the prior quarter and $49.5 million in the year ago period.  Net income in the third quarter of fiscal 2006 was $813,000, or earnings per share of $0.01.  This compares with a net loss of $2.3 million, or a loss per share of $0.02 in the prior quarter, and a loss of $17.9 million, or a loss per share of $0.19, in the year ago period.

On a non-GAAP basis, Stratex Networks reported net income of $1.1 million in the third fiscal quarter, or earnings per share of $0.01.  The non-GAAP net income for the third fiscal quarter excludes total non-cash compensation of $303,000 related to the vesting of restricted stock.  A full reconciliation of GAAP net income (loss) to non-GAAP net income (loss) is provided in the accompanying financial tables.

Reflecting a significant increase in demand, Stratex Networks received $85 million in new orders during the third quarter of fiscal 2006.  This includes approximately $65 million of orders for the Eclipse(TM) product line. The backlog for all product lines totaled $85 million as of December 31, 2005. The company includes orders expected to ship within 12 months in its backlog.

"Our return to profitability represents a major milestone in the program initiated several years ago to reposition Stratex Networks as a long-term provider of wireless transmission solutions to a global customer base.  The growing family of products based on the Eclipse platform has proven to be extremely popular with many operators worldwide," said Chuck Kissner, chairman and chief executive officer of Stratex Networks, Inc. "During the quarter, we began initial shipments of next-generation Eclipse products.  These new products, combined with the continuing momentum on all Eclipse products, created a significant upsurge in new orders to levels not seen in a number of years. In addition to further driving down hardware costs, we plan to use next-generation Eclipse technology to further expand market coverage of both our hardware and software offerings.  As a result, we expect continued expansion of profit margins."

Outlook and Guidance

The following forecasts are based on current expectations.  These statements are forward-looking, and actual results may differ materially. Please see the Safe Harbor Statement in this release for a description of certain important risk factors that could cause actual results to differ, and refer to the company's reports on file with the Securities and Exchange Commission (SEC) for a more complete description of the risks.

"Demand for products based on our Eclipse wireless platform has substantially increased and is expected to drive subsequent strong growth in revenue in the fourth quarter," said Kissner.

  Fourth Quarter Fiscal Year 2006 (ending March 31, 2006)
  -- Revenue is expected to range between $61 million and $64 million;
  -- Earnings per share is expected to be in the range of $0.02 to $0.03.

  Conference Call


Stratex Networks' management will hold a conference call to discuss the company's financial results today, at 5:00 p.m. Eastern Time.  Those wishing to join should dial 303-262-2211 (password: Stratex) at approximately 4:50 p.m.  A replay of the call will be available starting one hour after the completion of the call until February 9, 2006.  To access the replay, dial 303-590-3000 (pass code:  11050687 #).  A live and an archived webcast of the conference call will also be available via the company's Web site at http://www.stratexnet.com/

Upcoming Conferences

Stratex Networks' management will be presenting at the CIBC "Best Ideas" Conference in San Francisco March 9, 2006.

About Stratex Networks

With headquarters in San Jose, California, Stratex Networks, Inc. is one of the world's leading providers of high-speed wireless transmission solutions.  Since it was founded in 1984, Stratex Networks has achieved international recognition for quality, innovation, and technical superiority in delivering data, voice, and video communication systems, including comprehensive service and support.  Stratex Networks, with its broad product offering and worldwide sales and support organization, is strategically positioned to serve its customers' needs in wireless high-capacity transmission technology.  Additional information is available at http://www.stratexnet.com/ .

Use of Non-GAAP Financial Information

To supplement the company's consolidated financial statements presented in accordance with GAAP, Stratex Networks, Inc. uses non-GAAP measures of certain components of financial performance, including operating income (loss), net income (loss) and per share data, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance and the company's prospects for the future. Specifically, the company believes the non-GAAP results provide useful information to both management and investors by excluding certain expenses that may not be indicative of its core operating results. These measures should be considered in addition to results prepared in accordance with generally accepted accounting principles, but should not be considered a substitute for, or superior to, GAAP results. These non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure.

Safe Harbor Statement

This press release contains statements that qualify as "forward-looking statements" under the Private Securities Litigation Reform Act of 1995, including statements relating to the Company's expectations regarding the continued rollout and use of the Eclipse technology to further expand market coverage, continued expansion of profit margins and the Company's revenue and earnings per share expectations for the Fourth Fiscal Quarter ending March 31, 2006.   These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information.  The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of significant risks and uncertainties including:

  -- Timely rollout of the new generation of the Eclipse digital microwave
     platform;
  -- Increased competition resulting in downward pressures on the price of
     the Company's products and services;
  -- Suppliers inability to perform and timely deliver as a result of their
     financial condition or natural disaster such as earthquakes or epidemic
     outbreaks such as SARS or aviary flu;
  -- Unexpected delays in the schedule for shipments of Eclipse and new
     generations of the Eclipse platform;
  -- Failure to realize expected cost improvement throughout the Company's
     supply chain; and
  -- Order cancellations or postponements in product deliveries resulting in
     delayed revenue recognition.



In addition, orders and backlog are not necessarily indicative of revenue in any future period.   Because the Company's business is heavily concentrated in foreign markets, there is a significant risk of adverse currency fluctuations and unforeseen governmental action including but not limited to the denial of export and/or import licenses.  For a further discussion of these and other factors that impact the Company's business in general, see the information provided under the heading "Factors That May Affect Future Financial Results" in the Company's Annual Report on Form 10-K for the period ended March 31, 2005 and subsequent quarterly filings, on file with the Securities and Exchange Commission.

                        - Financial Tables Follow -


                  CONDENSED CONSOLIDATED BALANCE SHEETS
                              (in thousands)
                               (unaudited)

                                                      December 31, March 31,
                                                          2005       2005

  Assets

  Cash and short-term investments                       $40,080     $48,691
  Accounts receivable, net                               50,991      35,084
  Inventories                                            40,340      36,780
  Other current assets                                   11,313      10,572
    Total current assets                                142,724     131,127
  Property & equipment, net                              25,328      28,228
  Other assets                                              656       1,276
    Total assets                                       $168,708    $160,631

  Liabilities and Stockholders' Equity

  Accounts payable                                      $34,081     $34,472
  Short-term debt                                        19,250       6,250
  Other current liabilities                              33,553      27,701
    Total current liabilities                            86,884      68,423
  Long-term debt                                          8,854      13,542
  Other long-term liabilities                            16,066      18,643
    Total liabilities                                   111,804     100,608
  Stockholders' equity                                   56,904      60,023
  Total liabilities and stockholders' equity           $168,708    $160,631


             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except per share amounts)
                               (unaudited)

                                  Three Months Ended     Nine Months Ended
                                     December 31,           December 31,
                                    2005      2004       2005        2004

  Net sales                       $55,514    $49,519    $166,941   $139,175
  Cost of sales                    39,308     39,434     122,966    113,736
  Inventory valuation charges          --      2,581          --      2,581
  Gross profit                     16,206      7,504      43,975     22,858
  Operating expenses:
    Research and development        3,388      4,363      10,792     12,915
    Selling, general and
     administrative                10,729     12,219      34,904     32,105
    Amortization of intangible
     assets                            --        791          --      1,581
    Restructuring and other
     charges                           --      7,423          --      7,147
  Total operating expenses         14,117     24,796      45,696     53,748
  Operating income (loss)           2,089    (17,292)     (1,721)   (30,890)
    Other income (expense)           (657)      (523)     (2,501)    (1,333)
  Income (loss) before income
   taxes                            1,432    (17,815)     (4,222)   (32,223)
    Provision for income taxes        619        119       1,392        473
  Net income (loss)                  $813   $(17,934)    $(5,614)  $(32,696)

  Net income (loss) per common
   share:
  Basic                             $0.01     $(0.19)    $(0.06)     $(0.37)
  Diluted                           $0.01     $(0.19)    $(0.06)     $(0.37)
  Weighted average shares
   outstanding
  Basic                            95,852     94,706     95,325      87,933
  Diluted                          97,892     94,706     95,325      87,933


    UNAUDITED NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            (in thousands, except share and per share amounts)

                         Three Months Ended       Three Months Ended
                          December 31, 2005        December 31, 2004

                         GAAP                      GAAP
                        (As      Adjust-   Non-     (As      Adjust-  Non-
                       Reported)   ments   GAAP   Reported)   ments   GAAP

  Net sales             $55,514     --   $55,514   $49,519       -- $49,519
    Cost of sales        39,308   $(39)   39,269    39,434       --  39,434
    Inventory valuation
     charges                 --     --        --     2,581  $(2,581)     --
  Gross profit           16,206     39    16,245     7,504    2,581  10,085
  Operating expenses:
    Research and
     development          3,388    (40)    3,348     4,363       --   4,363
    Selling, general
     and administrative  10,729   (224)   10,505    12,219       --  12,219
    Amortization of
     intangible assets       --     --        --       791       --     791
    Restructuring charges    --     --        --     7,423   (7,423)     --
  Total operating
   expenses              14,117   (264)   13,853    24,796   (7,423) 17,373
  Operating income
   (loss)                 2,089    303     2,392   (17,292)  10,004  (7,288)
    Other income
     (expense)             (657)    --      (657)     (523)            (523)
  Income (loss) before
   income taxes           1,432    303     1,735   (17,815)  10,004  (7,811)
    Provision for
     income taxes           619     --       619       119       --     119
  Net income (loss)        $813   $303    $1,116  $(17,934) $10,004 $(7,930)
  Net income (loss) per
   common share:
  Basic                   $0.01            $0.01    $(0.19)          $(0.08)
  Diluted                 $0.01            $0.01    $(0.19)          $(0.08)
  Weighted average
   shares outstanding
  Basic                  95,852           95,852    94,706           94,706
  Diluted                97,892           97,892    94,706           94,706

   The above non-GAAP adjustment totaling $303,000 for the three months
   ended December 31, 2005 reflects the non-cash charge related to the
   company's restricted stock plan.  The above non-GAAP amounts for the
   three months ended at December 31, 2004 have been adjusted to eliminate
   restructuring charges for severance, write-off of certain inventory and
   fixed assets, accruals related to vacated facilities and related charges.



To supplement the company's consolidated financial statements presented in accordance with GAAP, Stratex Networks, Inc. uses non-GAAP measures of certain components of financial performance, including operating income (loss), net income (loss) and per share data, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance and the company's prospects for the future. Specifically, the company believes the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that may not be indicative of its core operating results. These measures should be considered in addition to results prepared in accordance with generally accepted accounting principles, but should not be considered a substitute for, or superior to, GAAP results. These non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure.

    UNAUDITED NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            (in thousands, except share and per share amounts)

                           Nine Months Ended         Nine Months Ended
                           December 31, 2005         December 31, 2004

                        GAAP                       GAAP
                       (As      Adjust-   Non-     (As      Adjust-  Non-
                      Reported)   ments   GAAP   Reported)   ments   GAAP


  Net sales           $166,941      --  $166,941  $139,175      -- $139,175
    Cost of sales      122,966   $(256)  122,710   113,736      --  113,736
  Inventory valuation
   charges                  --      --        --     2,581 $(2,581)      --
  Gross profit          43,975     256    44,231    22,858   2,581   25,439
  Operating expenses:
  Research and
   development          10,792    (123)   10,669    12,915      --   12,915
     Selling, general
     and administrative 34,904  (1,077)   33,827    32,105      --   32,105
  Amortization of
   intangible assets        --      --        --     1,581      --    1,581
    Restructuring charges   --      --        --     7,147  (7,147)      --
  Total operating
   expenses             45,696  (1,200)   44,496    53,748  (7,147)  46,601
  Operating loss        (1,721)  1,456      (265)  (30,890)  9,728  (21,162)
    Other income
     (expense)          (2,501)     --    (2,501)   (1,333)     --   (1,333)
  Loss before income
   taxes                (4,222)  1,456    (2,766)  (32,223)  9,728  (22,495)
    Provision for
   income taxes          1,392      --     1,392       473      --      473
  Net loss             $(5,614) $1,456   $(4,158) $(32,696) $9,728 $(22,968)
  Net loss per common
   share:
  Basic                 $(0.06)           $(0.04)   $(0.37)          $(0.26)
  Diluted               $(0.06)           $(0.04)   $(0.37)          $(0.26)
  Weighted average
   shares outstanding
  Basic                 95,325            95,325    87,933           87,933
  Diluted               95,325            95,325    87,933           87,933

   The above non-GAAP adjustment totaling $1.5 million for the nine months
   ended December 31, 2005 reflects the non-cash charge related to the
   company's restricted stock plan. The above non-GAAP amounts for the nine
   months ended December 31, 2004 have been adjusted to eliminate
   restructuring charges for severance, write-off of certain inventory and
   fixed assets, accruals related to vacated facilities and related charges.



To supplement the company's consolidated financial statements presented in accordance with GAAP, Stratex Networks, Inc. uses non-GAAP measures of certain components of financial performance, including operating income (loss), net income (loss) and per share data, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance and the company's prospects for the future. Specifically, the company believes the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that may not be indicative of its core operating results. These measures should be considered in addition to results prepared in accordance with generally accepted accounting principles, but should not be considered a substitute for, or superior to, GAAP results. These non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure. 

First Call Analyst: 

FCMN Contact: 

DATASOURCE: Stratex Networks, Inc.



CONTACT:  Mary McGowan of Summit IR Group Inc., [phone] or

, for Stratex Networks, Inc.



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

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