Verilink (NASDAQ:VRLK)
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Verilink Reports Second Quarter 2005 Financial Results
Company Reports Increased Q2 2005 Revenues of $13.3 Million; 8000 Series VoIP
IAD Receives Two Product Awards
CENTENNIAL, Colo., Jan. 25 /PRNewswire-FirstCall/ -- Verilink Corporation
(NASDAQ:VRLK), a leading provider of broadband access solutions, today reported
its financial results for the second quarter ended December 31, 2004.
Net sales were $13.3 million, an increase of 8% over the previous quarter and
46% over the year ago Q2 fiscal 2004. Net loss computed in accordance with
generally accepted accounting principles (GAAP) for the second quarter of
fiscal 2005 was $2.2 million, or $(0.09) per share, compared to a net loss of
$24.5 million or $(1.19) per share for the previous quarter and net income of
$264,000, or $0.02 per diluted share in the second quarter of fiscal 2004.
Second quarter GAAP results included acquisition-related and other items
totaling $1.0 million, which includes intangible assets amortization of
$684,000, restructuring charges of $291,000, and compensation expense of
$36,000 related to restricted stock awards. Excluding the effects of these
items, non-GAAP loss was $1.1 million or $(0.05) per share, compared to a non-
GAAP loss for the previous quarter of $3.0 million or $(0.14) per share. For
the previous quarter, the net adjustments to reconcile to the GAAP loss was an
impairment charge related to goodwill of $20 million, intangible assets
amortization of $572,000, restructuring charges of $443,000, compensation
expense of $233,000 related to restricted stock awards, and direct acquisition
costs paid and expensed of $287,000. Second quarter fiscal 2004 net income was
$479,000 or $0.03 per diluted share. For the year-ago quarter, the net
adjustment to reconcile to GAAP income was intangible assets amortization,
which totaled $215,000 (see "Use of Non-GAAP Financial Measures" below).
"The continued execution of our strategy to consolidate recent acquisitions and
prepare for opportunities for next generation converged communications service
access has resulted in increased revenue and reduced losses," said Leigh S.
Belden, President and CEO of Verilink. "During the quarter we made significant
progress in business development activities that we believe position us well
for continued growth. Chief among these activities was the expansion of our
international distribution and customer base, and expansion of our
interoperability activities with partners and customers alike. We continued to
experience strong sales of our SHARK TDM IADs, and growth in our professional
services business. We believe Verilink continues to improve its position as the
partner of choice for access to next generation converged service offerings.
Further validating Verilink's unique value proposition, our 8000 series IAD
received the "Product of the Year" award for 2004 by Internet Telephony
Magazine and "Hot Products for 2005" by Xchange Magazine."
Verilink Second Quarter 2005 Summary:
-- Reported revenues of $13.3 million for Q2 fiscal 2005, a 46% increase
over the same period in fiscal 2004
-- Improved gross margin by 5 percentage points on a sequential quarter
basis to 36% in Q2
-- Achieved another record quarter in shipments of SHARK IADs
-- Professional Services revenues increased 15% on a sequential quarter
basis
-- New customer wins in Russia, Greece and Australia
-- Significant interoperability certification activities with Sylantro,
Broadsoft, Metaswitch, Nortel, General Bandwidth, and VocalData
(Tekelec)
-- 3000 Series, 8000 Series and WANsuite IADs added to Alcatel's world-
wide CPE catalog
-- 8000 Series IAD Awarded "Product of the Year" for 2004 by Internet
Telephony Magazine; "Hot Products for 2005" by Xchange Magazine
-- Renegotiated line of credit with RBC Centura Bank, borrowed the
remaining $1.5 million available under the line of credit and complied
with all the financial covenants as of quarter end
-- Tim Anderson joined Verilink as Vice President and Chief Financial
Officer, bringing 22 years of finance experience to Verilink, including
broadband sector and public company experience
-- Announced the move of the Company's headquarters to Centennial, CO in
the metro Denver area
Conference Call Information
A live webcast of the conference call discussing Verilink's second quarter 2005
financial results is scheduled for January 25, 2005 at 3:00 p.m. MST/5:00 p.m.
EST and can be accessed as follows:
Live Webcast: http://phx.corporate-ir.net/phoenix.zhtml?p=irol-
eventDetails&c=96086&eventID=997334
A replay of the conference call will be available 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 amortization, other acquisition- related
expenses, impairment charge, restructuring charges, 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. Verilink's management uses
non-GAAP income as a financial measure to evaluate 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 to
non-GAAP income is set forth below.
About Verilink Corporation
Verilink Corporation is a leading provider of 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 and TDM- based integrated access
devices (IADs), optical access products, wire-speed routers, and bandwidth
aggregation solutions including CSU/DSUs, multiplexers and DACS. Verilink also
provides turnkey professional services to help carriers plan, manage and
accelerate the deployment of new services. The company has operations in
Madison, AL, Aurora, CO and Newark, CA with 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 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 of the combined company 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, including the consolidation plans;
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 Report 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.
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 Six Months Ended
Dec. 31, Jan. 2, Dec. 31, Jan. 2,
2004 2004 2004 2004
Net sales $13,266 $9,089 $25,550 $18,684
Cost of sales(1) 8,518 4,888 17,013 9,359
Gross profit 4,748 4,201 8,537 9,325
Operating expenses:
Research and development(2) 1,744 1,448 3,996 2,832
Selling, general and
administrative(3) 4,905 2,690 10,584 4,936
Impairment charge related to goodwill -- -- 19,984 --
Restructuring charges 291 -- 734 --
Income (loss) from operations (2,192) 63 (26,761) 1,557
Interest and other income, net(4) 158 236 371 416
Interest expense (125) (35) (240) (73)
Income (loss) before provision for
income taxes (2,159) 264 (26,630) 1,900
Provision for income taxes -- -- -- --
Net income (loss) $(2,159) $264 $(26,630) $1,900
Earnings (loss) per share:
Basic $(0.09) $0.02 $(1.23) $0.13
Diluted $(0.09) $0.02 $(1.23) $0.12
Weighted average shares outstanding:
Basic 22,754 14,768 21,681 14,751
Diluted 22,754 16,385 21,681 16,193
Notes:
(1)Cost of sales includes the
following:
Retention bonuses accrued $12 $-- $24 --
Compensation expense on stock
awards 12 -- 27 --
$24 $-- $51 $--
(2)Research and development expenses
includes the following:
Retention bonuses accrued $-- $-- $29 $--
Compensation expense on stock
awards 12 -- 110 --
$12 $-- $139 $--
(3)Selling, general and administrative
expenses includes the following:
Retention bonuses accrued $12 $-- $57 $--
Compensation expense on stock
awards 12 -- 132 --
Direct acquisition costs paid
and expensed -- -- 287 --
Amortization of acquired
intangible assets 684 215 1,256 448
$708 $215 $1,732 $448
(4)Interest and other income, net
includes the following
Income from reduction in
convertible note due to accrual
of retention bonuses noted above $24 $-- $110 $--
VERILINK CORPORATION
Reconciliation of GAAP Net Income (Loss) to Pro Forma Non-GAAP Income (Loss)
(Unaudited, in thousands)
Three Months Ended Six Months Ended
Dec. 31, Jan. 2, Dec. 31, Jan. 2,
2004 2004 2004 2004
GAAP net income (loss) $(2,159) $264 $(26,630) $1,900
Acquisition-related and other items:
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 36 -- 269 --
Amortization of acquired intangible
assets 684 215 1,256 448
Impairment charge related to
goodwill -- -- 19,984 --
Restructuring charges 291 -- 734 --
Direct acquisition costs paid and
expensed -- -- 287 --
Pro forma non-GAAP income (loss) $(1,148) $479 $(4,100) $2,348
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 NetEngine 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 charge related to goodwill; restructuring
charges related to the consolidation of certain operations, administrative, and
engineering functions; and direct acquisition costs paid and expensed related
to the Larscom acquisition. 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)
Dec. 31, July 2,
2004 2004
ASSETS
Current assets:
Cash and cash equivalents $1,961 $3,448
Restricted cash 333 --
Accounts receivable, net 8,625 7,881
Inventories, net 8,017 6,010
Other current assets 1,045 941
Total current assets 19,981 18,280
Property held for lease, net 6,172 6,269
Property, plant and equipment, net 2,170 1,381
Goodwill 5,464 9,887
Other intangible assets, net 16,693 9,182
Other assets 413 1,139
Total assets $50,893 $46,138
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $19,185 $15,502
Long-term liabilities 6,884 6,262
Stockholders' equity 24,824 24,374
Total liabilities and stockholders' equity $50,893 $46,138
DATASOURCE: Verilink Corporation
CONTACT: Gary W. Gray of Verilink Corporation, +1-510-771-3354 or
Web site: http://www.verilink.com/