RBAK Redback Networks

Redback Networks Inc. (Nasdaq:RBAK), a leading provider of broadband networking systems, today announced its fourth quarter and fiscal year 2005 results for the period ended December 31, 2005. Net revenue for the fourth quarter of 2005 was $48.0 million, an increase of 32 percent from the third quarter of 2005. Net revenue was up $15.9 million, or 50 percent, over the fourth quarter of 2004. Net revenue for the fiscal year 2005 jumped to $153.3 million, compared with $115.6 million in fiscal year 2004. "I am very pleased with the progressive revenue growth and profitability in the quarter and excited about the adoption of our SmartEdge(R) product family for deployment towards advanced and personalized IP based services," said Kevin DeNuccio, president and chief executive officer, Redback Networks. "Year over year, sales for our SmartEdge Service Gateway were up 105%, creating a strong footprint for continued growth in 2006." GAAP net income for the fourth quarter of 2005 was $0.3 million or $0.01 per share attributable to common stockholders compared to a GAAP net loss of $12.0 million or $(0.23) per share in the fourth quarter of 2004. Non-GAAP net income for the fourth quarter of 2005 was $0.4 million or $0.01 per share, compared to a non-GAAP net loss of $4.2 million or $(0.08) per share for the fourth quarter of 2004. Excluded from the non-GAAP results for the fourth quarter of 2005 were charges relating to amortization of intangible assets, amortization of stock-based compensation, sale of inventory as scrap, amortization of the fair value of warrants issued in connection with a lease agreement, partial recovery on investment that previously had been written down, accretion of a dividend payable to the preferred stockholders and a benefit from the change in estimate of pre-bankruptcy liability. See the attached table for a reconciliation of our non-GAAP results to GAAP results. Redback Networks will discuss these quarterly results in an investor conference call today at 2:30 p.m. Pacific Time. The conference telephone number is 847-619-6819. A live web cast is also available from the investor relations portion of the Redback's web site at http://www.redback.com/investors. A telephone replay of the conference call will be available later in the day. Replay information will be available at 877-213-9653 or 630-652-3041 access code: 13605124. About Redback Networks Redback Networks Inc., a leading provider of next-generation broadband networking equipment, enables carriers and service providers to build Smart Broadband Networks that are personalized, adaptive and efficient. The Smart Broadband Network provides advanced IP based subscriber services to consumers, businesses and wholesale customers. The company's carrier-class, scalable SmartEdge product family combines carrier class edge routing, advanced subscriber management and high density Ethernet aggregation functions. In conjunction with the NetOp(TM) Element and Policy Manager platforms the SmartEdge family provides a powerful and flexible infrastructure solution that enables delivery of next-generation Broadband IP services. Founded in 1996 and headquartered in San Jose, Calif., with sales and technical support centers located worldwide, Redback Networks maintains a growing and global customer base of more than 500 carriers and service providers, including major local exchange carriers (LECs), inter-exchange carriers (IXCs), PTTs, service providers and ISPs. For more information, visit Redback Networks at www.redback.com. REDBACK and SmartEdge are trademarks registered at the U.S. Patent and Trademark Office and in other countries. NetOp is a trademark of Redback Networks Inc. Note Regarding Forward Looking Statements The statements contained in this press release that are not purely historical are forward-looking statements which are subject to the safe harbor provisions of the Private Litigation reform Act of 1995. These statements include but are not limited to statements regarding our expected financial results and expectations of continued sales and revenue growth and growth of our SmartEdge product line. These statements are only predictions and involve a number of risks and uncertainties, the outcome of which could materially and/or adversely affect Redback's actual future results. These risks include without limitation the following: growth trends in the networking industry and in various geographic regions; variations in customer demand for products and services; the timing of orders and manufacturing lead times; changes in customer order trends or customer or product mix, and other risks relating to Redback's business as set forth in the Quarterly Report on Form 10Q for the quarter ended September 30, 2005, and Redback's other most recent reports on Form 10-K, Form 10-Q and Form 8-K, and amendments thereto, on file with the Securities and Exchange Commission (SEC), and other reports filed with the SEC from time to time. All forward-looking statements included in this document are based upon information available as of the date hereof, and Redback assumes no obligation to update these statements. Non-GAAP Disclosure To supplement our consolidated financial statements presented in accordance with GAAP, we use non-GAAP financial results, which are adjusted from results based on GAAP to exclude certain items. These non-GAAP results are provided to enhance the user's overall understanding of our current financial performance and our prospects in the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain items that we believe are not indicative of our core operating results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with United States GAAP. -0- *T Redback Networks Inc. Condensed Consolidated Balance Sheets (In thousands) (unaudited) Successor --------------------------- December 31, December 31, 2005 2004 ------------- ------------- Assets Current assets: Cash and cash equivalents $ 43,764 $ 42,558 Accounts receivable, net 32,708 21,892 Inventories 12,063 7,420 Other current assets 8,204 5,322 ------------- ------------- Total current assets 96,739 77,192 Property and equipment, net 16,944 16,583 Goodwill 144,401 145,083 Intangibles, net 55,669 66,285 Other assets 1,391 2,292 ------------- ------------- Total assets $ 315,144 $ 307,435 ============= ============= Liabilities, Mandatory Redeemable Convertible Preferred Stock, and Stockholders' Equity Current liabilities: Borrowings and capital lease obligations $ 372 $ - Accounts payable 27,794 17,258 Accrued liabilities 14,759 19,375 Deferred revenue 18,288 15,245 ------------- ------------- Total current liabilities 61,213 51,878 Deferred revenue, net of current portion 7,036 2,301 Long term liabilities 1,579 2,181 ------------- ------------- Total liabilities 69,828 56,360 Mandatory redeemable convertible preferred stock 47,897 47,282 Stockholders' equity 197,419 203,793 ------------- ------------- Total liabilities, mandatory redeemable convertible preferred stock and stockholders' equity $ 315,144 $ 307,435 ============= ============= Redback Networks Inc. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (unaudited) Successor Successor Predecessor ------------------- ------------------- ------------ Three Three Twelve Months Months Months January 3 January 1 Ended Ended Ended Through Through December December December December January 2, 31, 2005 31, 2004 31, 2005 31, 2004 2004 --------- --------- --------- --------- ------------ Net revenue $ 47,982 $ 32,082 $153,260 $115,569 $ - Cost of revenue, excluding amortization 19,420 13,829 61,717 48,932 - Amortization 2,654 2,725 10,615 10,909 - Total cost of revenue 22,074 16,554 72,332 59,841 - ------------------- --------- --------- ------------ Gross profit 25,908 15,528 80,928 55,728 - --------- --------- --------- --------- ------------ Operating expenses: Research and development 14,740 12,581 58,337 48,476 - Selling, general and administrative 12,881 11,262 42,933 41,769 - Change in estimate of pre-bankruptcy liabilities (3,668) - (3,668) - - Reorganization items - (1,234) - 1,553 - Stock-based compensation 978 4,448 4,003 19,816 - --------- --------- --------- --------- ------------ Total operating expenses 24,931 27,057 101,605 111,614 - --------- --------- --------- --------- ------------ Income (loss) from operations 977 (11,529) (20,677) (55,886) - Other income (expense), net (48) (297) (232) 5,027 - Net gain on discharge of debt - - - - 71,164 Fresh start adjustments - - - - (218,691) Induced conversion charge - - - - (335,809) --------- --------- --------- --------- ------------ Income (loss) before reorganization items 929 (11,826) (20,909) (50,859) (483,336) Reorganization items - - - - 1,539 --------- --------- --------- --------- ------------ Income (loss) before income taxes 929 (11,826) (20,909) (50,859) (484,875) Provision for income taxes 461 - 848 - - --------- --------- --------- --------- ------------ Net income (loss) 468 (11,826) (21,757) (50,859) (484,875) Deemed dividend and accretion on preferred stock 154 151 615 17,265 - --------- --------- --------- --------- ------------ Net income (loss) attributable to common stockholders $ 314 $(11,977) $(22,372) $(68,124) $ (484,875) ========= ========= ========= ========= ============ Net income (loss) attributable to common stockholders per share: Basic $ 0.01 $ (0.23) $ (0.41) $ (1.30) $ (2.65) ========= ========= ========= ========= ============ Diluted $ 0.01 $ (0.23) $ (0.41) $ (1.30) $ (2.65) ========= ========= ========= ========= ============ Shares used in computing net loss attributable to common stockholders per share (a): Basic 55,524 52,978 54,442 52,269 183,009 ========= ========= ========= ========= ============ Diluted 71,624 52,978 54,442 52,269 183,009 ========= ========= ========= ========= ============ (a) Reflects a change in the capitalization of the Company as a result of the plan of reorganization effective as of January 2, 2004. Redback Networks Inc. Non-GAAP Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (unaudited) Successor Three Months Ended December 31, 2005 ------------------------------------ Non-GAAP Reconciling GAAP (b) (a) Items -------- ----------- --------- Net revenue $47,982 $ - $ 47,982 Cost of revenue, excluding amortization 19,350 - 19,350 Amortization - 2,654 (c) 2,654 - 70 (e) 70 -------- ----------- --------- Total cost of revenue 19,350 2,724 22,074 -------- ----------- --------- Gross profit (loss) 28,632 (2,724) 25,908 -------- ----------- --------- Operating expenses: Research and development 14,351 389 (e) 14,740 Selling, general and administrative 13,373 (492) (e) 12,881 Change in estimate of pre- bankruptcy liabilities - (3,668) (g) (3,668) Reorganization items - - - Stock-based compensation - 978 (d) 978 -------- ----------- --------- Total operating expenses 27,724 (2,793) 24,931 -------- ----------- --------- Income (loss) from operations 908 69 977 Other income (expense), net (48) - (48) -------- ----------- --------- Income (loss) before income taxes 860 69 929 Provision for income taxes 461 - 461 -------- ----------- --------- Net income (loss) 399 69 468 Deemed dividend and accretion on preferred stock - 154 (f) 154 -------- ----------- --------- Net income (loss) attributable to common stockholders $ 399 $ (85) $ 314 ======== =========== ========= Net income (loss) per share : Basic $ 0.01 $ 0.01 ======== ========= Diluted $ 0.01 $ 0.01 ======== ========= Shares used in computing net income (loss) per share(h): Basic 55,524 55,524 ======== ========= Diluted 71,624 71,624 ======== ========= Successor Three Months Ended December 31, 2004 ------------------------------------ Non-GAAP Reconciling GAAP (b) (a) Items -------- ----------- --------- Net revenue $32,082 $ - $ 32,082 Cost of revenue, excluding amortization 13,829 - 13,829 Amortization - 2,651 (c) 2,651 - 74 (e) 74 -------- ----------- --------- Total cost of revenue 13,829 2,725 16,554 -------- ----------- --------- Gross profit (loss) 18,253 (2,725) 15,528 -------- ----------- --------- Operating expenses: Research and development 12,283 298 (e) 12,581 Selling, general and administrative 11,154 108 (e) 11,262 Reorganization items (1,234) - (1,234) Stock-based compensation - 4,448 (d) 4,448 -------- ----------- --------- Total operating expenses 22,203 4,854 27,057 -------- ----------- --------- Income (loss) from operations (3,950) (7,579) (11,529) Other income (expense), net (297) - (297) -------- ----------- --------- Income (loss) before income taxes (4,247) (7,579) (11,826) Provision for income taxes - - - -------- ----------- --------- Net income (loss) (4,247) (7,579) (11,826) Deemed dividend and accretion on preferred stock - 151 (f) 151 -------- ----------- --------- Net income (loss) attributable to common stockholders $(4,247) $ (7,730) $(11,977) ======== =========== ========= Net income (loss) per share : Basic $ (0.08) $ (0.23) ======== ========= Diluted $ (0.08) $ (0.23) ======== ========= Shares used in computing net income (loss) per share(k): Basic 52,978 52,978 ======== ========= Diluted 52,978 52,978 ======== ========= (a) Non-GAAP amounts exclude certain reconciling items including amortization of intangible assets, amortization of stock-based compensation, amortization of the fair value of warrants issued in connection with a lease agreement, partial recovery on investments that had been previously written down, accretion of a dividend payable to the preferred stockholders, and benefit from change in estimate of pre-bankruptcy liability. (b) Reflects operating results based upon accounting principles generally accepted in the United States (GAAP). (c) Amount represents amortization of intangible assets, including those arising from fresh-start accounting. (d) Amount represents amortization of stock-based compensation. (e) Amount represents amortization of the fair value of warrants issued in connection with a lease agreement. (f) Amount represents accretion of a dividend payable to the preferred stockholders. (g) Amount represents benefit from change in estimate of pre-bankruptcy liabilities. (h) Reflects a change in the capitalization of the Company as a result of the plan of reorganization effective January 2, 2004. To supplement our condensed consolidated financial statements presented in accordance with GAAP, we use non-GAAP financial results, which are adjusted from results based on GAAP to exclude certain items. These non-GAAP results are provided to enhance the user's overall understanding of our current financial performance and to help assess our prospects in the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain items that we believe are not indicative of our core operating results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with United States GAAP. Redback Networks Inc. Non-GAAP Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (unaudited) Successor ------------------------------------- Twelve Months Ended December 31, 2005 ------------------------------------- Non-GAAP Reconciling GAAP (b) (a) Items --------- ----------- --------- Net revenue $153,260 $ - $153,260 Cost of revenue, excluding amortization 61,439 - 61,439 Amortization - 10,615 (c) 10,615 - 278 (f) 278 -------- ---------- -------- Total cost of revenue 61,439 10,893 72,332 --------- ----------- --------- Gross profit (loss) 91,821 (10,893) 80,928 -------- ---------- -------- Operating expenses: Research and development 56,934 1,403 (f) 58,337 Selling, general and administrative 43,168 (235) (f) 42,933 Change in estimate of pre-bankruptcy liabilities - (3,668) (j) (3,668) Reorganization items - - - Stock-based compensation - 4,003 (e) 4,003 -------- ---------- -------- Total operating expenses 100,102 1,503 101,605 -------- ---------- -------- Loss from operations (8,281) (12,396) (20,677) Other income (expense), net (414) 182 (h) (232) -------- ---------- -------- Loss before income taxes (8,695) (12,214) (20,909) Provision for income taxes 848 - 848 -------- ---------- -------- Net loss (9,543) (12,214) (21,757) Deemed dividend and accretion on preferred stock - 615 (g) 615 -------- ---------- -------- Net loss attributable to common stockholders $ (9,543) $ (12,829) $(22,372) ======== ========== ======== Net loss per share -- basic and diluted $ (0.18) $ (0.41) ======== ======== Shares used in computing net loss per share (k) 54,442 54,442 ======== ======== Successor ------------------------------------- January 3 Through December 31, 2004 ------------------------------------- Non-GAAP Reconciling GAAP (b) (a) Items --------- ----------- --------- Net revenue $115,569 $ - $115,569 Cost of revenue, excluding amortization 49,093 10,615 (c) 59,708 Amortization - (163) (d) (163) - 296 (f) 296 --------- ----------- --------- Total cost of revenue 49,093 10,748 59,841 --------- ----------- --------- Gross profit (loss) 66,476 (10,748) 55,728 --------- ----------- --------- Operating expenses: Research and development 47,284 1,192 (f) 48,476 Selling, general and administrative 41,337 432 (f) 41,769 Reorganization items 1,553 - 1,553 Stock-based compensation - 19,816 (e) 19,816 --------- ----------- --------- Total operating expenses 90,174 21,440 111,614 --------- ----------- --------- Loss from operations (23,698) (32,188) (55,886) Other income (expense), net (1,001) 6,028 (h) 5,027 --------- ----------- --------- Loss before income taxes (24,699) (26,160) (50,859) Provision for income taxes - - - --------- ----------- --------- Net loss (24,699) (26,160) (50,859) Deemed dividend and accretion on preferred stock - 17,265 (g) 17,265 -------- ----------- --------- Net loss attributable to common stockholders $(24,699) $ (43,425) $(68,124) ========= =========== ========= Net loss per share -- basic and diluted $ (0.47) $ (1.30) ========= ========= Shares used in computing net loss per share (l) 52,269 52,269 ========= ========= (a) Non-GAAP amounts exclude certain reconciling items including amortization of intangible assets, sale of inventory as scrap, amortization of stock-based compensation, amortization of the fair value of warrants issued in connection with a lease agreement, deemed dividend to the preferred stockholders due to a beneficial conversion feature and accretion of a dividend payable to the preferred stockholders, partial recovery on certain investments that had been previously written down, loss from early retirement of software license assets, and benefit from change in estimate of pre-bankruptcy liabilities. (b) Reflects operating results based upon accounting principles generally accepted in the United States (GAAP). (c) Amount represents amortization of intangible assets, including those arising from fresh-start accounting. (d) Amount represents proceeds from sale of inventory as scrap and the sale of inventory that had been fully reserved in a prior period. (e) Amount represents amortization of stock-based compensation. (f) Amount represents amortization of the fair value of warrants issued in connection with a lease agreement. (g) Amount represents a deemed dividend to the preferred stockholders due to a beneficial conversion feature of $16.7M and accretion of a dividend payable to the preferred stockholders of $0.6M. (h) Amount represents realized gains and write-off of certain investments, and partial recovery on certain investments that had been previously written down. (i) Amount represents loss from early retirement of software license assets. (j) Amount represents benefit from change in estimate of pre-bankruptcy liabilities. (k) Reflects a change in the capitalization of the Company as a result of the plan of reorganization effective January 2, 2004. To supplement our condensed consolidated financial statements presented in accordance with GAAP, we use non-GAAP financial results, which are adjusted from results based on GAAP to exclude certain items. These non-GAAP results are provided to enhance the user's overall understanding of our current financial performance and to help assess our prospects in the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain items that we believe are not indicative of our core operating results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with United States GAAP. Redback Networks Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Successor Successor Predecessor ----------- ----------- ------------ Twelve months January 3 January 1 ended Through Through December December January 31, 2005 31, 2004 2, 2004 CASH FLOWS FROM OPERATING ACTIVITIES Net loss before deemed dividend and accretion on preferred stock $ (22,372) $ (50,858) $ (484,875) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 27,988 22,820 - Stock-based compensation 4,003 19,817 - Gain on sale of investment - (6,028) - Net gain on discharge of debt, fresh-start accounting adjustments, and induced conversion charges - - 483,336 Changes in assets and liabilities: Accounts receivable, net (10,816) (7,402) - Inventories (9,209) (4,300) - Other assets (3,290) 2,639 - Accounts payable and accrued liabilities 7,762 (5,002) 1,539 Deferred revenue 7,778 10,379 - Other long-term liabilities (294) 2,181 - ----------- ----------- ------------ Net cash provided by (used in) operating activities 1,550 (15,754) - ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (11,779) (2,783) - Proceeds from sale of equity investment - 6,028 - Change in restricted cash, net - 478 - ----------- ----------- ------------ Net cash (used in) provided by investing activities (11,779) 3,723 - ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of stock and exercise of warrants 11,631 34,405 - Principal payments on capital lease obligations and borrowings (4,196) (335) - Proceeds from bank borrowings, net 4,000 - - ----------- ----------- ------------ Net cash provided by financing activities 11,435 34,070 - ----------- ----------- ------------ Net increase (decrease) in cash and cash equivalents 1,206 22,039 - Cash and cash equivalents at beginning of period 42,558 20,519 20,519 ----------- ----------- ------------ Cash and Cash equivalents at end of period $ 43,764 $ 42,558 $ 20,519 =========== =========== ============ *T