RBAK Redback Networks

Redback Networks Inc. (NASDAQ:RBAK), a leading provider of broadband networking systems, today announced its first quarter results for the period ended March 31, 2006. Net revenue for the first quarter of 2006 was $57.9 million, an increase of 21 percent from the fourth quarter of 2005. Net revenue was up $23.6 million, or 69 percent, over the first quarter of 2005. "I am excited about our results and the progress we have made in executing our business strategy during the quarter," said Kevin DeNuccio, president and chief executive officer, Redback Networks. "We are pleased with the continued success and market traction of our SmartEdge(R) family of next-generation routers. The addition of the SmartEdge 100 to our portfolio enables our customers to implement the innovative and widely deployed SmartEdge technology in even more segments of the IP network." With the adoption of Statement of Financial Accounting Standards No. 123R (FAS 123R) as of January 1, 2006, Redback Networks is reporting stock-based compensation expense in its generally accepted accounting principles (GAAP) results for the first time. GAAP net loss for the first quarter of 2006 was $(2.6) million or $(0.05) per share attributable to common stockholders compared to a GAAP net loss of $(7.1) million or $ (0.13) per share in the first quarter of 2005. Non-GAAP net income for the first quarter of 2006 was $4.0 million or $0.05 per share, compared to a non-GAAP net loss of $(2.9) million or $ (0.05) per share for the first quarter of 2005. Excluded from the non-GAAP results for the first quarter of 2006 were charges relating to amortization of intangible assets, stock-based compensation, amortization of the fair value of warrants issued in connection with a lease agreement, partial recovery on investment that previously had been written down, certain federal and state income taxes, and accretion of a dividend payable to the preferred stockholders. For comparative purposes, GAAP net income excluding stock-based compensation for the first quarter of 2006 was $0.5 million or $.01 per share, compared with a GAAP net loss excluding stock-based compensation of $6.0 million or $(.11) per share for the first quarter of 2005. 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 1:45 p.m. Pacific Time. The conference telephone number is: Domestic Dial-in: 1-800-559-2403 and International Dial-in: 1-847-619-6534. A live web cast is also available from the investor relations portion of the Redback's web site, www.redback.com/investors. A telephone replay of the conference call will be available later in the day. Replay information will be available at Domestic Dial-in: 1-877-213-9653 and International Dial-in: (630) 652-3041 Passcode: 14285247. Information on these calls and web cast can also be found on the company's web site. 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(R) 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 growth of our SmartEdge product line and our customer base. 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: final review of our quarterly results by our independent auditors including without limitation final analysis of our expected tax liability; 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 Annual Report on Form 10-K for the year ended December 31, 2005 and Redback's other most recent reports on 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 -------------------------- March 31, December 31, 2006 2005 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 58,628 $ 43,764 Accounts receivable, net 34,178 32,708 Inventories 9,312 12,933 Other current assets 10,313 8,204 ------------ ------------ Total current assets 112,431 97,609 Property and equipment, net 18,043 16,944 Goodwill 143,460 144,401 Intangibles, net 53,016 55,669 Other assets 1,212 1,391 ------------ ------------ Total assets $ 328,162 $ 316,014 ============ ============ Liabilities, Mandatory Redeemable Convertible Preferred Stock, and Stockholders' Equity Current liabilities: Accounts payable $ 26,731 $ 28,664 Accrued liabilities 15,734 14,759 Borrowings and capital lease obligations 200 372 Deferred revenue 24,386 18,288 ------------ ------------ Total current liabilities 67,051 62,083 Deferred revenue, net of current portion 10,344 7,036 Long term liabilities 1,249 1,579 ------------ ------------ Total liabilities 78,644 70,698 Mandatory redeemable convertible preferred stock 48,053 47,897 Stockholders' equity 201,465 197,419 ------------ ------------ Total liabilities, mandatory redeemable convertible preferred stock and stockholders' equity $ 328,162 $ 316,014 ============ ============ Redback Networks Inc. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (unaudited) Three Months Ended Three Months Ended March 31, 2006 March 31, 2005 ------------------ ------------------ Net revenue $ 57,859 $ 34,292 Cost of revenue, excluding amortization(1) 22,606 13,645 Amortization 2,707 2,722 --------- --------- Total cost of revenue 25,313 16,367 --------- --------- Gross profit 32,546 17,925 --------- --------- Operating expenses: Research and development(1) 17,133 14,323 Selling, general and administrative(1) 17,764 10,664 --------- --------- Total operating expenses 34,897 24,987 --------- --------- Loss from operations (2,351) (7,062) Other income, net 1,053 165 --------- --------- Loss before income taxes (1,298) (6,897) Provision for income taxes 1,135 -- --------- --------- Net loss (2,433) (6,897) Deemed dividend and accretion on preferred stock 156 153 --------- --------- Net loss attributable to common stockholders $ (2,589) $ (7,050) ========= ========= Net income (loss) attributable to common stockholders per share: Basic $ (0.05) $ (0.13) ========= ========= Diluted $ (0.05) $ (0.13) ========= ========= Shares used in computing net loss attributable to common stockholders per share(a): Basic 56,506 53,469 ========= ========= Diluted 56,506 53,469 ========= ========= Three Months Ended March 31, ------------------------- 2006 2005 ------------ ----------- (1) Includes stock-based compensation expense as follows: Cost of product revenue $ 287 $ 89 Research and development 1,233 235 Selling, general and administrative 1,550 708 -------- -------- Total stock-based compensation expense $ 3,070 $ 1,032 ======== ======== Redback Networks Inc. Non-GAAP Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (unaudited) Successor Three Months Ended March 31, 2006 --------------------------------------------- Non-GAAP(a) Reconciling GAAP(b) Items ------------ ------------ --------- Net revenue $ 57,859 $ -- $ 57,859 Cost of revenue, excluding amortization 22,319 287 (d) 22,606 Amortization 2,707 (c,e) 2,707 --------- --------- --------- Total cost of revenue 22,319 2,994 25,313 --------- --------- --------- Gross profit (loss) 35,540 (2,994) 32,546 --------- --------- --------- Operating expenses: Research and development 15,612 1,521 (d,e) 17,133 Selling, general and administrative 16,076 1,688 (d,e) 17,764 --------- --------- --------- Total operating expenses 31,688 3,209 34,897 --------- --------- --------- Income (loss) from operations 3,852 (6,203) (2,351) Other income (expense), net 434 619 (g) 1,053 --------- --------- --------- Income (loss) before income taxes 4,286 (5,584) (1,298) Provision for income taxes 285 850 (h) 1,135 --------- --------- --------- Net income (loss) 4,001 (6,434) (2,433) Deemed dividend and accretion on preferred stock -- 156 (f) 156 --------- --------- --------- Net income (loss) attributable to common stockholders $ 4,001 $ (6,590) $ (2,589) ========= ========= ========= Net income (loss) per share: Basic $ 0.07 $ (0.05) ========= ========= Diluted $ 0.05 $ (0.05) ========= ========= Shares used in computing net income (loss) per share(h): Basic 56,506 56,506 ========= ========= Diluted 74,822 56,506 ========= ========= Successor Three Months Ended March 31, 2005 --------------------------------------------- Non-GAAP(a) Reconciling GAAP(b) Items ------------ ------------ --------- Net revenue $ 34,292 $ -- $ 34,292 Cost of revenue, excluding amortization 13,556 89 (d) 13,645 Amortization -- 2,722 (c,e) 2,722 --------- --------- --------- Total cost of revenue 13,556 2,811 16,367 --------- --------- --------- Gross profit (loss) 20,736 (2,811) 17,925 --------- --------- --------- Operating expenses: Research and development 13,754 569 (d,e) 14,323 Selling, general and administrative 9,879 785 (d,e) 10,664 --------- --------- --------- Total operating expenses 23,633 1,354 24,987 --------- --------- --------- Income (loss) from operations (2,897) (4,165) (7,062) Other income (expense), net 26 139 (g) 165 --------- --------- --------- Income (loss) before income taxes (2,871) (4,026) (6,897) Provision for income taxes -- -- -- --------- --------- --------- Net income (loss) (2,871) (4,026) (6,897) Deemed dividend and accretion on preferred stock -- 153 (f) 153 --------- --------- --------- Net income (loss) attributable to common stockholders $ (2,871) $ (4,179) $ (7,050) ========= ========= ========= Net income (loss) per share: Basic $ (0.05) $ (0.13) ========= ========= Diluted $ (0.05) $ (0.13) ========= ========= Shares used in computing net income (loss) per share(h): Basic 53,469 53,469 ========= ========= Diluted 53,469 53,469 ========= ========= *T (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, accretion of a dividend payable to the preferred stockholders, partial recovery on certain investments that had been previously written down and federal and state income tax expense from the utilization of pre-bankruptcy tax net operating losses that was recorded as a reduction of goodwill for GAAP purposes, offset by federal and state alternative minimum taxes used for non-GAAP purposes. (b) Reflects operating results based upon accounting principles generally accepted in the United States (GAAP). (c) Amount represents amortization of intangible assets. (d) Amount represents amortization of FAS 123R stock-based compensation in Q1'06 and APB 25 of stock-based compensation in Q1'05. (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, including a beneficial conversion feature of $16.7M in the period from January 3 through March 31, 2004. (g) Amount represents partial recovery on certain investments that had been previously written-off. (h) Amount represents the federal and state income tax expense from the utilization of pre-bankruptcy tax net operating losses that was recorded as a reduction of goodwill for GAAP purposes, offset by federal and state alternative minimum taxes used for non-GAAP purposes. 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. -0- *T Redback Networks Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Successor Successor ----------------- ----------------- Three months Three months ended ended March 31, 2006 March 31, 2005 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss before deemed dividend and accretion on preferred stock $ (2,433) $ (6,897) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 5,506 6,120 Stock-based compensation 3,070 1,032 Gain on sale of investment (619) -- Changes in assets and liabilities: Accounts receivable, net (1,470) 2,570 Inventories 2,057 (541) Other assets (1,663) (1,768) Accounts payable and accrued liabilities (958) 1,025 Deferred revenue 9,406 (1,583) Other long-term liabilities (230) (355) ---------- --------- Net cash provided by (used in) operating activities 12,666 (397) ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (1,912) (1,244) Proceeds from sale of equity investments 619 -- ---------- --------- Net cash (used in) provided by investing activities (1,293) (1,244) ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of stock and exercise of warrants 3,763 2,449 Principal payments on capital lease obligations and borrowings (272) -- Proceeds from stockholder notes receivable -- -- ---------- --------- Net cash provided by financing activities 3,491 2,449 ---------- --------- Net increase (decrease) in cash and cash equivalents 14,864 808 Cash and cash equivalents at beginning of period 43,764 42,558 ---------- --------- Cash and Cash equivalents at end of period $ 58,628 $ 43,366 ========== ========= *T