SLNK Spectralink Corp (MM)

BOULDER, Colo., May 9, 2006 /PRNewswire-FirstCall/ -- SpectraLink Corp. (NASDAQ:SLNK), the leader in workplace wireless telephony, today reported consolidated revenue of $34.0 million for the quarter ended March 31, 2006. This represents an increase of 14 percent compared with consolidated pro forma revenue for the prior-year first quarter. Pro forma results assume the acquisition of KIRK telecom occurred on January 1, 2005. SpectraLink revenue for the three months ended March 31, 2005, was $20.6 million. (Logo: http://www.newscom.com/cgi-bin/prnh/20050324/LATH060LOGO) Gross profit for the first quarter was $19.4 million compared to $17.4 million pro forma results for the first quarter of 2005. Gross margin for the quarter was 57.2 percent, compared to 58.4 percent for the previous year's pro forma results. SpectraLink gross profit for the three months ended March 31, 2005, was $13.3 million or 64.5 percent. The net loss on a GAAP basis for the first quarter of 2006 was $2.4 million or 13 cents per share compared to pro forma earnings of $1.2 million or 6 cents pro forma per share for the same period in 2005. SpectraLink net income for the three months ended March 31, 2005, was $2.2 million or 11 cents per fully diluted share. During the first quarter, we recorded charges for stock option expense of $767 thousand, amortization of intangible assets related to the KIRK telecom acquisition of $1.1 million, purchased in-process research and development costs at KIRK telecom of $2.0 million, and non-capitalized acquisition-related professional service fees for $318 thousand. Non-GAAP earnings after taxes for the first quarter of 2006, which take these charges into account, were $1.8 million, or 10 cents per share, compared to non-GAAP pro forma earnings of $2.6 million, or 14 cents per share for the first quarter of 2005. Details of the reconciliation between GAAP and non-GAAP earnings are provided in the attached Reconciliation of Non-GAAP Measurement to GAAP financial table. "This was a very exciting and transformational quarter for SpectraLink with the closing of the KIRK transaction and the announcement of several new products," said John Elms, SpectraLink president and CEO. "SpectraLink revenue in the Americas was very strong resulting in 28 percent growth year-over-year for the quarter." "Engineering expenses related to new product development and introduction, and G&A expenses related to the implementation of additional financial reporting and accounting requirements primarily tied to the KIRK transaction, put pressure on earnings in the quarter and will continue in the near term." Elms went on to say, "The first result of these investments, our new Link 6020 handset represents the first significant update to the Link product line since 1996, and provides SpectraLink a tremendous opportunity to upgrade the more than 400,000 Link handsets shipped to-date to this new generation handset." 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 provides useful information to investors because it allows investors to measure and evaluate our performance without considering the non-cash and other special charges associated with our acquisition including amortization of intangible assets, the charges for in-process research and development related to the acquisition, and acquisition related professional service fees. After tax amounts have been calculated using a consolidated 40% effective tax rate. Beginning in the first quarter of 2006, our non-GAAP earnings exclude the effects of FAS123R 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 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 which 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. Webcast Information SpectraLink will hold an audio webcast to discuss first quarter 2006 earnings results, today, May 9, 2006, at 4:30 p.m. Eastern time. You can access the webcast and replay at http://www.spectralink.com/. 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 difficulties in integrating the operations, technologies, products, and personnel of SpectraLink and KIRK; expectations that the acquisition will be accretive to SpectraLink's results; 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 Reconciliation of Non-GAAP Measurement to GAAP (in thousands, except per share amounts) (Unaudited) Three months ended March 31, 2006 2005 (Actual) (Pro Forma) GAAP (loss) income before income taxes $(2,735) $1,990 Add: Interest expense, net 795 752 Depreciation and amortization 1,898 1,670 Purchased in-process research and development 2,021 -- (2) Share-based compensation expense 767 -- Acquisition-related expenses 318 -- (2) Non-GAAP earnings before income taxes 3,064 4,412 Tax expense (1) (1,226) (1,765) Non-GAAP earnings after taxes $1,838 $2,647 Non-GAAP earnings after taxes per share - basic $0.10 $0.14 Weighted average shares outstanding - basic 19,220 19,230 (1) Tax effected at an assumed 40% consolidated effective tax rate. (2) Our pro forma presentation omits items that are non-recurring. 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 income (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 current period 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 net income per share prepared in accordance with generally accepted accounting principles in the United States. SpectraLink and Subsidiaries Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three months ended March 31, 2006 2005 2005 (Actual) (Pro Forma) (1) (Actual) Sales Product sales $27,068 $24,393 $15,456 Service sales 6,901 5,371 5,132 Net sales 33,969 29,764 20,588 Cost of sales Cost of product sales 11,029 9,614 4,549 Cost of service sales 3,519 2,779 2,754 Total cost of sales 14,548 12,393 7,303 Gross profit 19,421 17,371 13,285 Operating Expenses Research and development 5,806 3,664 2,457 Selling and marketing 8,643 7,267 6,033 General and administrative 4,008 2,588 1,582 Acquired in process research and development expense 2,021 -- -- Amortization of intangible assets 1,125 1,120 22 Total operating expenses 21,603 14,639 10,094 (Loss) income from operations (2,182) 2,732 3,191 Other (expense) income, net Interest (expense) income, net (795) (752) 351 Other income (expense), net 242 10 (52) Total other (expense) income, net (553) (742) 299 (Loss) income before income taxes (2,735) 1,990 3,490 Income tax benefit (expense) 293 (796) (1,326) Net (loss) income $(2,442) $1,194 $2,164 Basic earnings (loss) per share $(0.13) $0.06 $0.11 Basic weighted average shares outstanding 19,220 19,230 19,230 Diluted earnings (loss) per share $(0.13) $0.06 $0.11 Diluted weighted average shares outstanding 19,220 19,710 19,710 (1) Pro forma financial information provided for purposes of comparability and prepared assuming the acquisition of KIRK telecom A/S occurred on January 1, 2005, and excluding $2 million of acquired in-process research and development, as it is non-recurring. SpectraLink Corporation and Subsidiaries Condensed Consolidated Balance Sheets (In thousands) As of: March 31, December 31, 2006 2005 Assets (Unaudited) Current Assets: Cash and cash equivalents $8,426 $16,703 Cash held in escrow for acquisition -- 55,148 Investments in marketable securities - current 13,535 14,088 Trade accounts receivable, net of allowance of $342 and $343, respectively 25,415 22,574 Inventories: Raw materials 9,077 4,783 Work in progress 402 5 Finished goods 7,208 4,727 Less - allowance for obsolete inventory (832) (575) Total inventories 15,855 8,940 Current deferred income tax asset 1,877 1,626 Prepaids and other 1,513 1,201 Total current assets 66,621 120,280 Property and equipment, net of accumulated depreciation of $11,852 and $11,110, respectively 12,534 8,422 Intangible assets, net of accumulated amortization of $1,397 and $272, respectively 33,366 318 Goodwill 24,314 -- Other non-current assets 414 1,772 Total assets $137,249 $130,792 SpectraLink Corporation and Subsidiaries Condensed Consolidated Balance Sheets (In thousands) As of: March 31, December 31, 2006 2005 (Unaudited) Liabilities and Stockholders' Equity Current liabilities: Accounts payable $8,214 $1,478 Accrued payroll, commissions and employee benefits 5,704 4,500 Other accrued expenses and liabilities 7,880 6,380 Deferred revenue 9,545 7,503 Current portion long-term debt 6,000 15,000 Total current liabilities 37,343 34,861 Long-term debt 12,050 18,050 Long-term deferred income tax liability 9,232 -- Other long-term liabilities 887 900 Total liabilities 59,512 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, 24,058 and 23,838 shares issued, respectively, and 19,326 and 19,106 shares outstanding, respectively 240 238 Additional paid-in capital 84,803 81,751 Retained earnings 29,941 32,383 Treasury stock, 4,732 shares, at cost (37,391) (37,391) Other comprehensive income 144 -- Total stockholders' equity 77,737 76,981 Total liabilities and stockholders' equity $137,249 $130,792 http://www.newscom.com/cgi-bin/prnh/20050324/LATH060LOGO http://photoarchive.ap.org/ DATASOURCE: SpectraLink Corp. CONTACT: Bob Husted, Director of Investor Relations, or John Elms, Chief Executive Officer, both of SpectraLink Corp., +1-303-440-5330 Web site: http://www.spectralink.com/

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