SLNK Spectralink Corp (MM)

Company Delivers Profitable Second Quarter BOULDER, Colo., Aug. 8, 2006 /PRNewswire-FirstCall/ -- SpectraLink Corp. (NASDAQ:SLNK), the leader in workplace wireless telephony, today reported consolidated revenue of $35.3 million for the quarter ended June 30, 2006. This represents an increase of 11 percent compared with consolidated pro forma revenue for the prior-year second quarter. Pro forma results assume the acquisition of KIRK telecom occurred on Jan. 1, 2005. (Logo: http://www.newscom.com/cgi-bin/prnh/20050324/LATH060LOGO ) Gross profit for the second quarter was $20.1 million compared to $19.3 million pro forma results for the second quarter of 2005. Gross margin for the quarter was 57.0 percent, compared to 60.7 percent for the previous year's pro forma results. GAAP net income for the second quarter of 2006 was $82,000 or zero cents per diluted share compared to pro forma earnings of $2.3 million or 12 cents pro forma per diluted share for the same period in 2005. For the six months ended June 30, 2006, revenue was $69.3 million with GAAP net loss of $2.4 million or 12 cents per diluted share. For the same period a year ago, pro forma revenue was $61.6 million generating $1.5 million in net income and 8 cents earnings per diluted share. During the second quarter, the company recorded charges for FAS123R stock option expense of $942,000 and amortization of intangible assets related to the KIRK telecom acquisition of $1.1 million. Non-GAAP income for the second quarter of 2006, which excludes amortization of intangibles of $1.1 million and share-based compensation expense of $942,000, was $1.4 million, or 7 cents per diluted share, compared to non-GAAP pro forma earnings of $3.2 million, or 16 cents per diluted share for the second quarter of 2005. Year-to-date non-GAAP income was $2.1 million resulting in 11 cents per diluted share. For the same period in 2005, non-GAAP pro forma earnings were $5.1 million, or 26 cents per diluted share. Details of the reconciliation between GAAP and non-GAAP earnings are provided in the attached Reconciliation of Non-GAAP Measurement to GAAP financial table. "SpectraLink continues to advance workplace wireless telephony," said John Elms, SpectraLink president and CEO. "This quarter, we saw strong demand for our new Link 6020 handset, demonstrating long-term customer commitment to our Link Wireless Telephone System. On the Wi-Fi front, we recently announced our tenth VIEW Certification Partner -- a true testament to the value our partners place on SpectraLink's expertise in this industry." Elms went on to say, "For the third consecutive quarter, NetLink was the leading product line in sales, and so we believe the continued shift in mix toward NetLink sales indicates that broad wireless LAN deployments are finally on the rise. SpectraLink is positioned to meet this growing demand both in North America and through our expanded international distribution channels." Ernest Sampias, SpectraLink executive vice president and CFO said, "Our operating expenses remain a primary focus for us going forward. We are working diligently to drive expenses down to more traditional levels seen at SpectraLink as the year progresses. In addition, inventory levels necessary to introduce our many new products this year should decrease as new products are released to the market." 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 provide useful information to investors because it allows investors to measure and evaluate our performance without considering charges associated with our acquisition including amortization of intangible assets and the charge for in-process research and development related to the acquisition, and FAS123R expense. Non-GAAP after tax amounts have been calculated using a consolidated 37.7% effective tax rate. Beginning in the first quarter of 2006, our non-GAAP earnings exclude the affects of FAS123R, amortization of intangibles and purchased in-process R&D 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 (loss) 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 second quarter 2006 earnings results, today, Aug. 8, 2006, at 4:30 p.m. Eastern time. To access the webcast and replay, visit 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 Condensed Consolidated Balance Sheets (In thousands, except share data) (Unaudited) June 30, December 31, 2006 2005 ASSETS Current Assets: Cash and cash equivalents $5,855 $16,703 Cash held in escrow for acquisition -- 55,148 Investment in marketable securities - current 10,564 14,088 Trade accounts receivable, net of allowance of $342 and $343, respectively 24,843 22,574 Inventories: Raw materials 11,537 4,783 Work in progress 563 5 Finished goods 7,493 4,727 Less allowance for obsolete inventory (716) (575) Total inventories 18,877 8,940 Deferred income taxes 1,716 1,626 Prepaids and other 2,028 1,201 Total current assets 63,883 120,280 Property and equipment, net of accumulated depreciation of $12,556 and $11,110, respectively 13,639 8,422 Intangible assets, net of accumulated amortization of $2,525 and $272, respectively 31,970 318 Goodwill 24,298 -- Other non-current assets 709 1,772 Total assets $134,499 $130,792 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $6,418 $1,478 Accrued payroll, commissions and employee benefits 6,176 4,500 Other accrued expenses and liabilities 5,454 6,380 Deferred revenue - current portion 10,409 7,503 Current portion long-term debt 6,000 15,000 Total current liabilities 34,457 34,861 Long-term debt 11,050 18,050 Long-term deferred tax liabilities 8,887 -- Other long-term liabilities 892 900 Total liabilities 55,286 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, 24,077 and 23,838 shares issued, respectively, and 19,345 and 19,106 shares outstanding, respectively 241 238 Additional paid-in capital 85,884 81,751 Retained earnings 30,022 32,383 Other comprehensive income 457 -- Treasury stock, 4,732 shares, at cost (37,391) (37,391) Total stockholders' equity 79,213 76,981 Total liabilities and stockholders' equity $134,499 $130,792 SpectraLink Corporation and Subsidiary Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2005 2006 2005 2005 Actual Pro Actual Actual Pro Actual forma(1) forma(1) Sales: Product sales $27,734 $26,367 $16,614 $54,802 $50,760 $32,070 Service sales 7,605 5,497 5,497 14,506 10,868 10,629 Net sales 35,339 31,864 22,111 69,308 61,628 42,699 Cost of sales: Cost of product sales 11,277 9,567 4,669 22,306 19,181 9,218 Cost of services sales 3,925 2,959 2,959 7,444 5,738 5,713 Total cost of sales 15,202 12,526 7,628 29,750 24,919 14,931 Gross profit 20,137 19,338 14,483 39,558 36,709 27,768 Operating expenses: Research and development 5,835 3,708 2,489 11,641 7,372 4,946 Marketing and selling 8,960 7,499 6,508 17,603 14,766 12,563 General and administrative 3,788 2,809 1,519 7,796 5,397 3,079 Acquired in-process research and development -- -- -- 2,021 2,021 -- Amortization of intangible assets 1,130 1,126 28 2,255 2,247 50 Total operating expenses 19,713 15,142 10,544 41,316 31,803 20,638 Income (loss) from operations: 424 4,196 3,939 (1,758) 4,906 7,130 Other (expense) income, net Interest (expense) income, net (182) (189) 393 (977) (941) 744 Other (expense) income, net (105) (42) (53) 136 (32) (105) Total other (expense) income, net (287) (231) 340 (841) (973) 639 Income (loss) before income taxes 137 3,965 4,279 (2,599) 3,933 7,769 Income tax (expense) benefit (55) (1,634) (1,626) 238 (2,430) (2,952) Net income (loss) $82 $2,331 $2,653 $(2,361) $1,503 $4,817 Basic earnings (loss) per share $-- $0.12 $0.14 $(0.12) $0.08 $0.25 Basic weighted average shares outstanding 19,340 19,040 19,040 19,240 19,130 19,130 Diluted earnings (loss) per share $-- $0.12 $0.14 $(0.12) $0.08 $0.25 Diluted weighted average shares 19,480 19,230 19,230 19,240 19,480 19,480 (1) Our pro forma results assume the acquisition of KIRK telecom occurred on Jan. 1, 2005. SpectraLink Corporation and Subsidiary Condensed Non-GAAP Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 (Actual) (Pro forma)(1) (Actual) (Pro forma)(1) Sales: Product sales $27,734 $26,367 $54,802 $50,760 Service sales 7,605 5,497 14,506 10,868 Net sales 35,339 31,864 69,308 61,628 Cost of sales: Cost of product sales 11,252 9,567 22,215 19,181 Cost of services sales 3,925 2,959 7,444 5,738 Total cost of sales 15,177 12,526 29,659 24,919 Gross profit 20,162 19,338 39,649 36,709 Operating expenses: Research and development 5,624 3,708 11,217 7,372 Marketing and selling 8,819 7,499 17,348 14,766 General and administrative 3,223 2,809 6,857 5,397 Acquired in-process research and development -- -- -- -- Amortization of intangible assets -- -- -- -- Total operating expenses 17,666 14,016 35,422 27,535 Income from operations: 2,496 5,322 4,227 9,174 Other (expense) income, net Interest (expense) income, net (182) (189) (977) (941) Other (expense) income, net (105) (42) 136 (32) Total other (expense) income, net (287) (231) (841) (973) Non-GAAP earnings before income taxes 2,209 5,091 3,386 8,201 Income tax expense (833) (1,919) (1,277) (3,092) Non-GAAP earnings after taxes $1,376 $3,172 $2,109 $5,109 Non-GAAP earnings per share - basic $0.07 $0.17 $0.11 $0.27 Basic weighted average shares outstanding 19,340 19,040 19,240 19,130 Non-GAAP earnings per share - diluted $0.07 $0.16 $0.11 $0.26 Diluted weighted average shares 19,480 19,230 19,430 19,480 (1) Our pro forma results assume the acquisition of KIRK telecom occurred on Jan. 1, 2005. SpectraLink Corporation and Subsidiaries Reconciliation of Non-GAAP Measurement to GAAP (In thousands, except per share amounts) (Unaudited) Three months ended Six months ended June 30, June 30, 2006 2005 2006 2005 (Actual) (Pro forma)(1) (Actual) (Pro forma)(1) GAAP income (loss) before income taxes $137 $3,965 $(2,599) $3,933 Adjustments: Purchased in-process research and development -- -- 2,021 2,021 Amortization of intangibles 1,130 1,126 2,255 2,247 Share-based compensation expense 942 -- 1,709 -- Non-GAAP earnings before income taxes 2,209 5,091 3,386 8,201 Tax expense (2) (833) (1,919) (1,277) (3,092) Non-GAAP earnings after taxes $1,376 $3,172 $2,109 $5,109 Non-GAAP earnings after taxes per share - diluted $0.07 $0.16 $0.11 $0.26 Weighted average shares outstanding - diluted 19,480 19,230 19,430 19,480 (1) Our pro forma results assume the acquisition of KIRK telecom occurred on Jan. 1, 2005. (2) Tax affected at an assumed 37.7% consolidated effective tax rate. Three Months Ended Six Months ended June 30, June 30, 2006 2005 2006 2005 Non-GAAP Adjustments: Cost of sales: FAS 123R stock based compensation $25 $-- $91 $-- Operating expenses: Research and development FAS 123R stock based compensation 211 -- 424 -- Marketing and selling FAS 123R stock based compensation 141 -- 255 -- General and administrative FAS 123R stock based compensation 565 -- 939 -- Acquired in-process research and development -- -- 2,021 2,021 Amortization of intangible assets 1,130 1,126 2,255 2,247 Total non-GAAP adjustments 2,072 1,126 5,985 4,268 Income tax expense (833) (1,919) (1,277) (3,092) After-tax impact of non-GAAP adjustments $1,239 $(793) $4,708 $1,176 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. http://www.newscom.com/cgi-bin/prnh/20050324/LATH060LOGO http://photoarchive.ap.org/ DATASOURCE: SpectraLink Corp. CONTACT: Bob Husted, Director of Investor Relations, or Ernest Sampias, Chief Financial Officer, both of SpectraLink Corp., +1-303-440-5330 Web site: http://www.spectralink.com/

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