SLNK Spectralink Corp (MM)

KIRK Group Delivers Solid Third Quarter BOULDER, Colo., Nov. 8, 2006 /PRNewswire-FirstCall/ -- SpectraLink Corp. (NASDAQ:SLNK), the leader in workplace wireless telephony, today reported consolidated revenue of $38.0 million for the quarter ended Sept. 30, 2006. This represents an increase of 7 percent compared with consolidated pro forma revenue for the prior-year third 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 third quarter was $21.4 million compared to $21.8 million pro forma results for the third quarter of 2005. Gross margin for the quarter was 56.4 percent, compared to 61.2 percent for the previous year's pro forma results. GAAP net income for the third quarter of 2006 was $1.7 million or 9 cents per diluted share compared to pro forma earnings of $2.4 million or 12 cents pro forma per diluted share for the same period in 2005. For the nine months ended Sept. 30, 2006, revenue was $107.3 million with GAAP net loss of $612 thousand or 3 cents per diluted share. For the same period a year ago, pro forma revenue was $97.2 million generating $3.9 million in net income and 20 cents earnings per diluted share. During the third quarter, the company recorded charges for FAS 123R stock-based compensation expense of $877 thousand and amortization of intangible assets related to the KIRK telecom acquisition of $1.1 million. Non-GAAP income for the third quarter of 2006, which excludes amortization of intangibles of $1.1 million and share-based compensation expense of $877 thousand, was $3.3 million, or 17 cents per diluted share, compared to non-GAAP pro forma earnings of $4.4 million, or 23 cents per diluted share for the third quarter of 2005. Year-to-date non-GAAP income was $5.4 million resulting in 28 cents per diluted share. For the same period in 2005, non-GAAP pro forma earnings were $9.5 million, or 49 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. "The third quarter of 2006 was a solid one for SpectraLink on both the top and bottom lines," said John Elms, SpectraLink president and CEO. "We have seen product demand increase and service revenues are at an all-time high and overall, I'm very pleased with our progress." "We successfully contained costs and further developed new and existing technology and channel partnerships," added Elms. "We continued to take productive steps toward completing the KIRK integration to ensure a global presence and continued worldwide leadership position for SpectraLink." Ernest Sampias, SpectraLink executive vice president and CFO said, "We saw good progress in reducing our non-GAAP operating expenses this quarter, dropping to 43 percent of revenue in Q3 compared with 50 percent of revenue in Q2. The primary contributor to this improvement was the reduction of R&D expense of over $1 million from last quarter as we completed many of our new product introductions. This brings us very close to our stated goal of managing our operating expenses back in-line with SpectraLink's historical run rates as a percent of revenue." 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 FAS 123R expense. Beginning in the first quarter of 2006, our non-GAAP earnings exclude the affects of FAS 123R, amortization of intangible assets 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 that 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 third quarter 2006 earnings results, today, Nov. 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) (Unaudited) September 30, December 31, 2006 2005 ASSETS Current Assets: Cash and cash equivalents $4,459 $16,703 Cash held in escrow for acquisition -- 55,148 Investment in marketable securities 10,615 14,088 Trade accounts receivable, net of allowance of $282 and $343, respectively 26,780 22,574 Inventories: Raw materials 12,694 4,783 Work in progress 318 5 Finished goods 7,475 4,727 Less allowance for obsolete inventory (996) (575) Total inventories 19,491 8,940 Deferred income taxes 1,532 1,626 Prepaids and other 1,915 1,201 Total current assets 64,792 120,280 Property and equipment, net of accumulated depreciation of $13,745 and $11,110, respectively 13,998 8,422 Intangible assets, net of accumulated amortization of $3,655 and $272, respectively 30,906 318 Goodwill 23,944 -- Other non-current assets 670 1,772 Total assets $134,310 $130,792 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $4,230 $1,478 Accrued payroll, commissions and employee benefits 5,692 4,500 Other accrued expenses and liabilities 7,649 6,380 Deferred revenue 10,063 7,503 Current portion long-term debt 6,000 15,000 Total current liabilities 33,634 34,861 Long-term debt 9,050 18,050 Long-term deferred tax liabilities 8,090 -- Other long-term liabilities 973 900 Total liabilities 51,747 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, 24,212 and 23,838 shares issued, respectively, and 19,480 and 19,106 shares outstanding, respectively 242 238 Additional paid-in capital 87,403 81,751 Retained earnings 31,771 32,383 Other comprehensive income 538 -- Treasury stock, 4,732 shares, at cost (37,391) (37,391) Total stockholders' equity 82,563 76,981 Total liabilities and stockholders' equity $134,310 $130,792 SpectraLink Corporation and Subsidiary Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2005 2006 2005 2005 Actual Pro forma(1) Actual Actual Pro forma(1) Actual Sales: Product sales $29,843 $29,645 $18,954 $84,644 $80,405 $51,024 Service sales 8,108 5,960 5,808 22,615 16,828 16,437 Net sales 37,951 35,605 24,762 107,259 97,233 67,461 Cost of sales: Cost of product sales 12,439 10,779 5,417 34,745 29,960 14,635 Cost of services sales 4,092 3,028 3,010 11,536 8,765 8,723 Total cost of sales 16,531 13,807 8,427 46,281 38,725 23,358 Gross profit 21,420 21,798 16,335 60,978 58,508 44,103 Operating expenses: Research and development 4,759 3,922 2,702 16,400 11,294 7,648 Marketing and selling 8,934 7,872 6,674 26,538 22,638 19,237 General and administrative 3,485 2,636 1,704 11,280 8,033 4,783 Acquired in-process research and development -- -- -- 2,021 2,021 -- Amortization of intangible assets 1,130 1,103 4 3,385 3,349 54 Total operating expenses 18,308 15,533 11,084 59,624 47,335 31,722 Income from operations: 3,112 6,265 5,251 1,354 11,173 12,381 Other (expense) income, net Interest (expense) income, net (267) (270) 387 (1,244) (1,211) 1,131 Other (expense) income, net (49) (1) (38) 88 (31) (143) Total other (expense) income, net (316) (271) 349 (1,156) (1,242) 988 Income before income taxes 2,796 5,994 5,600 198 9,931 13,369 Income tax expense (1,047) (3,630) (1,994) (810) (6,060) (4,946) Net income (loss) $1,749 $2,364 $3,606 $(612) $3,871 $8,423 Basic earnings (loss) per share $0.09 $0.12 $0.19 $(0.03) $0.20 $0.44 Basic weighted average shares outstanding 19,390 18,940 18,940 19,300 19,070 19,070 Diluted earnings (loss) per share $0.09 $0.12 $0.19 $(0.03) $0.20 $0.43 Diluted weighted average shares 19,440 19,190 19,190 19,300 19,380 19,380 (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 Nine Months ended September 30, September 30, 2006 2005 2006 2005 (Actual) (Pro forma)(1) (Actual) (Pro forma)(1) Sales: Product sales $29,843 $29,645 $84,644 $80,405 Service sales 8,108 5,960 22,615 16,828 Net sales 37,951 35,605 107,259 97,233 Cost of sales: Cost of product sales 12,416 10,779 34,631 29,960 Cost of services sales 4,092 3,028 11,536 8,765 Total cost of sales 16,508 13,807 46,167 38,725 Gross profit 21,443 21,798 61,092 58,508 Operating expenses: Research and development 4,571 3,922 15,788 11,294 Marketing and selling 8,819 7,872 26,168 22,638 General and administrative 2,934 2,636 9,790 8,033 Acquired in-process research and development -- -- -- -- Amortization of intangible assets -- -- -- -- Total operating expenses 16,324 14,430 51,746 41,965 Income from operations: 5,119 7,368 9,346 16,543 Other (expense) income, net Interest (expense) income, net (267) (270) (1,244) (1,211) Other (expense) income, net (49) (1) 88 (31) Total other (expense) income, net (316) (271) (1,156) (1,242) Non-GAAP earnings before income taxes 4,803 7,097 8,190 15,301 Income tax expense (1,532) (2,745) (2,809) (5,836) Non-GAAP earnings after taxes $3,271 $4,352 $5,381 $9,465 Non-GAAP earnings per share - basic $0.17 $0.23 $0.28 $0.50 Basic weighted average shares outstanding 19,390 18,940 19,300 19,070 Non-GAAP earnings per share - diluted $0.17 $0.23 $0.28 $0.49 Diluted weighted average shares 19,440 19,190 19,420 19,380 (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 Nine months ended September 30, September 30, 2006 2005 2006 2005 (Actual) (Pro forma)(1) (Actual) (Pro forma)(1) GAAP income before income taxes $2,796 $5,994 $198 $9,931 Adjustments: Acquired in-process research and development -- -- 2,021 2,021 Amortization of intangible assets 1,130 1,103 3,385 3,349 Share-based compensation expense 877 -- 2,586 -- Non-GAAP earnings before income taxes 4,803 7,097 8,190 15,301 Tax expense (1,532) (2,745) (2,809) (5,836) Non-GAAP earnings after taxes $3,271 $4,352 $5,381 $9,465 Non-GAAP earnings after taxes per share - diluted $0.17 $0.23 $0.28 $0.49 Weighted average shares outstanding - diluted 19,440 19,190 19,420 19,380 (1) Our pro forma results assume the acquisition of KIRK telecom occurred on Jan. 1, 2005. Three months ended Nine months ended September 30, September 30, 2006 2005 2006 2005 (Actual) (Pro forma)(1) (Actual) (Pro forma)(1) Non-GAAP Adjustments: Cost of sales: FAS 123R stock based compensation $23 $-- $114 $-- Operating expenses: Research and development FAS 123R stock based compensation 188 -- 612 -- Marketing and selling FAS 123R stock based compensation 115 -- 370 -- General and administrative FAS 123R stock based compensation 551 -- 1,490 -- Acquired in-process research and development -- -- 2,021 2,021 Amortization of intangible assets 1,130 1,103 3,385 3,349 Total non-GAAP adjustments 2,007 1,103 7,992 5,370 Income tax impact of non-GAAP adjustments (485) 885 (1,999) 224 After-tax impact of non-GAAP adjustments $1,522 $1,988 $5,993 $5,594 (1) Our pro forma results assume the acquisition of KIRK telecom occurred on Jan. 1, 2005. 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 earnings (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 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 earnings 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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