SOURCE: BigBand Networks

July 31, 2008 16:15 ET

BigBand Networks Reports Second Quarter 2008 Results

Company Reports Strong Performance and Solid Fundamentals as a Pure Play Digital Video Business

REDWOOD CITY, CA--(Marketwire - July 31, 2008) - BigBand Networks, Inc. (NASDAQ: BBND) today reported financial results for the second quarter ended June 30, 2008.

For the second quarter of 2008, total revenues were $43.0 million as compared to $39.9 million reported in the first quarter of 2008 and $54.5 million reported in the second quarter of 2007, which included $7.1 million from the subsequently retired CMTS platform.

GAAP net income for the second quarter of 2008 was $1.2 million, or $0.02 per diluted share. These results compare to a net loss of $1.9 million, or $(0.03) per share, reported in the first quarter of 2008 and net income of $1.7 million, or $0.02 per diluted share, reported in the second quarter of 2007.

On a non-GAAP basis, the Company reported net income of $4.5 million, or $0.07 per diluted share, in the second quarter of 2008. These numbers exclude $2.4 million in stock-based compensation expense, $1.2 million in restructuring expense and $143,000 in amortization of intangibles, offset by a $287,000 benefit from the sale of CMTS platform inventory previously reserved for in a prior period and $202,000 in income taxes. This compares to non-GAAP net income of $1.4 million, or $0.02 per diluted share, reported in the first quarter of 2008 and non-GAAP net income of $ 4.7 million, or $0.07 per diluted share, reported in the second quarter of 2007. The previous quarters' non-GAAP results also reflect adjustments for stock-based compensation, amortization of intangibles, restructuring and related tax expenses.

At June 30, 2008, deferred revenue was $69.2 million, up from $63.7 million at March 31, 2008 and $67.3 million as of December 31, 2007. The Company ended the second quarter with $158.8 million in cash, cash equivalents and marketable securities, compared to $150.0 million in the prior quarter and $154.5 million at December 31, 2007.

"We are pleased to report another quarter of solid execution, continued progress in leveraging our platform and building additional functionality for new and existing customers," commented Amir Bassan-Eskenazi, president and CEO of BigBand Networks. "The industry is shifting toward more High Definition programming, and operators are retooling and enhancing their networks. This trend continues to drive all areas of our business -- broadcast, Switched Digital Video and Telco TV solutions. We are optimistic about the opportunity ahead and are well positioned to leverage our technology know-how, customer relationships, and footprint."

In an effort to reduce its foreign currency exchange exposure going forward, in the second quarter of 2008 the Company reduced foreign currency based purchases and the related forward exchange contracts it had in place. As a result of these changes, the Company recorded, in its GAAP and non-GAAP results, a one-time derivative gain of $1.0 million, which was reported in other income along with other foreign exchange gains of approximately $400,000.

Third Quarter 2008 Business Outlook

For the third quarter of 2008, management provides the following outlook:

--  Net revenues are expected to be in the range of $46.0 to $48.0
    million.
--  Gross margins are expected to be in the range of 54% to 57%.
--  GAAP operating expenses are expected to be in the range of $27.5 to
    $28.0 million.
--  Non-GAAP operating expenses are expected to be in the range of $24.5
    to $25.0 million.
--  GAAP net earnings per share is expected to be in the range of a loss
    of $(0.02) to a profit of $0.01.
--  Non-GAAP net income per share is expected to be in the range of $0.02
    to $0.05.
    

The following table presents our non-GAAP anticipated results for the quarter ending September 30, 2008, reconciled to our GAAP anticipated results. Our non-GAAP anticipated results exclude (i) amortization of intangible assets, (ii) stock-based compensation and (iii) related income taxes.

                                                   Third quarter 2008
                                                       Estimated
                                                   Earnings per Share
                                              ----------------------------
                                                   Low           High
                                              -------------  --------------
GAAP net (loss) income                        $       (0.02) $         0.01
Amortization of intangibles and stock-based
 compensation, net of taxes                            0.04            0.04
                                              -------------  --------------
Non-GAAP net income                           $        0.02  $         0.05
                                              =============  ==============

Non-GAAP Financial Measures

BigBand reports all financial information required in accordance with U.S. generally accepted accounting principles (GAAP), but we believe that evaluating our ongoing operating results may be difficult to understand if limited to reviewing only GAAP financial measures. Many of our investors have requested that we disclose non-GAAP information because it is useful in understanding our performance as it excludes non-cash and other one-time charges that many investors feel may obscure our true operating costs. Likewise, management uses non-GAAP measures to manage and assess the profitability of our business going forward and does not consider stock-based compensation expense, amortization of intangible assets or preferred stock warrant expenses, which are non-cash charges, as well as restructuring charges in managing its operations. Specifically, management does not consider stock-based compensation expense when developing and monitoring our budgets and spending. The economic substance behind our decision to exclude preferred stock warrant expense, stock-based compensation and amortization of intangible assets relates to these charges being non-cash in nature and restructuring being one time charges. As a result, we use calculations of non-GAAP operating income, net income, net income per share and gross margin, which exclude, net of tax, amortization of intangible assets, stock-based compensation and restructuring charges, to evaluate our ongoing operations and to allocate resources within the organization.

As a result, our management believes it is useful, for itself and investors, to review both GAAP information that includes such charges and non-GAAP financial measures that exclude these charges to have a better understanding of the overall performance of our ongoing business operations and its performance in the periods presented.

Whenever we use a non-GAAP financial measure, we provide a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure.

Conference Call Details for July 31, 2008

BigBand Networks will host a corresponding conference call and live webcast at 2:00 p.m. Pacific Standard Time today. To access the conference call, dial +1-800-218-0713 for the U.S. or Canada and +1-303-262-2125 for international callers. The webcast will be available live on the Investor Relations section of the Company's corporate website at www.bigbandnet.com and via replay beginning approximately two hours after the completion of the call until the Company's announcement of its financial results for the next quarter. An audio replay of the call will also be available to investors beginning at approximately 4:00 p.m. Pacific Daylight Time on Thursday July 31, 2008 until 11:59 p.m. Pacific Daylight Time on August 7, 2008, by dialing +1-800-405-2236 or +1-303-590-3000 for callers outside the U.S. and Canada, and entering pass code 11116592#.

Cautionary Statement

The statements in this release regarding our business outlook with respect to the quarter ending September 30, 2008 (including revenues, gross margins, operating expenses and GAAP and non-GAAP earnings per share) are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause our actual results to differ materially, including, but not limited to: changes in demand for video services, the market acceptance of our products; the fluctuations in our gross margins; the concentration of our customer base; competitive developments including pricing pressures; the timing of recognition of a significant portion of our net revenues given the complex systems integration involved; our ability to manage operating expenses effectively; the level of orders that are received and can be shipped in a given quarter; and the general economic, industry or political conditions in the United States or internationally.

For a detailed discussion of these and other risk factors, please refer to BigBand's Report on Form 10-K for fiscal year 2007 and Report on Form 10-Q for the quarter ended March 31, 2008. You can obtain copies of the reports on the SEC's Web site (www.sec.gov).

Stockholders of BigBand Networks are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date such statements are made. BigBand Networks does not undertake any obligation to publicly update any forward-looking statements to reflect events, circumstances or new information after this July 31, 2008 press release, or to reflect the occurrence of unanticipated events.

About BigBand Networks

BigBand Networks, Inc. (NASDAQ: BBND) provides broadband service providers with innovative network solutions designed to make it easier to move, manage and monetize video. These solutions are based on BigBand's video-networking platforms that are built to enable efficient and reliable delivery of video, voice and data across a wide range of services, including digital TV, high definition TV, addressable advertising, video-on-demand, interactive TV, Internet TV, video telephony, high-speed Internet and voice-over-IP. BigBand Networks' customers include more than 100 service providers -- including six of the ten largest service providers in the U.S. -- and leading cable and telco service providers in North America, Asia, Europe and Latin America. BigBand Networks is based in Redwood City, Calif., with offices worldwide. For additional information about the Company, please call +1.650.995.5000, email info@bigbandnet.com or visit www.bigbandnet.com.

                          BigBand Networks, Inc.
                  Condensed Consolidated Balance Sheets
                        (In thousands, Unaudited)

                                                                As of
                                            As of June 30,   December 31,
                                                 2008            2007
                                            --------------  --------------
ASSETS
Current assets:
Cash and cash equivalents                   $       50,854  $       55,162
Marketable securities                              107,915          99,358
                                            --------------  --------------
Total cash, cash equivalents and marketable
 securities                                        158,769         154,520
Trade receivables, net                              25,195          27,855
Inventories, net                                     8,242           6,832
Prepaid expenses and other current assets            5,414           4,012
                                            --------------  --------------
Total current assets                               197,620         193,219

Property and equipment, net                         17,193          17,432
Goodwill and other intangible assets, net            2,104           2,390
Other non-current assets                             6,230           5,545
                                            --------------  --------------
Total assets                                $      223,147  $      218,586
                                            ==============  ==============

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable                            $        9,532  $       13,811
Accrued compensation and related benefits            9,450           6,475
Current portion of deferred revenues, net           49,395          48,256
Accrued warranty                                     2,944           3,502
Other current liabilities                            7,006          11,879
                                            --------------  --------------
Total current liabilities                           78,327          83,923

Deferred revenues, net, less current
 portion                                            19,804          19,032
Accrued warranty, less current portion               1,085             857
Accrued long-term severance pay fund                 4,005           3,188

Stockholders’ equity:
Common stock                                            64              62
Additional paid-in capital                         257,518         248,139
Deferred stock-based compensation                      (65)           (203)
Accumulated other comprehensive (loss)
 income                                               (258)            248
Accumulated deficit                               (137,333)       (136,660)
                                            --------------  --------------
Total stockholders’ equity                         119,926         111,586
                                            --------------  --------------
Total liabilities and stockholders’ equity  $      223,147  $      218,586
                                            ==============  ==============





                          BigBand Networks, Inc.
              Condensed Consolidated Statements of Operations
            (In thousands, except per share amounts, Unaudited)


                                    Three Months Ended   Six Months Ended
                                         June 30,            June 30,
                                      2008      2007      2008      2007
                                    --------  --------  --------  --------

Net revenues:
   Products                         $ 33,888  $ 46,261  $ 65,851  $ 91,917
   Services                            9,123     8,202    17,066    15,380
                                    --------  --------  --------  --------
Total net revenues                    43,011    54,463    82,917   107,297

Cost of net revenues:
   Products                           14,353    21,761    26,678    40,829
   Services                            3,285     3,611     6,499     6,981
                                    --------  --------  --------  --------
Total cost of net revenues            17,638    25,372    33,177    47,810
                                    --------  --------  --------  --------
Gross profit                          25,373    29,091    49,740    59,487
                                    --------  --------  --------  --------

Operating expenses:
   Research and development           12,809    13,678    27,212    26,750
   Sales and marketing                 7,002    11,113    14,866    21,427
   General and administrative          5,360     4,115    10,188     7,637
   Restructuring charges               1,158         -     1,493         -
   Amortization of intangible
    assets                               143       143       286       286
                                    --------  --------  --------  --------
Total operating expenses              26,472    29,049    54,045    56,100
                                    --------  --------  --------  --------

Operating (loss) income               (1,099)       42    (4,305)    3,387
Interest income                        1,202     2,157     2,871     3,038
Interest expense                           -      (271)        -      (609)
Other income (expense), net            1,365       105     1,447    (4,997)
                                    --------  --------  --------  --------
Net income before provision for
 income taxes                          1,468     2,033        13       819
Provision for income taxes               221       378       686       141
                                    --------  --------  --------  --------
Net income (loss)                   $  1,247  $  1,655  $   (673) $    678
                                    ========  ========  ========  ========

Basic net income (loss) per common
 share                              $   0.02  $   0.03  $  (0.01) $   0.02
                                    ========  ========  ========  ========
Diluted net income (loss) per
 common share                       $   0.02  $   0.02  $  (0.01) $   0.01
                                    ========  ========  ========  ========

Shares used in computing GAAP basic
 net income (loss) per common share   63,400    58,140    62,898    38,373
                                    ========  ========  ========  ========
Shares used in computing GAAP
 diluted net income (loss) per
 common share                         67,548    70,764    62,898    66,725
                                    ========  ========  ========  ========





                          BigBand Networks, Inc.
          Reconciliation of GAAP to Non-GAAP Financial Measures
            (In thousands, except per share amounts, Unaudited)


                                   Three Months Ended June 30, 2008
                             ---------------------------------------------
                                       Stock-based
                                       Comp/Amorti-
                                         zation of
                               GAAP     Intangible   Realignment  Non-GAAP
                             Results      Assets       Expenses   Results
                             --------  ------------  -----------  ---------

Net revenues:
   Products                  $ 33,888  $          -  $         -  $  33,888
   Services                     9,123             -            -      9,123
                             --------  ------------  -----------  ---------
Total net revenues             43,011             -            -     43,011
                             --------  ------------  -----------  ---------

Cost of net revenues:
   Products                    14,353          (268)         287     14,372
   Services                     3,285          (167)           -      3,118
                             --------  ------------  -----------  ---------
Total cost of net revenues     17,638          (435)         287     17,490
                             --------  ------------  -----------  ---------
Gross profit                   25,373           435         (287)    25,521
                             --------  ------------  -----------  ---------

Operating expenses:
   Research and development    12,809          (636)           -     12,173
   Sales and marketing          7,002          (529)           -      6,473
   General and
    administrative              5,360          (837)           -      4,523
   Restructuring charges        1,158             -       (1,158)         -
   Amortization of intangible
    assets                        143          (143)           -          -
                             --------  ------------  -----------  ---------
Total operating expenses       26,472        (2,145)      (1,158)    23,169
                             --------  ------------  -----------  ---------

Operating (loss) income        (1,099)        2,580          871      2,352
Interest income                 1,202             -            -      1,202
Interest expense                    -             -            -          -
Other income, net               1,365             -            -      1,365
                             --------  ------------  -----------  ---------
Net income before provision
 for income taxes               1,468         2,580          871      4,919
Provision for income taxes        221           202            -        423
                             --------  ------------  -----------  ---------
Net income                   $  1,247  $      2,378  $       871  $   4,496
                             ========  ============  ===========  =========

Basic net income per common
 share                       $   0.02                             $    0.07
                             ========                             =========
Diluted net income per
 common share                $   0.02                             $    0.07
                             ========                             =========

Shares used in computing
 basic net income per common
 share                         63,400                                63,400
                             ========                             =========
Shares used in computing
 diluted net income per
 common share                  67,548                                67,548
                             ========                             =========





                          BigBand Networks, Inc.
          Reconciliation of GAAP to Non-GAAP Financial Measures
    (In thousands, except per share amounts and percentages, Unaudited)


                                 Three Months Ended     Six Months Ended
                                      June 30,              June 30,
                                  2008       2007       2008       2007
                                ---------  ---------  ---------  ---------

GAAP and Non-GAAP net revenues
 as reported                    $  43,011  $  54,463  $  82,917  $ 107,297
                                ---------  ---------  ---------  ---------

GAAP cost of net revenues as
 reported                       $  17,638  $  25,372  $  33,177  $  47,810
   Inventory recovery relating
    to CMTS platform                  287          -        755          -
   Stock-based compensation
    expense                          (435)      (426)      (889)      (699)
                                ---------  ---------  ---------  ---------
Non-GAAP cost of net revenues   $  17,490  $  24,946  $  33,043  $  47,111
                                ---------  ---------  ---------  ---------

GAAP gross profit as reported   $  25,373  $  29,091  $  49,740  $  59,487
   Inventory recovery relating
    to CMTS platform                 (287)         -       (755)         -
   Stock-based compensation
    expense                           435        426        889        699
                                ---------  ---------  ---------  ---------
Non-GAAP gross profit           $  25,521  $  29,517  $  49,874  $  60,186
                                ---------  ---------  ---------  ---------

As a percentage of net
 revenues:
GAAP gross profit as reported        59.0%      53.4%      60.0%      55.4%
                                =========  =========  =========  =========
Non-GAAP gross profit                59.3%      54.2%      60.1%      56.1%
                                =========  =========  =========  =========

GAAP operating (loss) income as
 reported                       $  (1,099) $      42  $  (4,305) $   3,387
   Inventory recovery relating
    to CMTS platform                 (287)         -       (755)         -
   Stock-based compensation
    expense:
     - Cost of goods sold             435        426        889        699
     - Research and development       636      1,058      1,895      1,731
     - Sales and marketing            529      1,037      1,248      2,189
     - General and
        administrative                837        427      1,631        741
   Restructuring charges            1,158          -      1,493          -
   Amortization of intangible
    assets                            143        143        286        286
                                ---------  ---------  ---------  ---------
Non-GAAP operating income       $   2,352  $   3,133  $   2,382  $   9,033
                                ---------  ---------  ---------  ---------

GAAP net income (loss) as
 reported                       $   1,247  $   1,655  $    (673) $     678
   Stock-based compensation
    expense                         2,437      2,948      5,663      5,360
   Amortization of intangible
    assets                            143        143        286        286
   Inventory recovery relating
    to CMTS platform                 (287)         -       (755)         -
   Restructuring expenses           1,158          -      1,493          -
   Preferred stock warrant
    expense                             -          -          -      4,974
   Tax effect of adjustments         (202)       (34)      (107)      (778)
                                ---------  ---------  ---------  ---------
Non-GAAP net income             $   4,496  $   4,712  $   5,907  $  10,520
                                =========  =========  =========  =========

Basic Non-GAAP net income per
 common share                   $    0.07  $    0.08  $    0.09  $    0.27
                                =========  =========  =========  =========
Diluted Non-GAAP net income per
 common share                   $    0.07  $    0.07  $    0.09  $    0.16
                                =========  =========  =========  =========

Shares used in computing Basic
 Non-GAAP net income per common
 share                             63,400     58,140     62,898     38,373
                                =========  =========  =========  =========

Shares used in computing
 Diluted Non-GAAP net income
 per common share                  67,548     70,764     67,254     66,725
                                =========  =========  =========  =========

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