SOURCE: AVICI SYSTEMS INC.

February 28, 2008 07:00 ET

Avici Systems Reports Fourth Quarter and Full Year 2007 Results

BILLERICA, MA--(Marketwire - February 28, 2008) - Avici Systems Inc. (NASDAQ: AVCI) today reported results for its fourth quarter and full year ended December 31, 2007.

Gross revenue for the three and twelve months ended December 31, 2007 was $44.9 million and $124.3 million, respectively, compared to $15.9 million and $82.8 million, respectively for the three and twelve months ended December 31, 2006.

"This year marks an exciting turning point for the Company as we change our name to Soapstone Networks and deliver a revolutionary product that will help accelerate the adoption of Carrier Ethernet technology and automate the entire service lifecycle," said Bill Leighton, Chief Executive Officer, Avici Systems. "I am very pleased with the progress we have made in developing and marketing the Soapstone PNC™ solution, which we believe will significantly accelerate innovation in the delivery of new network services."

GAAP net income for the fourth quarter ended December 31, 2007 was $29.2 million, or $1.90 per share, compared to a GAAP net income of $3.0 million, or $0.21 per share, in the prior year's fourth quarter. GAAP net income in the 2007 period includes $0.6 million of non-cash equity based charges associated with Financial Accounting Standards Board Statement No. 123R ("SFAS 123R"). GAAP net income for the 2006 period includes $0.5 million of non-cash equity based charges associated with SFAS 123R.

GAAP net income for the twelve months ended December 31, 2007 was $62.3 million, or $4.16 per share, compared to a GAAP net income of $8.3 million, or $0.60 per share, for the twelve months ended December 31, 2006. GAAP net income in the 2007 period includes $2.3 million of non-cash equity based charges associated with SFAS 123R, $0.3 million of special charges associated with the 2006 restructuring and $0.2 million of certain inventory credits. GAAP net income for the 2006 period includes $10.7 million of special charges associated with the 2006 restructuring, $0.8 million of non-cash equity based charges associated with SFAS 123R, $0.5 million of non-cash common stock warrant discount charge and $0.2 million of certain inventory credits.

Non-GAAP net income (GAAP net income excluding charges for restructuring, certain stock based compensation, common stock warrant discount and inventory credits) for the fourth quarter ended December 31, 2007 was $29.8 million, or $1.93 per share compared to non-GAAP net income of $4.0 million, or $0.28 per share in the fourth quarter of 2006. Non-GAAP net income for the twelve months ended December 31, 2007 was $64.7 million, or $4.31 per share, compared to non-GAAP net income of $20.1 million or $1.47 per share for the prior year twelve month period ended December 31, 2006.

Cash, cash equivalents and short and long-term marketable securities totaled $103.0 million at December 31, 2007.

Avici will discuss these quarterly results as well as future business and financial expectations in an investor conference on February 28, 2008 at 8:30 AM eastern standard time. The conference telephone number is (800) 230-1093. A replay of the conference call will be available after 11:15 AM. Replay information will be available at (800) 475-6701 (USA) access code: 909097. Replay of this call is also available on Avici's Web site, www.avici.com, along with a copy of this release.

Avici is a trademark of Avici Systems Inc.

This release contains information about Avici's future expectations, plans, and prospects, including Avici's expectations for annual gross revenues, profitability and the growth opportunity for Soapstone Networks, that constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Statements made with regard to interim results are not necessarily indicative of results that may be expected for future interim periods or for the full year. When used in this press release, the word "will," "expected" and other similar expressions are intended to identify such forward-looking statements. Such risks and uncertainties include, but are not limited to, Avici's ability to manage the transition of its core router business, the early stage of Soapstone Networks, market acceptance of our products, services and enhancements, dependence on our major customer, customer purchasing patterns and commitments, development of the market place, product development and enhancement, intensity of competition of other vendors, technological changes, reliance on technology and distribution partners, and other risks set forth in Avici's filings with the Securities and Exchange Commission. Avici does not undertake any duty to update forward-looking statements.

About Avici Systems

Avici Systems Inc., headquartered in Billerica, Mass., has provided purpose-built carrier-class routing solutions for the Internet. The company's routing systems provide IP solutions to some of the world's leading service providers. www.avici.com

About Soapstone Networks

Soapstone Networks is at the forefront of the movement to Carrier Ethernet by delivering resource control systems that realize NGN software-provisioned services in the new Carrier Ethernet transport network. Soapstone's common control framework decouples services from underlying network technologies. The Soapstone solution dynamically provisions precise, SLA-quality services, continuously optimizing utilization of network resources to bring orderly, predictable business-driven behavior to service provider networks. The future of Carrier Ethernet -- www.soapstonenetworks.com

                           AVICI SYSTEMS INC.
                 CONSOLIDATED STATEMENTS OF OPERATIONS
          (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                              (Unaudited)


                              Three Months Ended      Twelve Months Ended
                                 December 31,            December 31,
                            ----------------------  ----------------------
                               2007        2006        2007        2006
                            ----------  ----------  ----------  ----------
Revenue:
   Product                  $   42,137  $   13,992  $  114,388  $   76,371
   Service                       2,737       1,904       9,912       6,392
                            ----------  ----------  ----------  ----------
     Total gross revenue        44,874      15,896     124,300      82,763
Less - Common stock warrant
 discount - Product                 --          --          --        (527)
                            ----------  ----------  ----------  ----------
     Net revenue                44,874      15,896     124,300      82,236
                            ----------  ----------  ----------  ----------

Cost of revenue - Product
 (1)                             8,029       3,924      27,462      26,328
Cost of revenue - Service          264         393       1,434       1,795
                            ----------  ----------  ----------  ----------
     Total cost of revenue       8,293       4,317      28,896      28,123
                            ----------  ----------  ----------  ----------

     Gross margin               36,581      11,579      95,404      54,113
                            ----------  ----------  ----------  ----------

Operating expenses:
   Research and development
    (2)                          5,284       5,877      25,010      30,154
   Sales and marketing (2)         820         949       2,762       4,077
   General and
    administrative (2)           1,397       1,505       5,773       5,562
   Stock-based compensation        579         492       2,323         819
   Restructuring expenses           --         495         100       7,617
                            ----------  ----------  ----------  ----------
     Total operating expenses    8,080       9,318      35,968      48,229
                            ----------  ----------  ----------  ----------

Income from operations          28,501       2,261      59,436       5,884
Interest income, net             1,045         897       3,771       2,571
Other Income                       163          --         244          --
Provision for income tax          (504)       (170)     (1,174)       (170)
                            ----------  ----------  ----------  ----------

Net income                  $   29,205  $    2,988  $   62,277  $    8,285
                            ==========  ==========  ==========  ==========

Net earnings per diluted
 share                      $     1.90  $     0.21  $     4.16  $     0.60
                            ==========  ==========  ==========  ==========

Weighted average common
 shares used in computing
 diluted net income per
 share                      15,403,673  14,075,017  14,984,454  13,706,889
                            ==========  ==========  ==========  ==========

   (1) Includes inventory
    charge and (credits), as
    follows:
      Inventory and
       Inventory related
       charge               $       --  $       --  $      175  $    3,094
                            ==========  ==========  ==========  ==========
      Credits from
       utilization of
       inventory previously
       written off in 2006
       and 2001             $       --  $       --  $     (218) $     (215)
                            ==========  ==========  ==========  ==========
   (2) Excludes certain
    non-cash, stock-based
    compensation, as follows:
        Research and
         development        $      311  $      265  $    1,307  $      440
        Sales and marketing         95          83         205         151
        General and
         administration            173         144         811         228
                            ----------  ----------  ----------  ----------
                            $      579  $      492  $    2,323  $      819
                            ==========  ==========  ==========  ==========



                             AVICI SYSTEMS INC.
             NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS
           (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                               (Unaudited)
                                  Note 1


                              Three Months Ended     Twelve Months Ended
                                 December 31,            December 31,
                               2007        2006        2007        2006
                            ----------  ----------  ----------  ----------
Revenue:
   Product                  $   42,137  $   13,992  $  114,388  $   76,371
   Service                       2,737       1,904       9,912       6,392
                            ----------  ----------  ----------  ----------
     Total gross revenue        44,874      15,896     124,300      82,763

Cost of revenue - Product        8,029       3,924      27,505      23,449
Cost of revenue - Service          264         393       1,434       1,795
                            ----------  ----------  ----------  ----------
   Total cost of revenue         8,293       4,317      28,939      25,244
                            ----------  ----------  ----------  ----------

     Gross margin               36,581      11,579      95,361      57,519
                            ----------  ----------  ----------  ----------

Operating expenses:
   Research and development      5,284       5,877      25,010      30,154
   Sales and marketing             820         949       2,762       4,077
   General and
    administrative               1,397       1,505       5,773       5,562
                            ----------  ----------  ----------  ----------
     Total operating
      expenses                   7,501       8,331      33,545      39,793
                            ----------  ----------  ----------  ----------

Income from operations          29,080       3,248      61,816      17,726
Interest income, net             1,045         897       3,771       2,571
Other Income                       163          --         244          --
Provision for income tax          (504)       (170)     (1,174)       (170)
                            ----------  ----------  ----------  ----------

Non-GAAP net income         $   29,784  $    3,975  $   64,657  $   20,127
                            ==========  ==========  ==========  ==========

Non-GAAP earnings per
 diluted share              $     1.93  $     0.28  $     4.31  $     1.47
                            ==========  ==========  ==========  ==========

Weighted average common
 shares used in computing
 diluted net income per
 share                      15,403,673  14,075,017  14,984,454  13,706,889
                            ==========  ==========  ==========  ==========

Note 1 - The above non-GAAP consolidated statements of operations for the
three and twelve months ended December 31, 2007 and 2006 are not presented
in accordance with generally accepted accounting principles (GAAP) and are
presented for informational purposes only.  These statements exclude the
impact of restructuring expenses, non-cash charges related to common stock
warrant discount and certain stock based compensation as well as charges
and credits related to inventory and related items as presented in the
following reconciliation for the applicable periods.  The Company believes
that this presentation of non-GAAP results provides helpful information to
both management and investors in assessing our core operating performance.
Such information should not be considered superior to, in isolation from,
or as a substitute for results presented in accordance with generally
accepted accounting principles.

                              Three Months Ended     Twelve Months Ended
                                 December 31,            December 31,

                               2007        2006        2007        2006
                            ----------  ----------  ----------  ----------
Non-GAAP net income         $   29,784  $    3,975  $   64,657  $   20,127
Common stock warrant
 discount                           --          --          --        (527)
Restructuring expenses              --        (495)       (100)     (7,617)
Certain non-cash stock
 based compensation               (579)       (492)     (2,323)       (819)
Inventory and inventory
 related charge                     --          --        (175)     (3,094)
Utilization of inventory
 previously written-off             --          --         218         215
                            ----------  ----------  ----------  ----------
GAAP net income             $   29,205  $    2,988  $   62,277  $    8,285
                            ==========  ==========  ==========  ==========





                              AVICI SYSTEMS INC.
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                               (IN THOUSANDS)
                                 (Unaudited)

                                                  December 31, December 31,
                                                  ------------ ------------
                                                      2007         2006
                                                  ------------ ------------

Assets
   Cash, Cash equivalents and
    marketable securities                         $     99,988 $     60,095
   Inventories                                              --        5,438
   Trade accounts receivable, net                       11,769        3,583
   Restricted cash                                          --        1,243
   Other current assets                                    790          890
                                                  ------------ ------------

     Total current assets                              112,547       71,249

   Long-term marketable securities                       3,000        8,504
   Property and equipment, net                           3,306        4,937
                                                  ------------ ------------

     Total assets                                 $    118,853 $     84,690
                                                  ============ ============

Liabilities and Stockholders' Equity
   Accounts payable and accrued expenses          $      9,002 $      8,914
   Deferred revenue                                      2,343        9,592
   Stockholders' equity                                107,508       66,184
                                                  ------------ ------------

   Total liabilities and stockholders' equity     $    118,853 $     84,690
                                                  ============ ============


  December 31, 2006 amounts are derived
   from audited financial statements.

Contact Information

  • For more information, contact:

    Inna Vyadro
    Director of Investor Relations
    Avici Systems
    978-715-2300
    Email Contact

    William J. Stuart
    Chief Financial Officer
    Avici Systems
    978-715-2300
    Email Contact