SOURCE: Network Equipment Technologies

April 30, 2008 16:14 ET

Network Equipment Technologies Announces Financial Results for Fourth Quarter and Fiscal Year 2008

38% Annual Revenue Growth; Highest Profitability in 10 Years

FREMONT, CA--(Marketwire - April 30, 2008) - Telecommunications equipment maker Network Equipment Technologies, Inc. (NYSE: NWK) today reported its results for the fourth quarter of fiscal 2008 and fiscal year 2008.

Total revenue in the fourth quarter was $33.4 million, a 15% increase from $29.0 million in the third quarter and a 34% increase from $25.0 million in the fourth quarter of the prior fiscal year. NET has now achieved eight consecutive quarters of revenue growth. Net income in the fourth quarter was $2.8 million or $.09 per share, compared to net income of $1.5 million or $.05 per share in the third quarter and a net loss of $9.5 million or $0.37 per share in the fourth quarter of the prior year. Fiscal 2008 results include the operating results of Quintum Technologies following its acquisition by the Company on December 4, 2007, and other accounting effects of the acquisition.

Total revenue in the fiscal year was $116.1 million, up from $84.1 million in fiscal 2007, an increase of 38%. Net income was $7.1 million or $0.25 per share, compared to a net loss of $16.2 million or $0.65 per share in fiscal 2007.

Cash and investment balances at the end of fiscal 2008 were $165.7 million, compared to $161.2 million at the end of the third quarter and $90.1 million at the end of the prior year. During the third quarter, the company obtained net proceeds of $82 million from an $85 million senior convertible debt offering and used approximately $24 million of cash for the acquisition of Quintum.

Non-GAAP net income in the fourth quarter was $2.6 million or $0.09 per share, compared to $1.1 million or $0.04 per share in the fourth quarter of the prior year. Non GAAP net income for the fiscal year was $9.5 million or $0.33 per share, compared to a non-GAAP net loss of $4.8 million or $0.19 per share for the prior year. Non-GAAP net income was calculated by excluding non-cash stock-based compensation expense, amortization of intangible assets from our acquisition of Quintum, accretion and other restructure charges resulting from vacating our former manufacturing facility, and a non cash charge for the write-up in basis of Quintum finished goods inventory; offset by additions for foreign exchange benefit from the dissolution of our German subsidiary and the reversal of a reserve for deferred tax assets for our United Kingdom subsidiary. Refer to table below for reconciliation of GAAP to non-GAAP for net income and earnings per share.

President and CEO C. Nicholas Keating, Jr. remarked, "We accomplished a significant number of the objectives we established for fiscal year 2008. Revenue grew 38%, we reached our highest level of profitability in 10 years, and our cash position increased by more than $75 million. We made a number of operational changes throughout the year to streamline our business and lower our cost structure. We advanced our products and customer reach through continued investment in internal development and acquisition. Our products are today being offered worldwide to government and enterprise customers in three target markets: voice-over-IP, multi-service access, and high performance computing. Our customer traction in each of these markets is encouraging and we are seeing more pilots convert into programs. The integration of Quintum Technologies, which we acquired in December 2007, is progressing well and we are already seeing strategic benefits of the combination."

"Looking ahead, fiscal year 2009 will be a year of execution for NET. We will continue to invest in our growth through product development and key partnerships, while also keeping our eye out for strategic acquisition opportunities," added Keating.

Conference Call Information:

The Company will be hosting a conference call today to discuss these results at 4:30 p.m. ET. Please dial (888) 680-0860 or (617) 213-4852 and provide conference ID# 51607089 to access the call. The conference call will also be broadcast from http://ir.net.com.

A recording of the conference call will be provided by telephone and the internet beginning two hours after completion of the call. The replay may be accessed by telephone through midnight on May 7, 2008; please dial (888) 286-8010 or (617) 801-6888 and enter conference ID# 93830277. A digital recording will be available on the company's website for one year.

About Network Equipment Technologies, Inc.

For nearly a quarter of a century, Network Equipment Technologies, Inc. has provided voice and data communications equipment for multi-service networks requiring high degrees of versatility, interoperability, security and performance. NET's broad family of products are purpose-built for mixed-service, multi-protocol networks; bandwidth-sensitive site communications; high performance, security-sensitive transmissions; and converged communications. The company's NX Series for network exchange solutions and VX Series for voice exchange solutions enable interoperability and integration with existing networks for seamless migration to secure IP-based voice and data communications. In addition, Quintum, a subsidiary of NET, delivers VoIP access solutions that bring the reliability and voice clarity of public telephone networks to Internet telephony.

Visit www.net.com for more information.

Use of Non-GAAP Financial Information

To supplement the company's condensed consolidated financial statements presented in accordance with GAAP, NET has provided certain non-GAAP net income (loss) financial measures that adjusts for the company's non-cash stock-based compensation expense, amortization of intangible assets from our acquisition of Quintum, accretion and other restructure charges resulting from vacating our former manufacturing facility, a non cash charge for the write-up in basis of Quintum finished goods inventory, additions for foreign exchange benefit from the dissolution of our German subsidiary, and the reversal of a reserve for deferred tax assets for our United Kingdom subsidiary. These non-GAAP measures may include net income (loss) and net income (loss) per share data that are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance and the company's prospects for the future. NET believes the non-GAAP measures provide useful information to both management and investors by excluding certain expenses that may not be indicative of its core operating results and reflect NET's ongoing business in a manner that allows meaningful period-to-period comparisons. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. The non-GAAP measures included in this press release have been reconciled to the GAAP results in the attached tables.

Forward-Looking Statements

This press release contains forward-looking statements, within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, relating to revenue growth, profitability, product development, and future sales. Investors are cautioned that such statements are based on current expectations, forecasts and assumptions that involve risks and uncertainty that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Factors that could affect such results include our ability to develop and commercialize new products and product enhancements, including relations with and performance by third-party technology providers, new competition and technological changes, the outcome of litigation regarding intellectual property, the timing of orders and satisfaction of conditions to recognize revenue, the challenges involved in integrating an acquired business into the operations of NET, uncertainties relating to potential acquisitions, and unanticipated or extraordinary expenses, as well as the factors identified in Network Equipment Technologies' most recent Annual Report on Form 10-K and most recent subsequent Quarterly Report on Form 10-Q. Network Equipment Technologies disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

                   NETWORK EQUIPMENT TECHNOLOGIES, INC.
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per share amounts)
                                (unaudited)


                                    Quarter Ended       Fiscal Year Ended
                                --------------------  --------------------
                                March 28,  March 30,  March 28,  March 30,
                                  2008       2007       2008       2007
                                ---------  ---------  ---------  ---------
Revenue:
  Product                       $  30,184  $  21,343  $ 102,608  $  72,813
  Service                           3,248      3,688     13,536     11,281
                                ---------  ---------  ---------  ---------
    Total revenue                  33,432     25,031    116,144     84,094
                                ---------  ---------  ---------  ---------
Costs of revenue:
  Cost of product revenue          13,940      8,131     45,001     28,821
  Cost of service revenue           3,356      3,026     12,289     10,249
                                ---------  ---------  ---------  ---------
    Total cost of revenue          17,296     11,157     57,290     39,070
                                ---------  ---------  ---------  ---------
Gross margin                       16,136     13,874     58,854     45,024
Operating expenses:
  Sales and marketing               5,899      4,971     20,178     18,699
  Research and development          6,528      5,685     24,279     21,432
  General and administrative        3,073      3,574     11,373     13,129
  Restructure and other costs          96     10,187        175     10,183
                                ---------  ---------  ---------  ---------
    Total operating expenses       15,596     24,417     56,005     63,443
                                ---------  ---------  ---------  ---------
      Income (loss) from
      operations                      540    (10,543)     2,849    (18,419)
Other income (expense), net           157         19        404        (67)
Interest income, net                  165        526      2,208      1,784
                                ---------  ---------  ---------  ---------
      Income (loss) before taxes      862     (9,998)     5,461    (16,702)
                                ---------  ---------  ---------  ---------
Income tax benefit                 (1,890)      (513)    (1,684)      (508)
                                ---------  ---------  ---------  ---------
      Net income (loss)         $   2,752  $  (9,485) $   7,145  $ (16,194)
                                =========  =========  =========  =========

Per share amounts

Net income (loss):
      Basic                     $    0.10  $   (0.37) $    0.26  $   (0.65)
                                =========  =========  =========  =========
      Diluted                   $    0.09  $   (0.37) $    0.25  $   (0.65)
                                =========  =========  =========  =========

Common and common equivalent shares:
      Basic                        28,936     25,354     27,423     25,003
                                =========  =========  =========  =========
      Diluted                      35,756     25,354     28,415     25,003
                                =========  =========  =========  =========



                   NETWORK EQUIPMENT TECHNOLOGIES, INC.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                              (in thousands)
                                (unaudited)


                                                    March 28,    March 30,
                                                      2008         2007
                                                  ------------ ------------
Current assets:
   Cash and investments                           $    165,658 $     90,132
   Accounts receivable, net                             23,174       14,822
   Inventories                                           9,986       10,452
   Prepaid expenses and other assets                     8,031        3,242
                                                  ------------ ------------
      Total current assets                             206,849      118,648

   Property and equipment, net                           9,459       10,581
   Goodwill and purchased intangibles, net              41,317           --
   Other assets                                         11,708        4,790
                                                  ------------ ------------
      Total assets                                $    269,333 $    134,019
                                                  ============ ============
Liabilities and Stockholders' Equity
   Accounts payable                               $      9,968 $      8,569
   Other current liabilities                            17,821       15,274
                                                  ------------ ------------
      Total current liabilities                         27,789       23,843

   Long-term liabilities                                 6,295        3,886
   3 3/4% convertible senior notes                      85,000           --
   7 1/4% redeemable convertible subordinated
    debentures                                          24,706       24,706
   Stockholders' equity                                125,543       81,584
                                                  ------------ ------------
      Total liabilities and stockholders' equity  $    269,333 $    134,019
                                                  ============ ============



                   NETWORK EQUIPMENT TECHNOLOGIES, INC.
            GAAP TO NON-GAAP NET INCOME (LOSS) RECONCILIATION
            (Unaudited - in thousands, except per share data)


                                    Quarter Ended       Fiscal Year Ended
                                --------------------  --------------------
                                March 28,  March 30,  March 28,  March 30,
                                  2008       2007       2008       2007
                                ---------  ---------  ---------  ---------
GAAP net income (loss)          $   2,752  $  (9,485) $   7,145  $ (16,194)
Stock based compensation expense:
    Cost of product revenue            57         24        177         92
    Cost of service revenue            68         17        165         44
    Sales and marketing               250         82        721        257
    Research and development          226         75        541        285
    General and administrative        376        170      1,434        534
Acquisition related amortization:
  Acquired intangibles -
    Cost of product revenue           328         --        473         --
    Sales and marketing               502         --        531         --
    General and administrative         53         --         70         --
  Cost of product revenue,
   amortization of purchase
   adjustment to acquired
   inventory                          281         --        281         --
Restructure related:
  General and administrative,
   accretion of discount on
   future cash flows from
   subleases                           44         --        270         --
    Restructure and other -
      Costs to vacate former
       manufacturing facility          30     10,081         61     10,081
      Other, primarily
       severance                       66        106        114        102
Other income (expense), net,
 dissolution of subsidiary           (385)        --       (385)        --
Income tax provision (benefit):
  Income tax effect of above
   items                              (39)         1        (95)        --
  Release of valuation
   allowance                       (2,002)        --     (2,002)        --
                                ---------  ---------  ---------  ---------
Non-GAAP net income (loss)      $   2,607  $   1,071  $   9,501  $  (4,799)
                                =========  =========  =========  =========

Non-GAAP net income (loss)
 per-share data:
  Basic                         $    0.09  $    0.04  $    0.35  $   (0.19)
                                =========  =========  =========  =========
  Diluted                       $    0.09  $    0.04  $    0.33  $   (0.19)
                                =========  =========  =========  =========
Common and common equivalent
 shares:
  Basic                            28,936     25,354     27,423     25,003
                                =========  =========  =========  =========
  Diluted                          35,756     25,354     28,415     25,003
                                =========  =========  =========  =========

Contact Information

  • Company Contact:
    Network Equipment Technologies, Inc.
    Leigh Salvo
    (510) 647-8870
    Email Contact