SOURCE: Soapstone Networks

October 16, 2008 07:30 ET

Soapstone Networks Reports Third Quarter 2008 Results

BILLERICA, MA--(Marketwire - October 16, 2008) - Soapstone Networks Inc. (NASDAQ: SOAP) today reported results for its third quarter ended September 30, 2008.

Revenue for the three and nine months ended September 30, 2008 was $2.3 million and $8.9 million, respectively, compared to $29.3 million and $79.4 million, respectively, for the three and nine months ended September 30, 2007. The three and nine months ended September 30, 2007 included $26.9 million and $72.3 million, respectively, in router product revenue. As previously announced the Company shipped its last router products in December 2007 and has exited the manufacturing and sale of router products. Accordingly, the Company's revenue for the three and nine months ended September 30, 2008 consisted of revenue for services relating to the router products, which services are scheduled to end on December 31, 2008. In the second quarter ended June 30, 2008 the Company also recorded as product revenue certain revenue deferrals from prior years' product shipments in connection with the termination of certain customer terms and conditions.

"During the third quarter, Soapstone successfully executed on its plan to make a multi-vendor dynamic control plane generally available to the PBT market," said Bill Leighton, Chief Executive Officer, Soapstone Networks. "We are focused over the next several quarters on introducing a full range of supported platforms, features and functions to achieve our vision of a multi-technology, multi-vendor resource and service control plane to help carriers grow and manage their Carrier Ethernet service offerings."

GAAP net loss for the third quarter ended September 30, 2008 was $5.8 million, or $0.39 per share, compared to a GAAP net income of $15.0 million, or $0.97 per share, in the prior year's third quarter. GAAP net loss in the 2008 and 2007 periods include $0.8 million and $0.6 million, respectively, of certain non-cash equity based charges associated with Financial Accounting Standards Board Statement No. 123R ("SFAS 123R").

GAAP net loss for the nine months ended September 30, 2008 was $13.8 million, or $0.93 per share, compared to a GAAP net income of $33.1 million, or $2.23 per share, in the nine months ended September 30, 2007. GAAP net loss in the 2008 period includes $2.3 million of certain non-cash equity based charges associated with SFAS 123R. GAAP net income in the 2007 period includes $1.7 million of certain non-cash equity based charges associated with SFAS 123R, $0.3 million of special charges associated with the restructuring in the first quarter of 2006, partially offset by $0.2 million from the utilization of certain inventory previously written off.

Non-GAAP net loss (GAAP net loss or income excluding charges for restructuring, certain stock based compensation and inventory credits) for the third quarter ended September 30, 2008 was $5.0 million, or $0.34 per share compared to non-GAAP net income of $15.6 million, or $1.01 per share in the third quarter of 2007.

Non-GAAP net loss for the nine months ended September 30, 2008 was $11.5 million, or $0.77 per share compared to non-GAAP net income of $34.9 million, or $2.35 per share in the nine month period ended September 30, 2007.

Cash, cash equivalents and marketable securities totaled $98.1 million at September 30, 2008 compared to $105.4 million at June 30, 2008.

Soapstone Networks will discuss these quarterly results as well as future business and financial expectations in an investor conference on October 16, 2008 at 8:30 AM eastern daylight savings time. The conference telephone number is (800) 230-1766. 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: 964753. Replay of this call is also available on Soapstone's Web site, www.soapstonenetworks.com, along with a copy of this release.

Soapstone is a trademark of Soapstone Networks Inc.

This release contains information about Soapstone's future expectations, plans, and prospects, including Soapstone's expectations for annual revenue, profitability, product introduction, commercial activities 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, Soapstone'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 Soapstone's filings with the Securities and Exchange Commission. Soapstone does not undertake any duty to update forward-looking statements.

About Soapstone Networks

Soapstone Networks Inc., headquartered in Billerica, Massachusetts, is at the forefront of the movement to Carrier Ethernet by delivering resource control systems that help to realize the value of 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. Soapstone changed its name from Avici Systems in the first quarter of 2008. Avici provided purpose-built carrier-class routing solutions for the Internet to some of the world's leading service providers. The future of Carrier Ethernet -- www.soapstonenetworks.com

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

                              Three Months Ended      Nine Months Ended
                                 September 30,           September 30,
                            ----------------------  ----------------------
                               2008        2007        2008        2007
                            ----------  ----------  ----------  ----------
Revenue:
    Product (1)             $       --  $   26,927  $    1,201  $   72,251
    Service                      2,320       2,349       7,670       7,175
                            ----------  ----------  ----------  ----------
       Total revenue             2,320      29,276       8,871      79,426

   Cost of revenue -
    Product (2)                     --       6,118          --      19,433
   Cost of revenue -
    Service (3)                    738         348       2,699       1,170
                            ----------  ----------  ----------  ----------
  Total cost of revenue            738       6,466       2,699      20,603
                            ----------  ----------  ----------  ----------

       Gross margin              1,582      22,810       6,172      58,823
                            ----------  ----------  ----------  ----------

  Operating expenses:
    Research and development
     (3)                         4,570       6,029      12,622      20,722
    Sales and marketing (3)      1,839         752       4,590       2,052
    General and
     administrative (3)          1,736       1,681       5,169       5,014
    Restructuring expenses          --          --          --         100
                            ----------  ----------  ----------  ----------
      Total operating
       expenses                  8,145       8,462      22,381      27,888
                            ----------  ----------  ----------  ----------

(Loss) income from
 operations                     (6,563)     14,348     (16,209)     30,935
Interest income, net               674         956       2,337       2,807
Benefit from (Provision
 for) income tax                    59        (300)         59        (670)
                            ----------  ----------  ----------  ----------


Net (loss) income           $   (5,830) $   15,004  $  (13,813) $   33,072
                            ==========  ==========  ==========  ==========

Net (loss) earnings per
 diluted share              $    (0.39) $     0.97  $    (0.93) $     2.23
                            ==========  ==========  ==========  ==========

  Weighted average common
   shares used in
   computing diluted net
   (loss) income per share  14,841,589  15,490,075  14,819,815  14,844,714
                            ==========  ==========  ==========  ==========
 (1) Revenue deferral from
     prior years' product
     shipments recorded as
     product revenue in the
     three months ended June
     30, 2008 upon the
     termination of certain
     customer terms and
     conditions.

 (2) Includes inventory
     charge and (credits),
     as follows:

     Inventory and
     inventory
     related charge         $       --  $       --  $       --  $      175

     Credits from
     utilization
     of inventory
     previously
     written off in 2006
     and 2001               $       --  $       --  $       --  $     (218)

 (3) Includes certain
     non-cash, stock-based
     compensation, as
     follows:
       Cost of revenue -
        Service             $       44  $       --  $      110  $       --
       Research and
        development                381         323         969         996
       Sales and marketing         151          70         500         110
       General and
        administration             246         246         767         638



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

                              Three Months Ended      Nine Months Ended
                                September 30,           September 30,
                            ----------------------  ----------------------
                               2008        2007        2008        2007
                            ----------  ----------  ----------  ----------
Revenue:
   Product (2)              $       --  $   26,927  $    1,201  $   72,251
   Service                       2,320       2,349       7,670       7,175
                            ----------  ----------  ----------  ----------
      Total revenue              2,320      29,276       8,871      79,426

Cost of revenue - Product           --       6,118          --      19,476
Cost of revenue - Service          694         348       2,589       1,170
                            ----------  ----------  ----------  ----------
   Total cost of revenue           694       6,466       2,589      20,646
                            ----------  ----------  ----------  ----------

      Gross margin               1,626      22,810       6,282      58,780
                            ----------  ----------  ----------  ----------

Operating expenses:
   Research and development      4,189       5,706      11,653      19,726
   Sales and marketing           1,688         682       4,090       1,942
   General and
    administrative               1,490       1,435       4,402       4,376
                            ----------  ----------  ----------  ----------
      Total operating
       expenses                  7,367       7,823      20,145      26,044
                            ----------  ----------  ----------  ----------

(Loss) income from
 operations                     (5,741)     14,987     (13,863)     32,736
Interest income, net               674         956       2,337       2,807
Provision for income tax            59        (300)         59        (670)
                            ----------  ----------  ----------  ----------



Non-GAAP net (loss) income  $   (5,008) $   15,643  $  (11,467) $   34,873
                            ==========  ==========  ==========  ==========

Non-GAAP (loss) earnings
 per diluted share          $    (0.34) $     1.01  $    (0.77) $     2.35
                            ==========  ==========  ==========  ==========

Weighted average common
 shares used in computing
 diluted net (loss) income
 per share                  14,841,589  15,490,075  14,819,815  14,844,714
                            ==========  ==========  ==========  ==========

Note 1 - The above non-GAAP consolidated statements of operations for the
three and nine months ended September 30, 2008 and 2007 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 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      Nine Months Ended
                                 September 30,           September 30,

                               2008        2007        2008        2007
                            ----------  ----------  ----------  ----------
Non-GAAP net (loss) income  $   (5,008) $   15,643  $  (11,467) $   34,873
Restructuring expenses              --          --          --        (100)
Certain non-cash stock
 based compensation               (822)       (639)     (2,346)     (1,744)
Inventory and inventory
 related charge                     --          --          --        (175)
Utilization of inventory
 previously written-off             --          --          --         218
                            ----------  ----------  ----------  ----------

GAAP net (loss) income      $   (5,830) $   15,004  $  (13,813) $   33,072
                            ==========  ==========  ==========  ==========

Note 2 - Revenue deferral from prior years' product shipments recorded as
product revenue in the three months ended June 30, 2008 upon the
termination of certain customer terms and conditions.



                          SOAPSTONE NETWORKS INC.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                              (IN THOUSANDS)
                               (Unaudited)

                                                September 30,  December 31,
                                                     2008          2007
                                                ------------- -------------

Assets
   Cash, Cash equivalents and marketable
    securities                                  $      98,106 $      99,988
   Trade accounts receivable, net                          --        11,769
   Other current assets                                   890           790
                                                ------------- -------------

      Total current assets                             98,996       112,547

   Long-term marketable securities                         --         3,000
   Property and equipment, net                          4,258         3,306
   Other Non-Current Assets                               102            --
                                                ------------- -------------
      Total assets                              $     103,356 $     118,853
                                                ============= =============

Liabilities and Stockholders' Equity
   Accounts payable and accrued expenses        $       4,650 $       9,002
   Deferred revenue                                     2,221         2,343
   Stockholders' equity                                96,485       107,508
                                                ------------- -------------

   Total liabilities and stockholders' equity   $     103,356 $     118,853
                                                ============= =============


  December 31, 2007 amounts are derived
  from audited financial statements.

Contact Information

  • For more information, contact:
    Inna Vyadro
    Director of Investor Relations
    Soapstone Networks
    978-715-2300
    Email Contact

    William J. Stuart
    Chief Financial Officer
    Soapstone Networks
    978-715-2300
    Email Contact