SOURCE: Stratus Technologies

Stratus Technologies

July 16, 2012 08:30 ET

Stratus Technologies Bermuda Holdings Ltd. Announces Financial Results for First Quarter of Fiscal 2013

HAMILTON, BERMUDA--(Marketwire - Jul 16, 2012) - Stratus Technologies Bermuda Holdings Ltd. (together with its consolidated subsidiaries, "Stratus" or the "Company"), a global provider of uptime assurance, today announced the results for its first quarter ended May 27, 2012.

For the quarter ended May 27, 2012, total revenue was $52.6 million, an increase of $3.0 million or 6.1% as compared to the $49.6 million in the first quarter ended May 29, 2011. Profit from operations was $10.3 million compared to $7.0 million for the same period last year. The net loss was $3.3 million compared to $5.9 million for the same period last year. Net loss for the quarter-to-date periods ended May 27, 2012 and May 29, 2011 includes a net loss on change in fair value of embedded derivatives in the Senior Notes of $0.3 million. The Company reported Adjusted EBITDA, a non-GAAP financial measure, of $13.4 million compared to $10.0 million for the same period last year. Please refer to the reconciliation of Adjusted EBITDA to GAAP financial measures in the attached "Consolidated Statements of Operations."

First Quarter Results Conference Call
A conference call to review first quarter financial results will be held today, July 16, 2012 at 1:30 p.m. Eastern Time and may be accessed by calling 1-877-941-0844 (U.S. only) or 1-480-629-9835 with a conference ID of 4551879. A recording of this conference call will be available at 1-800-406-7325 (U.S. only) or 1-303-590-3030 with a conference ID of 4551879 for 30 days.

About Stratus
Stratus delivers uptime assurance for the applications its customers depend on most for their success. With its resilient software and hardware technologies, together with proactive availability monitoring and management, Stratus products help to save lives and to protect the business and reputations of companies, institutions, and governments the world over. To learn more about worry-free computing, visit www.stratus.com.

Forward-Looking Statements: This press release may contain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). You are cautioned that such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could cause actual results to differ materially from those described in such forward-looking statements. Such risks and uncertainties include, but are not limited to: the continued acceptance of the Company's products by the market; the Company's ability to enter into new service agreements and to retain customers under existing service contracts; the Company's ability to source quality components and key technologies without interruption and at acceptable prices; the Company's ability to comply with certain covenants in the governing documents for the Company's credit facilities and other debt instruments; the Company's ability to refinance indebtedness when required; the Company's reliance on sole source manufacturers and suppliers; the presence of existing competitors and the emergence of new competitors; the Company's financial condition and liquidity and the Company's leverage and debt service obligations; economic conditions globally and in the Company's most important markets; developments in the fault-tolerant and high-availability server markets; claims by third parties that the Company infringes upon their intellectual property rights; the Company's success in adequately protecting its intellectual property rights; the Company's success in maintaining efficient manufacturing and logistics operations; the Company's ability to recruit, retain and develop appropriately skilled employees; exposure for systems and service failures; fluctuations in foreign currency exchange rates; fluctuations in interest rates; current risks of terrorist activity and acts of war; the impact of changing tax laws; the impact of changes in policies, laws, regulations or practices of foreign governments on the Company's international operations; and the impact of natural or man-made disasters. Any forward-looking statements in this press release are made as of the date hereof, and the Company undertakes no duty to further update such forward-looking statements. 

© 2012 Stratus Technologies Bermuda Ltd. All rights reserved.

Stratus® is a trademark or registered trademark of ours. All other trade names, service marks and trademarks appearing in this annual report are the property of their respective holders. Our use or display of other parties' trade names, service marks or trademarks is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, the trade name, service mark or trademark owners.

   
STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.  
CONSOLIDATED BALANCE SHEETS (Unaudited)  
   
             
    May 27,     February 26,  
    2012     2012  
    (Dollars in thousands,
except per share data)
 
             
ASSETS  
             
Current assets:                
Cash and cash equivalents   $ 24,252     $ 27,510  
Accounts receivable, net of allowance for doubtful accounts of $222 and $160, respectively     38,253       37,066  
Inventory     7,496       7,884  
Deferred income taxes     1,613       1,613  
Prepaid expenses and other current assets     4,687       4,454  
Total current assets     76,301       78,527  
                 
Property and equipment, net     10,581       10,490  
Intangible assets, net     3,278       3,024  
Goodwill     10,301       9,591  
Deferred income taxes     11,266       11,484  
Deferred financing fees     8,556       9,216  
Other assets     2,743       2,810  
Total assets   $ 123,026     $ 125,142  
                 
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, REDEEMABLE ORDINARY STOCK, AND STOCKHOLDERS' DEFICIT  
                 
Current liabilities:                
Current portion of long-term debt   $ 5,000     $ 5,000  
Accounts payable     8,253       7,853  
Accrued expenses     12,888       12,829  
Accrued interest payable     3,383       9,608  
Income taxes payable     165       103  
Deferred income taxes     1,075       1,075  
Deferred revenue     38,278       35,428  
Total current liabilities     69,042       71,896  
                 
Long-term debt, net of discount     264,635       260,405  
Embedded derivatives     26,168       25,884  
Long-term deferred income taxes     232       232  
Deferred revenue and other long-term liabilities     15,875       15,847  
Total liabilities     375,952       374,264  
                 
Redeemable convertible preferred stock and redeemable ordinary stock:                
Series A: 7,000 shares authorized; and 6,561 shares issued and outstanding at May 27, 2012 and February 26, 2012     111,373       109,189  
Series B: 20,524 shares authorized; 3,532 issued and outstanding at May 27, 2012 and February 26, 2012     59,952       58,776  
Right to shares of Series B redeemable convertible preferred stock     5,518       5,518  
Ordinary shares subject to puts, 787 shares issued and outstanding at May 27, 2012 and February 26, 2012     1,181       1,181  
Total redeemable convertible preferred stock and redeemable ordinary stock     178,024       174,664  
                 
Stockholders' deficit:                
Ordinary stock, $0.5801 par value, 181,003 shares authorized; 28,025 shares issued and outstanding at May 27, 2012 and February 26, 2012, respectively     16,257       16,257  
Series A ordinary stock: $0.5801 par value, 7,678 shares authorized; 0 shares issued and outstanding at May 27, 2012 and February 26, 2012, respectively     -       -  
Series B ordinary stock: $0.5801 par value, 90,115 shares authorized; 15,512 shares issued and outstanding at May 27, 2012 and February 26, 2012, respectively     8,998       8,998  
Additional paid-in-capital     -       -  
Accumulated deficit     (456,907 )     (450,306 )
Accumulated other comprehensive gain     702       1,265  
Total stockholders' deficit     (430,950 )     (423,786 )
                 
Total liabilities, redeemable convertible preferred stock and redeemable ordinary stock, and stockholders' deficit   $ 123,026     $ 125,142  
                 
                 
                 
   
STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.  
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)  
For the fiscal thirteen-week periods ended May 27, 2012 and May 29, 2011  
   
    May 27,     May 29,  
    2012     2011  
    (Dollars in thousands)  
REVENUE                
Product   $ 19,564     $ 16,889  
Service     33,001       32,677  
Total revenue     52,565       49,566  
                 
COST OF REVENUE                
Product     7,300       7,488  
Service     14,658       13,909  
Total cost of revenue     21,958       21,397  
                 
Gross profit     30,607       28,169  
                 
OPERATING EXPENSES                
Research and development     6,606       7,346  
Sales and marketing     8,109       7,786  
General and administrative     5,233       5,754  
Restructuring charges     34       -  
Management fees     300       300  
Total operating expenses     20,282       21,186  
                 
Profit from operations     10,325       6,983  
Interest income     6       6  
Interest expense     (12,527 )     (12,185 )
Loss on change in fair value for embedded derivatives     (291 )     (337 )
Other income (expense), net     9       (46 )
Loss before income taxes     (2,478 )     (5,579 )
Income taxes     804       316  
                 
Net loss   $ (3,282 )   $ (5,895 )
                 
                 
EBITDA TABLE:                
Net loss   $ (3,282 )   $ (5,895 )
Add:                
Interest expense, net     12,521       12,179  
Income taxes     804       316  
Depreciation and amortization     1,723       1,978  
EBITDA (1)     11,766       8,578  
                 
Add:                
Restructuring (a)     34       -  
Stock-based compensation expense (b)     41       93  
Management fees (c)     300       300  
Reserves (d)     69       279  
Loss on change in fair value for embedded derivatives (e)     291       337  
Other expense, net (f)     849       374  
Total adjustments     1,584       1,383  
Adjusted EBITDA (1)   $ 13,350     $ 9,961  
                 
                 
                 

1) EBITDA represents income (loss) before interest, taxes, depreciation and amortization. We present EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. In addition to other applications, EBITDA is used by us and others in our industry to evaluate and price potential acquisition candidates.

Adjusted EBITDA represents EBITDA with certain additional adjustments, as calculated pursuant to the requirements of the interest maintenance covenant under our Revolving Credit Facility. We present Adjusted EBITDA because we believe that it allows investors to assess our ability to meet the interest maintenance covenant under our Revolving Credit Facility.

Our management also uses Adjusted EBITDA internally as a basis upon which to assess our operating performance, and Adjusted EBITDA is also a factor in the evaluation of the performance of our management in determining compensation. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under Generally Accepted Accounting Principles ("GAAP"). Some of these limitations are:

  • EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements for capital expenditures, or contractual commitments;

  • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

  • EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

  • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;

  • EBITDA and Adjusted EBITDA do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and

  • Other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only supplementally, as described above. See the Statements of Cash Flows.

a) In order to better align expenses with anticipated revenues, we implemented restructuring programs in prior years. These programs were designed to streamline our business model and centralize certain functions. The expense for the quarter-to-date fiscal period ended May 27, 2012 reflects changes to prior estimates of these liabilities.

b) In the quarter-to-date fiscal periods ended May 27, 2012 and May 29, 2011 we recorded non-cash stock-based compensation expense charges related to share-based awards to employees.

c) On April 30, 2010 we entered into a four year advisory and strategic planning agreement with an investment banking firm. The yearly fee is $0.5 million.

On October 1, 2005, we entered into an Agreement for Management, Advisory, Strategic Planning and Consulting Services with Investcorp International, Inc., an affiliate of the Investcorp Group, and MidOcean US Advisor, LP, an affiliate of MidOcean, for an aggregate yearly fee of $0.7 million which renews on an annual basis. The payment of the yearly fee is restricted in the Senior Secured Notes and in the Second Lien Credit Facility until these credit facilities are paid in full.

The long-term accrued liability related to this yearly fee totaled $3.3 million and $3.1 million at May 27, 2012 and February 26, 2012, respectively.

d) In the quarter-to-date fiscal periods ended May 27, 2012 and May 29, 2011, we incurred $0.1 million and $0.3 million of non-cash inventory write downs, respectively.

e) In the quarter-to-date fiscal periods ended May 27, 2012 and May 29, 2011, we recorded a $0.3 million loss due to the change in fair value of the embedded derivatives related to the Senior Secured Notes.

f) In the quarter-to-date fiscal period ended May 27, 2012, we recorded other expense, net of $0.8 million, primarily consisting of $0.8 million of miscellaneous and non-recurring charges and $0.1 million of bank fees offset by $0.1 million of net foreign currency gains.

In the quarter-to-date fiscal period ended May 29, 2011, we recorded other expense, net of $0.4 million, primarily consisting of $0.2 million of bank fees and $0.3 million of one-time public filing registration costs partially offset by $0.1 million of net foreign currency gains.

   
STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.  
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  
Thirteen weeks ended May 27, 2012  
   
    May 27,     May 29,  
    2012     2011  
    (Dollars in thousands)  
             
OPERATING ACTIVITIES                
Cash flows used in operating activities:                
Net loss   $ (3,282 )   $ (5,895 )
Adjustments to reconcile net loss to net cash used in operating activities                
  Depreciation and amortization     1,723       1,978  
  Amortization of deferred financing costs and debt discount     2,855       2,554  
  Stock-based compensation     41       93  
  Provision for doubtful accounts     24       -  
  Inventory provision     69       279  
  Loss on change in fair value of embedded derivatives     291       337  
  Loss on retirement of property and equipment     40       12  
  Interest payable-in-kind     2,081       1,902  
Changes in assets and liabilities                
  Accounts receivable     (1,318 )     3,425  
  Inventory     84       (41 )
  Prepaid expenses and other current assets     (262 )     (431 )
  Accounts payable     424       (490 )
  Accrued expenses     190       (38 )
  Accrued interest payable     (6,225 )     (6,275 )
  Income taxes payable     263       (362 )
  Deferred revenue     2,551       3,323  
  Other long-term assets and liabilities     (27 )     (581 )
Net cash used in operating activities     (478 )     (210 )
                 
INVESTING ACTIVITIES                
Cash flows used in investing activities:                
  Acquisition of property and equipment     (1,494 )     (806 )
  Acquisition of business     (975 )     -  
  Acquisition of other long-term assets     (30 )     (19 )
Net cash used in investing activities     (2,499 )     (825 )
                 
FINANCING ACTIVITIES                
Cash flows used in financing activities:                
  Payment of debt and equity issuance fees     -       (142 )
Net cash used in financing activities     -       (142 )
Effect of exchange rate changes on cash     (281 )     166  
Net decrease in cash and cash equivalents     (3,258 )     (1,011 )
Cash and cash equivalents at beginning of period     27,510       28,100  
Cash and cash equivalents at end of period   $ 24,252     $ 27,089  
                 

Contact Information

  • Investor Relations Contact

    Robert C. Laufer
    Senior Vice President, CFO
    Stratus Technologies
    978-461-7343
    bob.laufer@stratus.com