SOURCE: Stratus Technologies

Stratus Technologies

April 18, 2013 08:30 ET

Stratus Technologies Bermuda Holdings Ltd. Announces Financial Results for Fourth Quarter and Full Year of Fiscal 2013

HAMILTON, BERMUDA--(Marketwired - Apr 18, 2013) -  Stratus Technologies Bermuda Holdings Ltd. (together with its consolidated subsidiaries, "Stratus" or the "Company"), a global provider of uptime assurance, today announced financial results for the fourth quarter and full fiscal year 2013 ended February 24, 2013.

  • Q4 Revenue: $51.1 million
  • Q4 Net Loss: $7.6 million
  • Q4 Adjusted EBITDA: $11.1 million
  • FY2013 Revenue: $205.2 million
  • FY2013 Net Loss: $13.7 million
  • FY2013 Adjusted EBITDA: $48.8 million

"Fiscal Year 2013 was another year of steady performance for Stratus, marked by revenues that were essentially flat but delivered an improvement in EBITDA due to strength in the sales of our legacy products, new and extended contracts for our Solutions Services, and effective cost and margin control," said Dave Laurello, Stratus CEO and president.

"We closed the fourth quarter with some notable achievements, including a new relationship with a large systems integrator, a diversified set of partners in China, an expansion of our OEM deal with Mitsubishi, and a $41 million, five-year managed services contract extension. We are augmenting this momentum with investment in new products to help us capitalize on the opportunity presented by cloud computing and to ultimately position Stratus as the availability engine for the cloud."

Total revenue for the quarter-to-date period ended February 24, 2013 was $51.1 million, which is a decrease of $3.0 million, or 5.5%, as compared to the $54.1 million in the quarter-to-date period ended February 26, 2012. Profit from operations was $4.9 million compared to $8.9 million for the same period last year. Profit from operations for the quarter-to-date periods ended February 24, 2013 and February 26, 2012 included restructuring charges of $3.3 million and $2.2 million, respectively, to further align spending with current business initiatives. Net loss was $7.6 million, compared to a net loss of $1.7 million for the same period last year. Net loss for the quarter-to-date period ended February 26, 2012 includes a net loss on change in fair value of embedded derivatives of $6.5 million, and an $8.1 million benefit for income taxes primarily the result of a $9.0 million net deferred income tax benefit related to our Irish entity. The Company reported Adjusted EBITDA, a non-GAAP financial measure, of $11.1 million, compared to $13.3 million for the same period last year. Please refer to the reconciliation of Adjusted EBITDA to Generally Accepted Accounting Principles ("GAAP") financial measures in the attached, unaudited "Consolidated Statements of Operations."

For the fiscal year-to-date period ended February 24, 2013, total revenue was $205.2 million, which is a decrease of $0.5 million, or 0.3%, as compared to the $205.7 million in the fiscal year-to-date period ended February 26, 2012. Profit from operations was $35.2 million, compared to $32.4 million for the same period last year. Profit from operations for the fiscal year-to-date periods ended February 24, 2013 and February 26, 2012 includes a net loss on extinguishment of debt of $0.9 million and $1.2 million, respectively. Profit from operations for the fiscal year-to-date periods ended February 24, 2013 and February 26, 2012 also includes a net gain in change in fair value of embedded derivatives of $4.8 million and a net loss on change in fair value of embedded derivatives $8.9 million, respectively. The net loss was $13.7 million, compared to $19.0 million for the same period last year. Net loss for the fiscal year-to-date period ended February 26, 2012 includes a $6.9 million benefit for income taxes primarily the result of a $9.0 million net deferred income tax benefit related to our Irish entity. The Company reported Adjusted EBITDA, a non-GAAP financial measure, of $48.8 million, compared to $45.1 million for the same period last year. Please refer to the reconciliation of Adjusted EBITDA to GAAP financial measures in the attached, unaudited "Consolidated Statements of Operations."

Certain financial statement amounts included in the fiscal year-to-date periods ended February 24, 2013 and February 26, 2012 have been revised to correct certain immaterial prior period errors, primarily relating to the timing of the recognition of customer service revenue. These immaterial errors also affect fiscal year 2009 through fiscal year 2011 and will be corrected through a revision of our annual report filing on Form 20-F, which we anticipate will be filed in May 2013.

Fourth Quarter Results Conference Call
A conference call to review fourth quarter financial results will be held today, April 18, 2013, at 1:30 p.m. Eastern Time and may be accessed by calling 1-877-941-6009 (U.S. only) or 1-480-629-9818 with a conference ID of 4614560. A recording of this conference call will be available later today at 1-800-406-7325 (U.S. only) or 1-303-590-3030 with a conference ID of 4614560 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. 

© 2013 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)  
             
    February 24,     February 26,  
    2013     2012  
    (Dollars in thousands, except per share data)  
ASSETS  
                 
Current assets:                
Cash and cash equivalents   $ 22,163     $ 27,510  
Accounts receivable, net of allowance for doubtful accounts of $276 and $160, respectively     38,020       37,066  
Inventory     6,687       7,884  
Deferred income taxes     1,667       1,613  
Prepaid expenses and other current assets     3,989       4,454  
Total current assets     72,526       78,527  
                 
Property and equipment, net     10,443       10,490  
Intangible assets, net     7,258       3,024  
Goodwill     13,024       9,591  
Deferred income taxes     9,720       11,655  
Deferred financing fees     6,381       9,216  
Other assets     1,795       2,810  
Total assets   $ 121,147     $ 125,313  
                 
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND REDEEMABLE ORDINARY STOCK, AND STOCKHOLDERS' DEFICIT                
                 
Current liabilities:                
Current portion of long-term debt   $ 5,000     $ 5,000  
Accounts payable     7,763       7,927  
Accrued expenses     15,622       13,617  
Accrued interest payable     9,238       9,608  
Income taxes payable     500       103  
Deferred income taxes     -       1,075  
Deferred revenue     37,740       36,713  
Total current liabilities     75,863       74,043  
                 
Long-term debt, net of discount     273,393       260,405  
Embedded derivatives     20,252       25,884  
Long-term deferred income taxes     424       232  
Deferred revenue and other long-term liabilities     17,557       15,910  
Total liabilities     387,489       376,474  
                 
Redeemable convertible preferred stock and redeemable ordinary stock:                
Series A: 7,000 shares authorized; 6,561 shares issued and outstanding at February 24, 2013 and February 26, 2012     117,923       109,189  
Series B: 20,524 shares authorized; 3,532 issued and outstanding at February 24, 2013 and February 26, 2012     63,479       58,776  
Right to shares of Series B redeemable convertible preferred stock     5,518       5,518  
Ordinary shares subject to puts, 773 and 787 shares issued and outstanding at February 24, 2013 and February 26, 2012, respectively     1,160       1,181  
Total redeemable convertible preferred stock and redeemable ordinary stock     188,080       174,664  
                 
Stockholders' deficit:                
Ordinary stock, $0.5801 par value, 181,003 shares authorized; 28,039 and 28,025 shares issued and outstanding at February 24, 2013 and February 26, 2012, respectively     16,265       16,257  
Series A ordinary stock: $0.5801 par value, 7,678 shares authorized; 0 shares issued and outstanding at February 24, 2013 and February 26, 2012     -       -  
Series B ordinary stock: $0.5801 par value, 90,115 shares authorized; 15,512 shares issued and outstanding at February 24, 2013 and February 26, 2012     8,998       8,998  
Additional paid-in-capital     -       -  
Accumulated deficit     (479,017 )     (452,103 )
Accumulated other comprehensive (loss) gain     (668 )     1,023  
Total stockholders' deficit     (454,422 )     (425,825 )
                 
Total liabilities, redeemable convertible preferred stock and redeemable ordinary stock, and stockholders' deficit   $ 121,147     $ 125,313  
                 
   
   
STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.  
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)  
For the fiscal three-month periods ended February 24, 2013 and February 26, 2012  
   
    February 24,     February 26,  
    2013     2012  
    (Dollars in thousands)  
REVENUE                
Product   $ 18,623     $ 20,052  
Service     32,517       34,053  
Total revenue     51,140       54,105  
                 
COST OF REVENUE                
Product     7,995       9,071  
Service     13,555       14,168  
Total cost of revenue     21,550       23,239  
                 
Gross profit     29,590       30,866  
                 
OPERATING EXPENSES                
Research and development     6,679       6,412  
Sales and marketing     9,328       7,998  
General and administrative     5,046       5,112  
Restructuring charges     3,343       2,193  
Management fees     300       300  
Total operating expenses     24,696       22,015  
                 
Profit from operations     4,894       8,851  
Interest income     11       188  
Interest expense     (12,584 )     (12,133 )
Gain (loss) in change in fair value for embedded derivatives     84       (6,489 )
Other income (expense), net     251       (239 )
Loss before income taxes     (7,344 )     (9,822 )
Provision (benefit) for income taxes     280       (8,104 )
                 
Net loss   $ (7,624 )   $ (1,718 )
                 
                 
EBITDA TABLE:                
Net loss   $ (7,624 )   $ (1,718 )
Add (deduct):                
Interest expense, net     12,573       11,945  
Provision (benefit) for income taxes     280       (8,104 )
Depreciation and amortization     1,750       1,731  
EBITDA   $ 6,979     $ 3,854  
                 
Add (deduct):                
Restructuring (a)     3,343       2,193  
Stock-based compensation expense (b)     56       85  
Management fees (c)     300       300  
Reserves (d)     322       176  
(Gain) loss on change in fair value for embedded derivatives (f)     (84 )     6,489  
Other expense, net (g)     140       242  
Total adjustments     4,077       9,485  
Adjusted EBITDA (1)   $ 11,056     $ 13,339  
   
   
   
STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.  
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)  
For the fiscal twelve-month periods ended February 24, 2013 and February 26, 2012  
   
    February 24,     February 26,  
    2013     2012  
    (Dollars in thousands)  
REVENUE                
Product   $ 73,720     $ 72,491  
Service     131,435       133,188  
Total revenue     205,155       205,679  
                 
COST OF REVENUE                
Product     30,192       33,346  
Service     54,801       56,511  
Total cost of revenue     84,993       89,857  
                 
Gross profit     120,162       115,822  
                 
OPERATING EXPENSES                
Research and development     25,664       27,468  
Sales and marketing     33,549       31,381  
General and administrative     21,045       20,994  
Restructuring charges     3,531       2,368  
Management fees     1,200       1,200  
Total operating expenses     84,989       83,411  
                 
Profit from operations     35,173       32,411  
Interest income     28       205  
Interest expense     (49,996 )     (48,334 )
Loss on extinguishment of debt     (939 )     (1,222 )
Gain (loss) on change in fair value for embedded derivatives     4,752       (8,873 )
Other expense, net     (225 )     (64 )
Loss before income taxes     (11,207 )     (25,877 )
Provision (benefit) for income taxes     2,499       (6,875 )
                 
Net loss   $ (13,706 )   $ (19,002 )
                 
                 
EBITDA TABLE:                
Net loss   $ (13,706 )   $ (19,002 )
Add (deduct):                
Interest expense, net     49,968       48,129  
Provision (benefit) for income taxes     2,499       (6,875 )
Depreciation and amortization     7,031       7,490  
EBITDA   $ 45,792     $ 29,742  
                 
Add (deduct):                
Restructuring (a)     3,531       2,368  
Stock-based compensation expense (b)     216       336  
Management fees (c)     1,200       1,200  
Reserves (d)     812       716  
Loss on extinguishment of debt (e)     939       1,222  
(Gain) loss on change in fair value for embedded derivatives (f)     (4,752 )     8,873  
Other expense, net (g)     1,045       673  
Total adjustments     2,991       15,388  
Adjusted EBITDA (1)   $ 48,783     $ 45,130  

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.

a) In order to better align expenses with anticipated revenues, we have implemented restructuring programs in fiscal 2013 and fiscal 2012. These programs were designed to streamline our business model and centralize certain functions.

In the quarter-to-date fiscal period ended February 24, 2013, we recorded restructuring charges of $3.3 million. This consisted of $1.7 million for severance and fringe benefits and $1.6 million related to facility cease of use.

In the quarter-to-date fiscal period ended February 26, 2012, we recorded restructuring charges of $2.2 million. This consisted of $2.0 million for severance and fringe benefits and $0.2 million related to employee relocation.

In the year-to-date fiscal period ended February 24, 2013, we recorded restructuring charges of $3.5 million. This consisted of $1.9 million for severance and fringe benefits and $1.6 million related to facility cease of use.

In the year-to-date fiscal period ended February 26, 2012, we recorded restructuring charges of $2.4 million. This consisted of $2.2 million for severance and fringe benefits and $0.2 million related to employee relocation.

b) In the quarter-to-date and year-to-date fiscal periods ended February 24, 2013 and February 26, 2012, 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 $3.8 million and $3.1 million at February 24, 2013 and February 26, 2012, respectively.

d) In the quarter-to-date and year-to-date fiscal periods ended February 24, 2013 and February 26, 2012, we recorded non-cash inventory write-downs.

e) In the year-to-date fiscal periods ended February 24, 2013 and February 26, 2012 we recorded a loss on extinguishment of debt related to the Excess Cash Flow ("ECF") payment in the fiscal second quarter 2013 and 2012, related to the Senior Secured Notes. The loss in each period is due to a premium, the write-off of a pro rata portion of deferred financing fees along with debt discount and related fees offset by the reduction in the value ascribed to the ECF embedded derivative liability.

f) In the quarter-to-date and year-to-date fiscal periods ended February 24, 2013, we recorded a gain due to the change in fair value of the embedded derivatives related to the Senior Secured Notes. In the quarter-to-date and year-to-date fiscal periods ended February 26, 2012, we recorded a loss due to the change in fair value of the embedded derivatives related to the Senior Secured Notes.

g) In the quarter-to-date fiscal period ended February 24, 2013, we recorded other expense, net of $0.1 million, primarily consisting of $0.1 million of bank fees and $0.3 million of miscellaneous and non-recurring charges. These were partially offset by foreign currency gains of $0.3 million.

In the year-to-date fiscal period ended February 24, 2013, we recorded other expense, net of $1.0 million, primarily consisting of $0.7 million of miscellaneous and non-recurring charges and $0.6 of million bank fees. These were partially offset by foreign currency gains of $0.3 million.

In the quarter-to-date period ended February 26, 2012, we recorded other expense, net of $0.2 million, primarily consisting of $0.1 million bank fees and $0.1 million of net foreign currency losses.

In the year-to-date period ended February 26, 2012, we recorded other expense, net of $0.7 million, primarily consisting of $0.5 million bank fees, $0.3 million of one-time public filing registration costs and $0.3 million of net miscellaneous and non-recurring charges offset by $0.4 million net foreign currency gains.

   
STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.  
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)  
For the fiscal twelve-month periods ended February 24, 2013 and February 26, 2012  
   
    February 24,     February 26,  
    2013     2012  
    (Dollars in thousands)  
OPERATING ACTIVITIES                
Cash flows provided by operating activities:                
Net loss   $ (13,706 )   $ (19,002 )
Adjustments to reconcile net loss to net cash provided by operating activities:                  
  Depreciation and amortization     7,031       7,490  
  Amortization of deferred financing costs and debt discount     11,733       10,501  
  Stock-based compensation     216       336  
  Non-cash portion of restructuring charges     393       -  
  Deferred tax expense (income)     581       (8,585 )
  Provision for doubtful accounts     (93 )     121  
  Inventory provision     812       716  
  Loss on extinguishment of debt     939       1,222  
  Premium on excess cash flow payment     (999 )     (999 )
    (Gain) loss on change in fair value of embedded derivatives     (4,752 )     8,873  
  Loss on sale of asset     -       13  
  Loss on retirement of property and equipment     72       144  
  Loss on abandoned patents     -       45  
  Interest payable-in-kind     8,611       7,871  
Changes in assets and liabilities                
  Accounts receivable     (848 )     982  
  Inventory     (451 )     (2,012 )
  Prepaid expenses and other current assets     430       (84 )
  Accounts payable     31       604  
  Accrued expenses     2,360       309  
  Accrued interest     (370 )     (1,017 )
  Income taxes payable     (44 )     (142 )
  Deferred revenue     (333 )     (37 )
  Other long-term assets and liabilities     2,377       1,068  
Net cash provided by operating activities     13,990       8,417  
                 
INVESTING ACTIVITIES                
Cash flows used in investing activities:                
  Acquisition of property and equipment     (6,249 )     (3,665 )
  Acquisition of businesses, net of cash acquired of $34     (6,821 )     -  
  Proceeds from the disposition of property and equipment     -       19  
  Acquisition of other long-term assets     (142 )     (100 )
Net cash used in investing activities     (13,212 )     (3,746 )
                 
FINANCING ACTIVITIES                
Cash flows used in financing activities:                
  Payments on long-term debt     (4,995 )     (4,997 )
  Payment of debt and equity issuance fees     -       (308 )
  Proceeds from the exercise of stock options     -       2  
Net cash used in financing activities     (4,995 )     (5,303 )
Effect of exchange rate changes on cash     (1,130 )     42  
Net decrease in cash and cash equivalents     (5,347 )     (590 )
Cash and cash equivalents at beginning of period     27,510       28,100  
Cash and cash equivalents at end of period   $ 22,163     $ 27,510