SOURCE: Stratus Technologies

Stratus Technologies

October 11, 2012 10:02 ET

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

HAMILTON, BERMUDA--(Marketwire - Oct 11, 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 second quarter and fiscal year-to-date period ended August 26, 2012.

For the second quarter ended August 26, 2012, total revenue was $52.5 million, an increase of $1.8 million or 3.6% as compared to the $50.7 million in the second quarter ended August 28, 2011. Profit from operations was $10.9 million compared to $8.8 million for the same period last year. The net loss was $4.3 million compared to $6.3 million for the same period last year. Net loss for the quarter-to-date periods ended August 26, 2012 and August 28, 2011 includes a net loss on extinguishment of debt of $0.9 million and $1.2 million, respectively. The Company reported Adjusted EBITDA, a non-GAAP financial measure, of $13.1 million compared to $11.5 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 year-to-date period ended August 26, 2012, total revenue was $105.1 million, an increase of $4.8 million or 4.8% as compared to the $100.3 million in the year-to-date period ended August 28, 2011. Profit from operations was $21.2 million compared to $15.8 million for the same period last year. Profit from operations for the year-to-date period ended August 26, 2012 and August 28, 2011 includes a net loss on extinguishment of debt of $0.9 million and $1.2 million, respectively. The net loss was $7.6 million compared to $12.2 million for the same period last year. The Company reported Adjusted EBITDA, a non-GAAP financial measure, of $26.5 million compared to $21.4 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."

Second Quarter Results Conference Call
A conference call to review second quarter financial results will be held today, October 11, 2012 at 1:30 p.m. Eastern Time and may be accessed by calling 1-800-762-8779 (U.S. only) or 1-480-629-9645 with a conference ID of 4568919. 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 4568919 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.

   
Exhibit 1  
   
STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.  
CONSOLIDATED BALANCE SHEETS (Unaudited)  
   
    August 26,     February 26,  
    2012     2012  
    (Dollars in thousands, except per share data)  
             
ASSETS  
             
Current assets:                
Cash and cash equivalents   $ 24,425     $ 27,510  
Accounts receivable, net of allowance for doubtful accounts of $382 and $160, respectively     36,515       37,066  
Inventory     6,841       7,884  
Deferred income taxes     1,611       1,613  
Prepaid expenses and other current assets     4,905       4,454  
Total current assets     74,297       78,527  
                 
Property and equipment, net     10,788       10,490  
Intangible assets, net     3,228       3,024  
Goodwill     10,297       9,591  
Deferred income taxes     11,049       11,484  
Deferred financing fees     7,737       9,216  
Other assets     2,450       2,810  
Total assets   $ 119,846     $ 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     8,294       7,853  
Accrued expenses     11,724       12,829  
Accrued interest payable     9,403       9,608  
Income taxes payable     462       103  
Deferred income taxes     1,075       1,075  
Deferred revenue     34,633       35,428  
Total current liabilities     70,591       71,896  
                 
Long-term debt, net of discount     264,431       260,405  
Embedded derivatives     25,980       25,884  
Long-term deferred income taxes     232       232  
Deferred revenue and other long-term liabilities     15,891       15,847  
Total liabilities     377,125       374,264  
                 
Redeemable convertible preferred stock and redeemable ordinary stock:          
Series A: 7,000 shares authorized; and 6,561 shares issued and outstanding at August 26, 2012 and February 26, 2012     113,557       109,189  
Series B: 20,524 shares authorized; 3,532 shares issued and outstanding at August 26, 2012 and February 26, 2012     61,127       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 August 26, 2012 and February 26, 2012     1,181       1,181  
Total redeemable convertible preferred stock and redeemable ordinary stock     181,383       174,664  
                 
Stockholders' deficit:                
Ordinary stock, $0.5801 par value, 181,003 shares authorized; 28,025 shares issued and outstanding at August 26, 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 August 26, 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 August 26, 2012 and February 26, 2012, respectively     8,998       8,998  
Additional paid-in-capital     -       -  
Accumulated deficit     (464,492 )     (450,306 )
Accumulated other comprehensive gain     575       1,265  
Total stockholders' deficit     (438,662 )     (423,786 )
                 
Total liabilities, redeemable convertible preferred stock and redeemable ordinary stock, and stockholders' deficit   $ 119,846     $ 125,142  
   
   
STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.  
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)  
   
    13 Weeks Ended  
    August 26,     August 28,  
    2012     2011  
    (Dollars in thousands)  
REVENUE                
Product   $ 19,832     $ 17,347  
Service     32,716       33,356  
Total revenue     52,548       50,703  
                 
COST OF REVENUE                
Product     8,454       7,635  
Service     13,618       14,331  
Total cost of revenue     22,072       21,966  
                 
Gross profit     30,476       28,737  
                 
OPERATING EXPENSES                
Research and development     6,217       6,930  
Sales and marketing     7,859       7,459  
General and administrative     5,183       5,246  
Restructuring charges     43       -  
Management fees     300       300  
Total operating expenses     19,602       19,935  
                 
Profit from operations     10,874       8,802  
Interest income     4       5  
Interest expense     (12,399 )     (11,969 )
Loss on extinguishment of debt     (939 )     (1,222 )
Loss on change in fair value for embedded derivatives     (534 )     (1,326 )
Other expense, net     (394 )     (306 )
Loss before income taxes     (3,388 )     (6,016 )
Income taxes     898       309  
                 
Net loss   $ (4,286 )   $ (6,325 )
                 
                 
EBITDA TABLE:                
Net loss   $ (4,286 )   $ (6,325 )
Add:                
Interest expense, net     12,395       11,964  
Income taxes     898       309  
Depreciation and amortization     1,703       1,939  
EBITDA     10,710       7,887  
                 
Add                
Restructuring (a)     43       -  
Stock-based compensation expense (b)     61       81  
Management fees (c)     300       300  
Reserves (d)     126       160  
Loss on extinguishment of debt (e)     939       1,222  
Loss on net change in fair value for embedded derivatives (f)     534       1,326  
Other expense, net (g)     435       511  
Total adjustments     2,438       3,600  
Adjusted EBITDA (1)   $ 13,148     $ 11,487  
   
   
STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.  
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)  
   
    26 Weeks Ended  
    August 26,     August 28,  
    2012     2011  
    (Dollars in thousands)  
REVENUE                
Product   $ 39,396     $ 34,236  
Service     65,717       66,033  
Total revenue     105,113       100,269  
                 
COST OF REVENUE                
Product     15,754       15,123  
Service     28,276       28,240  
Total cost of revenue     44,030       43,363  
                 
Gross profit     61,083       56,906  
                 
OPERATING EXPENSES                
Research and development     12,823       14,276  
Sales and marketing     15,968       15,245  
General and administrative     10,416       11,000  
Restructuring charges     77       -  
Management fees     600       600  
Total operating expenses     39,884       41,121  
                 
Profit from operations     21,199       15,785  
Interest income     10       11  
Interest expense     (24,926 )     (24,154 )
Loss on extinguishment of debt     (939 )     (1,222 )
Loss on change in fair value for embedded derivatives     (825 )     (1,663 )
Other expense, net     (385 )     (352 )
Loss before income taxes     (5,866 )     (11,595 )
Income taxes     1,702       625  
                 
Net loss   $ (7,568 )   $ (12,220 )
                 
                 
EBITDA TABLE:                
Net loss   $ (7,568 )   $ (12,220 )
Add:                
Interest expense, net     24,916       24,143  
Income taxes     1,702       625  
Depreciation and amortization     3,426       3,917  
EBITDA     22,476       16,465  
                 
Add                
Restructuring (a)     77       -  
Stock-based compensation expense (b)     102       174  
Management fees (c)     600       600  
Reserves (d)     195       439  
Loss on extinguishment of debt (e)     939       1,222  
Loss on net change in fair value for embedded derivatives (f)     825       1,663  
Other expense, net (g)     1,284       885  
Total adjustments     4,022       4,983  
Adjusted EBITDA (1)   $ 26,498     $ 21,448  

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 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 August 26, 2012 reflects changes to prior estimates of these liabilities as well as a restructuring charge of $0.1 million related to severance and fringe benefits.

(b) In the quarter-to-date and year-to-date fiscal periods ended August 26, 2012 and August 28, 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 $3.4 million and $3.1 million at August 26, 2012 and February 26, 2012, respectively.

(d) In the quarter-to-date and year-to-date fiscal periods ended August 26, 2012 and August 28, 2011, we recorded non-cash inventory write-downs.

(e) In the quarter-to-date and year-to-date fiscal period ended August 26, 2012 and August 28, 2011 we recorded a loss on extinguishment of debt related to the Excess Cash Flow 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 Excess Cash Flow embedded derivative liability.

(f) In the quarter-to-date and year-to-date fiscal periods ended August 26, 2012 and August 28, 2011, we recorded losses 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 August 26, 2012 we recorded other expense, net of $0.4 million, primarily consisting of $0.2 million of miscellaneous and non-recurring charges, $0.1 of million bank fees and $0.1 million of net foreign currency losses.

In the year-to-date fiscal period ended August 26, 2012 we recorded other expense, net of $1.3 million, primarily consisting of $1.0 million of miscellaneous and non-recurring charges and $0.3 of million bank fees.

In the quarter-to-date fiscal period ended August 28, 2011, we recorded other expense, net of $0.5 million, primarily consisting of $0.1 million bank fees, $0.3 million of net foreign currency losses and $0.1 million of miscellaneous and non-recurring income.

In the year-to-date fiscal period ended August 28, 2011 we recorded other expense, net of $0.9 million, primarily consisting of $0.2 million of miscellaneous and non-recurring charges, $0.3 million of public filing registration costs, $0.3 of million bank fees and $0.1 million of net foreign currency losses.

   
STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.  
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  
   
    26 Weeks Ended  
    August 26,     August 28,  
    2012     2011  
    (Dollars in thousands)  
OPERATING ACTIVITIES                
Cash flows provided by operating activities:                
Net loss   $ (7,568 )   $ (12,220 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
  Depreciation and amortization     3,426       3,917  
  Amortization of deferred financing costs and debt discount     5,747       5,143  
  Stock-based compensation     102       174  
  Provision for doubtful accounts     14       122  
  Inventory provision     195       439  
  Loss on extinguishment of debt     939       1,222  
  Premium on excess cash flow payment     (999 )     (999 )
  Loss on change in fair value of embedded derivatives     825       1,663  
  Loss on sale of asset     31       -  
  Loss on retirement of property and equipment     31       -  
  Interest payable-in-kind     4,209       3,847  
Changes in assets and liabilities                
  Accounts receivable     263       1,265  
  Inventory     270       (562 )
  Prepaid expenses and other current assets     (499 )     (346 )
  Accounts payable     501       323  
  Accrued expenses     (758 )     (1,819 )
  Accrued interest payable     (205 )     (120 )
  Income taxes payable     349       (71 )
  Deferred revenue     (1,430 )     497  
  Other long-term assets and liabilities     1,044       741  
Net cash provided by operating activities     6,487       3,216  
                 
INVESTING ACTIVITIES                
Cash flows used in investing activities:                
  Acquisition of property and equipment     (2,944 )     (1,787 )
  Acquisition of business     (1,175 )     -  
  Acquisition of other long-term assets     (56 )     (40 )
Net cash used in investing activities     (4,175 )     (1,827 )
                 
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 )
Net cash used in financing activities     (4,995 )     (5,305 )
Effect of exchange rate changes on cash     (402 )     557  
Net decrease in cash and cash equivalents     (3,085 )     (3,359 )
Cash and cash equivalents at beginning of period     27,510       28,100  
Cash and cash equivalents at end of period   $ 24,425     $ 24,741  

Contact Information

  • Investor Relations Contact
    Robert C. Laufer
    Senior Vice President
    CFO
    Stratus Technologies
    978-461-7343
    bob.laufer@stratus.com