SOURCE: Tekelec

May 05, 2011 06:00 ET

Tekelec Announces First Quarter 2011 Operating Results

-- Revenues of $107.8 Million;

-- Orders of $69.5 Million;

-- GAAP Gross Margin of 52%, and non-GAAP Gross Margin of 59% (as Reconciled Below);

-- GAAP Operating Margin of (24%), and non-GAAP Operating Margin of 6% (as Reconciled Below);

-- GAAP EPS of ($0.23) per Share, and non-GAAP Diluted EPS of $0.08 per Share (as Reconciled Below);

-- Initiated a Restructuring Plan to Better Align Cost Structure With Current and Expected Business Opportunities

MORRISVILLE, NC--(Marketwire - May 5, 2011) - Tekelec (NASDAQ: TKLC), the mobile broadband solutions company, today announced earnings for first quarter 2011.

2011 First Quarter Results from Operations

Revenue for first quarter of 2011 was $107.8 million, down 7% compared to $116.0 million for first quarter 2010. The Company's orders were $69.5 million for the quarter, up 22% from the same period in 2010. Order input was up primarily due to an 82% year-over-year increase in orders for next-generation solutions with most of the growth occurring within North America. Included in first quarter of 2011 is the first multi-million dollar order for a next-generation session management solution, the Diameter Signaling Router, in connection with the nationwide LTE rollout by a Tier One operator. This integrated LTE solution, which also includes subscriber data management and performance management products, will centralize network routing data and help the customer manage subscriber profile information. As of March 31, 2011, backlog was $305.4 million compared to $338.8 million as of December 31, 2010. The Company's 2010 first quarter orders do not include any orders related to policy or subscriber data management products as the Company completed the acquisitions of Camiant and Blueslice in May 2010.

GAAP gross margins for first quarter 2011 were 52% compared to 65% in first quarter 2010. Non-GAAP gross margins for first quarter 2011 were 59% compared to 67% for first quarter 2010. Gross margins were negatively impacted by approximately $4 million of charges associated with warranty-related items and collectability concerns associated with certain customer contracts. Please refer to the attached reconciliations of the non-GAAP financial measures referred to in this release to the most directly comparable GAAP measures.

On a GAAP basis, the Company reported a net loss for first quarter 2011 of $16.0 million, or ($0.23) per share, compared to earnings in first quarter of 2010 of $13.7 million, or $0.20 per diluted share. GAAP operating margins were a negative 24% for first quarter 2011 down from 19% for first quarter 2010. Included in the Company's GAAP operating results is a restructuring charge of $21.4 million.

On a non-GAAP basis, the Company reported net income for first quarter 2011 of $5.7 million, or $0.08 per share, compared to net income of $18.0 million, or $0.26 per diluted share, for first quarter 2010. Non-GAAP operating margins for first quarter 2011 were 6% compared to 24% for first quarter 2010.

Krish Prabhu, interim President and CEO, commented: "We completed the first quarter of 2011 with solid results. Our orders were up 22% over last year. Strong cash flow from operations allowed us to continue to strengthen our balance sheet and we ended the quarter with over $240 million dollars in cash and no debt. We also had to make some tough decisions during the quarter and initiated changes to improve the operating performance of the company by aligning our cost structure. We continue to focus on solving our customers' mobile broadband challenges with our unique intelligence-layer solutions."

Restructuring Plan

In the first quarter of 2011, the Company initiated a restructuring of its operations designed to align its operating cost structure with its current and expected business opportunities. As part of this restructuring, the Company expects to reduce its workforce by approximately 10-15%, with reductions both in the U.S. and certain international locations. Personnel reductions are expected to occur in phases through the end of 2011, linked to the completion of certain customer commitments and subject to complying with and undertaking any necessary individual and collective employee information and consultation obligations required by local law.

The total pre-tax cost of the restructuring is expected to be approximately $23 to $28 million. The Company recorded a pre-tax charge of $21.4 million associated with this restructuring during the first quarter of 2011. Upon completion of the restructuring, the Company expects to reduce its annual operating expenses by $20 to $25 million from the 2010 annualized run rate of approximately $215 million. The post restructuring run rate is inclusive of an anticipated shift in investments from the Company's established product to its next generation solutions.

Balance Sheet and Liquidity

As of March 31, 2011, the Company's consolidated cash and cash equivalents totaled $240.9 million compared to $220.9 million at December 31, 2010. Cash flows from operations in first quarter 2011 were $24.4 million, compared to $14.9 million in first quarter 2010. Working capital at March 31, 2011 decreased to $269.3 million from $286.9 million at December 31, 2010.

2011 Full Year Guidance

The Company believes that full year 2011 revenues will range between $360 million and $400 million and non-GAAP gross margins will range between 59% and 62%. The Company expects that the non-GAAP EPS range will be between $0.22 and $0.32 per diluted share and the range for GAAP EPS will be between a loss of $0.48 and a loss of $0.58 per share.

                              2011 Guidance


                                           Current           Previous
                                      -----------------  -----------------
      Revenues                          $360M - $400M     $360M - $400M

Non-GAAP Gross Margin % *                 59% - 62%          low 60's

Non-GAAP Diluted EPS **                 $0.22 - $0.32     $0.20 - $0.30

GAAP EPS                              ($0.58) - ($0.48) ($0.25) - ($0.15)


* Of the adjustments listed below, approximately $2M of stock-based
compensation and $27M of amortization of intangibles will impact GAAP
gross margins.

** Current and previous non-GAAP guidance excludes an estimated $13M,
respectively, of stock-based compensation, $38M and $30M, respectively, of
amortization of intangible assets and acquisition-related expenses, and
$26M and $3M, respectively, of restructuring charges. Each of these, net
of the associated tax impact, are included in GAAP EPS. The estimated net
tax impact of the GAAP adjustments is $23M and $14M, respectively.

"Live" Webcast and Replay

Tekelec will host a live webcast of its conference call on Thursday, May 5, 2011, at 8:00 a.m. ET to discuss first quarter results and certain forward-looking information concerning management's outlook for the business. To access the webcast, visit Tekelec's web site located at www.tekelec.com, enter the Investor Relations section and click on the webcast icon. A webcast replay will be available at approximately 11:00 a.m. ET on Thursday, May 5, 2011, and for 90 days thereafter. The Company also plans to provide on its web site immediately prior to the commencement of the call certain GAAP and non-GAAP information (including GAAP to non-GAAP reconciliations) and other financial information for the quarterly and full year periods.

Telephone Replay

A telephone replay of the call will also be available for one week after the live webcast by calling either (800) 642-1687 or (706) 645-9291, and entering the conference ID #60392049.

Non-GAAP Information

Certain non-GAAP financial measures are included in this press release. In the calculation of these measures, Tekelec generally excludes certain items such as amortization of acquired intangibles, restructuring and other charges, non-cash stock-based compensation charges, and unusual, non-recurring gains and charges. Tekelec believes that excluding such items provides investors and management with a representation of the Company's core operating performance and with information useful in assessing its prospects for the future and underlying trends in Tekelec's operating expenditures and continuing operations. Management uses such non-GAAP measures to (i) evaluate financial results, (ii) manage the Company's operations, and (iii) establish operational goals. Further, non-GAAP measures are utilized by the Company's management and board of directors to assist in determining incentive compensation and evaluating key trends within the business. In addition, since the Company has historically reported non-GAAP measures to the investment community, the Company believes the inclusion of this information provides consistency in our financial reporting. The release and the attachments to this release provide a reconciliation of each of the non-GAAP measures referred to in this release to the most directly comparable GAAP measure. The non-GAAP financial measures are not meant to be considered a substitute for the corresponding GAAP financial measures.

Forward-Looking Statements

Certain statements made in this press release, including 2011 Guidance and statements regarding our 2011 restructuring activities, are forward-looking, reflect the Company's current intent, belief or expectations and involve certain risks and uncertainties. The Company's actual future performance may differ materially from such expectations as a result of important risk factors, which include, in addition to those identified in the Company's 2010 Form 10-K, 2011 First Quarter Form 10-Q and its other filings with the Securities and Exchange Commission, the effects on our revenue performance of our year-over-year decline in orders in 2010 and the increasing portion of our orders that are for newer products with longer order-to-revenue conversion cycles and lower margins on initial sales; our increasing dependence on next generation products with which we have less experience forecasting, building, and selling and for which the markets are less mature and more subject to demand and technology changes and increased competition; the risk that we may experience detrimental effects, such as employee distraction and litigation, from our 2011 restructuring activities, or may not realize the benefits of such activities, including as a result of delays resulting from the Company's complying with and undertaking, or its noncompliance with, any necessary individual and collective employee information and consultation obligations; the difficulty we may have in transitioning from a hardware-centric to a software-centric business; the uncertainty associated with the resignation of our former CEO and our former EVP of Global Sales, and the interim status of our current CEO; any adverse outcome from or effects of the securities litigations we currently have filed against us; the current or further detrimental changes in general economic, social, or political conditions in the countries in which we operate including the impact of credit availability and other economic factors on overall capital spending by our customers and resulting pressure on us to lower our prices; the rate and size of decline in demand for our older SS7-based products from which we still derive a substantial portion of our revenues; our ability to compete with other manufacturers that have lower cost bases than ours, are partially supported by foreign governments, and/or employ unfair trade practices; risks related to our international sales, markets and operations, including but not limited to: import regulations, limited intellectual property protection (including protection of our software source code), increased costs and potential liabilities related to compliance with current and future security provisions in customer contracts and regulations, and security, access, and other regulatory requirements imposed by governments, including in particular the government of India; exposure to increased bad debt expense and product and service disputes as a result of general economic conditions; the timeliness and functional competitiveness of our product releases, the timing and size of any increase in demand for our performance management, SIP, Diameter, policy and subscriber database products; the risk of infringing on, and litigating with others regarding their, intellectual property rights; the timing of our recognition of revenues; the extent to which any customer outsourcing to our competitors or supplier consolidation increases the influence of competitors on our customers' purchases; our ability to protect intellectual property rights; our ability to maintain OEM, partner, reseller, and vendor support and supply relationships; and changes in the market price of the Company's common stock. The Company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

About Tekelec

Tekelec enables billions of people and devices to talk, text and access the Web. Our portfolio delivers a unique layer of intelligence allowing service providers to both manage and monetize the exponential growth in data traffic and applications. Tekelec has more than 25 offices around the world serving customers in more than 100 countries. For more information, please visit www.tekelec.com.

                                  TEKELEC
        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                   Three Months Ended
                                                       March 31, (1)
                                                --------------------------
                                                    2011          2010
                                                ------------  ------------
                                                  (Thousands, except per
                                                        share data)
                                                --------------------------
Revenues                                        $    107,759  $    115,991
Cost of sales:
   Cost of goods sold                                 44,924        38,604
   Amortization of intangible assets                   6,752         1,533
                                                ------------  ------------
      Total cost of sales                             51,676        40,137
                                                ------------  ------------
      Gross profit                                    56,083        75,854
                                                ------------  ------------
Operating expenses:
   Research and development                           25,773        22,809
   Sales and marketing                                20,725        17,437
   General and administrative                         12,779        13,150
   Amortization of intangible assets                   1,764           230
   Restructuring and other                            21,364             -
                                                ------------  ------------
      Total operating expenses                        82,405        53,626
                                                ------------  ------------
Income (loss) from operations                        (26,322)       22,228
Other expense, net                                      (774)         (945)
Income (loss) from operations before provision
 for (benefit from) income taxes                ------------  ------------
                                                     (27,096)       21,283
Provision for (benefit from) income taxes            (11,100)        7,565
                                                ------------  ------------
Net income (loss)                               $    (15,996) $     13,718
                                                ============  ============

Earnings (loss) per share:
   Basic                                        $      (0.23) $       0.20
   Diluted                                             (0.23)         0.20

Weighted average number of shares outstanding:
   Basic                                              68,770        67,636
   Diluted                                            68,770        68,766


(1) We operate under a thirteen-week calendar quarter. For financial
    statement presentation purposes, the reporting periods are referred to
    as ended on the last day of the calendar quarter. The accompanying
    Unaudited Condensed Consolidated Statements of Operations are for the
    thirteen weeks ended April 1, 2011 and April 2, 2010.




                                  TEKELEC
              UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


                                                March 31,(1)  December 31,
                                                ------------- ------------
                                                    2011          2010
                                                ------------- ------------
                                                  (Thousands, except per
                                                        share data)


                          ASSETS
Current assets:
    Cash and cash equivalents                   $     240,925 $    220,938
    Accounts receivable, net                          131,042      165,019
    Inventories                                        19,117       28,221
    Income taxes receivable                             5,448        3,098
    Deferred income taxes, current                     20,450       19,906
    Deferred costs and prepaid commissions             38,427       43,652
    Prepaid expenses                                   11,438        8,527
    Other current assets                                4,686        3,687
                                                ------------- ------------
        Total current assets                          471,533      493,048

Property and equipment, net                            38,811       37,169
Deferred income taxes, net, noncurrent                 83,761       72,854
Other assets                                            1,486        1,507
Goodwill                                              136,671      135,564
Intangible assets, net                                 84,399       92,245
                                                ------------- ------------
        Total assets                            $     816,661 $    832,387
                                                ============= ============

        LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable                            $      11,346 $     17,823
    Accrued expenses                                   38,024       20,344
    Accrued compensation and related expenses          20,334       22,680
    Current portion of deferred revenues              132,561      145,291
                                                ------------- ------------
        Total current liabilities                     202,265      206,138

Deferred income taxes, noncurrent                       4,749        7,430
Long-term portion of deferred revenues                  6,302        6,812
Other long-term liabilities                             5,877        5,422
                                                ------------- ------------
        Total liabilities                             219,193      225,802
                                                ------------- ------------
Commitments and Contingencies

Shareholders' equity:
    Common stock, without par value,
     200,000,000 shares authorized; 68,976,995
     and 68,617,232 shares issued and outstanding,
     respectively                                     353,879      351,309
    Retained earnings                                 240,833      256,829
    Accumulated other comprehensive income
     (loss)                                             2,756       (1,553)
                                                ------------- ------------
        Total shareholders' equity                    597,468      606,585
                                                ------------- ------------
        Total liabilities and shareholders'
         equity                                 $     816,661 $    832,387
                                                ============= ============

(1) We operate under a thirteen-week calendar quarter.  For financial
    statement presentation purposes, the reporting periods are referred to
    as ended on the last day of the calendar quarter. The accompanying
    Unaudited Condensed Consolidated Balance Sheet is as of April 1, 2011.




                                  TEKELEC
        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                    Three Months Ended
                                                       March 31, (1)
                                                --------------------------
                                                    2011          2010
                                                ------------  ------------
                                                        (Thousands)
Cash flows from operating activities:
Net income (loss)                               $    (15,996) $     13,718
Adjustments to reconcile net income to net cash
 provided by operating activities:
    Gain (loss) on investments carried at fair
     value, net                                            -           (80)
    Provision for (recovery of) doubtful
     accounts and returns                               (222)         (489)
    Provision for (reduction of) warranty               (251)         (347)
    Inventory write downs                              1,610         1,180
    Loss on disposals of fixed assets                    118            53
    Depreciation                                       4,369         4,108
    Amortization of intangibles                        8,516         1,763
    Amortization of deferred financing costs
     and other                                           225           238
    Deferred income taxes                            (14,195)        4,943
    Stock-based compensation                           2,908         3,296
    Excess tax benefits from stock-based
     compensation                                          -          (819)
    Changes in operating assets and liabilities
     (net of acquisitions and dispositions):
        Accounts receivable                           36,567        21,083
        Inventories                                    7,619        (3,866)
        Deferred costs                                 6,186         8,452
        Prepaid expenses                              (2,871)          841
        Other current assets                            (991)       (2,455)
        Accounts payable                              (6,750)       (4,511)
        Accrued expenses                              17,691        (4,919)
        Accrued compensation and related
         expenses                                     (2,630)      (16,631)
        Deferred revenues                            (15,663)      (14,591)
        Income taxes receivable                       (2,297)        1,617
        Income taxes payable                             456         2,292
                                                ------------  ------------
            Total adjustments                         40,395         1,158
                                                ------------  ------------
            Net cash provided by operating
             activities                               24,399        14,876
                                                ------------  ------------

Cash flows from investing activities:
    Proceeds from sales and maturities of
     investments                                           -        13,400
    Purchases of property and equipment               (5,908)       (2,403)
                                                ------------  ------------
            Net cash provided by (used in)
             investing activities                     (5,908)       10,997
                                                ------------  ------------

Cash flows from financing activities:
    Proceeds from issuance of common stock               640         7,050
    Cash used to net share settle equity awards         (978)       (2,282)
    Excess tax benefits from stock-based
     compensation                                          -           819
                                                ------------  ------------
            Net cash provided by (used in)
             financing activities                       (338)        5,587
                                                ------------  ------------

Effect of exchange rate changes on cash                1,834        (1,442)
                                                ------------  ------------
            Net increase in cash and cash
             equivalents                              19,987        30,018
Cash and cash equivalents at beginning of the
 year                                                220,938       277,259
                                                ------------  ------------
Cash and cash equivalents at end of the year    $    240,925  $    307,277
                                                ============  ============

(1) We operate under a thirteen-week calendar quarter.  For financial
    statement presentation purposes, the reporting periods are referred to
    as ended on the last day of the calendar quarter. The accompanying
    Unaudited Condensed Consolidated Statements of Cash Flows are for the
    thirteen weeks ended April 1, 2011 and April 2, 2010.




                                  TEKELEC
          RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
            for the Three Months Ended March 31, 2011 and 2010

                                        2011                  2010
                                --------------------- ---------------------
                                             % of                  % of
                                  Amount   revenues     Amount   revenues
                                ---------- ---------  ---------- ---------
                                      (Thousands, except percentages)

Gross margins                   $   56,083        52% $   75,854        65%
   Adjustments:
   Amortization of intangible
    assets (1)                       6,752         6%      1,533         1%
   Stock-Based Compensation (2)        377         0%        352         0%
   Acquisition related cash
    bonus(3)                            42         0%          -         0%
                                ---------- ---------  ---------- ---------
Non-GAAP gross margins          $   63,254        59% $   77,739        67%
                                ========== =========  ========== =========

                                        2011                  2010
                                --------------------  ---------------------
                                             % of                  % of
                                  Amount   revenues     Amount   revenues
                                ---------  ---------  ---------- ---------
                                      (Thousands, except percentages)

Operating margins               $ (26,322)       -24% $   22,228        19%
   Adjustments:
   Amortization of intangible
    assets(1)                       8,516          8%      1,763         2%
   Stock-Based Compensation (2)     2,908          3%      3,296         3%
   Acquisition related cash
    bonus(3)                          401          0%         73         0%
   Restructuring and other(4)      21,364         20%          -         0%
                                ---------  ---------  ---------- ---------
Non-GAAP operating margin       $   6,867          6% $   27,360        24%
                                =========  =========  ========== =========

                                        2011                  2010
                                --------------------  --------------------
                                              per                   per
                                            diluted               diluted
                                  Amount     share      Amount     share
                                ---------  ---------  ---------  ---------
                                    (Thousands, except per share data)

Net income (loss)               $ (15,996) $   (0.23) $  13,718  $    0.20
   Adjustments:
   Amortization of intangible
    assets(1)                       8,516       0.12      1,763       0.03
   Stock-Based Compensation (2)     2,908       0.04      3,296       0.05
   Acquisition related cash
    bonus(3)                          401       0.01         73       0.00
   Restructuring and other(4)      21,364       0.31          -          -
   Provision for (benefit from)
    income taxes (5)              (11,527)     (0.17)      (888)     (0.01)
                                ---------  ---------  ---------  ---------
Non-GAAP net income             $   5,666  $    0.08  $  17,962  $    0.26
                                =========  =========  =========  =========

Weighted average number of
 shares outstanding:
   Basic                                      68,770                67,636
   Diluted                                    69,143                68,766

(1) The adjustments represent the amortization of purchased technology and
    other intangibles related to acquired companies.

(2) The adjustments represent stock-based compensation expense recognized
    related to awards of stock options, restricted stock or restricted
    stock units or stock appreciation rights granted under our equity
    incentive plans and stock purchase rights granted under our employee
    stock purchase plan.

(3) The adjustment represents: 2011- consideration payable to former
    Camiant employees for options not assumed in the merger;
    2010- consideration payable to Estacado that was contingent upon the
    continued employment of certain former Estacado employees by Tekelec.

(4) The adjustment represents the elimination of the costs associated with
    our restructuring activities.

(5) The adjustment represents the income tax effect of footnotes (1), (2),
    (3) and (4) in order to reflect our non-GAAP effective tax rate of 7%
    and 32% for 2011 and 2010, respectively. The 2011 effective rate was
    also impacted by a discrete net benefit of approximatlely $1.4 millon
    related to the completion of certain transfer pricing studies.

Contact Information

  • Contact:

    Kyle Macemore
    Vice President Finance and Investor Relations
    (o) +1.919.380.6148
    Email Contact