SOURCE: TurboChef Technologies, Inc.

March 06, 2006 16:28 ET

TurboChef Reports 4th Quarter and 2005 Results; Expects Successful 2006, Improving Gross Margins; Cites Building Momentum in Commercial Business; To Unveil Residential Speed Cook Oven Products in

April

ATLANTA, GA -- (MARKET WIRE) -- March 6, 2006 -- TurboChef Technologies, Inc. (NASDAQ: OVEN) today reported financial results for the fourth quarter and the year ended December 31, 2005.

Significant Items:

--  Total revenue for the quarter and the year ended December 31, 2005,
    was $9.3 million and $52.2 million, respectively.
    
--  Approximately $5.4 million, or 58%, of revenue in the fourth quarter
    was from sales to customers other than Subway® restaurants. For 2005,
    approximately $22.0 million, or 42% of total revenue was from non-Subway
    sales. Subway is a valued customer and is expected to be a significant
    contributor to future revenues as TurboChef provides ovens to new Subway
    restaurants. However, the Company anticipates that continued expansion of
    the commercial customer base will lead to steady growth in non-Subway
    business.
    
--  The Company believes it is continuing to make good progress with a
    number of potential new significant commercial customers.  The ability of
    the Company to share publicly its developing relationships continues to be
    impacted by customer requests that their plans be kept confidential. As a
    result, this makes it difficult for the Company to provide guidance on the
    commercial business at the present time. TurboChef has been very pleased
    with the responses we have received from companies who have incorporated
    TurboChef ovens into their expanded hot food menu strategies. Many of these
    strategies are currently built around expanding hot food menu items for
    breakfast. All of these new initiatives from various companies are directed
    to giving the customer an expanded range of menu choices and delivering
    great tasting food in a time effective fashion without slowing down
    service. We believe TurboChef is well positioned to serve these companies
    with our broad portfolio of speed cook ovens.
    
--  The Company continues to advance toward its goal of introducing a
    revolutionary residential oven in 2006.  In April, it will be participating
    in the industry's premier trade show to unveil its first residential speed-
    cook oven as well as the plans for future residential kitchen products.
    
--  Comparing results of operations for the fourth quarter with the
    comparable prior period is not meaningful because total revenue for the
    2004 fourth quarter reflected an unprecedented number of oven sales
    attributable to the system-wide roll out of the Company's Tornado™ oven
    model to Subway restaurants.  The net loss for the quarter was $7.1
    million, or $0.25 per share.
    
--  Fourth quarter margins were below expectations. The contributing
    factors were a) delayed benefit of recent price increases given the
    pipeline of orders at legacy prices; b) year-end inventory quantity and
    valuation adjustments, including some related to restructuring, and c) our
    decision to increase the per unit warranty reserve based on recent
    experience.
    
--  The Company has now substantially completed the upgrade of its
    installed base of Subway ovens to address a longevity and reliability issue
    initially identified in the second quarter of 2005. As a result of its
    warranty experience in these periods, the Company deemed it prudent to
    increase its provision for product warranties for each unit sold in the
    fourth quarter. The Company believes that the upgrade has satisfactorily
    addressed the reliability issues and that its warranty provisions are
    appropriate based on experience to date.
    
--  The Company and Food Automation-Service Techniques "FAST" agreed
    amicably to end the lawsuit between them over certain oven control
    technology.  The Company will continue to have the right to manufacture and
    sell its ovens without interruption.  Terms of the settlement are otherwise
    confidential, and the financial impact of the settlement for 2005 is
    included in general and administrative expenses for the fourth quarter. The
    arbitration panel that heard the Company's arbitration claims against
    Maytag also has issued its decision. The majority of the panel declined to
    make any financial award and instead denied all damage claims in its
    binding decision.
    
Financial Review

For the three months ended December 31, 2005, total revenue was $9.3 million compared with $36.5 million the year ago quarter. Cost of product sales for the fourth quarter was $7.0 million resulting in fourth quarter margins that were below expectations due to several factors. The margin benefits of price increases implemented October 1, 2005, were delayed given the status of fixed-priced contracts and various other pending orders that comprised the majority of the fourth quarter business. Also, cost of product sales included approximately $200,000 related to the Company's decision, based on recent experience, to increase warranty reserves prospectively for each Tornado and High h Batch unit sold beginning in the current quarter. Additionally, cost of product sales included approximately $470,000 as the impact of adjusting inventories to physical counts and valuations at year-end, including some related to our restructuring in the Netherlands. Although price pressures from materials and component costs have now somewhat abated, cost of product sales for the fourth quarter continued to reflect the impact of price pressures in freight and handling charges resulting from higher energy costs.

Selling, general and administrative expenses ("SG&A") for the quarter included legal fees and litigation costs of approximately $1.3 million associated with certain litigation matters including the confidential settlement of the FAST matter. The launch of the residential speed-cook oven commencing in 2006 will require a significant investment in selling, marketing and advertising costs. The Company expects to invest approximately $8 to $10 million in the launch of this innovative new product.

The Company incurred $621,000 in restructuring costs, primarily severance, in connection with closing its operation in the Netherlands. International sales efforts will now be directed in their entirety from our operations center in Dallas.

The Company reported a net loss of $7.1 million or $0.25 per diluted share for the fourth quarter of 2005 and a loss of $28.2 million or $1.00 per share for the 2005 year compared with net income of $7.5 million or $0.27 per diluted share and $9.7 million and $0.37 per diluted share for the 2004 comparable periods.

Richard Perlman, Chairman of TurboChef, stated: "2005 was a successful but arduous year in many respects, but despite the challenging 4th quarter we are well positioned to grow our commercial business in 2006 and beyond. We believe we have fixed our gross margin problem, have a better handle on our costs and will see the benefit of price increases taking effect as we move through 2006. We have made great strides with a broadened customer base. We have been extremely pleased with the market feedback we have received from customers who have committed to and rolled out an expanded set of hot food menu items and selected the TurboChef speed cook ovens as their ovens of choice. Companies who have been engaged in selective market tests with new hot food menu selections have given the TurboChef ovens very high marks. We believe the products' performance and the customers' reactions will generate substantial orders in 2006 and 2007 as companies move forward with further implementation of their plans."

Jim Price, Chief Executive Officer of TurboChef, added: "On the residential front, we are immensely proud to announce our first residential product at the largest kitchen industry show -- the Kitchen and Bath Industry Show in April. We are very optimistic about this launch because of the continued market dynamics -- the growing 'trading up' phenomenon and market size, the increasing demand for products that save time, and of course, our highly differentiated product that delivers five-star cooking results in a fraction of the time of conventional methods. We have designed our speed cook oven to answer the articulated wants and needs of the American consumer. With the exceptional responses from our prototype demonstrations around the country, we remain as excited as ever about bringing this powerful cooking alternative to the busy American family."

About TurboChef

TurboChef Technologies, Inc. is a leading provider of equipment, technology and services focused on the high-speed preparation of food products for the worldwide commercial primary cooking equipment market and is developing equipment for residential markets through the application of its high-speed cooking technologies. TurboChef's user-friendly speed cook ovens employ proprietary combinations of heating technologies to cook a variety of food products at speeds faster than, and to quality standards that it believes are comparable or superior to, that of conventional heating methods. The address of TurboChef's principal executive offices is Six Concourse Parkway, Suite 1900, Atlanta, GA 30328. Visit TurboChef at www.turbochef.com.

TurboChef will be hosting a conference call to discuss its results on Monday, March 6, 2006 at 4:45 p.m. ET. To join the conference call, please dial 800-374-0113 (access code: 5277878) or access the audio feed through a webcast link on our website at www.turbochef.com. International callers, please dial: 706-758-9607. A replay of the conference call will be available through our website or by calling 800-642-1687 or 706-645-9291 and using the same access code 5277878.

Forward-Looking Statements

Certain statements in this release, and other written or oral statements made by or on behalf of TurboChef, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements regarding future events and developments and TurboChef's future performance, as well as management's expectations, beliefs, plans, guidance, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. These forward-looking statements are subject to a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, the following: the uncertainty of market acceptance and demand for TurboChef's products, the ability to obtain additional financing necessary to expand operations, the uncertainty of consumer acceptance of new products or technologies that may be offered by TurboChef, the dependence on a limited number of customers, relationships with and dependence on third-party equipment manufacturers and suppliers, impact of competitive products and pricing and other risks detailed in TurboChef's filings with the Securities and Exchange Commission. The words "looking forward," "believe," "expect," "likely," "should" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only for the date the statement was made. TurboChef Technologies, Inc. undertakes no obligation to publicly update any forward-looking statements, whether as a result of future events, new information or otherwise.

                  TURBOCHEF TECHNOLOGIES, INC.
        UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
        (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                          Three Months Ended       Twelve Months Ended
                             December 31,              December 31,
                       ------------------------  ------------------------
                          2005         2004         2005         2004
                       -----------  -----------  -----------  -----------

Revenues:
  Product sales        $     8,873  $    36,317  $    50,239  $    69,707
  Royalties and
   services                    409          205        2,010        1,187
                       -----------  -----------  -----------  -----------
Total revenues               9,282       36,522       52,249       70,894

Costs and expenses:
  Cost of product
   sales                     6,992       23,124       43,532       44,047
  Research and
   development expenses      1,182          386        4,307        1,202
  Purchased research
   and development               -            -        6,285            -
  Selling, general and
   administrative
   expenses                  6,732        5,031       23,866       14,661
  Restructuring costs          621            -          621            -
  Stock based
   compensation expense        100            -          200          113
  Depreciation and
   amortization                994          353        2,796        1,052
                       -----------  -----------  -----------  -----------
Total costs and
 expenses                   16,621       28,894       81,607       61,075
                       -----------  -----------  -----------  -----------

Operating (loss) income     (7,339)       7,628      (29,358)       9,819

Other income (expense):
  Interest income              383           20        1,536           63
  Interest expense and
   other                      (138)         120         (332)          98
                       -----------  -----------  -----------  -----------
                               245          140        1,204          161
                       -----------  -----------  -----------  -----------

(Loss) income before
 provision for income
 tax                        (7,094)       7,768      (28,154)       9,980

Provision for income
 tax                             -         (301)           -         (301)
                       -----------  -----------  -----------  -----------

Net (loss) income      $    (7,094) $     7,467  $   (28,154) $     9,679
                       ===========  ===========  ===========  ===========

Per share data:
  Net (loss) income
   per share:
     Basic             $     (0.25) $      0.35  $     (1.00) $      0.79
     Diluted                 (0.25)        0.27        (1.00)        0.37

  Weighted average
   number of common
   shares outstanding
     Basic              28,598,014   21,098,010   28,034,103   12,256,686
                       ===========  ===========  ===========  ===========
     Diluted            28,598,014   27,201,127   28,034,103   26,142,101
                       ===========  ===========  ===========  ===========


                TURBOCHEF TECHNOLOGIES, INC.
              UNAUDITED CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE DATA)


                                                           December 31,
                                                           -----------
                                                      2005          2004
                                                      ----          ----
Assets:

Current assets:

   Cash and cash equivalents                    $    40,098   $    12,942
   Restricted cash                                        -         3,196
   Accounts receivable, net of allowance
    of $177 and $197, respectively                    7,314         9,542
   Other receivables                                  2,003            43
   Inventory, net                                    10,994         8,155
   Prepaid expenses                                     724           426
                                                -----------   -----------

Total current assets                                 61,133        34,304

Property and equipment, net                           6,482         2,678

Developed technology, net                             6,770         7,577
Goodwill                                              5,934         5,808
Covenants not-to-compete, net                         5,434             -
Other assets                                            314           389
                                                -----------   -----------

Total assets                                    $    86,067   $    50,756
                                                ===========   ===========

Liabilities and Stockholders' Equity:

Current liabilities:
   Accounts payable                             $     6,166   $     8,401
   Other payables                                     1,445         1,445
   Accrued expenses                                   3,484         3,135
   Future installments due on covenants
    not-to-compete                                    1,286             -
   Deferred revenue                                   2,278         1,338
   Accrued warranty and upgrade costs                 2,482         2,586
   Deferred rent                                        247             -
                                                -----------   -----------

Total current liabilities                            17,388        16,905

Future installments due on covenants
 not-to-compete, non-current                          2,363             -
Deferred rent, non-current                            1,463             -
Other liabilities                                        81            72
                                                -----------   -----------

Total liabilities                                    21,295        16,977

Commitments and contingencies

Stockholders' equity:

   Preferred membership units exchangeable
    for TurboChef common stock                          967         6,351
   Common stock, $.01 par value, authorized
    100,000,000 shares, issued 28,624,247 and
    24,313,158 shares at December 31, 2005
    and 2004, respectively                              286           243
   Additional paid-in capital                       143,950        79,508
   Accumulated deficit                              (80,431)      (52,277)
   Notes receivable for stock issuances                   -           (46)
                                                -----------   -----------

Total stockholders' equity                           64,772        33,779
                                                -----------   -----------

Total liabilities and stockholders' equity      $    86,067   $    50,756
                                                ===========   ===========


                    TURBOCHEF TECHNOLOGIES, INC.
            UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (IN THOUSANDS)


                                                   Year Ended December 31,
                                                   ----------------------
                                                       2005      2004
                                                       ----      ----

Cash flows from operating activities:
  Net  (loss) income                              $   (28,154)  $   9,679
  Adjustments to reconcile net (loss) income to
   net cash (used in) provided by operating
   activities:
    Purchased research and development                  6,285           -
    Depreciation and amortization                       2,796       1,052
    Non-cash restructuring costs                          125           -
    Amortization of deferred rent                        (122)          -
    Amortization of deferred loan costs and
     notes payable                                        203           8
    Non-cash compensation expense                         200         113
    Provision for doubtful accounts                        98          46
    Other                                                  76         (47)
    Changes in operating assets and liabilities,
     net of effects of acquisition:
      Restricted cash                                   3,196      (3,196)
      Accounts receivable                               2,196      (8,603)
      Inventories                                      (3,619)     (6,822)
      Prepaid expenses and other assets                (2,342)       (136)
      Accounts payable                                 (2,311)      7,731
      Accrued expenses and warranty                       245       3,791
      Deferred revenue                                    940         (27)
                                                  -----------   ---------

    Net cash (used in) provided by operating
     activities                                       (20,188)      3,589
                                                  -----------   ---------

Cash flows from investing activities:
  Acquisition of business, net of cash acquired          (192)     (7,683)
  Cash paid for intangible assets                      (7,292)          -
  Property and equipment expenditures                  (3,098)     (2,913)
  Other                                                   128        (330)
                                                  -----------   ---------

    Net cash used in investing activities             (10,454)    (10,926)
                                                  -----------   ---------

Cash flows from financing activities:
  Issuance of common stock, net                        54,839      10,007
  Proceeds from notes receivable for stock
   issuances                                               46           -
  Payment of note payable                                   -        (380)
  Payment of deferred loan costs                         (156)          -
  Proceeds from the exercise of stock options
   and warrants                                         3,072       1,762
  Other                                                    (3)          -
                                                  -----------   ---------

    Net cash provided by financing activities          57,798      11,389
                                                  -----------   ---------

Net change in cash and cash equivalents                27,156       4,052
Cash and cash equivalents at beginning of period       12,942       8,890
                                                  -----------   ---------
Cash and cash equivalents at end of period        $    40,098   $  12,942
                                                  ===========   =========

NON CASH INVESTING AND FINANCING ACTIVITIES:

Noncash investing activity - landlord funded
 leasehold improvements                           $    1,832    $       -
                                                  ===========   =========

Noncash investing and financing activity -
 liability recorded in connection with intangible
 asset                                                  3,600           -
                                                  ===========   =========

Noncash financing activity - conversion of Enersyst
 preferred membership units                             5,384           -
                                                  ===========   =========

Noncash financing activity - conversion of preferrred
 stock to common stock                                      -      12,605
                                                  ===========   =========

Noncash financing activity - issuance of stock in
 exchange for purchased research and development          993           -
                                                  ===========   =========

Noncash financing activity - issuance of preferred
 membership units exchangeable for TurboChef common
 stock in connection with Enersyst acquisition              -       6,351
                                                  ===========   =========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes                               $236          $-
                                                  ===========   =========
Cash paid for interest                                     50           -
                                                  ===========   =========

Contact Information

  • For more information, contact:
    James A. Cochran
    Chief Financial Officer
    TurboChef Technologies, Inc.
    Six Concourse Parkway
    Suite 1900
    Atlanta, Georgia 30328
    (678) 987-1700