PITTSBURGH, Jan. 31 /PRNewswire-FirstCall/ -- Tollgrade Communications,
Inc. (Nasdaq: TLGD) today reported revenue of $16.6 million and earnings
per share of $0.12 for the fourth quarter ended December 31, 2006. These
results include a per share charge of $(0.02) for the cost of restructuring
initiatives announced on July 27, 2006. Excluding this charge, non-GAAP
earnings for the fourth quarter ended December 31, 2006 were $0.14 per
share. In comparison, revenue and earnings per share for the fourth quarter
of 2005 were $18.2 million and $0.14, respectively. Revenue and earnings
per share for the fourth quarter of 2006 were within the range of estimates
the Company provided on October 25, 2006, which indicated sales could range
from $14.5 million to $18.5 million, and earnings per share could range
from $0.02 to $0.13 on a GAAP basis and from $0.03 to $0.14 on a non-GAAP
basis.
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"We are pleased by the sequential improvement in our gross margins this
quarter, which was largely fueled by strong sales of test system products
to both RBOC and international customers," said Mark B. Peterson,
Tollgrade's Chief Executive Officer.
The Company reported revenue of $65.4 million and a loss per share of
$(0.14) for the year ended December 31, 2006. Excluding charges for
restructuring, non-GAAP earnings per share for the year ended December 31,
2006 were $0.14. In comparison, revenue for the year ended December 31,
2005 was $66.3 million and earnings per share were $0.27. Excluding the
charges related to the write-down of certain acquired software and
retirement cost associated with the Company's former CEO, non-GAAP earnings
per share for the year ended December 31, 2005 were $0.33.
Restructuring Activities
During the fourth quarter of 2006, the Company continued its cost
restructuring initiatives, and recorded a charge of $0.3 million. The
restructuring charge recorded in the fourth quarter of 2006 related to
costs for employee relocation and a refinement of estimates related to
lease abandonment costs.
"We have made great progress on our restructuring initiatives. The
Emerson and Sarasota product line integrations are virtually complete and
most employees are in place and operating effectively. We expect that any
future costs related to these initiatives would be limited to relocation of
a few employees and final adjustment to lease abandonment cost estimates,"
said Mr. Peterson.
Fourth Quarter 2006 Revenue Results
Sales of Tollgrade's DigiTest(R) system products were $4.9 million in
the fourth quarter of 2006, compared to $4.7 million in the fourth quarter
of 2005. DigiTest system revenues increased slightly in the fourth quarter
of 2006 compared to the fourth quarter of 2005, primarily due to increased
deployment of products into Africa and sales to an RBOC customer, offset by
lower sales to the Company's CLEC customer base.
Sales of the Company's N(x)Test(TM) system products, acquired by the
Company from Emerson on February 24, 2006, were $3.3 million for the fourth
quarter of 2006. Sales were primarily driven by continued deployment and
acceptance of these products into Eastern Europe and by the Company's first
sales of these products to an acquired account in Asia.
Overall sales of cable hardware and software products were $3.0 million
in the fourth quarter of 2006, compared to $3.5 million in the fourth
quarter of 2005. The decrease reflects lower sales of our DOCSIS(R) -based
software products. The fourth quarter of 2005 benefited from the sale of
several Cheetah software licenses.
Overall sales of the Company's MCU(R) products, which extend
testability into the POTS network, were $2.4 million in the fourth quarter
of 2006, compared to $5.2 million in the fourth quarter of 2005. The fourth
quarter of 2005 benefited from increased purchases likely due to hurricane
and storm- related restoration projects by certain RBOCs.
Fourth quarter 2006 sales from Services, which includes installation
oversight and project management services as well as fees for software
maintenance, were $3.0 million, compared to $3.7 million in the fourth
quarter of 2005. This decrease is primarily attributable to lower
project-related service revenues during the quarter, which fluctuate with
the completion of contract milestones.
Sales of LoopCare(TM) software products, separate and unrelated to the
Company's DigiTest system products, were insignificant in the fourth
quarter of 2006 compared to $1.1 million in the fourth quarter of 2005. The
sale of LoopCare software is project driven and has long and less
predictable sales cycles. Consequently, revenue for this product line can
fluctuate significantly on a quarter by quarter basis. The Company expects
that, over the course of 2007, sales of this product line will benefit from
the Company's recently-announced international project awards. LoopCare
software license fees and services revenues, including the separate
software products previously discussed, were $2.2 million in the fourth
quarter of 2006 compared to $3.4 million in the comparable period of the
prior year.
Fourth Quarter 2006 Financial and Operating Data
Gross profit for the fourth quarter of 2006 was $9.1 million, a
decrease of $0.9 million compared to the fourth quarter of 2005 as a result
of lower sales levels. Gross profit as a percentage of sales for the fourth
quarter of 2006 was 54.7%, which is comparable to 54.8% in the prior year
quarter.
Overall operating expenses were $7.6 million for the fourth quarter of
2006, including restructuring expense of $0.3 million, compared to $7.7
million in the fourth quarter of 2005. Selling and marketing expenses for
the fourth quarter of 2006 were $2.5 million, an increase of $0.2 million
from the fourth quarter of 2005. The increase is attributable to personnel
and related costs associated with the addition of the Emerson product line,
stock compensation expense, and increased commission costs. General and
administrative expenses increased to $2.0 million in the fourth quarter of
2006 compared to $1.8 million in the fourth quarter of 2005. The increase
is associated with stock compensation expense and higher professional
services costs. Research and development expenses for the fourth quarter of
2006 were $2.8 million, a decrease of $0.7 million from the fourth quarter
of 2005. This decrease is attributable to lower personnel and related costs
which are a direct result of our restructuring initiatives.
The effective tax rate for the fourth quarter of 2006 was approximately
27.9%, compared to approximately 34.6% in the prior year quarter. The
effective tax rate for the fourth quarter of 2006 reflects the relative
impact of permanent tax items on our tax rate.
The Company's order backlog for firm customer purchase orders and
signed software maintenance contracts was $10.0 million as of December 31,
2006, compared to backlog of $14.7 million as of December 31, 2005. The
decrease is primarily attributable to the 2005 backlog containing a
significant bulk order for DOCSIS-based products and the completion in 2006
of significant milestones for certain large projects initiated in 2005. The
backlog at December 31, 2006 does not include any amounts attributable to
the Company's recently- announced international project wins, as the
commercial terms for those projects have not yet been finalized. The
backlog at December 31, 2006 and December 31, 2005 included approximately
$5.7 million and $6.2 million, respectively, related to software
maintenance contracts, which is earned and recognized as income on a
ratable basis during the remaining terms of these agreements. The
maintenance backlog at December 31, 2006 would have approximated 2005
levels but does not include the effect of certain agreements, which were
signed in early January 2007.
Management expects that approximately 41.7% of the backlog as of
December 31, 2006 will be recognized as revenue in the first quarter of
2007.
First Quarter 2007 and Full Year Outlook
"Regarding our first quarter 2007 outlook, as previously announced, we
have won two large scale projects that are expected to provide significant
benefit to Tollgrade in 2007. However, the commercial terms and the timing
of these projects are being finalized, and thus only the initial benefits
of one of the projects have been reflected in our first quarter ranges,"
said Peterson. "As a result, we expect revenue for the first quarter of
2007 to range from $12 million to $15 million and per share results from
$(0.03) to $0.08. While there will be risks and uncertainties to be
overcome throughout 2007, we currently expect earnings for the full year to
be at least $0.50 per share. However, we expect that the more
project-oriented and international focus of our business, as well as the
timing of initial deployment of new IP technologies by domestic carriers,
will cause our revenue and earnings to fluctuate on a quarter by quarter
basis," added Peterson.
Conference Call and Webcast
A conference call to discuss earnings results for the fourth quarter of
2006 will be held on February 1, 2007 at 9:00 a.m., Eastern Time. The
telephone number for U.S. participants is 1-800-860-2442 (international:
412-858-4600). Please reference Tollgrade's Fourth Quarter Earnings Results
Call. The conference call will also be broadcast live over the Internet. To
listen to this conference call via the Internet, simply log on to the
following URL address: http://www.videonewswire.com/event.asp?id=37526
About Tollgrade
Tollgrade Communications, Inc. is a leading provider of network service
assurance products and services for centralized test systems around the
world. Tollgrade designs, engineers, markets and supports centralized test
systems, test access and status monitoring products, and next generation
network assurance technologies for the broadband marketplace. Tollgrade's
customers range from the top RBOCs (Regional Bell Operating Companies) and
Cable providers, to numerous independent telecom, cable and broadband
providers around the world. Tollgrade's network testing, measurement and
monitoring solutions support the infrastructure of cable and telecom
companies offering current and emerging triple play services. Tollgrade,
headquartered near Pittsburgh in Cheswick, Pa., and its products and
customer reach span over 200 million embedded access lines, more than any
other test and measurement supplier. For more information, visit
Tollgrade's web site at http://www.tollgrade.com.
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per-share data)
Three Months Ended Twelve Months Ended
December December December December
31, 2006 31, 2005 31, 2006 31, 2005
Revenues:
Products $13,529 $14,486 $52,358 $53,007
Services 3,055 3,665 13,036 13,312
16,584 18,151 65,394 66,319
Cost of sales:
Products 6,001 6,117 25,277 24,326
Services 941 1,240 4,543 3,883
Amortization 567 856 3,419 3,004
Inventory write-down ---- ---- 4,308 ----
Write-down of acquired
software ---- ---- ---- 424
7,509 8,213 37,547 31,637
Gross profit 9,075 9,938 27,847 34,682
Operating expenses:
Selling and marketing 2,470 2,289 10,552 8,882
General and administrative 2,046 1,845 7,981 7,486
Research and development 2,792 3,525 13,276 14,079
Restructuring expense 341 ---- 1,840 ----
Retirement expense ---- ---- ---- 775
Total operating expenses 7,649 7,659 33,649 31,222
Income (loss) from operations 1,426 2,279 (5,802) 3,460
Other income 771 531 2,755 1,359
Income (loss) before income
taxes 2,197 2,810 (3,047) 4,819
Provision (benefit) for income
taxes 614 973 (1,213) 1,301
Net income (loss) $1,583 $1,837 $(1,834) $3,518
Diluted earnings per-share information:
Weighted average shares of common
stock and equivalents: 13,270 13,275 13,239 13,217
Net income (loss) per common
and common equivalent shares $0.12 $0.14 $(0.14) $0.27
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
December December
31, 2006 31,2005
ASSETS
Current assets:
Cash and cash equivalents $57,378 $49,421
Short-term investments 5,323 18,010
Accounts receivable:
Trade 15,149 9,456
Other 1,918 1,406
Inventories 8,556 9,934
Prepaid expenses 776 1,397
Deferred and refundable tax assets 2,939 1,803
Assets held for sale 1,190 ----
Total current assets 93,229 91,427
Property and equipment, net 3,301 6,390
Deferred tax assets ---- 46
Intangibles and capitalized software costs, net 41,487 43,616
Goodwill 23,836 21,562
Receivable from officer 148 153
Other assets 351 135
Total assets $162,352 $163,329
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,580 $ 1,262
Accrued warranty 2,135 2,220
Accrued expenses 2,590 2,579
Accrued salaries and wages 658 660
Accrued royalties payable 200 581
Income taxes payable 97 869
Deferred income 2,783 2,450
Total current liabilities 10,043 10,621
Deferred tax liabilities 2,865 2,447
Total liabilities 12,908 13,068
Total shareholders' equity 149,444 150,261
Total liabilities and shareholders' equity $162,352 $163,329
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Twelve Months Ended
December December
31, 2006 31, 2005
Cash flows from operating activities:
Net (loss) income $(1,834) $3,518
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 5,499 5,450
Compensation expense related to stock plans 517 ---
Deferred income taxes (441) 548
Excess tax benefits from share-based compensation (94) (43)
Restructuring and asset impairment 5,309 ---
Provisions for losses on inventory (90) 545
Write-down of acquired software --- 424
Provision for allowance for doubtful accounts 86 (289)
Changes in assets and liabilities:
Accounts receivable-trade (3,952) 1,524
Accounts receivable-other (512) (1,300)
Inventories (1,727) 2,462
Refundable taxes (231) 312
Prepaid expenses and other assets 565 1,208
Accounts payable (318) 175
Accrued warranty (85) 139
Accrued expenses and deferred income 40 954
Accrued royalties payable (381) 130
Income taxes payable (678) 743
Net cash provided by operating activities 1,673 16,500
Cash flows from investing activities:
Purchase of Emerson test division (5,501) ---
Purchase of short-term investments (9,646) (19,340)
Redemption/maturity of short-term investments 22,333 19,867
Capital expenditures, including capitalized software (1,247) (1,049)
Purchase of investment in other assets (155) ----
Purchase of Cheetah ---- 479
Net cash provided by (used in) investing activities 5,784 (43)
Cash flows from financing activities:
Proceeds from exercise of stock options 406 299
Excess tax benefits from share-based compensation 94 43
Net cash provided by financing activities 500 342
Net increase in cash and cash equivalents 7,957 16,799
Cash and cash equivalents at beginning of period 49,421 32,622
Cash and cash equivalents at end of period $57,378 $49,421
Explanation of Non-GAAP Measures
During the third and fourth quarters of 2006, we implemented a
restructuring program aimed at reducing the Company's existing cost
structure. We have provided non-GAAP financial measures (e.g., non-GAAP
earnings per share) that exclude the non-recurring charges associated with
the restructuring initiatives announced on July 27, 2006, as well as the
related income tax effects of such items. These non-GAAP financial measures
are provided to enhance the user's overall understanding of our fourth
quarter and full year 2006 financial performance. We have also provided
non-GAAP financial measures for certain actions completed during 2005,
including the write-down of certain acquired software and retirement costs
associated with the former CEO. We believe that by excluding these charges,
as well as the related income tax effects, our non-GAAP measures provide
supplemental information to both management and investors that is useful in
assessing our core operating performance, in evaluating our ongoing
business operations and in comparing our results of operations on a
consistent basis from period to period. These non-GAAP financial measures
are also used by management to plan and forecast future periods and to
assist us in making operating and strategic decisions. The presentation of
this additional information is not prepared in accordance with GAAP. The
information may therefore not necessarily be comparable to that of other
companies and should be considered as a supplement to, and not a substitute
for, or superior to, the corresponding measures calculated in accordance
with GAAP.
To supplement the presentation of our non-GAAP financial measures for
the three month period ended December 31, 2006 and the years ended December
31, 2006 and December 31, 2005, we have prepared the following tables that
reconcile the differences between the non-GAAP financial measures with the
most comparable measures prepared in accordance with GAAP. Our non-GAAP
financial measures are not meant to be used in isolation from or as a
substitute for comparable GAAP measures, and should be read only in
conjunction with our consolidated financial statements prepared in
accordance with GAAP. Our non-GAAP financial measures reflect adjustments
based on the following items, as well as the related income tax effect:
* Restructuring expense: For the three month period and year ended
December 31, 2006 we have excluded the effect of the restructuring
program from our GAAP gross profit, gross profit percentage, operating
expense, operating income, net income and diluted EPS. The
restructuring program included charges associated with the write-down
of inventory, employee severance and associated costs and write-down of
property. We believe it is useful for investors to understand the
effect of these expenses on our cost structure.
* 2005 Special items: For the year ended December 31, 2005, we have
excluded the effect of the write-down of certain acquired software and
a charge associated with the retirement of our former CEO.
Reconciliation to GAAP- Quarter Ended December 31, 2006 (Unaudited)
(In thousands, except per share amount)
Operating Operating Net Diluted
Expense Income Income EPS
2006 GAAP Reported Results $7,649 $1,426 $1,583 $0.12
Restructuring (341) 341 246 $0.02
2006 Non-GAAP Results, Excluding
special items $7,308 $1,767 $1,829 $0.14
Reconciliation to GAAP- Year Ended December 31, 2006 (Unaudited)
(In thousands, except per share amount)
Gross Profit Operating Operating Net Diluted
Gross Profit Percentage Expense (Loss) (Loss) EPS
Income Income
2006 GAAP
Reported
Results $27,847 42.6% $33,649 $(5,802) $(1,834) $(0.14)
Inventory
write-down 4,308 6.6% 4,308 2,593 0.20
Restructuring
expense (1,840) 1,840 1,108 0.08
2006 Non-GAAP
Results,
Excluding
special
items $32,155 49.2% $31,809 $346 $1,867 $0.14
Reconciliation to GAAP- Year Ended December 31, 2005 (Unaudited)
(In thousands, except per share amount)
Gross Profit Operating Operating Net Diluted
Gross Profit Percentage Expense Income Income EPS
2005 GAAP
Reported
Results $34,682 52.3% $31,222 $3,460 $3,518 $0.27
Acquired software
write-down 424 0.6% 424 310 0.02
Retirement expense (775) 775 566 0.04
2005 Non-GAAP
Results,
Excluding
special
items $35,106 52.9% $30,447 $4,659 $4,394 $0.33
Forward-Looking Statements
The foregoing release contains "forward looking statements" regarding
future events or results 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, including statements concerning the
Company's current expectations regarding revenue and earnings results for
the first quarter of and full year 2007, the significant large-scale
projects recently won by the Company and their impact on the Company's
business, its participation in the fundamental network migration currently
underway in the telecommunications industry and its confidence in winning
broadband customers. The Company cautions readers that such "forward
looking statements" are, in fact, predictions that are subject to risks and
uncertainties and that actual events or results may differ materially from
those anticipated events or results expressed or implied by such forward
looking statements. The Company disclaims any current intention to update
its "forward looking statements," and the estimates and assumptions within
them, at any time or for any reason.
In particular, the following factors, among others could cause actual
results to differ materially from those described in the "forward looking
statements:" (a) the unanticipated further decline of the capital budgets
allocated to legacy network elements for certain of our major customers;
(b) the inability to make changes in business strategy, development plans
and product offerings to respond to the needs of the significantly changing
telecommunications markets and network technologies; (c) the inability of
the Company to realize the benefits of the reduction in its cost structure
due to changes in its markets or other factors, and the risk that the
reduction in costs will not restore profitability in the timeframe
anticipated by the Company; (d) the risk that our cost-cutting initiatives
may have impaired the Company's ability to effectively develop and market
products and remain competitive in the telecom business; (e) inability to
complete sales, or possible delays in deployment, of products under
international projects (including the significant large-scale projects
recently won by the Company) due to inability to complete or possible
delays in completing the legal and commercial terms for such projects,
project delays or cancellations, political instability, inability to obtain
proper acceptances or other unforeseen obstacles or delays; (f) inability
to complete or possible delays in completing certain research and
development efforts required for international projects (including the
significant large-scale projects recently won by the Company); (g) possible
delays in, or the inability to, complete negotiation and execution of
purchase and service agreements with new or existing customers; (h) lower
than expected demand for our cable testing products; (i) pricing pressures
affecting our cable-related products as a result of increased competition,
consolidation within the cable industry and the adoption of standards-based
protocols; (j) our ability to close certain international opportunities,
due to numerous risks and uncertainties inherent in international markets;
(k) our dependence upon a limited number of third party subcontractors and
component suppliers to manufacture or supply certain aspects of the
products we sell; (l) the ability to manage the risks associated with and
to grow our business; (m) the uncertain economic and political climate in
certain parts of the world where we conduct business and the potential that
such climate may deteriorate; (n) our ability to efficiently integrate
acquired businesses and achieve expected synergies. Other factors that
could cause actual events or results to differ materially from those
contained in the "forward looking statements" are included in the Company's
filings with the U.S. Securities and Exchange Commission (the "SEC")
including, but not limited to, the Company's Form 10-K for the year ended
December 31, 2005 and any subsequently filed reports. All documents are
also available through the SEC's Electronic Data Gathering Analysis and
Retrieval system at http://www.sec.gov or from the Company's website at
http://www.tollgrade.com.
(TM)LoopCare is a trademark of Tollgrade Communications, Inc.
(TM)N(x)Test is a trademark of Tollgrade Communications, Inc.
(R) DigiTest is a registered trademark of Tollgrade Communications, Inc.
(R) MCU is a registered trademark of Tollgrade Communications, Inc.
(R) DOCSIS is a registered trademark of Cable Television
Laboratories, Inc.
All other trademarks are the property of their respective owners.
SOURCE Tollgrade Communications, Inc.
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CONTACT:
Bob Butter, Corporate Communications of
Tollgrade Communications, Inc., +1-412-820-1347, Cell,
+1-412-736-6186, or bbutter@tollgrade.com
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