PITTSBURGH, April 25 /PRNewswire-FirstCall/ -- Tollgrade
Communications, Inc. (Nasdaq: TLGD) today reported revenue of $13.0 million
and earnings per share of $0.01 for the first quarter ended March 31, 2007.
These results include a per share charge of $(0.03) for the restructuring
initiatives announced on July 27, 2006 and stock-based compensation
expense. Excluding this charge, non-GAAP earnings per share for the first
quarter ended March 31, 2007 were $0.04. In comparison, revenue and
earnings per share for the first quarter of 2006 were $17.6 million and
$0.00 earnings per share on a GAAP and non-GAAP basis. Revenue and earnings
per share for the first quarter of 2007 were within the range of estimates
the Company provided on January 31, 2007, which indicated revenue could
range from $12 million to $15 million and earnings per share on a GAAP
basis could range from a loss of $(0.03) to income of $0.08.
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"Our first quarter performance was positively influenced by lower
operating costs achieved from our restructuring initiatives and by higher
margins resulting from a better sales mix during the period," said Mark B.
Peterson, Tollgrade's Chief Executive Officer. "Also, revenue and earnings
were within guidance, despite certain international project implementation
delays. We expect that these delays will be resolved and that this project
will contribute to our performance as expected during the next few
quarters," added Peterson.
First Quarter 2007 Revenue Results
Overall sales of the Company's MCU(R) products, which extend
testability into the POTS network, were $3.6 million in the first quarter
of 2007, compared to $3.3 million in the first quarter of 2006. The
expansion by one RBOC in its DLC testability program in the first quarter
of 2007 drove the increase.
Overall sales of cable hardware and software products were $3.3 million
in the first quarter of 2007, compared to $6.2 million in the first quarter
of 2006. The decrease is primarily attributable to a substantial shipment
of our DOCSIS(R)-based transponders in the first quarter of 2006.
First quarter 2007 sales from Services, which include installation
oversight, project management, and software maintenance services, were $2.8
million in the first quarter of 2007 compared to $3.2 million in the first
quarter of the prior year, due to lower project management-related service
revenues during the first quarter of 2007. Services revenue tends to
fluctuate based on the timing and services content of new projects, as well
as testability project-related activity by our RBOC customers.
Sales of Tollgrade's DigiTest(R) system products were $1.3 million in
the first quarter of 2007, compared to $3.7 million in the first quarter of
2006. This decrease in DigiTest system revenue is primarily due to lower
sales to our RBOC customers driven by their reduced spending on LTS
replacement and augmentation projects, as well as lower sales in Tier 2 and
Tier 3 markets due to changes in network deployment architecture.
Sales of Tollgrade's N(x)Test(TM) system product line, acquired from
Emerson on February 24, 2006, were $1.3 million in the first quarter of
2007, compared to $0.7 million for the first quarter of 2006. Our first
quarter 2007 results include revenue contribution from completion of our
project in Eastern Europe.
Sales of LoopCare(TM) software products separate and unrelated to the
Company's DigiTest system products were $0.7 million in the first quarter
of 2007 compared to $0.5 million in the first quarter of 2006. Sales of
LoopCare software is project-driven and has long and unpredictable sales
cycles. Additionally, our RBOC customers are allocating an increased level
of current software product funding to their next generation network
requirements as opposed to legacy applications. Consequently, we expect
revenue for this product line to continue to fluctuate significantly on a
quarter-by-quarter basis. LoopCare software license fees and service
revenues, including the separate software products previously discussed,
were $2.9 million in each of the first quarters of 2007 and 2006.
First Quarter 2007 Financial and Operating Data
Gross profit for the first quarter of 2007 was $7.0 million, a decrease
of $0.9 million, or 11.7%, from the first quarter of 2006. This decrease
was primarily attributable to lower sales of cable hardware and software
products and DigiTest system products, partially offset by a $0.4 million
decrease in amortization costs. As a percentage of sales, gross profit for
the first quarter of 2007 was 53.8% versus 45.1% for the prior year
quarter. The increase in gross profit as a percentage of sales is a direct
result of 2007 sales containing significantly greater levels of higher
margin telephony products, and a $0.4 million decrease in amortization
costs. Also, 2006 gross profit margins reflected the initial dilutive
effects of the Emerson test system business acquisition, which is not a
factor in the comparable 2007 period.
The Company's operating expenses were $7.6 million for the first
quarter of 2007, including restructuring expense of $0.4 million associated
with employee severance and relocation and lease abandonment costs and
stock-based compensation expense of $0.4 million. Operating expenses for
the first quarter of 2006 were $8.7 million, including $0.1 million for
stock-based compensation expense. Selling and marketing expenses for the
first quarter of 2007 were $2.2 million, a decrease of $0.5 million from
the first quarter of 2006. The decrease reflects savings from the Company's
restructuring initiatives and lower commission expense. General and
administrative expense decreased $0.2 million to $2.1 million in the first
quarter of 2007 due to lower professional service fees, offset by increased
stock-based compensation expense. Research and development costs decreased
$0.7 million to $3.0 million in the first quarter of 2007 as a result of
the Company's restructuring initiatives.
The effective tax rate for the first quarter of 2007 was approximately
33.1% compared to 30.4% in the prior year quarter. The increase is
associated with the gradual phase out of certain export tax benefits
coupled with the proportional impact of certain other permanent items
relative to pre-tax income.
The Company's order backlog for firm customer purchase orders and
signed software maintenance contracts was $10.2 million as of March 31,
2007, compared to $10.0 million as of December 31, 2006. We have now
finalized contracts for both of the two large international projects we
announced in December 2006, however, because they are as-ordered contracts,
the backlog at March 31, 2007 does not include the potential effect of a
significant portion of these projects. To the extent purchase orders under
these contracts are received, the amounts will be reflected in backlog. The
backlog at March 31, 2007 and December 31, 2006 included approximately $6.5
million and $5.7 million, respectively, for software maintenance contracts,
which is earned and recognized as income on a straight-line basis during
the remaining terms of the underlying agreements.
Management presently expects that approximately 53% of the current
total backlog will be recognized as revenue in the second quarter of 2007.
Second Quarter 2007 Outlook
"Regarding our second quarter 2007 outlook, we anticipate the
resolution of implementation and timing issues for one of our larger
international projects," said Peterson. "As a result, we expect revenues in
the second quarter of 2007 to range from $15.0 million to $19.0 million
with earnings per share of $0.07 to $0.19. The range reflects uncertainties
as to how quickly we can gain acceptances on a site-by-site basis in our
large international project, as well as uncertainty regarding capturing
revenue from other sources. While there will be risks and uncertainties to
be overcome throughout 2007, we continue to expect earnings for the full
year to be at least $0.50 per share as discussed in our last earnings
release," Peterson added.
Conference Call and Webcast
A conference call to discuss earnings results for the first quarter of
2007 will be held on Thursday, April 26, 2007 at 9:00 AM, Eastern Time. The
telephone number for U.S. participants is 1-800-860-2442 (international:
412-858-4600). Please reference Tollgrade's First Quarter 2007 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=39040.
About Tollgrade
Tollgrade Communications, Inc. is a full-system provider of leading
hardware and software testing solutions for the global telecommunications
and cable broadband industries. Tollgrade designs, engineers, markets and
supports test systems, test access and status monitoring products. The
Company, which is headquartered in the Pittsburgh suburb of Cheswick, Pa.,
recorded 2006 revenues of $65.4 million. The Company's web address is
http://www.tollgrade.com.
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per-share data)
Three Months Ended
March 31, April 1,
2007 2006
Revenues:
Products $10,267 $14,361
Services 2,775 3,246
13,042 17,607
Cost of sales:
Products 4,527 7,625
Services 929 1,059
Amortization 568 977
6,024 9,661
Gross profit 7,018 7,946
Operating expenses:
Selling and marketing 2,185 2,686
General and administrative 2,108 2,320
Research and development 2,953 3,659
Restructuring Expenses 382 ---
Total operating expenses 7,628 8,665
Loss from operations (610) (719)
Interest income 776 627
Income (loss) before income taxes 166 (92)
Provision (benefit) for income taxes 55 (28)
Net income (loss) $111 $(64)
Diluted earnings per-share information:
Weighted average shares of common stock
and equivalents: 13,442 13,214
Net income (loss) per common and common
equivalent shares $0.01 $0.00
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31,
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $60,801 $57,378
Short-term investments 4,095 5,323
Accounts receivable:
Trade 11,659 15,149
Other 672 1,918
Inventories 11,528 8,556
Prepaid expenses and deposits 1,117 776
Deferred and refundable tax assets 3,067 2,939
Assets held for sale 1,164 1,190
Total current assets 94,103 93,229
Property and equipment, net 3,171 3,301
Intangibles 40,942 41,487
Goodwill 23,836 23,836
Other assets 506 499
Total assets $162,558 $162,352
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,416 $1,580
Accrued warranty 2,144 2,135
Accrued expenses 1,493 2,590
Accrued salaries and wages 91 658
Accrued royalties payable 302 200
Deferred revenue 3,050 2,783
Total current liabilities 9,496 9,946
Deferred tax liabilities and other taxes 3,147 2,962
Total liabilities 12,643 12,908
Total shareholders' equity 149,915 149,444
Total liabilities and
shareholders' equity $162,558 $162,352
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
March 31, April 1,
2007 2006
Cash flows from operating activities:
Net income (loss) $111 $(64)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 982 1,520
Stock-based compensation expense 354 115
Deferred income taxes 57 (190)
Excess tax benefits from stock-based
compensation (1) (91)
Provisions for losses on inventory 214 (18)
Provision (benefit) for allowance
for doubtful accounts (23) 12
Restructuring 174 ---
Changes in assets and liabilities:
Accounts receivable-trade 3,513 (4,388)
Accounts receivable-other 1,072 (45)
Inventory (3,186) (922)
Prepaid expenses and other assets (348) (11)
Refunded income taxes --- 651
Accounts payable 836 1,015
Accrued warranty 9 27
Accrued expenses and deferred income (1,396) (284)
Accrued royalties payable 102 37
Income taxes payable --- (581)
Net cash provided by (used in)
operating activities 2,470 (3,217)
Cash flows from investing activities:
Purchase of the Emerson test system
business --- (5,501)
Purchase of short-term investments (1,956) (2,136)
Redemption/maturity of short-term
investments 3,184 2,570
Capital expenditures, including
capitalized software (281) (437)
Net cash provided by (used in)
investing activities 947 (5,504)
Cash flows from financing activities:
Proceeds from exercise of stock options 5 399
Excess tax benefit from stock-based
compensation 1 91
Net cash provided by financing
activities 6 490
Net increase (decrease) in cash and cash
equivalents 3,423 (8,231)
Cash and cash equivalents at beginning of
period 57,378 49,421
Cash and cash equivalents at end of period $60,801 $41,190
Explanation of Non-GAAP Measures
During the first quarter of 2007, we continued the restructuring
program that we announced on July 27, 2006, 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 continuation of the restructuring initiatives, as well
as the related income tax effects of such items. Our non-GAAP financial
measures also exclude stock-based compensation expense. These expenses
consist of expenses for employee stock options and restricted stock grants.
These non-GAAP financial measures are provided to enhance the user's
overall understanding of our first quarter financial performance. 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 periods ended March 31, 2007 and April 1, 2006, 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 ended March 31, 2007,
we have excluded the effect of the restructuring program from our GAAP
operating expense, operating income, net income and diluted EPS. The
restructuring program included charges primarily associated with
employee severance, refinement of estimates related to relocation and
lease termination costs. We believe it is useful for investors to
understand the effect of these expenses on our operating performance.
* Stock-based compensation expense: For the three month periods ended
March 31, 2007 and April 1, 2006, we have excluded the effect of
employee stock-based compensation expense on operating expenses,
operating income, net income and diluted EPS. We exclude employee
stock-based compensation expense from our non-GAAP measures primarily
because they are non-cash expenses that we believe are not reflective of
our core operating performance.
Reconciliation to GAAP- Quarter Ended March 31, 2007 (Unaudited)
(In thousands, except per Operating
share amount) Operating (Loss) Net Diluted
Expense Income Income EPS
GAAP Reported Results $7,628 $(610) $111 $0.01
Restructuring (382) 382 255 $0.02
Stock-based compensation (354) 354 237 $0.01
Non-GAAP Results, Excluding
special items $6,892 $126 $603 $0.04
Reconciliation to GAAP- Quarter Ended April 1, 2006 (Unaudited)
(In thousands, expect per Net
share amount) Operating Operating (Loss) Diluted
Expense (Loss) Income EPS
GAAP Reported Results $8,665 $(719) $(64) $0.00
Stock-based compensation (115) 115 80 $0.00
Non-GAAP Results, Excluding $8,550 $(604) $16 $0.00
special items
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 second quarter of 2007 and the full year 2007, its ability to resolve
timing and implementation issues in one of its large international
projects, its participation in the fundamental network migration currently
underway in the telecommunications industry, its ability to align its
products more closely with its customers' focus on new network and service
platform development, 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) inability to complete sales, or possible delays in
deployment, of products under international projects due to inability to
complete or possible delays in completing the legal and commercial terms
for such projects, including the failure to receive and delays in receiving
purchase orders for such projects, project delays or cancellations,
political instability, inability to obtain proper acceptances or other
unforeseen obstacles or delays; (b) inability to complete or possible
delays in completing certain research and development efforts required for
international projects; (c) the unanticipated further decline of the
capital budgets allocated to legacy network elements for certain of our
major customers; (d) 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;
(e) 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; (f) 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; (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 dependence upon a limited number of
third party subcontractors and component suppliers to manufacture or supply
certain aspects of the products we sell; (k) the ability to manage the
risks associated with and to grow our business; (l) the uncertain economic
and political climate in certain parts of the world where we conduct
business and the potential that such climate may deteriorate; (m) 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, 2006 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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http://www.tollgrade.com/
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CONTACT:
Bob Butter of Tollgrade Communications, Inc.,
Office: +1-412-820-1347, Cell: 412-736-6186,
bbutter@tollgrade.com
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