PITTSBURGH, April 26 /PRNewswire-FirstCall/ -- Tollgrade
Communications, Inc. (Nasdaq: TLGD) today reported revenue for the first
quarter of 2006 of $17.6 million, an increase of 23.3% over the prior year.
The Company said that earnings also significantly improved to a breakeven
position from a loss of ($0.06) in the first quarter of the prior year. In
comparison, revenue and earnings per share for the first quarter of 2005
were $14.3 million and a loss of ($0.06) per share. Revenue and earnings
per share for the first quarter of 2006 were within the range of estimates
the Company provided on February 8, 2006, which indicated sales could range
from $16 to $18 million and earnings per share of breakeven to $0.07. The
E.P.S. results were at the low end of the Company's published expectations
due to the dilutive effect of its recently completed acquisition of the
Emerson test system business, as well as an increase in operating expenses.
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"We are pleased with our sales results, which showed growth over most
product lines," said Mark B. Peterson, Tollgrade's President and Chief
Executive Officer. "Much of the revenue growth in the quarter is
attributable to advances in our cable test product lines. Spending by cable
operators in this market has been strong, but these products generally
carry lower overall margins. For that reason, we are continuing to analyze
ways to bring those products to market in more cost effective ways. We are
also feeling good about the recently acquired Emerson test business that
contributed $0.7 million in revenue during the quarter, though, as
expected, the acquisition was slightly dilutive to the quarter's results
due to the amortization of acquisition-related intangibles. We are
currently focusing on sales opportunities that this acquisition will
provide and we are actively evolving our portfolio of solutions to align
more closely with our customers' focus on new network and service platform
development," Peterson added.
First Quarter 2006 Revenue Results
Overall sales of cable hardware and software products were $6.2 million
in the first quarter of 2006, compared to $4.8 million in the first quarter
of 2005. During the first quarter we experienced strong sales from our
DOCSIS(R)-based transponders.
Overall sales of the Company's MCU(R) products, which extend
testability into the POTS network, were $3.3 million in the first quarter
of 2006, compared to $3.4 million in the first quarter of 2005. Sales of
MCU products direct to end-user customers were down 32%, but nearly offset
by increased sales to OEM customers.
Sales of LoopCare(TM) software products separate and unrelated to the
Company's DigiTest(R) system products were $0.5 million in the first
quarter of 2006 compared to sales of $0.9 million in the first quarter of
2005. The LoopCare software product line, which involves software license
fees that are individually significant in amount, typically has long and
less predictable sales, purchase approval and acceptance cycles.
Consequently, revenue from this product line can fluctuate significantly on
a quarter-by-quarter basis.
Sales of Tollgrade's DigiTest system products were $3.7 million in the
first quarter of 2006, compared to $2.9 million in the first quarter of
2005. DigiTest system revenues increased in the first quarter of 2006
compared to the first quarter of 2005, primarily due to sales to CLEC and
ILEC customers for their expanding networks and to RBOC customers
purchasing DigiTest products to augment or replace their existing POTS test
heads.
First quarter 2006 sales from Services, which include installation
oversight, project management, and software maintenance services, were $3.2
million compared to $2.3 million in the first quarter of the prior year.
The first quarter of 2005 was unusually low due to the delayed signing of
one RBOC Software Maintenance Agreement.
Sales of Tollgrade's newly acquired Emerson test systems product line,
which became part of Tollgrade on February 24, 2006, were $0.7 million for
the first quarter of 2006.
First Quarter 2006 Financial and Operating Data
Gross profit for the first quarter of 2006 was $8.0 million, an
increase of $1.3 million, or 18.4%, from $6.7 million in the first quarter
of 2005. This increase was primarily attributable to increased sales of
cable hardware and software products and normalization of software
maintenance revenue flow under all RBOC contracts. As a percentage of
sales, gross profit for the first quarter of 2006 was 45.1% versus 47.0%
for the prior year quarter. This decline in overall gross profit
contribution was a direct result of increased sales during the first
quarter of 2006 of lower margin cable products and the dilutive effects of
the Emerson test system business acquisition.
The Company's operating expenses were $8.7 million for the first
quarter of 2006, an increase of $0.4 million or 5%, compared to $8.3
million for the first quarter of 2005. The increase is attributed to
increased professional service fees of $0.4 million, $0.2 million of
operating expenses related to the newly acquired Emerson test business, FAS
123(R) expense of $0.1 million, and $0.3 million of travel related costs
associated with our continued focus on international business, the Emerson
integration and a tradeshow that normally occurs in the second quarter.
Included in expenses for the first quarter of 2005 was $0.8 million related
to the retirement of the Company's former CEO. On a more granular basis:
- Selling and marketing expenses during the first quarter of 2006 were
$2.7 million compared to $2.2 million in the first quarter of 2005.
The increase is primarily related to increased travel costs, consulting
fees and sales commissions.
- General and administrative expenses were $2.3 million in the first
quarter of 2006, compared to $1.8 million in the first quarter of 2005.
The increase is due to FAS 123(R) option expense and professional
service fees.
- Research and development expenses were $3.7 million for the first
quarter of 2006, compared to $3.4 million in the first quarter of 2005.
The increase is primarily related to additional headcount associated
with the Emerson test business acquisition and travel associated with
international opportunities.
The effective tax rate for the first quarter of 2006 was approximately
30%, compared to 33% in the prior year quarter. The decrease is directly
related to the proportional impact of certain permanent items on the
calculation. We expect our 2006 full year effective tax rate to be
approximately 30%.
The Company's order backlog for firm customer purchase orders and
signed software maintenance contracts was $13.2 million as of April 1,
2006, compared to backlog of $14.7 million as of December 31, 2005. The
decrease in the backlog from December 31, 2005 to April 1, 2006 is
attributed to a lower hardware backlog. The backlog at December 31, 2005
and April 1, 2006 included approximately $6.2 million and $6.1 million,
respectively, related to 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 40% of the current
total backlog will be recognized as revenue in the second quarter of 2006.
Second Quarter 2006 Outlook
"Regarding our second quarter 2006 outlook, we continue to have several
distinct projects included in our forecast which are subject to competitive
elements, customer budget availability and product acceptances," said
Peterson. "In addition, the percentage of business bookable in the
succeeding quarter contained in our backlog at April 1, 2006 has declined
from year-end; therefore, our guidance range is a bit wider than
expectations we issued for the recently completed first quarter of 2006. As
a result, we expect revenues in the second quarter, 2006 to range from $14
to $17 million with per share results of ($0.08) to $0.02," Peterson added.
Conference Call and Webcast
A conference call to discuss earnings results for the first quarter of
2006 will be held on Thursday, April 27, 2006 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/Peterson to identify the 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=33308
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 2005 revenues of $66.3 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
April 1, March 26,
2006 2005
Revenues:
Products $14,497 $11,980
Services 3,110 2,295
17,607 14,275
Cost of sales:
Products 7,625 6,052
Services 1,059 796
Amortization 977 714
9,661 7,562
Gross profit 7,946 6,713
Operating expenses:
Selling and marketing 2,686 2,238
General and administrative 2,320 1,835
Research and development 3,659 3,396
Retirement expense --- 775
Total operating expenses 8,665 8,244
Loss from operations (719) (1,531)
Other income 627 262
Loss before income taxes (92) (1,269)
(Benefit) from income taxes (28) (424)
Net loss $(64) $(845)
Diluted loss per-share information:
Weighted average shares of
common stock and equivalents: 13,214 13,161
Net loss per common and
common equivalent shares $0.00 $(0.06)
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
April 1, 2006 December
31, 2005
ASSETS
Current assets:
Cash and cash equivalents $41,190 $49,421
Short-term investments 17,576 18,010
Accounts receivable:
Trade 15,659 9,456
Other 1,451 1,406
Inventories 11,974 9,934
Prepaid expenses 1,417 1,397
Deferred and refundable tax assets 1,356 1,803
Total current assets 90,623 91,427
Property and equipment, net 6,376 6,390
Deferred tax assets 48 46
Capitalized software costs, net 6,599 6,691
Intangibles 37,551 36,925
Goodwill 23,335 21,562
Other assets 279 288
Total assets $164,811 $163,329
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,904 $1,262
Accrued warranty 2,247 2,220
Accrued expenses 1,659 2,579
Accrued salaries and wages 266 660
Accrued royalties payable 618 581
Income taxes payable 197 869
Deferred income 3,655 2,450
Total current liabilities 11,546 10,621
Deferred tax liabilities 2,463 2,447
Total liabilities 14,009 13,068
Total shareholders' equity 150,802 150,261
Total liabilities and
shareholders' equity $164,811 $163,329
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
April 1, March 26,
2006 2005
Cash flows from operating activities:
Net loss $(64) $(845)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,520 1,368
Compensation expense related to stock plans 115 ----
Deferred income taxes (190) (437)
Provisions for losses on inventory (18) 57
Provision (benefit) for allowance for
doubtful accounts 12 (17)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable-trade (4,388) 1,847
Increase in accounts receivable-other (45) (600)
Increase in inventory (922) (1,226)
(Increase) decrease in prepaid expenses
and other assets (11) 762
Refunded income taxes 651 312
Increase in accounts payable 1,015 234
Increase (decrease) in accrued warranty 27 (20)
Increase (decrease) in accrued expenses
and deferred income 110 (282)
Increase (decrease) in accrued
royalties payable 37 (299)
Decrease in accrued salaries and wages (394) (119)
(Decrease) increase in income taxes payable (672) 12
Net cash (used in) provided by
operating activities (3,217) 747
Cash flows from investing activities:
Purchase of the Emerson test system
business (5,501) ----
Purchase of short-term investments (2,136) (10,391)
Redemption/maturity of short-term
investments 2,570 500
Capital expenditures, including capitalized
software (437) (344)
Net cash used in investing
activities (5,504) (10,235)
Cash flows from financing activities:
Proceeds from exercise of stock options 399 ----
Tax benefit from exercise of stock options 91 ----
Net cash provided by financing
activities 490 ----
Net decrease in cash and cash equivalents (8,231) (9,488)
Cash and cash equivalents at beginning of
period 49,421 32,622
Cash and cash equivalents at end of period $ 41,190 $ 23,134
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 2006, 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) the unanticipated further decline of the capital budgets
allocated to legacy network elements for certain of our major customers;
(b) the ability to make changes in business strategy, development plans and
product offerings to respond to the needs of the significantly changing
telecommunications and cable markets; (c) our ability to close certain
international opportunities and possible delays in deployment of products
under international contracts due to project delays, political instability,
inability to obtain proper acceptances or other unforeseen risks and
uncertainties inherent in international markets; (d) possible delays in, or
the inability to, complete long term maintenance contracts with certain of
our RBOC customers or to complete negotiation and execution of purchase
agreements with new customers; (e) lower than expected demand for our cable
testing products; (f) 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; (g) our
dependence upon a limited number of component vendors for specialized parts
that may experience shortages and third party subcontractors to manufacture
certain aspects of the products we sell; (h) the failure of acquired assets
to meet expectations, or a decline in our fair value determined by market
prices of our stock, leading to possible impairment charges against
intangible assets; (i) the ability to manage the risks associated with and
to grow our business; (j) difficulties with integrating the operations and
products of acquired businesses or the inability to realize anticipated
opportunities associated with acquired businesses; and (k) the uncertain
economic and political climate in the United States and throughout the rest
of the world and the potential that such climate may deteriorate. 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)Cheetah 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.
All other trademarks are the property of their respective owners.
SOURCE Tollgrade Communications, Inc.
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CONTACT:
Bob Butter of Tollgrade Communications, Inc.,
+1-412-820-1347, or cell, +1-412-736-6186, or
bbutter@tollgrade.com
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