PITTSBURGH, April 30 /PRNewswire-FirstCall/ -- Tollgrade
Communications, Inc. (Nasdaq: TLGD), a leading supplier of service
assurance products and solutions, today reported revenue of $13.2 million
and a loss per share of ($0.49) for the first quarter ended March 29, 2008.
The Company previously announced on April 10, 2008 that revenue and per
share results for the first quarter of 2008 would fall below the guidance
ranges that were provided on January 30. These first quarter results
include the impact of non-cash charges for impairment of certain intangible
assets and inventory, and stock-based compensation expense, including
credits for expenses provided in prior periods, as well as restructuring
and severance expenses. For the first quarter of 2008, these charges
affected loss per share by ($0.33), resulting in a non-GAAP loss per share
of ($0.16) for the first quarter of 2008. In comparison, revenue and
earnings per share for the first quarter of 2007 were $13.0 million and
$0.01, respectively, and similar charges in the first quarter of 2007
affected per share results by ($0.03), resulting in non-GAAP earnings per
share of $0.04 for the first quarter of 2007.
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"While revenue increased slightly in the first quarter of 2008 compared
to the first quarter of 2007, a significant portion of our first quarter
2008 revenue came from product and service sales to international customers
gained from our recent Broadband Test Division acquisition," said Joseph
Ferrara, Tollgrade's President and CEO. "This new source of revenue helped
to offset a decline in demand for several mature products. We expect this
trend to continue in the near term as we plan for our newer products and
solutions to begin gaining traction in the second half of the year," added
Ferrara.
First Quarter 2008 Revenue Results
Sales of Tollgrade's system test products were $4.5 million in the
first quarter of 2008, compared to $2.5 million in the same period of 2007.
The results for the first quarter of 2008 include revenues from the sale of
DigiTest(R), LDU and N(x)Test(TM) products. These revenues increased as a
result of greater DigiTest and LDU product sales, offset by significantly
lower sales of N(x)Test products resulting from the completion of a
customer project in Eastern Europe.
Overall sales of cable hardware and software products were $1.6 million
in the first quarter of 2008 compared to $3.3 million in the first quarter
of 2007. The decline was primarily a result of reduced market demand
through our OEM channel, which we believe is at least partially connected
to general economic conditions.
Overall sales of the Company's MCU(R) products, which extend
testability into the POTS network, were $0.9 million in the first quarter
of 2008, compared to $3.4 million in the first quarter of 2007. The
decrease was the result of the completion of a major customer's testability
project and a lower than anticipated market demand for MCUs.
Sales of LoopCare(TM) software products separate from and unrelated to
the Company's DigiTest system test products, were $0.2 million in the first
quarter of 2008, compared to $0.8 million in the first quarter of 2007. A
number of projects that were anticipated for the first half of 2008 have
either been deferred to the second half of the year or have been delayed
indefinitely as service providers carefully evaluate expenditures. Overall
LoopCare software license fees and services revenues, including the
separate software products previously discussed, were $2.4 million in the
first quarter of 2008, compared to $2.9 million in the first quarter of
2007.
First quarter 2008 sales from Services, which includes software
maintenance and project management fees and repairs, were $6.0 million
compared to $3.0 million in the first quarter of 2007. The increase is
primarily due to the additional service revenues from international
customers of the Broadband Test Division, which we acquired in August 2007.
First Quarter 2008 Financial and Operating Data
Gross profit for the first quarter of 2008 was $2.5 million, compared
to $7.0 million in the first quarter of 2007. As a percentage of sales,
gross profit was 19.1% in the first quarter of 2008, compared to 53.8% in
the first quarter of 2007. First quarter 2008 gross profit results include
a charge of $4.1 million for impairment of certain intangible assets
related primarily to our cable testing products, as well as an inventory
write-down. Excluding these charges, non-GAAP gross profit for the first
quarter of 2008 was $6.6 million, and as a percentage of sales was 49.8%.
The decrease in non-GAAP gross profit as a percentage of sales between
years is due primarily to increased amortization expense in the 2008
quarter resulting from our recent Broadband Test Division acquisition.
Including restructuring expenses, the Company's operating expenses were
$9.1 million for the first quarter of 2008, compared to $7.6 million in the
prior year quarter. Excluding restructuring expenses for both periods,
operating expenses on a non-GAAP basis were $8.6 million and $7.2 million
in the first quarter of 2008 and 2007, respectively.
Expenses for the first quarter of 2008 have been reduced by a reversal
of stock-based compensation expense provided in prior periods in the amount
of $0.4 million.
Selling and marketing expenses in the first quarter of 2008 were $2.4
million, an increase of $0.3 million from the same period in 2007. The
increase is primarily associated with additional costs incurred as a result
of the Broadband Test Division acquisition.
General and administrative expenses were $2.6 million for the first
quarter 2008 compared to $2.1 million in the first quarter of 2007. The
increase is related to additional professional services expense, as well as
other incremental recruiting and consultation costs.
Research and development costs were $3.6 million for the first quarter
of 2008 compared to $3.0 million in the first quarter of 2007. The increase
is primarily associated with increased costs incurred as a result of the
acquisition of the Broadband Test Division.
The provision for income taxes of approximately $0.4 million consists
primarily of taxes on income earned in foreign jurisdictions. Based on a
review of its tax position at March 29, 2008, the Company did not record
any tax benefit on losses pertaining to its U.S. operations and certain of
its foreign operations.
The Company's order backlog for firm customer purchase orders and
signed software maintenance contracts was $20.6 million as of March 29,
2008, compared to a backlog of $19.2 million as of December 31, 2007.
Further, the backlog at March 29, 2008 and December 31, 2007 included
approximately $15.7 million and $13.6 million, respectively, related to
software maintenance contracts, which is primarily earned and recognized as
income on a straight-line basis during the remaining terms of these
agreements.
Management expects that approximately 35% of the current total backlog
will be recognized as revenue in the second quarter of 2008.
Second Quarter 2008 Outlook
"Our second quarter 2008 revenue outlook reflects continuing lower
demand for more mature products while new product revenue of any
significance is at least several quarters ahead of us," said Joseph
Ferrara. "We expect revenue for the second quarter to range from $11
million to $14 million. In connection with our review of strategic
alternatives, we will continue to review and adjust our business model with
a view toward achieving near-term profitability. As a result, it is
possible that we will incur additional restructuring expenses and other
write-downs and impairment charges during this period. Given this
uncertainty, we have determined not to provide earnings guidance for the
second quarter of 2008," continued Ferrara.
"The second quarter 2008 revenue range reflects our continuing concerns
about global economic conditions and their general impact on customer
capital expenditures and budgets. Regardless of the current market
conditions, we remain focused on determining the most viable strategies to
leverage Tollgrade's test and measurement competencies and enhancing
shareholder value," added Ferrara.
Conference Call and Webcast
A conference call to discuss earnings results for the first quarter of
2008 will be held on Thursday, May 1, 2008 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 2008 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=47857
About Tollgrade
Tollgrade Communications, Inc. is a leading supplier of service
assurance products and solutions 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. 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, as well as for power distribution companies.
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
March 29, March 31,
2008 2007
Revenues:
Products $7,139 $9,997
Services 6,045 3,045
13,184 13,042
Cost of sales:
Products 3,616 4,527
Services 1,986 929
Amortization 1,014 568
Intangible impairment 3,291 -
Inventory impairment/restructuring 759 -
10,666 6,024
Gross profit 2,518 7,018
Operating expenses:
Selling and marketing 2,435 2,185
General and administrative 2,579 2,108
Research and development 3,616 2,953
Restructuring 435 382
Total operating expenses 9,065 7,628
Loss from operations (6,547) (610)
Interest income 492 776
(Loss) income before income taxes (6,055) 166
Provision for income taxes 449 55
Net (loss) income $(6,504) $111
Diluted earnings per-share information:
Weighted average shares of common stock
and equivalents: 13,158 13,442
Net (loss) income per common and common
equivalent shares $(0.49) $0.01
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
March 29, December 31,
2008 2007
ASSETS
Current assets:
Cash and cash equivalents $53,525 $58,222
Short-term investments 2,354 632
Accounts receivable:
Trade 15,580 14,625
Other 1,083 1,601
Inventories 13,363 13,687
Prepaid expenses and deposits 1,202 1,120
Deferred and refundable tax assets 337 503
Assets held for sale 52 272
Total current assets 87,496 90,662
Property and equipment, net 4,103 4,279
Intangibles 40,148 44,215
Other assets 279 333
Total assets $132,026 $139,489
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,985 $4,214
Accrued warranty 1,641 1,937
Accrued expenses 2,723 3,148
Accrued salaries and wages 273 891
Accrued royalties payable 111 707
Income tax payable 859 572
Deferred revenue 3,357 2,113
Total current liabilities 11,949 13,582
Pension obligation 1,021 908
Deferred tax liabilities and other taxes 2,060 1,999
Total liabilities 15,030 16,489
Total shareholders' equity 116,996 123,000
Total liabilities and shareholders'
equity $132,026 $139,489
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
March 29, 2008 March 31, 2007
Cash flows from operating activities:
Net (loss) income $(6,504) $111
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Impairment 3,291 -
Depreciation and amortization 1,480 982
Stock-based compensation expense (23) 354
Valuation allowance 187 109
Deferred income taxes 28 (52)
Restructuring and writedown of inventory 761 174
Excess tax benefits from stock-based
compensation - (1)
Provisions for losses on inventory 61 214
Provision (benefit) for allowance for
doubtful accounts 37 (23)
Changes in assets and liabilities:
Accounts receivable-trade (602) 3,513
Accounts receivable-other 401 1,072
Inventory (475) (3,186)
Prepaid expense and other assets (25) (348)
Accounts payable (1,542) 836
Accrued warranty (295) 9
Accrued expenses and deferred income 426 (1,396)
Accrued royalties payable (596) 102
Income taxes payable 228 -
Net cash (used in) provided by
operating activities (3,162) 2,470
Cash flows from investing activities:
Purchase of short-term investments (2,186) (1,956)
Redemption/maturity of short-term
investments 464 3,184
Capital expenditures, including
capitalized software (275) (281)
Sale of assets held for sale 198 -
Net cash (used in) provided by
investing activities (1,799) 947
Cash flows from financing activities:
Repurchase of treasury stock - -
Proceeds from exercise of stock options - 5
Excess tax benefit from stock-based
compensation - 1
Net cash provided by financing
activities - 6
Net (decrease) increase in cash and cash
equivalents (4,961) 3,423
Effect of exchange rate changes on cash &
cash equivalents 264 -
Cash and cash equivalents at beginning of
period 58,222 57,378
Cash and cash equivalents at end of
period $53,525 $60,801
Explanation of Non-GAAP Measures
During the first quarter of 2008, we continued the restructuring
program that we announced on January 30, 2008, 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 charges
associated with the continuation of the restructuring initiatives, as well
as the related income tax effects of such items, stock-based compensation
expense, write-downs and impairments. 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 29, 2008 and March 31, 2007, 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 29, 2008
and 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 inventory write-downs, 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 29, 2008 and March 31, 2007, 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.
-- Impairment charges: For the three month period ended March 29, 2008,
we have excluded the effect of certain intangible and inventory
impairment charges on gross profit, gross margin, operating income, net
income and diluted EPS. We believe it is useful for investors to
understand the effect of these charges on our operating performance.
Reconciliation to GAAP- Quarter Ended March 29, 2008 (Unaudited)
(In thousands, Gross
except per Gross Profit Operating Operating Net Diluted
share amount) Profit % Expenses Loss Income EPS
GAAP Reported
Results $2,518 19.1% $9,065 $(6,547) $(6,504) $(0.49)
Intangible
impairment 3,291 25.0% - 3,291 3,291 0.25
Inventory
impairment/
restructuring 759 5.7% - 759 759 0.05
Restructuring/
planned severance - - (435) 435 435 0.03
Stock-based
compensation - - 23 (23) (23) -
Non-GAAP Results,
Excluding special
items $6,568 49.8% $8,653 $(2,085) $(2,042) $(0.16)
Reconciliation to GAAP- Quarter Ended March 31, 2007 (Unaudited)
(In thousands, Gross Operating
except per Gross Profit Operating (Loss) Net Diluted
share amount) Profit % Expenses Income Income EPS
GAAP Reported
Results $7,018 53.8% $7,628 $(610) $111 $0.01
Restructuring - - (382) 382 255 0.02
Stock-based - - (354) 354 237 0.01
compensation
Non-GAAP Results,
Excluding special
items $7,018 53.8% $6,892 $126 $603 $0.04
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 for the second quarter of
2008 and the expected revenue contribution from new products and solutions.
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 or possible delays in completing
certain research and development efforts required for new products and
solutions and delays in market acceptance of our new network acceptance
solutions beyond the timeframes anticipated or at all; (b) general economic
uncertainty and its impact on the capital budgets for certain of our major
customers; (c) 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;
(d) 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; (e) the risk that our cost-cutting
initiatives may have impaired the Company's ability to effectively develop
and market products and remain competitive in our business; (f) possible
delays in, or the inability to, complete negotiation and execution of
purchase and service agreements with new or existing customers; (g) further
declines in demand for our existing cable testing products; (h) 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; (i) our dependence upon a limited number of
third party subcontractors and component suppliers to manufacture or supply
certain aspects of the products we sell; (j) the ability to manage the
risks associated with and to grow our business; (k) the uncertain economic
and political climate in certain parts of the world where we conduct
business and the potential that such climate may deteriorate; (l) 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, 2007 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.
All other trademarks are the property of their respective owners.
SOURCE Tollgrade Communications, Inc.
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Related links:
http://www.tollgrade.com
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CONTACT:
Bob Butter, Communications of Tollgrade
Communications, Inc., +1-412-820-1347, bbutter@tollgrade.com
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