PITTSBURGH, July 18 /PRNewswire-FirstCall/ -- Tollgrade Communications,
Inc. (Nasdaq: TLGD) today reported revenues of $14.2 million and earnings
per share of $0.03 on a GAAP basis and $0.06 on a non-GAAP basis for the
second quarter ended June 30, 2007. In comparison, for the second quarter
of 2006, revenues were $16.3 million and earnings per share were a loss of
$(0.01) on a GAAP basis and breakeven on a non-GAAP basis. On a year to
date basis, for the six month period ended June 30, 2007, revenues were
$27.2 million and earnings per share were $0.04 on a GAAP basis and $0.10
on a non-GAAP basis, compared with revenues of $33.9 million and earnings
per share of a loss of $(0.01) on a GAAP basis and breakeven on a non-GAAP
basis in the corresponding prior year period. Revenues and earnings per
share for the second quarter were below the range of estimates the Company
provided on April 25, 2007, which indicated revenues could range from $15
million to $19 million and GAAP earnings per share could range from $0.07
to $0.19. On June 21, 2007, the Company further indicated that revenues and
earnings would be near the low end of the previously established ranges due
to delays in international project- related acceptances.
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"Our second quarter performance was impacted primarily by the delayed
timing of customer acceptances for one of our large international projects,
as previously announced," said Mark B. Peterson, Tollgrade's President and
CEO. "Although the timing of acceptances for some of the products already
delivered in connection with the project has been extended, the project has
progressed significantly in recent weeks. We have now received additional
purchase orders and letters of credit for many of the remaining products
expected for this stage of the project, and we are confident that the
acceptance delays will be resolved in the third quarter. We continue to
expect that the project will contribute to our performance as anticipated
for the year," added Peterson.
Second Quarter 2007 Revenue Results
Sales of Tollgrade's DigiTest(R) system products were $3.6 million in
the second quarter of 2007, compared to $4.1 million in the same period of
2006. DigiTest revenues from shipments of the Company's new ADSL2+
broadband technology to international customers and continuing LTS test
head replacement efforts at an RBOC increased, but these increases were
more than offset by lower sales of this product due to completion of a
testability project with another customer.
Overall sales of cable hardware and software products were $3.5 million
in the second quarter of 2007, compared to $4.2 million in the second
quarter of the prior year. Second quarter 2006 results contained the impact
of a large deployment of DOCSIS(R) transponders to an MSO, which sales did
not repeat in 2007.
Sales of LoopCare(TM) software products, separate and unrelated to the
Company's DigiTest system products, remained flat at $0.5 million in the
second quarter of 2007 and 2006. LoopCare software license fees and
services revenues, including the separate software products previously
discussed, were $2.7 million in the second quarter of 2007 and 2006.
Overall sales of the Company's MCU(R) products, which extend
testability into the POTS network, were $3.2 million in the second quarter
of 2007, comparable to $3.1 million in the corresponding prior year
quarter. We believe demand for this product continues to be driven by
emphasis on DSL rollouts at remote terminal sites by certain RBOC
customers.
Second quarter 2007 sales from Services, which includes installation
oversight and project management services provided to RBOCs and fees for
software maintenance, were $3.0 million, compared to $3.8 million in the
second quarter of the prior year. The decline is primarily attributable to
completion of two installation projects in 2006 that did not repeat in
2007.
Sales of N(x)Test(TM) were $0.4 million for the second quarter of 2007,
compared to $0.6 million in the second quarter of 2006. The N(x)Test
product offering is project driven and revenue results can and will
fluctuate by quarter. In addition, we expect trends in this product line
will reflect cross selling efforts of DigiTest EDGE(R) and related
broadband products to legacy N(x)Test customers.
Second Quarter 2007 Financial and Operating Data
Gross profit for the second quarter of 2007 was $7.8 million, a slight
increase from the second quarter of 2006. Although we had less revenue in
the second quarter of 2007 versus the prior year quarter, gross profit
increased primarily due to a more favorable sales mix and lower
amortization expense. As a percentage of sales, gross profit for the second
quarter of 2007 was 55.0% versus 46.9% for the prior year quarter. The
increase in gross profit as a percentage of sales between years is due
primarily to a more favorable sales mix, as well as reduced amortization
expense.
The Company's operating expenses were $7.9 million for the second
quarter of 2007, including continuing restructuring expense of $0.2 million
relating to the closing of the Sarasota facility and stock-based
compensation costs of $0.3 million. Operating expenses for the second
quarter of 2006 were $8.4 million, including stock-based compensation
expense of $0.1 million. Selling and marketing expenses in the quarter were
$2.3 million, a decrease of $0.6 million, or 20.8%, from the same period in
2006. The decrease reflects savings from the Company's restructuring
initiatives and lower commission expense.
General and administrative expense increased by $0.5 million or 25.5%
to $2.3 million due to increased stock compensation expense and
professional service fees that related to tax and legal planning associated
with the Company's agreement to purchase the net assets of the Broadband
Test Division of Teradyne, Inc., announced on May 31, 2007 and expected to
be completed in the next few weeks. Research and development costs
decreased by $0.6 million, or 16.7%, to $3.0 million as a result of the
Company's restructuring efforts.
The effective tax rate for the second quarter of 2007 was approximately
33.3%, compared to approximately 27.3% 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 pretax income.
The Company's order backlog for firm customer purchase orders and
signed software maintenance contracts was $10.1 million as of June 30,
2007, compared to backlog of $10.0 million as of December 31, 2006. The
backlog at June 30, 2007 does not include approximately $3.3 million of
purchase orders received after June 30, 2007 related to a large
international project, nor does it include approximately $3.0 million of
deferred income reported on the Company's balance sheet, approximately $1.0
million of which relates to the same international project. Further, the
backlog at June 30, 2007 and December 31, 2006 included approximately $5.9
million and $5.7 million, respectively, related to software maintenance
contracts, which is earned and recognized as income on a straight-line
basis during the remaining terms of these agreements.
Management expects that approximately 58.9% of the current total
backlog will be recognized as revenue in the third quarter of 2007.
Third Quarter & Second Half 2007 Outlook
"Regarding our third quarter 2007 outlook, we expect revenues to range
from $15 to $19 million with earnings per share from $0.06 to $0.20. The
range reflects a number of initiatives that could impact our performance in
the third quarter, including the continuing implementation of a large
international project and resolution of the timing delays for customer
acceptances. We will continue to pursue these initiatives throughout the
second half of 2007, as well as other key initiatives, such as accelerated
sales and marketing efforts to gain customer acceptance and approval of
certain of our new products and to capitalize on RBOC demand for expanding
DLC-based DSL services and certain LoopCare features, as well as efforts to
expand the embedded base of former Emerson systems through the addition and
completion of certain new European projects," added Peterson.
"Many of these initiatives are currently underway. Our ability to
achieve our previously stated full year earnings per share target of $0.50
depends in large part on successful execution and implementation of these
initiatives in the second half of 2007. On a final note, this annual
earnings per share target, along with our third quarter expectations, do
not include any effects from the acquisition of the Teradyne Broadband Test
Division, which we expect to close in the next few weeks. We continue to
expect that this acquisition could add up to $10 million in revenue and be
accretive to GAAP earnings per share in fiscal year 2007," concluded
Peterson.
Conference Call and Webcast
A conference call to discuss earnings results for the second quarter of
2007 will be held on July 19, 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 Second 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=40816 .
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 300 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 .
(Financial Tables Follow)
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per-share data)
Three Months Ended Six Months Ended
June 30, July 1, June 30, July 1,
2007 2006 2007 2006
Revenues:
Products $11,181 $12,415 $21,449 $26,775
Services 3,000 3,838 5,774 7,085
14,181 16,253 27,223 33,860
Cost of sales:
Products 4,976 6,316 9,503 13,975
Services 831 1,404 1,760 2,429
Amortization 570 913 1,138 1,890
6,377 8,633 12,401 18,294
Gross profit 7,804 7,620 14,822 15,566
Operating expenses:
Selling and marketing 2,325 2,937 4,510 5,623
General and administrative 2,340 1,864 4,448 4,183
Research and development 2,992 3,590 5,945 7,250
Restructuring expense 212 ---- 594 ----
Total operating expenses 7,869 8,391 15,497 17,056
(Loss) from operations (65) (771) (675) (1,490)
Other income 740 628 1,516 1,255
Income (loss) before
income taxes 675 (143) 841 (235)
Provision (benefit) for
income taxes 225 (39) 280 (67)
Net income (loss) $450 $(104) $561 $(168)
Diluted earnings per-share
information:
Weighted average shares
of common stock and
equivalents: 13,516 13,247 13,480 13,230
Net income (loss) per
common and common
equivalent shares $0.03 $(0.01) $0.04 $(0.01)
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
June 30, December 31,
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $54,171 $57,378
Short-term investments 12,761 5,323
Accounts receivable:
Trade 9,994 15,149
Other 1,460 1,918
Inventories 11,888 8,556
Prepaid expenses 958 776
Receivable from officer 145 148
Deferred and refundable tax assets 2,262 2,939
Assets held for sale 589 1,190
Total current assets 94,228 93,377
Property and equipment, net 3,209 3,301
Intangibles and capitalized software costs, net 40,400 41,487
Goodwill 23,836 23,836
Other assets 664 351
Total assets $162,337 $162,352
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,215 $1,580
Accrued warranty 2,040 2,135
Accrued expenses 1,308 2,590
Accrued salaries and wages 428 658
Accrued royalties payable 305 200
Deferred income 2,984 2,783
Total current liabilities 8,280 9,946
Deferred tax liabilities and other taxes 3,386 2,962
Total liabilities 11,666 12,908
Total shareholders' equity 150,671 149,444
Total liabilities and shareholders' equity $162,337 $162,352
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended
June 30, 2007 July 1, 2006
Cash flows from operating activities:
Net income (loss) $ 561 $ (168)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,947 2,989
Compensation expense related to stock plans 628 229
Deferred and refundable income taxes 1,101 284
Restructuring charge 246 ---
Provisions for losses on inventories 268 (97)
Provision for allowance for doubtful accounts 39 54
Changes in assets and liabilities:
Accounts receivable-trade 5,116 403
Accounts receivable-other 238 (506)
Inventories (3,600) (458)
Prepaid expenses and other assets (492) 194
Accounts payable (365) (441)
Accrued warranty (95) (71)
Accrued expenses, deferred income & accrued (1,311) (1,519)
salaries and wages
Accrued royalties payable 105 (390)
Income taxes payable --- (542)
Net cash provided by (used in) operating
activities 4,386 (39)
Cash flows from investing activities:
Purchase of Emerson test division --- (5,501)
Purchase of short-term investments (11,608) (6,528)
Redemption/maturity of short-term investments 4,170 14,348
Capital expenditures, including capitalized
software (761) (825)
Sale of assets held for sale 568 ---
Net cash (used in) provided by investing
activities (7,631) 1,494
Cash flows from financing activities:
Tax benefit from exercise of stock options 36 94
Proceeds from exercise of stock options 2 406
Net cash provided by financing activities 38 500
Net (decrease) increase in cash and cash
equivalents (3,207) 1,955
Cash and cash equivalents at beginning of period 57,378 49,421
Cash and cash equivalents at end of period $54,171 $51,376
Explanation of Non-GAAP Measures
During the second 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 share-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 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 and six month periods ended June 30, 2007 and July 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 and six month periods ended June
30, 2007 and July 1, 2006, 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 and six month periods
ended June 30, 2007 and July 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 June 30, 2007 (Unaudited)
Operating Operating Net Diluted
(In thousands, except per Expense (Loss) Income Income EPS
share amount)
GAAP Reported Results $7,869 $(65) $450 $0.03
Restructuring expense (212) 212 141 $0.01
Stock-based compensation
expense (274) 274 182 $0.02
Non-GAAP Results, Excluding
special items $7,383 $421 $773 $0.06
Reconciliation to GAAP- Six Months Ended June 30, 2007 (Unaudited)
Operating Operating Net Diluted
(In thousands, except per Expense (Loss)Income Income EPS
share amount)
GAAP Reported Results $15,497 $(675) $561 $0.04
Restructuring expense (594) 594 395 $0.03
Stock-based compensation
expense (628) 628 418 $0.03
Non-GAAP Results, Excluding
special items $14,275 $547 $1,374 $0.10
Reconciliation to GAAP- Quarter Ended July 1, 2006 (Unaudited)
Operating Operating Net Diluted
(In thousands, except per Expense (Loss) Income EPS
share amount)
GAAP Reported Results $8,391 $(771) $(104) ($0.01)
Stock-based compensation
expense (114) 114 83 $0.01
Non-GAAP Results, Excluding
special items $8,277 $(657) $(21) $0.00
Reconciliation to GAAP- Six Months Ended July 1, 2006 (Unaudited)
Operating Operating Net Diluted
(In thousands, except per Expense (Loss) (Loss) EPS
share amount)
GAAP Reported Results $17,056 $(1,490) $(168) ($0.01)
Stock-based compensation
expense (229) 229 164 $0.01
Non-GAAP Results, Excluding
special items $16,827 $(1,261) $(4) $0.00
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 third quarter of 2007 and the full year 2007, its ability to resolve
timing and implementation issues in one of its large international
projects, new product initiatives, 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 timely receipt of 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 and pricing pressures on those products as a
result of increased competition, consolidation within the cable industry
and the adoption of standards-based protocols; (i) lower than expected
demand for our telecom testing products in the competitive local exchange
carrier market; (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,
in particular, the acquisition of the Broadband Testing Division of
Teradyne, Inc. expected to close during the third quarter, and management
distraction from other important strategic initiatives which may be caused
by such efforts; and (n) delays in the rate of acceptance of our new
product initiatives in the markets into which they will be sold, caused by
extended testing or acceptance periods, requests for custom or modified
engineering of such products, and customer budget cycles, among other
factors. 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)DOCSIS is a registered trademark of Cable Laboratories, Inc.
(R)DigiTest is a registered trademark of Tollgrade Communications, Inc.
(R)EDGE 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, Corporate Communications of
Tollgrade Communications, Inc., +1-412-820-1347, mobile
+1-412-736-6186, bbutter@tollgrade.com
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