PITTSBURGH, July 23 /PRNewswire-FirstCall/ -- Tollgrade Communications,
Inc. (Nasdaq: TLGD), a leading supplier of network service assurance test
products and solutions, today reported revenue of $14.6 million and a loss
per share of ($0.02) for the second quarter ended June 28, 2008. These
results include the effects of non-cash charges for stock-based
compensation and restructuring expenses, which amounted to $0.02 per share.
Excluding these charges, non-GAAP earnings performance for the second
quarter 2008 was break-even. In comparison, on a GAAP basis, revenue and
earnings per share for the second quarter ended June 30, 2007 were $14.2
million and $0.03, respectively, while earnings per share on a non-GAAP
basis for the second quarter ended June 30, 2007, were $0.06.
(Logo: http://www.newscom.com/cgi-bin/prnh/20050603/CLF046LOGO )
"We have made good progress on many fronts across the business as
compared to our first quarter 2008 results. For example, sales are up by
over 10%, operating expenses have declined by more than 14%, and cash and
short-term investments have increased by $3.4 million," said Tollgrade
President and CEO Joseph Ferrara. "While we are happy that we exceeded our
second quarter 2008 revenue range guidance of $11 million to $14 million,
we continue to address year over year declines in market demand for some of
our core products. Our most recent acquisition continues to deliver revenue
results that are largely replacing the declining demand for some of our
products in other areas," added Ferrara.
Second Quarter 2008 Revenue Results
Sales of Tollgrade's system test products were $5.2 million in the
second quarter 2008, compared to $4.5 million in the same period of 2007.
The results for the second quarter 2008 include revenues from the sale of
DigiTest(R), LDU and N(x)Test(TM) test probe hardware products. Revenue
from these products in the second quarter 2008 compared to the second
quarter 2007 increased due to the inclusion of LDU product sales resulting
from the acquisition of the Broadband Test Division of Teradyne, Inc.
("BTD") in August 2007, which was offset by lower sales of DigiTest
products. LDU shipments were driven by sales to a major European service
provider.
Overall sales of cable hardware and software products were $2.1 million
in the second quarter 2008 compared to $3.5 million in the second quarter
2007. The year over year decline was a result of reduced market demand from
both direct and indirect sales channels. Compared to the first quarter
2008, our cable hardware and software sales for the second quarter 2008
rebounded by $0.5 million, or over 30%.
Overall sales of the Company's MCU(R) products, which extend
testability into the POTS network, were $1.2 million in the second quarter
2008, compared to $2.9 million in the second quarter 2007. As we previously
discussed in prior releases, more than one-half of this decline is due to
the completion of a major customer's testability program in 2007 and the
remaining decline is due to reduced market demand for these products.
Sales from services, which include software maintenance, project
management fees and repairs, were $6.1 million in the second quarter 2008
compared to $3.3 million in the second quarter 2007. The increase is
largely due to the inclusion of services revenue from international
customers from our most recent acquisition. Our acquisition of BTD was
completed in August 2007 during our third quarter 2007, and therefore, it
is not included in the second quarter 2007 results.
Second Quarter 2008 Financial and Operating Data
Gross profit for the second quarter 2008 was $7.3 million, compared to
$7.8 million in the second quarter 2007. As a percentage of sales, gross
profit was 50.3% in the second quarter 2008, compared to 55.0% in the
second quarter 2007. The decrease in gross margin resulted from product mix
changes, the impact of lower manufacturing volumes, and certification fees
and other costs related to the introduction of new products.
Including restructuring expenses, the Company lowered operating
expenses to $7.7 million for the second quarter 2008, compared to $7.9
million in the prior year quarter. Excluding restructuring expenses for
both periods, operating expenses on a non-GAAP basis were $7.6 million and
$7.7 million in the second quarter 2008 and 2007, respectively.
Selling and marketing expenses in the second quarter 2008 were lowered
to $2.2 million compared to $2.3 million in the second quarter 2007.
Compared to the first quarter 2008, selling and marketing expenses for the
second quarter 2008 decreased by $0.3 million due to our cost reduction
initiatives initiated during the first quarter 2008. In both quarters, the
cost reductions were offset, in part, by increases resulting from the BTD
acquisition.
General and administrative expenses were $2.2 million for the second
quarter 2008 compared to $2.3 million in the second quarter 2007. Compared
to the first quarter 2008, general and administrative expenses for the
second quarter 2008 decreased by $0.3 million or 13% due to non-recurring
charges for transitional services related to the BTD acquisition in the
earlier quarter.
Research and development costs were $3.2 million for the second quarter
2008 compared to $3.0 million in the second quarter 2007. The increase
reflects additional engineering costs related to the acquisition of BTD
offset in part by cost savings associated with the workforce reduction that
occurred in January 2008. Compared to the first quarter 2008, research and
development costs for the second quarter 2008 decreased by $0.4 million or
11% due to the completion of the transitional engineering program related
to the BTD integration and the impact of our cost reduction program.
The provision for income taxes of approximately $0.2 million consists
primarily of taxes on income earned in certain foreign jurisdictions. Based
on a review of its tax position at June 28, 2008, the Company did not
record any tax benefit on losses pertaining to its U.S. operations and
certain foreign operations.
The Company's order backlog for firm customer purchase orders and
signed software maintenance contracts was $18.5 million as of June 28,
2008, compared to a backlog of $19.2 million as of December 31, 2007.
Further, the backlog at June 28, 2008 and December 31, 2007 included
approximately $13.8 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 38% of the current total backlog
will be recognized as revenue in the third quarter 2008.
Third Quarter 2008 Outlook
"Our third quarter 2008 revenue outlook range is slightly higher than
the revenue guidance provided for the previous quarter and is expected to
include a contribution from initial domestic market shipments of DigiTest
ICE(TM), our new low cost IP service assurance probe for remote network
testing," said Joseph Ferrara. "We expect our revenue outlook for the third
quarter to range from $12 million to $15 million. We continue to see
progress in managing our operating expense levels as we strive for
near-term profitability," he continued.
"We announced on April 10, 2008 that we were undertaking a full review
of strategic opportunities to leverage Tollgrade's expertise and reputation
in service assurance test and measurement solutions," said Ferrara. "We are
in the midst of this evaluation process and, to date, have not reached any
specific conclusions and no deadline has been set for completing this
process. Our objective is to ensure that we preserve and enhance
shareholder value as we continue this process and our work with customers
around the world," added Ferrara.
Conference Call and Webcast
A conference call to discuss earnings results for the second quarter
2008 will be held on Thursday, July 24, 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 Second 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=49768
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 Six Months Ended
June 28, June 30, June 28, June 30,
2008 2007 2008 2007
Revenues:
Products $8,491 $10,863 $15,631 $20,860
Services 6,106 3,318 12,150 6,363
14,597 14,181 27,781 27,223
Cost of sales:
Products 4,478 4,976 8,094 9,503
Services 1,924 831 3,910 1,760
Amortization 853 570 1,867 1,138
Impairment - - 3,291 -
Inventory writedown/
restructuring - - 759 -
7,255 6,377 17,921 12,401
Gross profit 7,342 7,804 9,860 14,822
Operating expenses:
Selling and marketing 2,162 2,325 4,597 4,510
General and
administrative 2,248 2,340 4,827 4,448
Research and
development 3,230 2,992 6,846 5,945
Restructuring 70 212 505 594
Total operating
expenses 7,710 7,869 16,775 15,497
Loss from operations (368) (65) (6,915) (675)
Interest income 313 740 805 1,516
(Loss) income before
income taxes (55) 675 (6,110) 841
Provision for income taxes 200 225 649 280
Net (loss) income $(255) $450 $(6,759) $561
Diluted earnings
per-share information:
Weighted average shares
of common stock and
equivalents: 13,158 13,516 13,158 13,480
Net (loss) income per
common and common
equivalent shares $(0.02) $0.03 $(0.51) $0.04
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
June December
28, 2008 31, 2007
ASSETS
Current assets:
Cash and cash equivalents $56,880 $58,222
Short-term investments 2,442 632
Accounts receivable:
Trade 13,279 14,625
Other 1,518 2,255
Inventories 12,613 13,687
Prepaid expenses and deposits 925 1,120
Deferred and refundable tax assets 385 503
Assets held for sale - 272
Total current assets 88,042 91,316
Property and equipment, net 3,795 4,279
Intangibles 39,274 44,215
Other assets 343 333
Total assets $131,454 $140,143
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $598 $4,214
Accrued warranty 1,537 1,937
Accrued expenses 2,526 3,148
Accrued salaries and wages 687 891
Accrued royalties payable 89 707
Income tax payable 1,145 572
Deferred revenue 4,917 2,767
Total current liabilities 11,499 14,236
Pension obligation 1,052 908
Deferred tax liabilities and other taxes 2,082 1,999
Total liabilities 14,633 17,143
Total shareholders' equity 116,821 123,000
Total liabilities and shareholders' equity $131,454 $140,143
Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended
June 28, 2008 June 30, 2007
Cash flows from operating activities:
Net (loss) income $(6,759) $561
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Impairment 3,291 -
Depreciation and amortization 2,770 1,947
Stock-based compensation expense 157 628
Valuation allowance 129 -
Deferred income taxes 19 1,101
Restructuring and write-down of inventory 770 246
Provisions for losses on inventory 175 268
Provision for allowance for doubtful accounts 40 39
Changes in assets and liabilities:
Accounts receivable-trade 1,055 5,116
Accounts receivable-other 477 238
Inventory 160 (3,600)
Prepaid expense and other assets 254 (492)
Accounts payable (3,349) (365)
Accrued warranty (400) (95)
Accrued expenses and deferred income 1,611 (1,311)
Accrued royalties payable (618) 105
Income taxes payable 517 -
Net cash provided by operating activities 299 4,386
Cash flows from investing activities:
Purchase of short-term investments (2,274) (11,608)
Redemption/maturity of short-term
investments 464 4,170
Capital expenditures, including
capitalized software (402) (761)
Sale of assets held for sale 262 568
Net cash used in investing activities (1,950) (7,631)
Cash flows from financing activities:
Proceeds from exercise of stock options - 36
Excess tax benefit from stock-based
compensation - 2
Net cash provided by financing activities - 38
Net decrease in cash and cash equivalents (1,651) (3,207)
Effect of exchange rate changes on cash &
cash equivalents 309 -
Cash and cash equivalents at beginning
of period 58,222 57,378
Cash and cash equivalents at end of period 56,880 $54,171
Explanation of Non-GAAP Measures
During the second quarter 2008, we continued the restructuring programs
that we announced on July 27, 2006 and 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 second 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 and six month periods ended June 28, 2008 and June 30, 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 and six month periods ended
June 28, 2008 and June 30, 2007, we have excluded the effect of
restructuring programs 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 28, 2008 and June 30, 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 six month period ended June 28, 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 June 28, 2008 (Unaudited)
(In thousands, Gross
except per Gross Profit Operating Operating Net Diluted
share amount) Profit Percentage Expense Loss Income EPS
GAAP Reported
Results $7,342 50.3% $7,710 $(368) $(255) $(0.02)
Restructuring - -% (70) 70 70 0.01
Stock-based
compensation - -% (180) 180 180 0.01
Non-GAAP Results,
Excluding
special items $7,342 50.3% $7,460 $(118) $(5) $0.00
Reconciliation to GAAP- Six Months Ended June 28, 2008 (Unaudited)
(In thousands, Gross
except per Gross Profit Operating Operating Net Diluted
share amount) Profit Percentage Expense Loss Income EPS
GAAP Reported
Results $9,860 35.5% $16,775 $(6,915) $(6,759) $(0.51)
Impairment 3,291 11.8% - 3,291 3,291 0.25
Restructuring 759 2.7% - 759 759 0.06
Restructuring - -% (505) 505 505 0.03
Stock-based
compensation - -% (157) 157 157 0.01
Non-GAAP Results,
Excluding
special items $13,910 50.0% $16,113 $(2,203) $(2,047) $(0.16)
Reconciliation to GAAP- Quarter Ended June 30, 2007 (Unaudited)
(In thousands, Gross Operating
except per Gross Profit Operating (Loss) Net Diluted
share amount) Profit Percentage Expense Income Income EPS
GAAP Reported
Results $7,804 55.0% $7,869 $(65) $450 $0.03
Restructuring - -% (212) 212 141 $0.01
Stock-based
compensation - -% (274) 274 182 $0.02
Non-GAAP Results,
Excluding
special items $7,804 55.0% $7,383 $421 $773 $0.06
Reconciliation to GAAP- Six Months Ended June 30, 2007 (Unaudited)
(In thousands, Gross Operating
except per Gross Profit Operating (Loss) Net Diluted
share amount) Profit Percentage Expense Income Income EPS
GAAP Reported
Results $14,822 54.4% $15,497 $(675) $561 $0.04
Restructuring - -% (594) 594 395 $0.03
Stock-based
compensation - -% (628) 628 418 $0.03
Non-GAAP Results,
Excluding
special items $14,822 54.4% $14,275 $547 $1,374 $0.10
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 third quarter 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) actions that we may take in connection with our review of
strategic alternatives; (b) 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; (c)
general economic uncertainty and its impact on the capital budgets 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) further declines in demand for our existing
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; and (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, 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) ICE is a trademark of Tollgrade Communications, Inc.
(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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