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8-K - 8-K - NETWORK ENGINES INCa12-17582_18k.htm

Exhibit 99.1

 

 

PRESS RELEASE

 

NEI / 25 Dan Road Canton, MA / 02021-2817 / telephone: 781 332 1000 / fax: 781 770 2000   www.nei.com

 

NEI ANNOUNCES FINANCIAL RESULTS FOR THE THIRD QUARTER OF FISCAL 2012

 

Revenues Exceed Guidance, Reach $64.6 Million; Non-GAAP EPS of $0.03

 

NEI Signs Definitive Merger Agreement with UNICOM Systems, Inc.

 

CANTON, Mass., August 2, 2012 — NEI (Nasdaq: NEI), a leading provider of server-based application platforms, deployment solutions and lifecycle support services for software technology developers and OEMs worldwide, today reported financial results for its fiscal third quarter, the period ended June 30, 2012.

 

Third Quarter Financial Performance and Highlights

 

·                  Net revenues were $64.6 million, a decrease compared to the $66.1 million reported for the third fiscal quarter last year but better than guidance of $51 to $56 million.

·                  EMC represented 54% of net revenues, a decrease from 63% of net revenues for the third fiscal quarter last year and an increase from the 42% of net revenues reported in the second quarter of 2012. Tektronix comprised 9% of net revenues during the quarter, an increase from 8% of net revenues in the third fiscal quarter last year and down from the 22% of net revenues for the second fiscal quarter this year. Symantec represented 17% of net revenues during the quarter, an increase from 10% of net revenues during the second fiscal quarter. Since Symantec was a new customer in the year-ago quarter, revenues were not yet significant.

·                  Gross margin was 11.2% of net revenues, within guidance of 11.0% to 11.5% and compared to 11.8% in the third quarter last year.

·                  Operating expenses were $6.3 million, which was above the guidance range of $5.5 million to $6.0 million, and compared to $6.1 million in the year-ago third quarter. The higher operating expenses were due to $592,000 in expenses related to the Company’s pending acquisition by UNICOM Systems.

·                  Net income on a GAAP basis was $468,000, or $0.01 per share, which exceeded the guidance of a loss of $(200,000) to net income of $300,000, and compared to net income of $1.9 million, or $0.04 per share in the same period a year ago.  The net income for the third quarter of fiscal 2012 is inclusive of income tax expense of $361,000, while the year-ago quarter included income tax (benefit) expense of $(85,000).  As a result of the Company’s reversal of its deferred income tax valuation allowance at September 30, 2011, NEI is now required to record federal income tax expense, although it will be realizing the benefit of its deferred income tax assets and therefore substantially all of the federal income tax expense will not require cash payments.

·                  Non-GAAP net income, which excludes stock-based compensation of $118,000, amortization expense of $280,000 and acquisition related expenses of $592,000 associated with the pending acquisition, was $1.5 million, or $0.03 per share, better than the expected range of non-GAAP profit of $200,000 to $700,000. The non-GAAP net income compared to non-GAAP net income of $2.4 million, or $0.06 per share, in the third fiscal quarter of 2011.

 

On June 18, 2012, NEI signed a definitive merger agreement with UNICOM Systems, Inc. (“UNICOM”) and a new UNICOM subsidiary under which UNICOM, a global information technology company and part of the UNICOM group of companies, will acquire NEI for $1.45 per common share in cash. As previously reported, the transaction is valued at approximately $63.2 million and currently is expected to close by the end of September 2012.

 

Greg Shortell, President and Chief Executive Officer of NEI, commented, “During the quarter, NEI signed a definitive agreement to be acquired by UNICOM Systems, Inc., which we believe is in the best interests of our shareholders and provides them with a significant premium to the stock’s recent price range prior to the announcement. Operationally, we delivered another quarter of strong execution,

 



 

exceeding our revenue guidance and reporting ongoing profitability.  Revenues were above guidance primarily due to certain customers exceeding their forecasts and also because this was the first quarter since the flooding in Thailand that shipments were not constricted by the availability of hard drives.”

 

For the nine month period ended June 30, 2012, net revenues were $200.2 million, compared to $202.8 million for the same period in 2011. Gross margin was $23.8 million, or 11.9% of net revenues, compared with gross margin of $22.9 million, or 11.3% of net revenues, for the same period last year. Total operating expenses were $18.3 million, or 9.1 percent of net revenues, compared with $18.2 million last year, or 9.0 percent of net revenues in the same period last year. On a GAAP basis, the Company reported net income of $3.2 million, or $0.07 per share, compared with net income of $4.7 million, or $0.11 per share, in the same period last year. The Company’s non-GAAP net income, which excludes stock-based compensation,  amortization expenses and acquisition related expenses, was $5.0 million compared to non-GAAP net income of $6.4 million for the same period last year.  Net income amounts include $2.1 million of income tax expenses compared to $149,000 for the same period last year for the reason described above.

 

Balance Sheet

 

NEI finished the quarter with $14.3 million in cash and cash equivalents and $79.3 million in working capital. Accounts receivable increased to $50.3 million and inventory levels decreased to $36.6 million as of June 30, 2012 compared to $42.4 million and $42.9 million, respectively, as of March 31, 2012. NEI also has a $10 million bank credit facility.

 

Business Outlook

 

NEI currently anticipates the following results for its fiscal fourth quarter ending September 30, 2012, based on current forecasts from certain customers and historical trends and excluding any costs related to the UNICOM deal.

 

·                  Net revenues in the range of $56 million to $61 million.

 

·                  Gross margin in the range of 10.0% to 11.0% of net revenues.

 

·                  Operating expenses between $5.5 million and $6.0 million, including an estimated $100,000 of stock-based compensation expense and amortization expense of $280,000.

 

·                  Net income (loss) on a GAAP basis in the range of $(200,000) to $300,000, net of projected income taxes at an effective rate of 40%.

 

·                  Net income on a non-GAAP basis in the range of $200,000 to $700,000, net of income taxes.

 

“We are projecting lower gross margins primarily due to customer mix and lower projected net revenues,” stated Doug Bryant, Chief Financial Officer. “In regards to our balance sheet, we expect inventory levels to be higher and our cash position to be lower at the end of September because of the last time inventory purchases being executed during the quarter related to the transition of certain EMC product lines that we have previously announced.”

 

Important Information about Non-GAAP References

 

References by NEI (the “Company”) to non-GAAP net income and non-GAAP per share information refer to net income or per share information excluding stock-based compensation expense, amortization expense and expenses related to the Company’s pending acquisition by UNICOM. GAAP requires that these expenses be included in determining net income or loss and per share information. The Company’s management uses non-GAAP operating expenses, and associated non-GAAP net income (which is the basis for non-GAAP per share information) to make operational and investment

 



 

decisions, and the Company believes that they are among several useful measures for an enhanced understanding of its operating results for a number of reasons.

 

First, although the Company undertakes analyses to ensure that its stock-based compensation grants are in line with peer companies and do not unduly dilute shareholders, the Company allocates grants and measures them at the corporate level. Second, management excludes their financial statement effect when planning or measuring the periodic financial performance of the Company’s functional organizations since they are episodic in nature and unrelated to its core operating metrics. Last, we believe that providing non-GAAP per share information affords investors a view of results that may be more easily compared to peer companies and enables investors to consider the Company’s results on both a GAAP and non-GAAP basis in periods when the Company is undertaking non-recurring activities.

 

The Company believes these non-GAAP measures will aid investors’ overall understanding of the Company’s results by providing a higher degree of transparency for certain expenses, and providing a level of disclosure that will help investors understand how the Company plans and measures its own business. However, non-GAAP net income should be construed neither as an alternative to GAAP net income or loss or per share information as an indicator of our operating performance nor as a substitute for cash flow from operations as a measure of liquidity because the items excluded from the non-GAAP measures often have a material impact on the Company’s results of operations. Therefore, management uses, and investors should use, non-GAAP measures only in conjunction with the Company’s reported GAAP results.

 

About NEI

 

NEI is a leading provider of server-based application platforms and lifecycle support services for software developers and OEMs worldwide. Through its expertise and comprehensive suite of solution design, system integration, application management, global logistics, support, and maintenance services, NEI is redefining application deployment solutions to provide customers with a sustainable competitive advantage. More than a decade of appliance innovation with the ability to provide physical, virtual and cloud-ready solutions makes NEI one of the most trusted software deployment partners in the industry. Founded in 1997, NEI is headquartered in Canton, Massachusetts, with facilities in Plano, Texas and Galway, Ireland, and trades on the NASDAQ exchange under the symbol NEI. For more information, visit www.nei.com.

 

Safe Harbor for Forward-Looking Statements

 

Statements in this press release regarding the Company’s future financial performance, including statements regarding future net revenues, gross margin, operating expenses including stock-based compensation expenses and amortization expense, net income, profitability, inventory, cash, the proposed sale to Unicom and any other statements about the Company’s management’s future expectations, beliefs, goals, plans or prospects, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including those factors contained in the Company’s most recent Annual Report on Form 10-K for the year ended September 30, 2011 and the most recent Form 10-Q for the quarter ended March 31, 2012 under the section “Risk Factors” as well as other documents that may be filed by the Company from time to time with the Securities and Exchange Commission. Forward-looking statements include statements regarding the Company’s expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” and “would” or similar words. The Company assumes no obligations to update the information included in this press release.

 

Contact:

 

Hayden IR

 



 

Peter Seltzberg

646-415-8972

peter@haydenir.com

ir@nei.com

 

###

 



 

NEI

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

64,589

 

$

66,105

 

$

200,178

 

$

202,764

 

Cost of revenues

 

57,387

 

58,333

 

176,373

 

179,914

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

7,202

 

7,772

 

23,805

 

22,850

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Engineering and development

 

1,586

 

1,610

 

4,859

 

4,788

 

Selling and marketing

 

1,685

 

1,874

 

5,090

 

5,735

 

General and administrative

 

2,737

 

2,273

 

7,477

 

6,630

 

Amortization of intangible asset

 

280

 

332

 

840

 

997

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

6,288

 

6,089

 

18,266

 

18,150

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

914

 

1,683

 

5,539

 

4,700

 

Interest and other (expense) income, net

 

(85

)

117

 

(229

)

163

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

$

829

 

$

1,800

 

$

5,310

 

$

4,863

 

Provision for (benefit from) income taxes

 

361

 

(85

)

2,124

 

149

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

468

 

$

1,885

 

$

3,186

 

$

4,714

 

 

 

 

 

 

 

 

 

 

 

Net income per share - basic

 

$

0.01

 

$

0.04

 

$

0.08

 

$

0.11

 

Net income per share - diluted

 

$

0.01

 

$

0.04

 

$

0.07

 

$

0.11

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing basic net income per share

 

42,517

 

42,951

 

42,448

 

42,901

 

Shares used in computing diluted net income per share

 

43,026

 

43,910

 

43,030

 

44,072

 

 

The amounts in the table above include employee stock-based compensation as follows (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

$

19

 

$

31

 

$

65

 

$

102

 

Engineering and development

 

17

 

25

 

56

 

87

 

Selling and marketing

 

19

 

76

 

53

 

229

 

General and administrative

 

63

 

82

 

156

 

260

 

 

 

 

 

 

 

 

 

 

 

 

 

$

118

 

$

214

 

$

330

 

$

678

 

 



 

NEI

Non-GAAP Financial Measures and Reconciliations

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

GAAP net income

 

$

468

 

$

1,885

 

$

3,186

 

$

4,714

 

Acquisition related expenses

 

592

 

 

691

 

 

Amortization of intangible asset

 

280

 

332

 

840

 

997

 

Stock-based compensation

 

118

 

214

 

330

 

678

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net income

 

$

1,458

 

$

2,431

 

$

5,047

 

$

6,389

 

 

 

 

 

 

 

 

 

 

 

GAAP basic net income per share

 

$

0.01

 

$

0.04

 

$

0.08

 

$

0.11

 

Acquisition related expenses

 

0.01

 

 

0.01

 

 

Amortization of intangible asset

 

0.01

 

0.01

 

0.02

 

0.02

 

Stock-based compensation

 

 

0.01

 

0.01

 

0.02

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP basic net income per share

 

$

0.03

 

$

0.06

 

$

0.12

 

$

0.15

 

 

 

 

 

 

 

 

 

 

 

GAAP diluted net income per share

 

$

0.01

 

$

0.04

 

$

0.07

 

$

0.11

 

Acquisition related expenses

 

0.01

 

 

0.02

 

 

Amortization of intangible asset

 

0.01

 

0.01

 

0.02

 

0.02

 

Stock-based compensation

 

 

0.01

 

0.01

 

0.02

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP diluted net income per share

 

$

0.03

 

$

0.06

 

$

0.12

 

$

0.15

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing GAAP and non-GAAP basic net income per share

 

42,517

 

42,951

 

42,448

 

42,901

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing GAAP and non-GAAP diluted net income per share

 

43,026

 

43,910

 

43,030

 

44,072

 

 



 

NEI

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

 

 

June 30,

 

September 30,

 

 

 

2012

 

2011

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

14,263

 

$

19,852

 

Accounts receivable, net

 

50,274

 

43,522

 

Inventories

 

36,596

 

24,331

 

Deferred income taxes

 

15,001

 

15,001

 

Prepaid expenses and other current assets

 

3,747

 

4,886

 

 

 

 

 

 

 

Total current assets

 

119,881

 

107,592

 

 

 

 

 

 

 

Property and equipment, net

 

2,569

 

2,569

 

Intangible asset, net

 

4,404

 

5,244

 

Deferred income taxes

 

14,147

 

15,855

 

Other assets

 

129

 

131

 

 

 

 

 

 

 

Total assets

 

$

141,130

 

$

131,391

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

24,447

 

$

23,360

 

Accrued liabilities

 

5,089

 

5,749

 

Deferred revenue

 

11,068

 

5,967

 

 

 

 

 

 

 

Total current liabilities

 

40,604

 

35,076

 

 

 

 

 

 

 

Deferred revenue

 

4,765

 

4,095

 

 

 

 

 

 

 

Total liabilities

 

45,369

 

39,171

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock

 

485

 

481

 

Treasury stock

 

(5,823

)

(5,646

)

Additional paid-in capital

 

200,454

 

199,926

 

Accumulated deficit

 

(99,355

)

(102,541

)

 

 

 

 

 

 

Total stockholders’ equity

 

95,761

 

92,220

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

141,130

 

$

131,391

 

 



 

NEI

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net income

 

$

468

 

$

1,885

 

$

3,186

 

$

4,714

 

Adjustments to reconcile net income to cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

548

 

601

 

1,690

 

1,708

 

Stock-based compensation

 

118

 

214

 

330

 

678

 

Change in deferred income taxes

 

190

 

 

1,708

 

 

Other adjustments

 

63

 

32

 

71

 

72

 

Changes in operating assets and liabilities

 

5,448

 

(2,255

)

(11,717

)

(5,562

)

 

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by operating activities

 

6,835

 

477

 

(4,732

)

1,610

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

(429

)

(588

)

(772

)

(1,998

)

Net cash provided by (used in) financing activities

 

35

 

7

 

(85

)

69

 

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

6,441

 

(104

)

(5,589

)

(319

)

Cash and cash equivalents, beginning of period

 

7,822

 

15,108

 

19,852

 

15,323

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

14,263

 

$

15,004

 

$

14,263

 

$

15,004