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Third Quarter Financial Performance
-- Net revenues of $33.3 million were above the midpoint of the guidance of
$30 million to $35 million, representing a decrease of 29 percent
compared to $47.0 million in the third fiscal quarter of 2008 and an 11
percent sequential decrease compared to the $37.5 million recorded in
the second quarter of 2009. The year-over-year and sequential decrease
in net revenues for the third fiscal quarter of 2009 was primarily due
to the impact of the economic slowdown on certain of the Company's
customers, offsetting revenue from new customers.
-- Gross profit was 15.1 percent of net revenues, above guidance of 13.5
percent to 15.0 percent and compared to 16.3 percent in the third fiscal
quarter of 2008 and 15.4 percent in the second fiscal quarter of 2009.
-- Operating expenses were $6.3 million, including $285,000 of stock-based
compensation expense and $439,000 of amortization expense, below
guidance of between $6.4 million to $6.9 million. Operating expenses
declined 21 percent, compared to $8.0 million in the year-ago quarter.
-- Net loss on a GAAP basis was $(1.2) million, or $(0.03) per share, which
included $319,000 of stock-based compensation expense and $439,000 of
amortization expense. The results were better than guidance of a net
loss of $(1.7) million to $(2.3) million. The net loss on a GAAP basis
compared to net loss on a GAAP basis of $(283,000), or $(0.01) per
share, in the third fiscal quarter of 2008.
-- Non-GAAP net loss, which excludes stock-based compensation and
amortization expenses, was $(485,000), or $(0.01) per share, better than
guidance of a non-GAAP net loss of $(900,000) to $(1.5) million. The
non-GAAP net loss compared to non-GAAP net income of $669,000, or $0.01
per share, in the third fiscal quarter of 2008.
-- The Company ended the quarter with approximately $19.7 million in cash
and cash equivalents.
Greg Shortell, President and Chief Executive Officer of NEI, commented, "NEI's results met, and in nearly every case exceeded, our guidance. We're pleased with how we are navigating through a tough selling environment, and we again increased cash to finish the quarter with $19.7 million on our balance sheet. We demonstrated continued success in achieving new design wins and made solid progress in our efforts to expand our customer base and grow our revenue opportunity."
Mr. Shortell continued, "Subsequent to the end of the quarter, we were informed by an existing customer that we had won additional run-rate business that provides an opportunity for us to meaningfully grow our revenue stream. This design win is expected to be implemented over the next two quarters and is anticipated to contribute more than $10 million per quarter in incremental revenue to NEI by the March 2010 quarter. This important win is further evidence of our ability to grow our business, both organically by increasing our participation with existing customers, and also by bringing in new customers so we can benefit as they grow. We are excited to have won this bid and we strive to continuously add value to our customer relationships."
During this quarter NEI added 24 new design wins, for a total of 49 in the first nine months of fiscal 2009, compared to 44 achieved in all of fiscal 2008. During the first nine months of fiscal 2009, design wins included 13 new customers with run-rate business, three were design wins for run-rate products with existing customers and 11 were design wins for new products with existing customers. NEI had two customers that comprised more than 10 percent of net revenues for the third fiscal quarter. EMC comprised 35 percent of total revenues during the quarter, compared to 41 percent in the year ago quarter. Tektronix comprised 11 percent of net revenues during the quarter, compared to 12 percent in the year ago quarter.
Mr. Shortell continued, "NEI increasingly benefits from the trend of software developers focusing on their core strategic competencies and outsourcing non-core aspects of their business to reduce expenses. Our ability to seamlessly address all issues surrounding the hardware on which their software runs, thereby reducing their hardware investment and improving their customers' satisfaction is a value which is resonating throughout the marketplace. Our position as a 'super middleweight' player in the integration space is supported by the strength of our balance sheet and the confidence our customers have in NEI. This positioning is providing us a sustainable competitive advantage and we are increasingly confident in our strategy as we look into fiscal 2010."
As part of the Company's stock repurchase program, the Company purchased approximately 773,000 shares for a total of $585,000 in the third fiscal quarter. Since June 2008, when the stock repurchase plan was initially implemented permitting the repurchase of up to $5 million of its common stock, the Company has cumulatively repurchased a total of 2.1 million shares for approximately $1.7 million through June 30, 2009.
Business Outlook
NEI currently anticipates the following results for its fiscal fourth quarter ending September 30, 2009, based on current forecasts from certain partners and historical trends.
-- Net revenues in the range of $33 million to $38 million.
-- Gross profit in the range of 13.5 percent to 15 percent of net revenues.
-- Operating expenses between $6.4 million and $6.9 million, including an
estimated $280,000 of stock-based compensation expense and an estimated
amortization expense of $439,000.
-- Net loss on a GAAP basis in the range of $(900,000) to $(1.5) million.
-- Net loss on a non-GAAP basis in the range of $(150,000) to $(750,000).
"Our revenue guidance is based on current customer forecasts," stated Doug Bryant, Chief Financial Officer. "Although our customers' forecasting visibility remains limited and as a result we can only offer quarterly guidance, we believe that we'll see sequential improvements in both top and bottom-line results in the upcoming quarter. We are making significant efforts to manage our way through this turbulent economy and maintain our solid financial position although we could experience some volatility in our revenues in the coming quarters as we work through the cycle. I'd note this guidance does not include any contribution from the large design win booked during the fiscal fourth quarter."
Conference Call Details
In conjunction with this announcement, NEI management will conduct a conference call at 10 a.m. (ET) to discuss the Company's operating performance and financial outlook. The conference call will be available live via the Internet by accessing the NEI web site at www.nei.com, on the investor relations page. Please go to the web site at least 15 minutes prior to the call to register, download and install any necessary audio software.
To listen to the conference call via phone, please dial 1-888-561-1803 or 1-480-629-9041. For those who cannot access the live broadcast, a replay will be available by dialing 1-800-406-7325 or 1-303-590-3030 and entering "4118130" from three hours after the end of the call until 12 p.m. (ET) on August 6, 2009. The replay will also be available at the NEI web site.
Important Information about Non-GAAP References
References by NEI (the "Company") to non-GAAP net income or loss and non-GAAP per share information refer to net income or loss or per share information excluding stock-based compensation expense, amortization expense, goodwill impairment and restructuring charges. GAAP requires that these expenses and charges 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 or loss (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. In addition, the Company's management excludes the financial statement effect of these items in evaluating and compensating employees due to the fact that it is difficult to forecast these expenses. Lastly, 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 or loss 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 application platforms, appliances and support services for software developers, OEMs and service providers worldwide. Through its comprehensive suite of services that include solution design, integration control, support and other value-added service capabilities, NEI enables customers to more effectively deploy, manage, service and support their solutions. Founded in 1997, NEI is headquartered in Canton, Massachusetts and trades on the NASDAQ exchange under the symbol NENG. For more information about NEI's products and services, 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 profits, operating expenses including stock-based compensation expenses, amortization expense, net income (loss), additional run-rate business from existing customers 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, 2008 and the most recent Form 10-Q for the quarter ended March 31, 2009 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.
NEI / 25 Dan Road Canton, MA / 02021-2817 / telephone: 781 332 1000 / fax: 781 770 2000 / www.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,
2009 2008 2009 2008
Net revenues $33,329 $47,046 $108,025 $156,560
Cost of revenues 28,292 39,396 91,612 130,271
Gross profit 5,037 7,650 16,413 26,289
Operating expenses:
Research and
development 1,644 2,135 4,739 6,823
Selling and marketing 2,039 2,761 6,240 8,826
General and
Administrative 2,222 2,639 6,572 8,219
Amortization of
intangible assets 439 485 1,317 1,406
Total operating
expenses 6,344 8,020 18,868 25,274
Income (loss) from
operations (1,307) (370) (2,455) 1,015
Interest and other income,
Net 64 110 76 376
Income (loss) before income
taxes $(1,243) $(260) $(2,379) $1,391
Provision for income taxes - 23 - 133
Net income (loss) $(1,243) $(283) $(2,379) $1,258
Net income (loss) per share
- basic and diluted $(0.03) $(0.01) $(0.06) $0.03
Shares used in computing
basic net income (loss) per
share 42,764 44,090 43,026 43,918
Shares used in computing
diluted net income (loss)
per share 42,764 44,090 43,026 44,248
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,
2009 2008 2009 2008
Cost of revenues $34 $41 $109 $141
Research and development 58 161 200 573
Selling and marketing 75 92 213 253
General and administrative 152 173 477 543
$319 $467 $999 $1,510
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,
2009 2008 2009 2008
GAAP net income (loss) $(1,243) $ (283) $(2,379) $1,258
Amortization of
intangible assets 439 485 1,317 1,406
Restructuring charges - - - 175
Stock-based compensation 319 467 999 1,510
Non-GAAP net income (loss) $(485) $669 $(63) $4,349
GAAP basic net income (loss)
per share $(0.03) $(0.01) $ (0.06) $ 0.03
Amortization of
intangible assets 0.01 0.01 0.03 0.03
Restructuring charges - - - -
Stock-based compensation 0.01 0.01 0.02 0.03
Non-GAAP basic net income
(loss)per share $(0.01) $ 0.01 $ (0.01) $0.09
GAAP diluted net income (loss)
per share $(0.03) $(0.01) $ (0.06) $0.03
Amortization of
intangible assets 0.01 0.01 0.03 0.03
Restructuring charges - - - -
Stock-based compensation 0.01 0.01 0.02 0.03
Non-GAAP diluted net income
(loss) per share $(0.01) $0.01 $(0.01) $0.09
Shares used in computing GAAP
and non-GAAP basic
net income per share 42,764 44,090 43,026 43,918
Shares used in computing GAAP
diluted
net income per share 42,764 44,090 43,026 44,248
Shares used in computing
non-GAAP diluted
net income per share 42,764 44,343 43,026 44,248
NEI
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
June 30, September 30,
2009 2008
ASSETS
Current assets:
Cash and cash equivalents $19,720 $10,003
Restricted cash - 47
Accounts receivable, net 22,146 26,403
Income tax receivable 44 2,585
Inventories 12,252 21,380
Prepaid expenses and other
current assets 1,809 2,009
Total current assets 55,971 62,427
Property and equipment, net 1,701 1,549
Intangible asset 8,567 9,884
Contingently returnable
acquisition consideration 4,022 4,022
Other assets 165 183
Total assets $70,426 $78,065
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $7,321 $11,745
Accrued liabilities 4,012 4,549
Deferred revenue 4,222 5,173
Total current liabilities 15,555 21,467
Deferred revenue 2,538 2,246
Total liabilities 18,093 23,713
Stockholders' equity:
Common stock 471 468
Treasury stock (4,575) (3,772)
Additional paid-in capital 196,388 195,228
Accumulated deficit (139,951) (137,572)
Total stockholders' equity 52,333 54,352
Total liabilities and
stockholders' equity $70,426 $78,065
NEI
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
Cash flows from operating
activities:
Net (loss) income $(1,243) $(283) $(2,379) $1,258
Adjustments to reconcile net
(loss) income to cash
provided by operating
activities:
Depreciation and
Amortization 663 838 1,997 2,489
Stock-based compensation 319 467 999 1,510
Other adjustments 133 52 165 103
Changes in operating assets
and liabilities, net of
effects of acquisition 2,334 (338) 10,443 (3,024)
Net cash provided by
operating activities 2,206 736 11,225 2,336
Net cash used in investing
activities (309) (388) (853) (34,629)
Net cash (used in) provided
by financing activities (512) 27 (655) 132
Effect of exchange rate
differences on cash - - - (29)
Net increase (decrease) in
cash and cash equivalents 1,385 375 9,717 (32,190)
Cash and cash equivalents,
beginning of period 18,335 11,838 10,003 44,403
Cash and cash equivalents,
end of period $19,720 $12,213 $19,720 $12,213
SOURCE NEI
http://www.nei.com/
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