Radisys Reports Fourth Quarter 2017 Results

Cost Reduction Actions Begin to Drive Improvement in Results from Operations

HILLSBORO, OR - February 7, 2018 - Radisys Corporation (NASDAQ: RSYS), a global leader of open telecom solutions, today announced financial results for the fourth quarter ended December 31, 2017.

Fourth Quarter Summary

  • Consolidated revenue of $32.3 million, with sequential growth in Software-Systems revenue of 31%;
  • GAAP gross margin of 4.2% and non-GAAP gross margin of 40.4%;
  • GAAP loss per share was $0.50 and non-GAAP loss per share was $0.01, above the high-end of the Company’s guidance range;
  • Secured initial orders from new FlowEngine customer for expected deployments into a European service provider;
  • Announced MediaEngine product order for nearly $5 million from a leading Asian customer, of which $3.5 million was shipped during the quarter; and
  • Secured new award for MediaEngine via a channel partner for VoLTE deployment with a Tier 1 service provider in China.

“Our fourth quarter operating results were at or above the high-end of our expectations through a combination of sequential revenue growth across our strategic product lines and initial savings related to our cost-reduction plans,” said Brian Bronson, Radisys President and Chief Executive Officer. “As announced in January, we are narrowing our strategic focus towards our Software-Systems business, which in part will be enabled by the closing of our recently secured financing. In turn, this has enabled us to implement plans to decrease operating expenses by over $14 million, or 25% annually, in 2018 and also reduce our working capital requirements. As a result of these actions, we are poised to deliver annual non-GAAP gross margins above 40% and operating expenses below $40 million in 2018, while driving to return the Company to quarterly non-GAAP profitability.

“We are fully focused on executing and delivering differentiated, open-centric software and solutions that are tied to market growth drivers in 5G, voice-over-LTE, SDN and NFV. We have a strong pipeline of engagements for our Software-Systems products, and I continue to believe we are positioned favorably to play a disruptive role in these growing markets as we diligently work to convert opportunities into commercial wins throughout 2018.”

Software-Systems Results

For the fourth quarter of 2017, Software-Systems revenue was $14.8 million, compared to $11.3 million in the prior quarter and $17.7 million in the fourth quarter of 2016. The sequential improvement was the result of strong deployments on both a direct and channel basis for MediaEngine as well as the timing of revenue recognition for certain professional services engagements. 

Gross margin was 53.9%, compared to 47.9% in the prior quarter and 58.3% in the fourth quarter of 2016. Operating income was $0.6 million, compared to an operating loss of $2.4 million in the prior quarter and operating income of $1.4 million in the fourth quarter of 2016.

Hardware Solutions Results

For the fourth quarter of 2017, Hardware Solutions revenue was $17.5 million, compared to $17.5 million in the prior quarter and $22.9 million in the fourth quarter of 2016.

Gross margin was (26.7)%, compared to (13.2)% in the prior quarter and 23.1% in the fourth quarter of 2016. Operating loss was $9.6 million, compared to an operating loss of $7.9 million in the prior quarter and an operating loss of $0.1 million in the fourth quarter of 2016. Segment gross margin and operating losses were significantly impacted by inventory write-downs in the fourth and third quarters of 2017, the impact of which is outlined below:

 

Impact of Inventory Charges on Hardware Solutions Segment Gross Margins
Q417 Q317 Q416
Inventory charges ($ millions) $9.7 $6.6 $1.5
Inventory charges (%) (56)% (38)% (7)%

 

Consolidated Results

For the fourth quarter of 2017, consolidated revenue was $32.3 million, compared to $28.8 million in the prior quarter and $40.6 million in the fourth quarter of 2016.

On a GAAP basis, gross margin in the fourth quarter of 2017 was 4.2%, compared to 4.2% in the prior quarter and 33.6% in the fourth quarter of 2016. Fourth quarter 2017 GAAP research and development and selling, general, and administrative expenses were $12.7 million, compared to $13.5 million in the prior quarter and $15.2 million in the fourth quarter of 2016. The decline in operating expenses over the comparable periods was primarily the result of restructuring actions associated with the Company’s Hardware Solutions business.

On a non-GAAP basis, fourth quarter 2017 gross margin was 40.4%, compared to 10.8% in the prior quarter and 38.4% in the fourth quarter of 2016. Fourth quarter 2017 research and development and selling, general and administrative expenses on a non-GAAP basis were $12.3 million, compared to $13.4 million in the prior quarter and $14.4 million in the fourth quarter of 2016.

For the fourth quarter of 2017, the Company recorded a GAAP net loss of $19.6 million, or ($0.50) per share, compared to a GAAP net loss of $15.4 million, or ($0.39) per share, in the prior quarter and a GAAP net loss of $4.1 million, or ($0.11) per share, in the fourth quarter of 2016.  On a non-GAAP basis, the Company recorded a net loss of $0.3 million, or ($0.01) per share, in the fourth quarter of 2017, compared to a net loss of $11.0 million, or ($0.28) per share, in the prior quarter and net income of $1.6 million, or $0.04 per diluted share, in the fourth quarter of 2016.

First Quarter 2018 Financial Guidance

  • Revenue is expected between $22 to $24 million, with revenue mix weighted slightly towards the Hardware-Solutions segment at the midpoint. Hardware-Solutions revenue is expected to include approximately $5 million of revenue associated with legacy customer last-time builds.
  • GAAP gross margin is expected to approximate 23% and GAAP R&D and SG&A expenses are expected to be approximately $11 million. Non-GAAP gross margin is expected between 31% and 33% of sales. Non-GAAP gross margins are expected to expand throughout 2018 as Software-Systems revenue becomes an increasingly larger portion of the Company’s revenue mix.
  • Non-GAAP R&D and SG&A expenses are expected to approximate $10 million, down nearly 20% from the fourth quarter of 2017 as targeted expense actions are expected to be substantially complete by the end of the first quarter.
  • GAAP loss is expected to range from ($0.22) to ($0.18) per share. Non-GAAP loss is expected to range from ($0.12) to ($0.08) per share. Both GAAP and non-GAAP loss per share are based on a projected 40 million shares outstanding.

Conference Call and Webcast Information

The Company will host a conference call to discuss fourth quarter 2017 results on February 7, 2018, at 5:00 p.m. ET. To participate in the live conference call, dial 888-333-0027 in the U.S. and Canada or 706-634-4990 for all other countries and reference conference ID # 4378589. The live conference call will also be available via webcast on the Radisys investor relations website at http://investor.radisys.com/.

A replay of the conference call will be available two hours after the call is complete until 11:59 p.m. on February 27, 2018. To access the replay, dial 855-859-2056 or 404-537-3406 and reference conference ID# 4378589. A replay of the webcast will be available for an extended period of time on the Radisys investor relations website at http://investor.radisys.com/.

About Radisys

Radisys (NASDAQ: RSYS), a global leader in open telecom solutions, enables service providers to drive disruption with new open architecture business models. Radisys’ innovative disaggregated and virtualized enabling technology solutions leverage open reference architectures and standards, combined with open software and hardware to power business transformation for the telecom industry, while its world-class services organization delivers systems integration expertise necessary to solve communications and content providers’ complex deployment challenges. For more information, visit www.Radisys.com.

Forward-Looking Statements

This press release contains forward-looking statements, including statements about the Company's business strategy, financial outlook and expectations for the first quarter of 2018, and statements related to revenue and gross margins from our respective segments and product lines, investments in future growth, expense savings or reductions, increased profitability, product line focus, operational and administrative efficiencies, revenue growth, margin improvement, financial performance and other attributes of the Company.  These forward-looking statements are based on the Company's expectations and assumptions, as of the date such statements are made, regarding the Company's future operating performance and financial condition, customer requirements, outcome of product trials, the economy and other future events or circumstances. Actual results could differ materially from the outlook guidance and expectations in these forward-looking statements as a result of a number of risk factors, including, among others, (a) the Company’s ability to raise additional capital, (b) increased Tier 1 commercial deployments across multiple product lines, (c) continued implementation of the Company’s next-generation products, (d) customer implementation of traffic management solutions, (e) the outcome of product trials, (f) the market success of customers' products and solutions, (g) the development and transition of new products and solutions, including the Company’s FlowEngine appliance, MobilityEngine 5G RAN technology, MediaEngine Transcoding solutions and professional services programs across the Company’s strategic product lines, (h) the enhancement of existing products and solutions to meet customer needs and respond to emerging technological trends, (i) the Company's dependence on certain customers and high degree of customer concentration, (j) the Company's use of one contract manufacturer for a significant portion of the production of its products, including the success of transitioning contract manufacturing partners, (k) matters affecting the telecom and embedded product industries, including changes in industry standards, changes in customer requirements and new product introductions, (l) actions by regulatory authorities or other third parties, (m) cash generation, (n) changes in tariff and trade policies and other risks associated with foreign operations, (o) fluctuations in currency exchange rates, (p) the ability of the Company to successfully complete any future restructuring, acquisition or divestiture activities, (q) risks relating to fluctuations in the Company's operating results, the uncertainty of revenues and profitability and the ability to meet certain financial covenants as well as the potential need to raise additional funding, (r) risks related to cost reduction efforts and (s) other factors listed in the Company's reports filed with the Securities and Exchange Commission (SEC), including those listed under “Risk Factors” in the Company's Annual Report on Form 10-K, copies of which may be obtained by contacting the Company at 503-615-1100, from the Company's investor relations web site at http://investor.radisys.com/, or at the SEC's website at http://www.sec.gov..  Although forward-looking statements help provide additional information about Radisys, investors should keep in mind that forward-looking statements are inherently less reliable than historical information. Should one or more of these risks or uncertainties materialize (or the other consequences of such a development worsen), or should underlying assumptions prove incorrect, actual outcomes may vary materially from those forecasted or expected.  The Company believes its expectations and assumptions are reasonable, but there can be no assurance that the expectations reflected herein will be achieved.  All information in this press release is as of February 7, 2018.  The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

Non-GAAP Financial Measures

To supplement its consolidated financial statements in accordance with generally accepted accounting principles (GAAP), the Company's earnings release contains non-GAAP financial measures that exclude certain expenses, gains and losses, such as the effects of (a) amortization of acquired intangible assets, (b) stock-based compensation expense, (c) restructuring and other charges (reversals), net, (d) non-cash income tax expense, (e) gain on the liquidation of foreign subsidiaries and (f) restructuring inventory write-down. The Company believes that the use of non-GAAP financial measures provides useful information to investors to gain an overall understanding of its current financial performance and its prospects for the future. Specifically, the Company believes the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that the Company believes are not indicative of its core operating results. In addition, non-GAAP financial measures are used by management for budgeting and forecasting as well as subsequently measuring the Company's performance, and the Company believes that it is providing investors with financial measures that most closely align to its internal measurement processes. These non-GAAP measures are considered to be reflective of the Company's core operating results as they more closely reflect the essential revenue-generating activities of the Company and direct operating expenses (resulting in cash expenditures) needed to perform these revenue-generating activities. The Company also believes, based on feedback provided to the Company during its earnings calls' Q&A sessions and discussions with the investment community, that the non-GAAP financial measures it provides are necessary to allow the investment community to construct their valuation models to better align its results and projections with its competitors and market sector, as there is significant variability and unpredictability across companies with respect to certain expenses, gains and losses.

The non-GAAP financial information is presented using a consistent methodology from quarter-to-quarter and year-to-year. These measures should be considered in addition to results prepared in accordance with GAAP.  In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP financial measures.

A reconciliation of non-GAAP information to GAAP information is included in the tables below.  The non-GAAP financial measures disclosed by the Company should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP, and reconciliations between GAAP and non-GAAP financial measures included in this earnings release should be carefully evaluated.  The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. 

Radisys® is a registered trademark of Radisys