Radisys Reports Fourth Quarter and Full Year 2016 Results

Consolidated annual revenue grows 15% year-on-year to $212 million

HILLSBORO, OR - February 9, 2017 - Radisys Corporation (NASDAQ: RSYS), the services acceleration company, today announced financial results for the fourth quarter and year ended December 31, 2016.

Fourth Quarter Highlights

  • Consolidated revenue of $40.6 million;
  • Software-Systems achieved record quarterly revenue of $17.7 million, or 13% year-on-year growth;
  • GAAP loss per share was $0.11, with non-GAAP earnings of $0.04 per diluted share;
  • Generated $7.2 million in cash flow from operations; and
  • Converted two proof of concepts into initial purchase orders from two new Tier 1 service providers across FlowEngine and CORD® engagements.

Full Year 2016 Highlights

  • Consolidated revenue of $212.4 million resulted in 15% year-on-year revenue growth;
  • GAAP loss per share was $0.27, with non-GAAP earnings of $0.25 per diluted share; and
  • Growth in Software-Systems and DCEngine product line revenues of 122% year-on-year, largely the result of DCEngine revenue growth of $67 million year-on-year.

“Fourth quarter operating results were in-line with our expectations and enabled us to successfully deliver against our increased annual revenue guidance as well as the earnings per share guidance we provided at the outset of 2016,” said Brian Bronson, Radisys President and Chief Executive Officer. “We were able to achieve these results while continuing to accelerate investments across our strategic product lines, namely our FlowEngine and DCEngine products as well as our professional service capabilities in support of CORD (Central Office Re-architected as a Datacenter), which are critical to fuel our longer-term revenue growth. Looking at the fourth quarter more specifically, we booked record quarterly Software-Systems revenue, driven by continued MediaEngine product deployments with our large Tier 1 Asian customer combined with growth in professional services revenue as part of enabling our broader strategy across multiple Tier 1 service providers.“

“The telecom markets in which we participate are in the early stages of a long-term transformational cycle as service providers embrace software defined networking, network function virtualization and open source software and hardware to evolve their networks. Strategically, we are well positioned to capitalize on this disruption as a result of our newly introduced products, such as DCEngine and FlowEngine, which enable these disruptive new standards. At the highest level we are fundamentally enabling a change in the way telecom networks are built and we continue to establish a track record of significantly reducing operators’ capital expenditures and ongoing operating expenses in the process. In contrast to the strong momentum across our Software-Systems and DCEngine product lines, we are anticipating increasing headwinds in our legacy embedded product lines as service providers continue transitioning away faster from older architectures and purpose-built equipment. While we will continue to support our core embedded customers and potentially convert certain of these customers onto DCEngine, our primary focus will remain on maximizing the cash flow from our traditional embedded product lines to help fund our strategic, high-growth product lines.”

"Looking at 2017, our primary objective is to secure multiple new wins with Tier 1 service providers across our strategic product lines. We plan to continue directing resources and investments towards our strategic product lines as we work aggressively to achieve this goal, while simultaneously remaining non-GAAP profitable for the full year.”

Software-Systems Results

For the fourth quarter of 2016, Software-Systems revenue was $17.7 million, compared to $10.4 million in the prior quarter and $15.7 million in the fourth quarter of 2015. The sequential and year-on-year increase was the result of large expected orders for MediaEngine product from an Asian service provider deploying its greenfield LTE network.

Gross margins were 58.3%, compared to 59.6% in the prior quarter and 61.5% in the fourth quarter of 2015. The sequential and year-on-year decline was the result of product mix tied to a higher percentage of stand-alone software sales in the prior quarters.

Operating income was $1.4 million, compared to a loss of $2.2 million in the prior quarter and operating income of $1.2 million in the fourth quarter of 2015. The improvement in current quarter operating results reflects the improved revenue performance offset by the increased operating expenses associated with hiring in support of new product feature development and an expanded sales footprint.

Hardware Solutions Results

Hardware Solutions, which was previously referred to as Embedded Products, consists of the Company’s DCEngine product line and legacy embedded product lines.

For the fourth quarter of 2016, Hardware Solutions revenue was $22.9 million, compared to $45.0 million in the prior quarter and $28.4 million in the fourth quarter of 2015. The sequential decline reflects an expected pause in DCEngine orders from our Tier 1 U.S. service provider customer for the build-out of edge data centers, which will resume in the first quarter of 2017.

Gross margins were 23.1%, compared to 22.4% in the prior quarter and 22.1% in the fourth quarter of 2015. The sequential and year-over-year expansion in gross margins reflect the benefit of operational efficiencies coupled with favorable product mix within core legacy embedded product line accounts.

Operating loss was $0.1 million, compared to operating income of $4.9 million in the prior quarter and operating income of $1.6 million in the fourth quarter of 2015. The sequential decline was the result of timing of DCEngine orders and coupled with continued investments in product roadmap as well as the sales and marketing personnel required to accelerate our DCEngine strategy.

Consolidated Results

For the fourth quarter of 2016, consolidated revenue was $40.6 million, compared to $55.4 million in the prior quarter and $44.1 million in the fourth quarter of 2015. The sequential decline in revenue was the result of lower DCEngine revenue related to uneven timing of orders from our largest customer, partially offset by significant growth in Software-Systems.

On a GAAP basis, gross margin in the fourth quarter of 2016 was 33.6%, compared to 25.7% in the prior quarter and 31.6% in the fourth quarter of 2015. The sequential and year-on-year increase reflects improved product mix as a result of accelerating Software-Systems revenues. Fourth quarter 2016 GAAP research and development and selling, general, and administrative expenses were $15.2 million, compared to $14.4 million in the prior quarter and $14.0 million in the fourth quarter of 2015. The increase in operating expenses both sequentially and year-on-year reflects accelerated hiring in support of the Company’s strategic growth initiatives.

On a non-GAAP basis, fourth quarter 2016 gross margin was 38.4%, compared to 29.4% in the prior quarter and 36.1% in the fourth quarter of 2015. Fourth quarter 2016 research and development and selling, general and administrative expenses on a non-GAAP basis were $14.4 million, compared to $13.6 million in the prior quarter and $13.1 million in the fourth quarter of 2015.

For the fourth quarter of 2016, the Company recorded a GAAP net loss of $4.1 million, or $0.11 per share, compared to a GAAP net loss of $2.6 million, or $0.07 per share, in the prior quarter and GAAP net loss of $1.4 million, or $0.04 per share, in the fourth quarter of 2015.  On a non-GAAP basis, the Company recorded net income of $1.6 million, or $0.04 per diluted share, in the fourth quarter of 2016, compared to a net income of $2.6 million, or $0.07 per diluted share, in the prior quarter and net income of $2.8 million, or $0.08 per diluted share, in the fourth quarter of 2015.

First Quarter 2017 Financial Guidance

  • Revenue is expected between $37 million to $41 million.
  • GAAP gross margin is expected to approximate 21% and GAAP R&D and SG&A expenses are expected to be approximately $15.5 million. Non-GAAP gross margin is expected between 24% to 28% of sales and total non-GAAP R&D and SG&A expenses are expected to approximate $14.5 million.
  • GAAP loss is expected to be in a range of $0.29 to $0.23 per share. Non-GAAP loss is expected to range from $0.16 to $0.10 per share.

Annual 2017 Financial Guidance

  • Revenue is expected between $190 million to $220 million.
  • GAAP gross margin is expected to approximate 28% at the midpoint and total GAAP R&D and SG&A expenses are expected to be approximately $63.0 million. Non-GAAP gross margin is expected to be 32% of sales and total non-GAAP R&D and SG&A expenses are expected to range from $56 to $62 million.
  • GAAP loss is expected to be in a range of $0.36 to $0.24 per share. Non-GAAP earnings is expected to range from $0.07 to $0.17 per diluted share.

Conference Call and Webcast Information

The Company will host a conference call to discuss fourth quarter 2016 results on February 9, 2017, 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 # 19225500. 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 23, 2017. To access the replay, dial 855-859-2056 or 404-537-3406 and reference conference ID# 19225500. 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) helps communications and content providers, and their strategic partners, create new revenue streams and drive cost out of their services delivery infrastructure. Radisys’ hyperscale software defined infrastructure, service aware traffic distribution platforms, real-time media processing engines and wireless access technologies enable its customers to maximize, virtualize and monetize their networks.

Forward-Looking Statements

This press release contains forward-looking statements, including statements about the Company's business strategy, changes in reporting segments financial outlook and expectations for the first quarter of 2017, 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) increased Tier 1 commercial deployments across multiple product lines, (b) continued implementation of the Company’s next-generation products, (c) customer implementation of traffic management solutions, (d) the outcome of product trials, (e) the market success of customers' products and solutions, (f) the development and transition of new products and solutions, (g) the enhancement of existing products and solutions to meet customer needs and respond to emerging technological trends, (h) the Company’s ability to raise additional growth capital, (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 software and embedded product industry, 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 restructuring, acquisition or divestiture activities, (q) risks relating to fluctuations in the Company's operating results, the uncertainty of revenues and profitability and the potential need to raise additional funding and (r) other factors listed in the Company's reports filed with the Securities and Exchange Commission (SEC), including those listed under “Risk Factors” in Radisys' Annual Report on Form 10-K for the year ended December 31, 2015, 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 9, 2017. 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 and (e) gain on the liquidation of foreign subsidiaries. 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 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 GAAP information to non-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. All other marks mentioned herein are the property of their respective owners.