Radisys Reports Second Quarter 2016 Results

Consolidated revenue grows 30% year-on-year to $61.3 million

HILLSBORO, OR - July 26, 2016 - Radisys Corporation (NASDAQ: RSYS), the services acceleration company, today announced financial results for the second quarter ended June 30, 2016.

Second Quarter Highlights

  •  Consolidated revenue of $61.3 million resulted in 30% year-on-year revenue growth;
  • Software-Systems revenue was $14.6 million, with gross margin of 62.8% expanding 670 basis points year-on-year;
  • GAAP loss per share was $0.02, an improvement of $0.09 year-on-year. Non-GAAP earnings were $0.10 per diluted share, an increase of $0.07 per share year-on-year; and
  • Fulfilled follow-on DCEngine orders of over $25 million from Tier 1 U.S. service provider.

“Strength in both our Software-Systems and Embedded Products segments resulted in second quarter earnings that exceeded guidance,” said Brian Bronson, Radisys President and Chief Executive Officer. “Revenue from our DCEngine and FlowEngine product lines each achieved quarterly records, contributing to consolidated revenue growth of 30 percent year-over-year. Additionally, our ongoing initiatives to optimize the supply chain and manage costs drove strong sequential expansion in consolidated gross margin, which I expect to improve in the second half of the year. The initial ramp and shipments of our DCEngine product, which contributed incremental revenue approaching $50 million, helped produce a tremendous first half of 2016. As expected, we anticipate more modest DCEngine orders in support of further customer deployments in the second half of 2016, resulting in lower third quarter revenue on a sequential basis while still driving continued double-digit year-on-year growth.”

Mr. Bronson continued, “The sales funnel across both DCEngine and FlowEngine continues to build as we enter the second half of 2016, and we continue to actively hire new sales, marketing and other key talent around the globe. I believe this influx of new talent, coupled with our planned new feature releases for FlowEngine, will help us capture, if not accelerate, the opportunity in front of us while maintaining our annual earnings guidance.”

Software-Systems Results

For the second quarter of 2016, Software-Systems revenue was $14.6 million, compared to $14.1 million in the prior quarter and $14.2 million in the second quarter of 2015. Second quarter 2016 year-on-year revenue growth was primarily the result of continued FlowEngine shipments in support of commercial deployments by the Company's initial Tier 1 customer.

Gross margins were 62.8%, compared to 62.5% in the prior quarter and 56.1% in the second quarter of 2015. The year-on-year improvement was the result of favorable product mix.

Operating income was break even, compared to income of $0.8 million in the prior quarter and a loss of $1.0 million in the second quarter of 2015. The current quarter operating results reflect increased hiring in support of new product feature development and an expanded sales footprint.

Embedded Products Results

For the second quarter of 2016, Embedded Products revenue was $46.7 million, compared to $41.1 million in the prior quarter and $32.9 million in the second quarter of 2015. The sequential and year-on-year increase reflects the shipment of follow-on DCEngine orders and growth in core Embedded Products at existing customers, offset by expected declines with non-strategic legacy customers.

Gross margins were 17.8%, compared to 14.5% in the prior quarter and 20.5% in the second quarter of 2015. The sequential increase reflects the benefit of operational efficiencies related to follow-on DCEngine shipments. The year-on-year decline was the result of increased revenue contribution from DCEngine shipments, which carries a lower than average gross margin as compared to the Embedded Products segment.

Operating income was $3.7 million, compared to $1.3 million in the prior quarter and $2.4 million in the second quarter of 2015.

Consolidated Results

For the second quarter of 2016, consolidated revenue was $61.3 million, compared to $55.1 million in the prior quarter and $47.0 million in the second quarter of 2015. Consolidated revenue growth of 30% year-over-year was driven by DCEngine shipments and continued growth from FlowEngine deployments.

On a GAAP basis, gross margin in the second quarter of 2016 was 25.2%, compared to 23.2% in the prior quarter and 26.8% in the second quarter of 2015. Second quarter 2016 GAAP research and development and selling, general, and administrative expenses were $14.9 million, compared to $13.3 million in the prior quarter and $14.3 million in the second quarter of 2015. The increase in operating expense over prior periods primarily reflects accelerated hiring in support of the Company’s strategic growth initiatives.

On a non-GAAP basis, second quarter 2016 gross margin was 28.6%, compared to 26.8% in the prior quarter and 31.2% in the second quarter of 2015. Second quarter 2016 research and development and selling, general and administrative expenses on a non-GAAP basis were $13.8 million, compared to $12.7 million in the prior quarter and $13.3 million in the second quarter of 2015.

For the second quarter of 2016, the Company recorded a GAAP net loss of $0.6 million, or $0.02 per share, compared to a GAAP net loss of $3.0 million, or $0.08 per share, in the prior quarter and GAAP net loss of $4.1 million, or $0.11 per share, in the second quarter of 2015.  On a non-GAAP basis, the Company recorded net income of $3.7 million, or $0.10 per diluted share, compared to a net income of $1.8 million, or $0.05 per diluted share, in the prior quarter and net income of $1.1 million, or $0.03 per diluted share, in the second quarter of 2015.

Third Quarter 2016 Financial Guidance

  •  Revenue is expected between $48 million to $52 million.
  • GAAP gross margin is expected to approximate 28% at the midpoint and GAAP R&D and SG&A expenses are expected to be approximately $15 million. Non-GAAP gross margin is expected between 31% to 33% of sales and total non-GAAP R&D and SG&A expenses are expected to approximate $14 million.
  • GAAP loss is expected to range from a loss of $0.10 to $0.06 per share. Non-GAAP earnings are expected to range from $0.02 to $0.06 per diluted share.

 Conference Call and Webcast Information

The Company will host a conference call to discuss second quarter 2016 results on July 26, 2016, 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 # 29653758. 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 August 9, 2016. To access the replay, dial 855-859-2056 or 404-537-3406 and reference conference ID# 29653758. 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 third quarter of 2016, 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) continued implementation of the Company’s next-generation datacenter product, (b) customer implementation of traffic management solutions, (c) the outcome of product trials, (d) the market success of customers' products and solutions, (e) the development and transition of new products and solutions, (f) the enhancement of existing products and solutions to meet customer needs and respond to emerging technological trends, (g) the Company's dependence on certain customers and high degree of customer concentration, (h) 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, (i) matters affecting the software and embedded product industry, including changes in industry standards, changes in customer requirements and new product introductions, (j) actions by regulatory authorities or other third parties, (k) cash generation, (l) changes in tariff and trade policies and other risks associated with foreign operations, (m) fluctuations in currency exchange rates, (n) the ability of the Company to successfully complete any restructuring, acquisition or divestiture activities, (o) 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 (p) 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 July 26, 2016. 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 (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