Radisys Reports Third Quarter 2016 Results

Consolidated revenue grows 24% year-on-year to $55.4 million

HILLSBORO, OR - October 25, 2016 - Radisys Corporation (NASDAQ: RSYS), the services acceleration company, today announced financial results for the third quarter ended September 30, 2016.

Third Quarter Highlights

  • Consolidated revenue of $55.4 million resulted in 24% year-on-year revenue growth;
  • GAAP loss per share was $0.07, with non-GAAP earnings of $0.07 per diluted share;
  • Secured and fulfilled follow-on DCEngine orders of nearly $20 million from a Tier 1 U.S. service provider;
  • Awarded next-generation MediaEngine deployment by a Tier 1 U.S. service provider; and
  • Secured first professional services proof of concept through CORD from a Tier 1 European service provider.

“Third quarter revenue exceeded the top end of our guidance range, due in part to a partial pull-in of DCEngine orders from our largest Tier 1 U.S. customer that we previously expected to deliver in the fourth quarter,” said Brian Bronson, Radisys President and Chief Executive Officer. “Earnings were also better than expected in the quarter, resulting in non-GAAP earnings per share of $0.21 for the first nine months of 2016, which is equivalent to our full year EPS in 2015.”

“Strategically, the ongoing traction with our Tier 1 U.S. customer over the last few quarters for both DCEngine and FlowEngine, combined with the recently expanded activity across multiple product lines at our large customer in Asia, are powerful testaments to our ability to introduce and implement highly disruptive solutions for leading service providers. Our execution in support of commercial deployments by these service providers has meaningfully elevated awareness of Radisys at multiple Tier 1 service providers that are now either actively evaluating in labs or conducting trials of our DCEngine and FlowEngine products. During the quarter, we also advanced sales activity for our MediaEngine product line by securing a long-term strategic win in support of next-generation NFV conferencing deployments, which we expect initial bookings from in the first half of 2017.”

“As we’ve indicated in previous quarters, Radisys is positioned as a leading provider for CORD (Central Office Re-architected as a Datacenter) integration solutions, and during the third quarter we secured our first proof of concept at a Tier 1 European service provider. This initial proof of concept, along with the rapidly growing funnel of similar potential engagements through CORD, are individual programs that begin with Radisys providing solutions expertise in the form of professional services and we believe each represents a significant opportunity to pull-through sales of our products as well as increased services business over time.”

“In closing, at the midpoint of our fourth quarter guidance, we will deliver on our full year revenue and EPS guidance, while having simultaneously accelerated investment in our business to successfully deliver on several sizable opportunities. Looking beyond 2016, we are acutely focused on increasing our preparedness to convert the growing number of engagements we have with Tier 1 service providers into actionable commercial orders. Although the path to realizing our larger vision will not always be a straight line, I strongly believe the compelling value proposition of Radisys’ disruptive products and services have us well positioned to capture meaningful long-term growth.”

Software-Systems Results

For the third quarter of 2016, Software-Systems revenue was $10.4 million, compared to $14.6 million in the prior quarter and $15.5 million in the third quarter of 2015. The year-on-year decline was the result of large prior year orders for MediaEngine product from an Asian service provider deploying its greenfield LTE network.

Gross margins were 59.6%, compared to 62.8% in the prior quarter and 58.7% in the third quarter of 2015. The sequential decline was the result of unfavorable product mix while the year-on-year improvement was the result of favorable product mix, partially offset by lower absorption of fixed costs on a smaller revenue base.

Operating loss was $2.2 million, compared to breakeven in the prior quarter and income of $0.7 million in the third quarter of 2015. The current quarter operating results reflect a reduction in revenue due to the timing of shipments to an Asian service provider as well as increased hiring in support of new product feature development and an expanded sales footprint.

Embedded Products Results

For the third quarter of 2016, Embedded Products revenue was $45.0 million, compared to $46.7 million in the prior quarter and $29.3 million in the third quarter of 2015. The year-on-year increase reflects the shipment of follow-on DCEngine orders and growth with existing Embedded customers, offset by expected declines with non-strategic legacy customers.

Gross margins were 22.4%, compared to 17.8% in the prior quarter and 20.4% in the third quarter of 2015. The sequential increase reflects the benefit of operational efficiencies related to follow-on DCEngine orders and coupled with favorable product mix within core Embedded accounts. The year-on-year increase was the result of improved overhead absorption on higher revenue and favorable product mix within core Embedded accounts.

Operating income was $4.9 million, compared to $3.7 million in the prior quarter and $1.8 million in the third quarter of 2015. The sequential improvement in operating income was the result of a discrete focus on operational and supply chain synergies.

Consolidated Results

For the third quarter of 2016, consolidated revenue was $55.4 million, compared to $61.3 million in the prior quarter and $44.8 million in the third quarter of 2015. Consolidated revenue growth of 24% year-over-year was the result of continued DCEngine traction and offset by the timing of MediaEngine deployments by a large Asian service provider.

On a GAAP basis, gross margin in the third quarter of 2016 was 25.7%, compared to 25.2% in the prior quarter and 29.0% in the third quarter of 2015. Third quarter 2016 GAAP research and development and selling, general, and administrative expenses were $14.4 million, compared to $14.9 million in the prior quarter and $13.6 million in the third quarter of 2015. The increase in operating expense year-on-year primarily reflects accelerated hiring in support of the Company’s strategic growth initiatives.

On a non-GAAP basis, third quarter 2016 gross margin was 29.4%, compared to 28.6% in the prior quarter and 33.6% in the third quarter of 2015. Third quarter 2016 research and development and selling, general and administrative expenses on a non-GAAP basis were $13.6 million, compared to $13.8 million in the prior quarter and $12.5 million in the third quarter of 2015.

For the third quarter of 2016, the Company recorded a GAAP net loss of $2.6 million, or $0.07 per share, compared to a GAAP net loss of $0.6 million, or $0.02 per share, in the prior quarter and GAAP net loss of $2.1 million, or $0.06 per share, in the third quarter of 2015.  On a non-GAAP basis, the Company recorded net income of $2.6 million, or $0.07 per diluted share, compared to a net income of $3.7 million, or $0.10 per diluted share, in the prior quarter and net income of $2.6 million, or $0.07 per diluted share, in the third quarter of 2015.

Fourth Quarter 2016 Financial Guidance

  • Revenue is expected between $40 million to $44 million.
  • GAAP gross margin is expected to approximate 29% at the midpoint and GAAP R&D and SG&A expenses are expected to be approximately $16 million. Non-GAAP gross margin is expected between 38% to 40% of sales and total non-GAAP R&D and SG&A expenses are expected to approximate $15 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 third quarter 2016 results on October 25, 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 # 66185026. 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 November 8, 2016. To access the replay, dial 855-859-2056 or 404-537-3406 and reference conference ID# 66185026. 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 fourth 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) increased Tier 1 commercial deployments across multiple product lines, (b) continued implementation of the Company’s next-generation datacenter product, (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 October 25, 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