Exhibit 99.1
[VERILINK LOGO]
FOR IMMEDIATE RELEASE
Contact:
Bill Smith
Verilink Corporation
256.327.2204
bsmith@verilink.com
Gary W. Gray
Verilink Corporation
408.771.3354
gary.gray@verilink.com
VERILINK REPORTS FIRST QUARTER 2005 FINANCIAL RESULTS
COMPANY REPORTS Q1 2005 REVENUES OF $12.3 MILLION; PROVIDES UPDATE ON OTHER
BUSINESS DEVELOPMENTS
MADISON, AL -- OCTOBER 27, 2004 -- Verilink Corporation (Nasdaq: VRLK), a
leading provider of broadband access solutions, today reported its financial
results for the first quarter ended October 1, 2004.
Net sales were $12.3 million, an increase of 28% year over year from $9.6
million in the same period of fiscal 2004. Net loss computed in accordance with
generally accepted accounting principles (GAAP) for the first quarter of fiscal
2005 was $24.5 million, or $(1.19) per share, compared to net income of $1.6
million, or $0.10 per diluted share in the first quarter of fiscal 2004.
First quarter GAAP results included acquisition-related and other items
totaling $21.5 million, which includes a $20 million charge for impairment of
goodwill, intangible assets amortization of $572,000, restructuring charges of
$443,000, compensation expense of $233,000 related to restricted stock awards,
and direct acquisition costs paid and expensed of $287,000. Excluding the
effects of these items, non-GAAP loss was $3 million or $0.14 per share,
compared to non-GAAP income for the first quarter of fiscal 2004 of $1.9
million or $0.12 per diluted share. For the year-ago quarter, the net
adjustment to reconcile to GAAP income was intangible assets amortization,
which totaled $233,000 (see "Use of Non-GAAP Financial Measures" below).
"Revenues were down sequentially due to the impact of having no Nortel business
during the quarter, offset by revenues from our acquisition of Larscom," stated
Leigh S. Belden, President and CEO of Verilink. "We experienced record
shipments of our SHARK IAD and achieved a 35% sequential increase in our
professional services business with first quarter service sales of $2.6
million. We began trials with carrier customers planning Voice over IP
deployments, and we completed SIP and MGCP-based VoIP interoperability testing
with key partners."
- more -
The Company was not in compliance with the minimum tangible net worth financial
covenant under its line of credit for the first quarter of fiscal 2005. The
Company is in discussions with its lender and intends to seek a modification or
other relief from this covenant, although no assurance can be given that any
such relief will be provided. To the Company's knowledge, the lender has not
sought to accelerate the debt, foreclose on the collateral or exercise any of
its remedies under the loan agreement which are described in the Company's
Annual Report on Form 10-K for the year ended July 2, 2004. As of October 1,
2004, $2,046,000 was outstanding under the line of credit. A default under the
line of credit constitutes a default under the note secured by the Company's
facility located at 950 Explorer Boulevard in Huntsville, Alabama.
VERILINK FIRST QUARTER 2005 SUMMARY:
- Reported revenues of $12.3 million for Q1 fiscal 2005, a 28%
increase over the same period in fiscal 2004
- Achieved record shipments of SHARK IADs, which enable RBOCs
to deliver bundled voice and data services to end customers
- Realized significant increase in our Professional Services
revenues; up 35% on a sequential quarter basis and over 700%
increase on a year over basis
- Completed merger with Larscom Incorporated; on track to
complete integration by end of calendar year 2004
- Engaged with approximately forty carrier customers for lab
testing and field trials of our recently introduced 3000
Series and 8000 Series IADs
- Announced completion of interoperability testing for 8000
Series IAD products with BroadSoft's BroadWorks Application
Feature Server
- Joined Sylantro Systems' Alliance Solutions Partner program
in pursuit of VoIP interoperability testing
- Announced a plan to introduce an international version of the
Orion 7400 Ethernet-over-Sonet product to address
international market demand for high-speed access
- Announced consolidation of engineering into two locations,
aligning engineering resources to our strategic plan and
providing estimated savings of $1.6 - 1.9 million annually
CONFERENCE CALL INFORMATION
A live webcast of the conference call discussing Verilink's first quarter 2005
financial results is scheduled for October 27, 2004 at 4:00 p.m. CDT/5:00 p.m.
EDT and can be accessed as follows:
Live Webcast:
http://phx.corporate-ir.net/playerlink.zhtml?c=96086&s=wm&e=916426
A replay of the conference call will be available and can be accessed via the
"Investor" section of the Company's website at www.verilink.com.
USE OF NON-GAAP FINANCIAL MEASURES
Non-GAAP income excludes intangible amortization, other acquisition-related
expenses, impairment charge, restructuring charges, and other items and is not
a measure of financial performance under GAAP and should not be considered a
substitute for or superior to GAAP net income. Verilink's management uses
non-GAAP income as a financial measure to evaluate performance. Management
believes this measure presents the Company's results on a more comparable
operational basis by excluding non-cash amortization expenses, non-operational
expenses associated with mergers and acquisitions, and significant and unusual
non-recurring items. Other companies may calculate non-GAAP income in a
different manner, so this measure may not be comparable to similar measures
presented by other companies. A reconciliation of Verilink's GAAP net income to
non-GAAP income is set forth below.
Verilink Reports First Quarter 2005 Financial Results
Page 3
ABOUT VERILINK CORPORATION
Verilink Corporation (Nasdaq: VRLK) is a leading provider of next-generation
broadband access solutions for today's and tomorrow's networks. The company
develops, manufactures and markets a broad suite of products that enable
carriers (ILECs, CLECs, IXCs, and IOCs) and enterprises to build converged
access networks to cost-effectively deliver next-generation communications
services to their end customers. The company's products include a complete line
of VoIP and TDM-based integrated access devices (IADs), optical access
products, wire-speed routers, and bandwidth aggregation solutions including
CSU/DSUs, multiplexers and DACS. Verilink also provides turnkey professional
services to help carriers plan, manage and accelerate the deployment of new
services. The company has operations in Madison, AL, Aurora, CO and Newark, CA
with sales offices in the U.S., Europe and Asia. To learn more about Verilink,
visit the company's website at http://www.verilink.com.
Note: Except for the historical information contained herein, the matters set
forth in this press release, including statements as to the expected benefits
of acquisitions, future product offerings, expected synergies, cost savings,
discussions with lenders seeking covenant relief, and margins, are
forward-looking statements within the meaning of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to risks and uncertainties that may cause actual results
to differ materially, including, but not limited to, the potential impact on
the Company's liquidity and operations if its lender exercises its remedies
under the loan documents; the ability to successfully integrate acquisitions
and achieve expected synergies; the ability of the combined company to develop
and market successfully and in a timely manner new products and to predict
market demand for particular products; the impact of competitive products and
pricing and of alternative technological advances; the ability to increase
sales of acquired product lines; the sufficiency of cost-saving activities,
including the engineering consolidation plan; sufficient cash flow to fund
operations and lower than expected cash flows from operations; risks associated
with the Company's low level of liquidity and "going concern" paragraph in the
report of independent registered public accounting firm for the audited fiscal
2004 financial statements; possible negative effects on our customer base,
employees and our ability to obtain additional financing; fluctuations in
operating results and general industry, economic and internal controls; the
impact of price and product competition; the impact of customer concentration
and the financial strength of customers; and changes in demand for the
Company's products. A detailed discussion of these and other risks and
uncertainties that could cause actual results and events to differ materially
from such forward-looking statements are included in Verilink's Annual Report
on Form 10-K for the fiscal year ended July 2, 2004. These forward-looking
statements speak only as of the date hereof. Verilink disclaims any intention
or obligation to update or revise any forward-looking statements.
###
Verilink, the Verilink logo are registered trademarks of Verilink Corporation.
Larscom is a registered trademark of Larscom Incorporated. All other
trademarks or registered trademarks are the property of the respective owners.
Verilink Reports First Quarter 2005 Financial Results
Page 4
VERILINK CORPORATION
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
Three Months Ended
-------------------------------
October 1, October 3,
2004 2003
--------- ----------
Product sales ......................................................................... $ 9,718 $ 9,278
Service sales ......................................................................... 2,566 317
-------- --------
Net sales .......................................................................... 12,284 9,595
-------- --------
Product cost of sales ................................................................. 7,531 4,339
Service cost of sales ................................................................. 964 132
-------- --------
Total cost of sales(1) ............................................................. 8,495 4,471
-------- --------
Gross profit ..................................................................... 3,789 5,124
Operating expenses:
Research and development(2) ........................................................ 2,252 1,384
Selling, general and administrative(3) ............................................. 5,679 2,246
Impairment charge related to goodwill .............................................. 19,984 --
Restructuring charges .............................................................. 443 --
-------- --------
Income (loss) from operations ......................................................... (24,569) 1,494
Interest and other income, net(4) ..................................................... 213 180
Interest expense ...................................................................... (115) (38)
-------- --------
Income (loss) before provision for income taxes .................................... (24,471) 1,636
Provision for income taxes ............................................................ -- --
-------- --------
Net income (loss) .................................................................. $(24,471) $ 1,636
======== ========
Earnings (loss) per share:
Net income (loss) basic ............................................................ $ (1.19) $ 0.11
Net income (loss) diluted .......................................................... $ (1.19) $ 0.10
======== ========
Weighted average shares outstanding:
Basic .............................................................................. 20,608 14,734
======== ========
Diluted ............................................................................ 20,608 15,977
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Notes:
(1) Cost of sales includes the following:
Retention bonuses accrued ....................................................... $ 12 $ --
Compensation expense on stock awards ............................................ 15 --
-------- --------
$ 27 $ --
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(2) Research and development expenses includes the following:
Retention bonuses accrued ....................................................... $ 29 $ --
Compensation expense on stock awards ............................................ 98 --
-------- --------
$ 127 $ --
======== ========
(3) Selling, general and administrative expenses includes the following:
Retention bonuses accrued ....................................................... $ 45 $ --
Compensation expense on stock awards ............................................ 120 --
Direct acquisition related expenses expensed .................................... 287 --
Amortization of acquired intangible assets ...................................... 572 233
-------- --------
$ 1,024 $ 233
======== ========
(4) Interest and other income, net includes the following
Income from reduction in convertible note due to accrual of retention bonuses
noted above ..................................................................... $ 86 $ --
======== ========
Verilink Reports First Quarter 2005 Financial Results
Page 5
VERILINK CORPORATION
RECONCILIATION OF GAAP NET INCOME (LOSS) TO PRO FORMA NON-GAAP INCOME (LOSS)
(Unaudited, in thousands)
Three Months Ended
------------------------------
October 1, October 3,
2004 2003
---------- ---------
GAAP net income (loss) ................................................................... $(24,471) $ 1,636
Acquisition-related and other items:
Retention bonuses accrued in connection with XEL acquisition, net of impact from
reduction in convertible notes ...................................................... -- --
Compensation expense related to stock and restricted stock awards ..................... 233 --
Amortization of acquired intangible assets ............................................ 572 233
Impairment charge related to goodwill ................................................. 19,984 --
Restructuring charges ................................................................. 443 --
Direct acquisition costs paid and expensed ............................................ 287 --
-------- --------
Pro forma non-GAAP income (loss) ......................................................... $ (2,952) $ 1,869
======== ========
PRO FORMA NON-GAAP ADJUSTMENTS: The above pro forma non-GAAP adjustments are
based upon our unaudited consolidated statements of operations for the periods
shown. These adjustments relate to other intangible assets recorded as the
result of the acquisition of TxPort, Inc. in November 1998, the acquisition of
the NetEngine product line in January 2003, the acquisition of the Miniplex
product line in July 2003, the acquisition of XEL in February 2004, and the
acquisition of Larscom Incorporated in July 2004, compensation expense recorded
from stock grants and restricted stock grants awarded following the XEL
acquisition, compensation expense related to bonuses to be paid to certain XEL
employees after the acquisition, net of impact on convertible notes payable,
impairment charge related to goodwill, restructuring charges related to the
consolidation of certain operations, administrative, and engineering functions,
and direct acquisition costs paid and expensed related to the Larscom
acquisition. Verilink has chosen to provide this supplemental information to
investors to enable them to perform additional comparisons of operating results
and to illustrate the results of on-going operations. Please see previous
discussion regarding the use of non-GAAP measures.
Verilink Reports First Quarter 2005 Financial Results
Page 6
VERILINK CORPORATION
GAAP CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
October 1, July 2,
2004 2004
---------- -------
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 2,827 $ 3,448
Restricted cash ................................... 333 --
Accounts receivable, net .......................... 7,875 7,881
Inventories, net .................................. 8,912 6,010
Other current assets .............................. 1,272 941
------- -------
Total current assets ............................ 21,219 18,280
Property held for lease, net ......................... 6,220 6,269
Property, plant and equipment, net ................... 2,401 1,381
Goodwill ............................................. 5,464 9,887
Other intangible assets, net ......................... 17,377 9,182
Other assets ......................................... 538 1,139
------- -------
Total assets .................................... $53,219 $46,138
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities .................................. $19,237 $15,502
Long-term liabilities ................................ 7,105 6,262
Stockholders' equity ................................. 26,877 24,374
------- -------
Total liabilities and stockholders' equity ...... $53,219 $46,138
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