Exhibit 99.1
(VERILINK LOGO)
FOR IMMEDIATE RELEASE
Gary W. Gray
Verilink Corporation
510.771.3354
gary.gray@verilink.com
VERILINK REPORTS THIRD QUARTER 2005 FINANCIAL RESULTS
COMPANY REPORTS Q3 2005 REVENUES OF $13.8 MILLION
CENTENNIAL, CO -- APRIL 27, 2005 -- Verilink Corporation (Nasdaq: VRLK), a
leading provider of broadband access solutions, today reported its financial
results for the third quarter ended April 1, 2005.
Net sales were $13.8 million, an increase of 4% over the previous quarter and 1%
over the year ago Q3 fiscal 2004. Net loss computed in accordance with generally
accepted accounting principles (GAAP) for the third quarter of fiscal 2005 was
$2.6 million, or $(0.11) per share, compared to a net loss of $2.2 million or
$(0.09) per share for the previous quarter and net loss of $1.4 million, or
$(0.09) per share in the third quarter of fiscal 2004.
Third quarter GAAP results included acquisition-related and other items totaling
$282,000, which includes intangible assets amortization of $645,000, credit to
restructuring charges of $(42,000), compensation expense of $207,000 related to
restricted stock awards, and change in valuation of warrants liability issued in
connection with the March 2005 senior convertible notes of $(528,000). Excluding
the effects of these items, non-GAAP loss was $2.3 million or $(0.10) per share,
compared to a non-GAAP loss for the previous quarter of $1.1 million or $(0.05)
per share. For the previous quarter, the net adjustments to reconcile to the
GAAP loss were intangible assets amortization of $684,000, restructuring charges
of $291,000, and compensation expense of $36,000 related to restricted stock
awards. Third quarter fiscal 2004 non-GAAP loss was $1.1 million or $(0.07) per
share. For the year-ago quarter, the net adjustment to reconcile to GAAP net
loss was intangible assets amortization, which totaled $265,000 (see "Use of
Non-GAAP Financial Measures" below).
"We are pleased with our progress on the execution of our strategy to become the
access partner of choice for tomorrow's converged voice and data networks, and
to have reduced our dependency on legacy Nortel business," said Leigh S. Belden,
President and CEO of Verilink. "Excluding the $3.5M in Nortel revenues in Q3 of
FY04, sales grew 34% from the year ago quarter. New customers totaled more than
30, and our International business grew by more than 26% from the previous
quarter."
VERILINK THIRD QUARTER 2005 SUMMARY:
o Reported revenues of $13.8 million for Q3 fiscal 2005, a 4% increase
over the prior quarter
o Raised $10 million in financing through a private placement of senior
convertible notes
o Retired the $3.5 million line of credit with RBC Centura Bank
o Increased Professional Services revenues on a sequential quarter
basis, and, won new business with a major RBOC customer
- more -
Verilink Reports Third Quarter 2005 Financial Results
Page 2
o Introduced the VPS Professional Services Program, targeting new
carriers to help them accelerate the deployment of next - generation,
VoIP based Services
o Launched our Telephony Partner Program to further develop the
distribution sales channel for Verilink products on a world wide
basis; signed up and trained 11 distributors during the quarter
o Completed interoperability tests with seven partners, announced
results with Sylantro Systems and Acme Packet
o Completed 10 customer trials for next generation access solutions
CONFERENCE CALL INFORMATION
A live webcast of the conference call discussing Verilink's third quarter 2005
financial results is scheduled for April 27, 2005 at 3:00 p.m. MST/5:00 p.m. EST
and can be accessed as follows:
Live Webcast:http://phx.corporate-ir.net/phoenix.zhtml?p=irol-
ventDetails&c=96086&eventID=1053232
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, change in valuation of
warrants liability 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 (loss) to non-GAAP income (loss) is set forth below.
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, VoATM, VoDSL and TDM-based integrated access devices (IADs), optical
access products, wire-speed routers, and bandwidth aggregation solutions
including CSU/DSUs, multiplexers and DACS. The company also provides turnkey
professional services to help carriers plan, manage and accelerate the
deployment of new services. Verilink is headquartered in Centennial, CO (metro
Denver area) with operations in Madison, AL and Newark, CA and sales offices in
the U.S., Europe and Asia. To learn more about Verilink, visit the company's
website at http://www.verilink.com.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Except for the historical information contained herein, the matters set forth in
this press release, including statements as to the pursuit of market
opportunities, development and expansion of distribution and channel partnering
relationships, continuation of certifications in the VoIP access space,
expansion of international distribution and customer base, improvement and
fluctuations in gross margins, anticipated decline in inventories, continued
growth as a result of greater liquidity and working capital from issuance of
senior convertible notes, ability to repay interest and note principal in cash,
implementation of operating expense controls, expected benefits of acquisitions,
future product offerings, expected synergies, cost savings, 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 ability to successfully
integrate acquisitions and achieve expected synergies; the ability 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 impact of cost-saving activities; the sufficiency
of cash flow to fund 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 and economic conditions; costs associated with 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 discussion of risks and uncertainties that could cause
actual results and events to differ materially from such forward-looking
statements are included in Verilink's most recent Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q. 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.
All other trademarks or registered trademarks are the property of the respective
owners.
Verilink Reports Third Quarter 2005 Financial Results
Page 3
VERILINK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
<Table>
<Caption>
Three Months Ended Nine Months Ended
-------------------------- -------------------------
April 1, April 2, April 1, April 2,
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net sales............................................ $ 13,831 $ 13,646 $ 39,381 $ 32,330
Cost of sales(1)..................................... 9,850 8,439 26,863 17,798
---------- ---------- ---------- ----------
Gross profit...................................... 3,981 5,207 12,518 14,532
Operating expenses:
Research and development(2)....................... 1,796 2,149 5,792 4,981
Selling, general and administrative(3) ........... 4,592 3,852 13,920 8,340
Amortization of acquired intangible assets........ 645 265 1,901 713
Impairment charge related to goodwill............. -- -- 19,984 --
Restructuring charges............................. (42) 400 692 400
---------- ---------- ---------- ----------
Income (loss) from operations........................ (3,010) (1,459) (29,771) 98
Interest and other income, net(4).................... 624 219 995 635
Interest expense..................................... (188) (148) (428) (221)
---------- ---------- ---------- ----------
Income (loss) before provision for income taxes... (2,574) (1,388) (29,204) 512
Provision for income taxes........................... -- -- -- --
---------- ---------- ---------- ----------
Net income (loss)................................. $ (2,574) $ (1,388) $ (29,204) $ 512
========== ========== ========== ==========
Earnings (loss) per share:
Basic............................................. $ (0.11) $ (0.09) $ (1.32) $ 0.03
========== ========== ========== ==========
Diluted........................................... $ (0.11) $ (0.09) $ (1.32) $ 0.03
========== ========== ========== ==========
Weighted average shares outstanding:
Basic............................................. 22,890 15,048 22,084 14,850
========== ========== ========== ==========
Diluted........................................... 22,890 15,048 22,084 16,297
========== ========== ========== ==========
NOTES:
(1) Cost of sales includes the following:
Retention bonuses accrued...................... $ 4 $ -- $ 28 $ --
Compensation expense on stock awards........... 93 -- 120
---------- ---------- ---------- ----------
$ 97 $ -- $ 148 $ --
========== ========== ========== ==========
(2) Research and development expenses includes the
following:
Retention bonuses accrued...................... $ -- $ -- $ 29 $ --
Compensation expense on stock awards........... -- -- 110 --
---------- ---------- ---------- ----------
$ -- $ -- $ 139 $ --
========== ========== ========== ==========
(3) Selling, general and administrative expenses includes
the following:
Retention bonuses accrued...................... $ 4 $ -- $ 61 $ --
Compensation expense on stock awards........... 114 -- 246 --
Direct acquisition costs paid and expensed..... -- -- 287 --
---------- ---------- ---------- ----------
$ 118 $ -- $ 594 $ --
========== ========== ========== ==========
(4) Interest and other income, net includes the following
Income from reduction in convertible note due to
accrual of retention bonuses noted above..... $ 8 $ -- $ 118 $ --
Change in valuation of warrants liability...... 528 -- 528 --
---------- ---------- ---------- ----------
$ 536 $ -- $ 646 $ --
========== ========== ========== ==========
</Table>
Verilink Reports Third Quarter 2005 Financial Results
Page 4
VERILINK CORPORATION
RECONCILIATION OF GAAP NET INCOME (LOSS) TO PRO FORMA NON-GAAP INCOME (LOSS)
(Unaudited, in thousands)
<Table>
<Caption>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
April 1, April 2, April 1, April 2,
2005 2004 2005 2004
---------- ---------- ---------- ----------
GAAP net income (loss)..................................... $ (2,574) $ (1,388) $ (29,204) $ 512
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.......................................... 207 -- 476 --
Amortization of acquired intangible assets.............. 645 265 1,901 713
Impairment charge related to goodwill................... -- -- 19,984
Restructuring charges................................... (42) -- 692 --
Change in valuation of warrants liability............... (528) -- (528)
Direct acquisition costs paid and expensed.............. -- -- 287 --
---------- ---------- ---------- ----------
Pro forma non-GAAP income (loss)........................... $ (2,292) $ (1,123) $ (6,392) $ 1,225
========== ========== ========== ==========
</Table>
PRO FORMA NON-GAAP ADJUSTMENTS: The pro forma non-GAAP adjustments above are
based on 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 6000/8000 IAD product line in January 2003, the acquisition of the Miniplex
product line in July 2003, the acquisition of XEL Communications, Inc. 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; direct acquisition costs paid and expensed related to the
Larscom acquisition; and change in valuation of warrants liability issued in
connection with the private placement in March 2005. 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 Third Quarter 2005 Financial Results
Page 5
VERILINK CORPORATION
GAAP CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
<Table>
<Caption>
April 1, July 2,
2005 2004
---------- -----------
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 4,881 $ 3,448
Restricted cash.............................................................. 333 --
Accounts receivable, net..................................................... 10,232 7,881
Inventories, net............................................................. 7,450 6,010
Other current assets......................................................... 884 941
---------- -----------
Total current assets....................................................... 23,780 18,280
Property held for lease, net.................................................... 6,124 6,269
Property, plant and equipment, net.............................................. 1,956 1,381
Goodwill 5,464 9,887
Other intangible assets, net.................................................... 16,048 9,182
Other assets.................................................................... 360 1,139
---------- -----------
Total assets............................................................... $ 53,732 $ 46,138
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities............................................................. $ 24,511 $ 15,502
Long-term liabilities........................................................... 6,688 6,262
Stockholders' equity............................................................ 22,533 24,374
---------- -----------
Total liabilities and stockholders' equity................................. $ 53,732 $ 46,138
========== ===========
</Table>
Verilink Reports Third Quarter 2005 Financial Results
Page 6
VERILINK CORPORATION
TESTED WORKING CAPITAL
(AS DEFINED IN THE COMPANY'S SENIOR CONVERTIBLE NOTES)
The terms of the Company's senior convertible notes require the Company to
include the amount of its "tested working capital", as defined in the senior
convertible notes, in the quarterly announcement of its operating results. At
April 1, 2005, tested working capital was $8.24 million, which was greater than
the $8 million target level under the terms of the notes. Tested working capital
is a non-GAAP financial measure and is NOT provided as a measure of the
company's operating performance or liquidity and is not used by the company as a
measure of performance or liquidity. Tested working capital is provided herein
solely as supplemental information with respect to the special installment
payment requirements under the notes. For a description of the tested working
capital requirements under the notes, see the company's Current Report on Form
8-K/A, dated April 19, 2005. A reconciliation of non-GAAP tested working capital
to GAAP working capital as of April 1, 2005 is set forth below.
<Table>
Tested Working Capital:
Cash and cash equivalents $ 4,881
Accounts receivable, net 10,232
Less: Accounts payable (6,869)
---------
Tested Working Capital 8,244
Other components of GAAP working capital:
Restricted cash 333
Inventories, net 7,450
Other current assets 884
Less: Current liabilities other than accounts payable (17,642)
---------
GAAP working capital (deficit) $ (731)
=========
</Table>