Exhibit 99.1
TOLLGRADE TOLLGRADE COMMUNICATIONS, INC.
Network Assurance Simplified 493 Nixon Road / Cheswick, PA 15024
www.tollgrade.com
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CORPORATE COMMUNICATIONS
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CONTACT: Chris Allison
412-820-1407
callison@tollgrade.com
TOLLGRADE REPORTS FIRST QUARTER RESULTS
PITTSBURGH, PA - April 16, 2003 - Tollgrade Communications, Inc. (NASDAQ: TLGD),
today reported revenue of $14,543,423 and earnings of 3 cents per share for the
first quarter ended March 29, 2003. Revenue and earnings per share for the first
quarter of 2002 were $17,522,274 and 11 cents per share, respectively. The first
quarter 2003 results include the results of the company's Cheetah(TM) status and
performance monitoring operations (Cheetah) acquired February 13, 2003.
The first quarter 2003 results were in line with previous guidance from
Tollgrade. The company's guidance, including expectations related to the Cheetah
acquisition, were for first quarter 2003 revenues and EPS results to range from
$11.7 million to $15.0 million, and an approximate loss of two cents on the low
end to as much as earnings of five cents at the higher sales level,
respectively.
"Despite the fact that spending is still extremely tight among our RBOC
customers, particularly as it relates to Digital Loop Carrier (DLC) deployments,
our customers are committed to maintaining high levels of customer service.
Because proper centralized consumer testing is paramount to such endeavors, both
LoopCare(TM) and DigiTest(R) provide many features that make such activities
more effective," said Chris Allison, Tollgrade's chairman and chief executive
officer. "Our core MCU(R) product sales continue to be challenging, but we're
seeing positive DigiTest LTS replacement and independent carrier DigiTest and
LoopCare deployments for POTS and DSL testing. In terms of CATV, our
LIGHTHOUSE(R) and Cheetah products performed beyond expectations."
The company's acquisition of the LoopCare test system business from Lucent
Technologies in the fourth quarter of 2001 continued to make a positive
contribution to the business. Sales of LoopCare software products separate and
unrelated to the DigiTest system products were $1,871,000 in the first quarter
of 2003 compared to $2,620,000 in the first quarter of 2002. Total LoopCare
revenues, which includes software and services, were $4,319,000 in the first
quarter of 2003 compared to $5,428,000 in the first quarter of 2002.
Overall sales of the company's core MCU products, which extend testability into
the POTS network, were $4,461,000 in the first quarter of 2003, compared to
$9,471,000 in the first quarter of 2002. RBOC customers are continuing to
generally restrain capital spending in traditional POTS line areas such as
Digital Loop Carrier deployment due to continuing line losses. However, the
Company did receive a blanket purchase order for $3,200,000 from an OEM partner
which covers that customer's MCU unit requirements for all of calendar year
2003. This order will ship over the remainder of 2003.
Sales of Tollgrade's DigiTest system products were $1,820,000 in the first
quarter of 2003 compared with $2,027,000 in the same period of 2002. The 2003
quarter included sales to both RBOC and CLEC accounts for LTS replacement and
initial DigiTest system sales, respectively.
Overall sales of cable hardware and software products were solid for the 2003
quarter at $3,418,000, of which $2,275,000 were contributed by Cheetah, acquired
on February 13, 2003, and $1,143,000 were attributable to LIGHTHOUSE.
LIGHTHOUSE product sales increased during the 2003 quarter from $670,000 in the
year earlier period due to the strength of increased shipments to Comcast
(formerly AT&T BIS) as well as continued deployments of the company's V.5
software in RCN Corporation.
First quarter 2003 revenue from Services, which includes installation oversight
and project management services provided to RBOCs and fees for LoopCare and
Cheetah software maintenance, increased to $2,973,000 from $2,593,000 in the
prior year quarter.
FIRST QUARTER 2003 FINANCIAL AND OPERATING DATA
First quarter gross profit decreased 25.4% to $7,569,147 from the first quarter
of 2002. As a percentage of sales, gross profit was 52.0% versus 57.9% a year
ago; primarily due to lower hardware sales volume as well as lower sales of
higher margin LoopCare software sales in the first quarter of 2003. There was
improvement in Services margins in 2003 due primarily to Services productivity
gains. Amortization expense increased $528,000 from the prior quarter due
primarily to the rapid amortization of all but $135,000 of the intangible asset
related to purchased sales order backlog from the Cheetah acquisition.
Management expects the remaining $135,000 to be amortized in the second quarter
of 2003, along with an approximate $100,000 per quarter of incremental
amortization related to this acquisition.
Income from operations was $540,272 in the first quarter of 2003, a 75.5%
decrease from the same period of 2002. Overall operating expenses, which include
operating expenses related to Cheetah which was acquired mid February 2003,
declined $909,326 or 11.5%, to $7,028,875 from $7,938,201 in the first quarter
of 2002. The company had implemented several cost reduction initiatives in 2002
in response to tightened markets.
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Selling and marketing expenses in the quarter were $1,970,654, a decrease of
18.5% percent from the same period in 2002, due primarily to fewer employees and
lower commissions, travel and discretionary expenses.
General and administrative expenses increased 13.8% to $1,737,003 from the year
earlier quarter due largely to the higher cost of insurance and increased
provision for bad debts.
Research and development expenses were $3,321,218, a decrease of 16.9% from the
first quarter of 2002. This decrease was due primarily to a general reduction in
work force at the end of the third quarter of 2002.
The company's order backlog for firm customer purchase orders or signed software
maintenance contracts was $10,698,000 as of March 29, 2003, an increase of
$3,519,000 from the backlog reported as of December 31, 2002. This increase is
due to receipt of a blanket purchase order for $3,200,000 from a customer which
covers that customer's MCU unit requirements for all of calendar year 2003.
Negotiations are progressing on two LoopCare RBOC annual software maintenance
agreements, both of which are under extension. The backlog at March 29, 2003
includes approximately $4,529,000 related to software maintenance contracts,
which will be earned and recognized as income on a straight-line basis during
the remaining terms of the underlying agreements. Including these maintenance
billings, Tollgrade expects approximately 47% of current backlog to be
recognized as revenue in the second quarter of 2003.
SECOND QUARTER OUTLOOK
Regarding the company's second quarter outlook, Chris Allison reported that "Our
results will be affected by a number of factors. Our overall company is bigger
now as a result of our Cheetah acquisition and our cable business seems a little
more stable in comparison to our telco business. However, spending in the telco
industry remains tight, but there continues to be an interest in reducing
operational costs through effective automated POTS testing. Also, our customers
are still deploying DLC systems, just not at the levels that we saw in 2000 and
2001. Additionally, we are seeing continued interest in treating DSL as a
consumer service, which fits strategically with our product portfolio emphasis.
Finally, further impact to the company of recent Federal Communications
Commission rulings is still in question. As a result of all of these factors, we
expect second quarter revenue to range from $13.0 million to $16.0 million with
earnings per share ranging from breakeven to six cents. The lower end of the
range is a function of the unpredictability of spending patterns due to the
tight budgetary constraints of our RBOC customers."
ABOUT TOLLGRADE
Tollgrade Communications, Inc., is a leading provider of hardware and software
testing solutions for the global telecommunications and cable broadband
industries. Tollgrade designs, engineers, markets and supports test systems,
test access and status monitoring products. Tollgrade, which is headquartered in
the Pittsburgh suburb of Cheswick, Pa., recorded 2002 revenues of $58,574,515.
The company's web address is www.tollgrade.com.
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FORWARD-LOOKING STATEMENTS
The statements contained in this release which are not historical facts are
considered "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These statements, which may be expressed in a variety
of ways, including the use of forward-looking terminology including the use of
future or present tense language relate to, among other things, expected revenue
and earnings results. The Company does not undertake any obligation to publicly
update any forward-looking statements.
These forward-looking statements are based on assumptions that involve risks and
uncertainties and are subject to change based on the considerations described
below. These risks, uncertainties and other factors may cause actual results,
performance or achievements to differ materially from anticipated future
results, performance or achievements expressed or implied by such
forward-looking statements. The factors discussed herein may not be exhaustive.
Therefore, the factors contained herein should be read together with other
reports and documents that are filed by the Company with the Securities and
Exchange Commission ("SEC") from time to time, which may supplement, modify,
supercede or update the factors listed in this release.
General economic conditions and the economic conditions of the
telecommunications and cable industries, including the effect of subscriber line
loss and competition for the Company's RBOC customers from wireless, cable
providers and other carriers entering the local telephone service market, can
and has affected the capital budgets of the Company's customers. If such
conditions result in a further reduction of such budgets, the Company's revenues
could be adversely affected.
If the Company's customers find themselves unable to meet their established
purchase forecasts and their own growth projections, such customers may curtail
their purchases of the Company's products, which would adversely affect the
Company's revenues.
If the Company would be unable to establish customer or sales distribution or
original equipment manufacturer ("OEM") relationships relating to the Cheetah
cable status and performance monitoring product line, it could affect the rate
of incoming orders, which would adversely affect the Company's sales and
revenues.
If the financial strength of certain of the Company's major customers should
deteriorate or such customers encounter difficulties in accessing capital, the
ability of such customers to purchase and pay for the Company's products could
be impaired, with a corresponding adverse affect on the Company's revenues. If
third parties with whom the Company has entered into sales and marketing
partnerships should fail to meet their own performance objectives, customer
demand for the Company's products could be adversely affected, which would have
an adverse effect on the Company's revenues.
Seasonal fluctuations in customer demand for the Company's products can create
corresponding fluctuations in period to period revenues, and any increases in
the rate of order cancellation by customers could adversely affect future
revenues.
The carrying value of certain intangible assets, including goodwill, acquired by
the Company from Lucent Technologies, Inc. and Acterna, LLC could be impaired if
changing market conditions indicate that lower than anticipated cash flows will
be produced by such intangible assets.
If the Company were to encounter a shortage of key manufacturing components from
limited sources of supply, or to experience manufacturing delays caused by
reduced manufacturing capacity or integration issues related to the acquisition
of the Cheetah product line, the loss of key assembly subcontractors or other
factors, the Company's ability to produce and ship its manufactured products
could be adversely affected, with an adverse effect upon revenues.
The introduction of improved products or services or reduced prices by the
Company's competitors could reduce the demand for the Company's products and
services and adversely affect revenues.
If the Company proves unable to respond effectively to technological change in
its industry, such as an evolution of the telephone network from circuit to
packet-based, by developing new products and services and obtaining customer
approval and acceptance of its products and services, demand for the Company's
products and services could be adversely affected, which would adversely affect
revenues.
The Company is dependent on a relatively narrow range of products and a small
number of large customers. As a result, the failure of one or a small number of
the Company's products to gain or maintain acceptance in the marketplace, or the
decision by one or a few of the Company's customers to curtail their purchases
of the Company's products could have an adverse effect on revenues.
If one or more of a small number of key employees of the Company were to cease
to be associated with the Company, the Company's future results could be
adversely affected.
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If the Company is unable to successfully assert and defend its proprietary
rights in the technology utilized in its products, its future results could be
adversely affected. If third parties were able to successfully assert that the
Company's use of technology infringed upon the proprietary rights of others, the
future results of the Company could be adversely affected.
If one or more of the Company's products were to prove defective, the Company's
relationships with its customers could be jeopardized and the Company could be
subject to potential liability, adversely affecting the Company's future
results.
If for any reason demand for the Company's products should decrease, including
the successful development of a secondary market for the Company's products by a
third party, the Company could continue to find itself with excess inventory and
obsolete parts on hand, which could adversely affect future results.
Changes in government regulation, such as modification or repeal of The
Telecommunications Act of 1996, increasing the costs of doing business by the
Company or its customers, or preventing the Company or its customers from
engaging in business activities they may wish to conduct could adversely affect
the Company's future results.
The Company has recently completed certain acquisitions and expects to pursue
additional acquisitions and new business opportunities in the future as part of
its business strategy. If the Company fails to integrate successfully the
operations and products of acquired businesses, or if such acquisitions subject
the Company to unexpected liabilities and claims, the Company's future results
could be adversely affected.
The Company's future sales in international markets are subject to numerous
risks and uncertainties, including local economic and labor conditions,
political instability including terrorism and other acts of war or hostility,
unexpected changes in the regulatory environment, trade protection measures, tax
laws, the ability of the Company to market current or develop new products
suitable for international markets, obtaining and maintaining successful
distribution and resale channels and foreign currency exchange rates. Reductions
in the demand for the sales of the Company's products in international markets
could adversely affect future results.
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TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share data)
Three Months Ended
3/29/03 3/30/02
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REVENUES:
Products $ 11,570 $ 14,930
Services 2,973 2,592
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14,543 17,522
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COST OF SALES:
Products 5,292 6,062
Services 789 955
Amortization 893 365
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6,974 7,382
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GROSS PROFIT 7,569 10,140
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OPERATING EXPENSES:
Selling and marketing 1,971 2,417
General and administrative 1,737 1,526
Research and development 3,321 3,995
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Total operating expenses 7,029 7,938
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INCOME FROM OPERATIONS 540 2,202
OTHER INCOME 147 238
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INCOME BEFORE INCOME TAXES 687 2,440
PROVISION FOR INCOME TAXES 261 927
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Net income $ 426 $ 1,513
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DILUTED EARNINGS PER-SHARE INFORMATION:
Weighted average shares of common stock and
equivalents: 13,212 13,421
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Net income per common and common equivalent
shares $ 0.03 $ 0.11
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TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 29, Dec. 31,
2003 2002
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 26,036 $ 33,799
Short-term investments 17,583 19,329
Accounts receivable:
Trade 6,873 7,946
Other 190 152
Inventories 14,841 14,093
Prepaid expenses 1,365 1,530
Deferred and refundable tax assets 3,313 2,041
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TOTAL CURRENT ASSETS 70,201 78,890
Property and equipment, net 8,114 7,439
Deferred tax assets 3,349 2,770
Capitalized software costs, net 9,057 5,539
Intangibles 45,400 38,500
Goodwill 18,430 16,162
Other assets 293 242
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TOTAL ASSETS $154,844 $149,542
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,668 $ 500
Accrued warranty 2,952 1,981
Accrued expenses 1,566 749
Accrued salaries and wages 908 543
Accrued royalties payable 304 322
Income taxes payable 1,553 1,141
Deferred income 1,241 466
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TOTAL CURRENT LIABILITIES 10,192 5,702
Deferred tax liabilities 1,870 1,484
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TOTAL LIABILITIES 12,062 7,186
Total shareholders' equity 142,782 142,356
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $154,844 $149,542
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TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 29, March 30,
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 426 $ 1,513
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,442 932
Tax benefit from exercise of stock options -- 177
Refund and utilization of income taxes paid -- 900
Deferred income taxes (125) 463
Provisions for losses on inventory 12 563
Provision for allowance for doubtful accounts 200 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable-trade 873 (4,186)
Increase in accounts receivable-other (38) (152)
Decrease in inventory 522 269
Decrease (increase) in prepaid expenses and other assets 249 (57)
Increase (decrease) in accounts payable 1,168 (156)
Increase in accrued warranty 353 250
Increase in accrued expenses and deferred income 482 1,363
Decrease in accrued royalties payable (18) (18)
Increase in accrued salaries and wages 365 505
Increase in income taxes payable 412 189
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Net cash provided by operating activities 6,323 2,555
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Cheetah (15,109) --
Purchase of investments (875) (361)
Redemption/maturity of investments 2,621 2,318
Capital expenditures (723) (979)
Investments in other assets -- (31)
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Net cash (used in) provided by investing activities (14,086) 947
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CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock -- (1,626)
Proceeds from exercise of stock options -- 244
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Net cash used in financing activities -- (1,382)
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Net (decrease) increase in cash and cash equivalents (7,763) 2,120
Cash and cash equivalents at beginning of period 33,799 32,106
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Cash and cash equivalents at end of period $ 26,036 $ 34,226
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(TM)Cheetah is a trademark of Tollgrade Communications, Inc.
(TM)LoopCare is a trademark of Tollgrade Communications, Inc.
(R) DigiTest is a registered trademark of Tollgrade Communications, Inc.
(R) MCU is a registered trademark of Tollgrade Communications, Inc.
(R) LIGHTHOUSE is a registered trademark of Tollgrade Communications, Inc.
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