Exhibit 99.1
Rackable Systems, Inc. Announces Second Quarter 2005 Financial Results;
Achieves Record Financial Results;
Sequential Revenue Increase of 44.3% and GAAP EPS of $0.07
MILPITAS, Calif.--(BUSINESS WIRE)--July 25, 2005--Rackable
Systems, Inc., (Nasdaq:RACK) a provider of servers and storage
products for scale out data center deployments, today announced
financial results for the second quarter of fiscal year 2005, ended
July 2, 2005.
Total revenue for the second quarter of 2005 was $44.0 million, up
44.3% from $30.5 million in the first quarter of 2005, and up 26.4%
from $34.8 million in the second quarter of 2004. Operating income for
the quarter was $3.1 million or 7.1% of revenue, compared to $2.7
million or 7.9% of revenue in the same period a year ago. Gross
margins for the quarter were 20.9% compared to 20.3% in the second
quarter a year ago. GAAP net income for the second quarter of 2005 was
$1.2 million or $0.07 per diluted share, compared to a net loss of
$11.2 million or $(2.34) per share in the second quarter of 2004.
Non-GAAP net income for the quarter was $2.0 million or $0.12 per
diluted share, unchanged from a year ago. These non-GAAP financial
measures exclude amortization of deferred stock-based compensation,
the amortization of patents and customer list, change in fair value of
embedded derivatives in preferred stock, dividends on preferred stock
recorded as interest expense and the related tax effect of those
items. All of these expenses are included in Rackable System's GAAP
results. During the second quarter of 2005, Rackable Systems completed
the initial public offering of its common stock.
Total revenue for the six months ended July 2, 2005 was $74.4
million, up 40.6% from $52.9 million in the first six months of 2004.
Operating income for the first six months of 2005 was $4.1 million or
5.5% of revenue, compared to $2.8 million or 5.3% of revenue in the
same period a year ago. Gross margins for the first six months of 2005
were 20.3% compared to 19.3% in the same period a year ago. GAAP net
loss for the first six months of 2005 was $3.2 million or $(0.58) per
diluted share, compared to a net loss of $25.1 million or $(5.25) per
share in the same period a year ago. Non-GAAP net income for the first
six months was $2.7 million or $0.17 per diluted share, compared to
$2.3 million or $0.14 in the first six months last year.
"We are pleased with our quarterly results. We achieved record
revenues, increased our revenue from the sale of storage systems and
achieved profitability on a GAAP basis," said Tom Barton, President
and CEO of Rackable Systems. "Our customers continue to recognize the
benefits of our systems in the areas of density, thermal management,
remote management, efficient power distribution and ease of
serviceability," continued Barton.
Use of Non-GAAP Financial Measures
The non-GAAP financial measures discussed in the text of this
press release and accompanying non-GAAP supplemental information
represent financial measures used by Rackable Systems' management to
evaluate the operating performance of the company and to conduct its
business operations. Non-GAAP financial measures discussed in this
press release exclude the amortization of deferred stock-based
compensation, the amortization of patents and customer list, change in
fair value of embedded derivatives in preferred stock, dividends on
preferred stock recorded as interest expense and the related tax
effect of those items. It is management's belief that these items are
not indicative of ongoing operations. For example, the amortization of
deferred stock-based compensation is based on changes in the company's
stock price and does not affect the company's cash. While the
amortization of patents and customer list represents non-cash expenses
recorded in connection with the acquisition of Old Rackable and do not
affect the company's cash and such intangible assets are not expected
to be replaced when fully amortized, as might a depreciable tangible
asset.
Management uses the non-GAAP financial measures for planning
purposes, including the preparation of operating budgets and to
determine appropriate levels of operating and capital investments.
Management also believes that the non-GAAP financial measures provide
additional insight for analysts and investors in evaluating the
company's financial and operational performance and in assisting
investors in comparing the company's financial performance to those of
other companies in the company's industry. However, these non-GAAP
financial measures are not intended to be an alternative to financial
measures prepared in accordance with GAAP. Pursuant to the
requirements of SEC Regulation G, a detailed reconciliation between
the company's GAAP and non-GAAP financial results is provided in this
press release and investors are advised to carefully review and
consider this information as well as the GAAP financial results that
are disclosed in the company's SEC filings.
Conference Call Information
Rackable Systems will discuss these financial results in a
conference call at 1:30 p.m. PDT, or 4:30 p.m. EDT, today. The public
is invited to listen to a live web cast of Rackable Systems'
conference call on the investor relations section of the company's
website at www.rackable.com. For investors unable to participate in
the live conference call, an audio replay will be available on July
25, 2005, at approximately 4:30 p.m. PDT and will remain available
until July 28, 2005, at 9:00 p.m. PDT. To access the audio replay,
dial 888-203-1112 or 719-457-0820 and enter confirmation code 8006495.
A web cast replay of the call will be available on the Investor
Relations section at www.rackable.com approximately two hours after
the conclusion of the call and will remain available until September
1, 2005.
About Rackable Systems
Rackable Systems, Inc. is a provider of servers and storage
products for scale out data center deployments. The company's servers
are designed to provide benefits in the areas of density, thermal
efficiency, serviceability, power distribution and remote management.
Founded in 1999 and based in Milpitas, California, Rackable Systems
serves Internet, semiconductor design, enterprise software, federal
government, entertainment, financial services, oil and gas exploration
and biotechnology customers worldwide.
Copyright(C) 2005 Rackable Systems, Inc. All rights reserved.
Rackable Systems is a registered trademark of Rackable Systems, Inc.
in the U.S. Rackable Systems and its logo are trademarks in the U.S.
and certain other countries. All other brands, names or trademarks
mentioned may be trademarks of their respective owners.
RACKABLE SYSTEMS, INC.
BALANCE SHEETS
(In thousands, except share and per share amounts)
- ----------------------------------------------------------------------
December 31, June 30,
------------ -----------
2004 2005
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $17,111 $35,902
Accounts receivable, net of allowance for
doubtful accounts 9,344 19,637
Inventories 15,436 19,710
Deferred income taxes 1,660 3,257
Prepaids and other current assets 136 1,075
------------ -----------
Total current assets 43,687 79,581
------------ -----------
PROPERTY AND EQUIPMENT - Net 1,412 1,488
INTANGIBLE ASSETS - Net 10,753 10,062
OTHER ASSETS 457 149
------------ -----------
TOTAL $56,309 $91,280
============ ===========
CURRENT LIABILITIES:
Accounts payable $10,821 $19,135
Accrued expenses 3,269 4,320
Sales tax payable 266 502
Income taxes payable 1,368 2,167
Deferred revenue 182 715
Borrowings under line of credit 14,061 -
Current portion of notes payable to related
parties 1,500 7
------------ -----------
Total current liabilities 31,467 26,846
NOTES PAYABLE TO RELATED PARTIES 1,500 1,500
DEFERRED INCOME TAXES 753 566
DEFERRED RENT 54 45
DEFERRED REVENUE - 622
MANDATORILY REDEEMABLE PREFERRED STOCK
- SERIES A 23,651 -
EMBEDDED DERIVATIVES IN PREFERRED STOCK 103,639 -
------------ -----------
Total liabilities 161,064 29,579
SHAREHOLDERS' DEFICIT:
Common stock 6 20
Additional paid-in capital 12,811 182,530
Deferred stock-based compensation (2,134) (2,239)
Accumulated deficit (115,438) (118,610)
------------ -----------
Total shareholders' deficit (104,755) 61,701
------------ -----------
TOTAL $56,309 $91,280
============ ===========
RACKABLE SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except for share and per share amounts)
- ----------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2004 2005 2004 2005
(unaudited) (unaudited) (unaudited) (unaudited)
REVENUE $34,839 $43,960 $52,906 $74,449
COST OF REVENUE 27,756 34,772 42,721 59,333
----------- ------------ ----------- ------------
GROSS MARGIN 7,083 9,188 10,185 15,116
----------- ------------ ----------- ------------
OPERATING EXPENSES:
Research and
development 220 497 362 845
Sales and
marketing 2,971 3,698 4,780 6,679
General and
administrative 1,153 1,881 2,243 3,530
----------- ------------ ----------- ------------
Total operating
expenses 4,344 6,076 7,385 11,054
----------- ------------ ----------- ------------
INCOME FROM
OPERATIONS 2,739 3,112 2,800 4,062
OTHER INCOME
(EXPENSE) - Net:
Change in fair
value of embedded
derivatives in
preferred stock (12,888) - (25,776) (4,192)
Interest income - 17 4 19
Interest expense (618) (746) (1,186) (1,528)
Other income
(expense) - net (1) - (1) -
----------- ------------ ----------- ------------
Total other
income
(expense) - net (13,507) (729) (26,959) (5,701)
----------- ------------ ----------- ------------
INCOME (LOSS) BEFORE
INCOME TAX PROVISION (10,768) 2,383 (24,159) (1,639)
INCOME TAX PROVISION (421) (1,200) (941) (1,533)
----------- ------------ ----------- ------------
NET INCOME (LOSS) $(11,189) $1,183 $(25,100) $(3,172)
=========== ============ =========== ============
NET INCOME (LOSS)
PER SHARE
Basic $(2.34) $0.18 $(5.25) $(0.58)
=========== ============ =========== ============
Diluted $(2.34) $0.07 $(5.25) $(0.58)
=========== ============ =========== ============
SHARES USED IN NET
INCOME (LOSS)
PER SHARE
Basic 4,783,336 6,433,701 4,783,336 5,499,442
=========== ============ =========== ============
Diluted 4,783,336 16,457,415 4,783,336 5,499,442
=========== ============ =========== ============
RACKABLE SYSTEMS, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands, except for share and per share amounts)
- ----------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2004 2005 2004 2005
(unaudited) (unaudited) (unaudited) (unaudited)
NET INCOME (LOSS) -
As Reported $(11,189) $1,183 $(25,100) $(3,172)
Add back (deduct):
AMORTIZATION OF
DEFERRED STOCK-BASED
COMPENSATION 212 141 384 280
AMORTIZATION OF
PATENTS AND CUSTOMER
LIST 366 370 731 740
CHANGE IN FAIR VALUE
OF EMBEDDED
DERIVATIVES IN
PREFERRED STOCK 12,888 - 25,776 4,192
DIVIDENDS ON
PREFERRED STOCK
RECORDED AS INTEREST
EXPENSE 579 490 1,144 1,087
ADJUSTMENT TO TAX
PROVISION(1) (890) (198) (610) (410)
----------- ----------- ----------- -----------
NON-GAAP NET INCOME $1,966 $1,986 $2,325 $2,717
=========== =========== =========== ===========
SHARES USED IN NET
INCOME (LOSS) PER
SHARE
BASIC - As Reported 4,783,336 6,433,701 4,783,336 5,499,442
=========== =========== =========== ===========
BASIC - Non-GAAP 4,783,336 6,433,701 4,783,336 5,499,442
=========== =========== =========== ===========
DILUTED - As Reported 4,783,336 16,457,415 4,783,336 5,499,442
=========== =========== =========== ===========
DILUTED - Non-GAAP 16,317,710 16,457,415 16,259,060 16,220,049
=========== =========== =========== ===========
NET INCOME (LOSS) PER
SHARE
BASIC - As Reported $(2.34) $0.18 $(5.25) $(0.58)
=========== =========== =========== ===========
BASIC - Non-GAAP $0.41 $0.31 $0.49 $0.49
=========== =========== =========== ===========
DILUTED - As Reported $(2.34) $0.07 $(5.25) $(0.58)
=========== =========== =========== ===========
DILUTED - Non-GAAP $0.12 $0.12 $0.14 $0.17
=========== =========== =========== ===========
(1) The provision of income taxes used in arriving at the non-GAAP net
income for all of the periods presented was computed using an income
tax rate of 40% for all periods in 2004, 41.3% for the three months
ending June 30, 2005 and 41.7% for the six months period ending June
30, 2005.
CONTACT: Rackable Systems, Inc.
Todd Ford, 408-240-8088
or
Sapphire Investor Relations, LLC
Erica Mannion, 415-399-9345 (Investor Relations)
investorrelations@rackable.com