Exhibit 99.1
Rackable Systems, Inc. Announces
Fourth Quarter and Fiscal Year End 2005 Financial Results; Achieved
Record Quarterly Revenue of $83.1 Million and GAAP EPS of $0.32
MILPITAS, Calif.--(BUSINESS WIRE)--Feb. 2, 2006--Rackable Systems,
Inc., (Nasdaq:RACK) a provider of servers and storage products for
scale out data center deployments, today announced financial results
for the fourth quarter and year end of fiscal 2005.
Total revenue for the fourth quarter of 2005 was $83.1 million, up
44.8% from $57.4 million in the third quarter of 2005, and up 261.8%
from $23.0 million in the fourth quarter of 2004. GAAP operating
income for the quarter was $12.2 million or 14.7% of revenue, compared
to $7.4 million or 12.8% of revenue for the third quarter, and
compared to an operating loss of $1.3 million in the same period a
year ago. Gross margins for the quarter were 24.9%, compared to 24.1%
in the third quarter, and compared to 20.4% in the fourth quarter a
year ago. GAAP net income for the fourth quarter of 2005 was $7.3
million or $0.32 per diluted share, compared to GAAP net income of
$4.4 million or $0.20 per diluted share in the third quarter and
compared to a GAAP net loss of $14.3 million or $(2.57) per share in
the fourth quarter of 2004.
Non-GAAP net income for the quarter was $7.6 million or $0.33 per
diluted share, compared to non-GAAP net loss of $513,000 or $(0.09)
per share in the same period 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.
For the full year of 2005, the company achieved revenue of $215.0
million, an increase of 95.9%, from $109.7 million for the full year
of 2004. GAAP operating income for the year was $23.6 million, or
11.0% of revenue, compared to a GAAP operating loss of $1.6 million
for the full year of 2004. Gross margins for the year were 23.1%,
compared to 19.1% in the same period a year ago. GAAP net income for
the year was $8.5 million or $0.47 per diluted share, compared to a
net loss of $55.4 million or $(11.43) per share in 2004.
Non-GAAP net income for the year was $15.0 million or $0.83 per
diluted share, an increase of 234.9%, compared to non-GAAP net income
of $4.5 million or $0.27 per diluted share in the same period 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.
"We are very pleased with our business execution and financial
results," said Tom Barton, President and CEO of Rackable Systems. "We
are particularly pleased with recent traction with our DC-powered
offerings and with our storage offerings," he continued.
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 in
connection the acquisition of old Rackable, 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. 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. However, these
non-GAAP financial measures are not intended to be an alternative to
financial measures prepared in accordance with GAAP and should not be
considered in isolation from our GAAP results of operations. 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. PST, 4:30 p.m. EST, 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 February 2,
2006, at approximately 4:30 p.m. PST and will remain available until
February 6, 2006, at 9:00 p.m. PST. To access the audio replay, dial
888-203-1112 or 719-457-0820 and enter confirmation code 3319384. 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 the
company's next earnings call.
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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
December December
31, 31,
--------- ---------
2004 2005
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and short-term
investments $17,111 $54,164
Accounts receivable, net of allowance for
doubtful accounts 9,344 49,700
Inventories 15,436 40,649
Deferred income taxes 1,660 8,326
Deferred cost of sales - 8,665
Prepaids and other current assets 136 4,111
--------- ---------
Total current assets 43,687 165,615
--------- ---------
PROPERTY AND EQUIPMENT--Net 1,412 2,588
INTANGIBLE ASSETS--Net 10,753 9,421
OTHER ASSETS 457 240
--------- ---------
TOTAL $56,309 $177,864
========= =========
CURRENT LIABILITIES:
Accounts payable and other payables $11,087 $29,083
Accrued expenses 3,269 7,434
Income taxes payable 1,368 5,001
Deferred revenue 182 11,771
Borrowings under line of credit 14,061 -
Current portion of notes payable to related
parties 1,500 -
--------- ---------
Total current liabilities 31,467 53,289
NOTES PAYABLE TO RELATED PARTIES 1,500 -
DEFERRED INCOME TAXES 753 304
DEFERRED RENT 54 28
DEFERRED REVENUE - 978
MANDATORILY REDEEMABLE PREFERRED STOCK--SERIES A 23,651 -
EMBEDDED DERIVATIVES IN PREFERRED STOCK 103,639 -
--------- ---------
Total liabilities 161,064 54,599
STOCKHOLDERS' EQUITY (DEFICIT) (104,755) 123,265
--------- ---------
TOTAL $56,309 $177,864
========= =========
RACKABLE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share and per share amounts)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
---------------------- ----------------------
2004 2005 2004 2005
REVENUE $22,976 $83,117 $109,743 $214,985
COST OF REVENUE 18,286 62,439 88,754 165,329
---------- ----------- ---------- -----------
GROSS MARGIN 4,690 20,678 20,989 49,656
---------- ----------- ---------- -----------
OPERATING EXPENSES:
Research and
development 233 853 763 2,247
Sales and marketing 2,804 4,778 10,780 15,402
General and
administrative 2,955 2,868 11,062 8,390
---------- ----------- ---------- -----------
Total
operating
expenses 5,992 8,499 22,605 26,039
---------- ----------- ---------- -----------
INCOME (LOSS) FROM
OPERATIONS (1,302) 12,179 (1,616) 23,617
OTHER INCOME (EXPENSE)--
Net:
Change in fair value
of embedded
derivatives
in preferred stock (12,461) - (51,267) (4,192)
Interest income 7 235 12 509
Interest expense (589) - (2,493) (1,537)
Gain on sale of
investment - - 2,968 -
Other income--net - 24 - 23
---------- ----------- ---------- -----------
Total other
income
(expense)--
net (13,043) 259 (50,780) (5,197)
---------- ----------- ---------- -----------
INCOME (LOSS) BEFORE
INCOME TAX
BENEFIT ( PROVISION) (14,345) 12,438 (52,396) 18,420
INCOME TAX BENEFIT
(PROVISION) 39 (5,124) (2,994) (9,908)
---------- ----------- ---------- -----------
NET INCOME (LOSS) $(14,306) $7,314 $(55,390) $8,512
========== =========== ========== ===========
NET INCOME (LOSS) PER
SHARE
Basic $(2.57) $0.36 $(11.43) $0.86
========== =========== ========== ===========
Diluted $(2.57) $0.32 $(11.43) $0.47
========== =========== ========== ===========
SHARES USED IN NET
INCOME (LOSS)
PER SHARE
Basic 5,567,557 20,455,673 4,847,680 9,946,791
========== =========== ========== ===========
Diluted 5,567,557 22,677,638 4,847,680 18,040,017
========== =========== ========== ===========
RACKABLE SYSTEMS, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands, except for share and per share amounts)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
---------------------- -----------------------
2004 2005 2004 2005
NET INCOME (LOSS) - As
Reported $(14,306) $7,314 $(55,390) $8,512
Add back (deduct):
Amortization of deferred
stock-based
compensation 107 133 4,778 553
Amortization of patents
and customer list
related to the
acquisition of old
Rackable 359 359 1,436 1,436
Change in fair value of
embedded derivatives
in preferred stock 12,461 - 51,267 4,192
Dividends on preferred
stock recorded as
interest expense 563 - 2,388 1,087
Adjustment to tax
provision (1) 303 (242) 5 (763)
---------- ----------- ----------- -----------
NON-GAAP NET INCOME
(LOSS) $(513) $7,564 $4,484 $15,017
========== =========== =========== ===========
SHARES USED IN NET
INCOME (LOSS) PER
SHARE
BASIC - As Reported 5,567,557 20,455,673 4,847,680 9,946,791
========== =========== =========== ===========
BASIC - Non-GAAP 5,567,557 20,455,673 4,847,680 9,946,791
========== =========== =========== ===========
DILUTED - As Reported 5,567,557 22,677,638 4,847,680 18,040,017
========== =========== =========== ===========
DILUTED - Non-GAAP 5,567,557 22,677,638 16,393,995 18,040,017
========== =========== =========== ===========
NET INCOME (LOSS) PER
SHARE
BASIC - As Reported $(2.57) $0.36 $(11.43) $0.86
========== =========== =========== ===========
BASIC - Non-GAAP $(0.09) $0.37 $0.92 $1.51
========== =========== =========== ===========
DILUTED - As Reported $(2.57) $0.32 $(11.43) $0.47
========== =========== =========== ===========
DILUTED - Non-GAAP $(0.09) $0.33 $0.27 $0.83
========== =========== =========== ===========
(1) The provision of income taxes used in arriving at the non-GAAP net
income (loss) was computed using an income tax rate of 40% for the
three months and the year ended December 31, 2004 and 41.5% for
the three months and the year ended December 31, 2005.
CONTACT: Rackable Systems, Inc.
Todd Ford, 408-240-8088
or
Sapphire Investor Relations, LLC
Erica Mannion, 415-399-9345 ext. 321 (Investor Relations)
investorrelations@rackable.com