Exhibit 99.1
Rackable Systems, Inc. Announces Second Quarter 2006 Financial Results
MILPITAS, Calif.--(BUSINESS WIRE)--July 27, 2006--Rackable
Systems, Inc., (NASDAQ:RACK)
-- Record quarterly revenue of $88.6 million
-- GAAP EPS of $0.18
-- Non-GAAP EPS of $0.28
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 2006.
Total revenue for the second quarter of 2006 was $88.6 million, up
5.0% from $84.4 million in the first quarter of 2006, and up 101.7%
from $44.0 million in the second quarter of 2005. GAAP net income for
the second quarter of 2006 was $5.3 million or $0.18 per diluted
share, compared to a GAAP net income of $1.2 million or $0.07 per
diluted share in the same period a year ago. Non-GAAP net income for
the second quarter was $8.1 million or $0.28 per diluted share,
compared to non-GAAP net income of $2.0 million or $0.12 per diluted
share in the same period a year ago.
Total revenue for the six months ended July 1, 2006 was $173.0
million, up 132.4% from $74.4 million in the first six months of 2005.
GAAP net income for the first six months of 2006 was $11.3 million or
$0.41 per diluted share, compared to a net loss of $3.2 million or
$(0.58) per share in the same period a year ago. Non-GAAP net income
for the first six months was $16.0 million or $0.58 per diluted share,
compared to $2.7 million or $0.17 per diluted share in the first six
months last year.
In the first quarter of fiscal 2006, Rackable Systems adopted the
Statement of Financial Accounting Standards No. 123R, Share-Based
Payment (FAS 123R), which requires that stock-based compensation be
recorded in its financial statements. The company's non-GAAP financial
measures exclude stock-based compensation expense, the amortization of
patents and customer list in connection with the acquisition of the
company's predecessor, change in fair value of embedded derivatives in
preferred stock, dividends on preferred stock recorded as interest
expense and the related tax effect of the applicable items. The
reconciliation between GAAP and non-GAAP net income (loss) is provided
in the financial tables accompanying this press release.
"We are pleased with our performance in major accounts, and we
also made substantial progress in our efforts to diversify our revenue
base," said Tom Barton, Chief Executive Officer. "Also noteworthy, our
storage product revenues in Q2 represented approximately 11% of total
revenues, up from 7% in Q1," concluded Barton.
Conference Call Information
Rackable Systems will discuss these financial results and its
outlook for the third quarter and full year of 2006 in a conference
call at 1:30 p.m. PDT, 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 27, 2006,
at approximately 4:30 p.m. PDT and will remain available until August
1, 2006 at 9:00 p.m. PDT. To access the audio replay, dial
888-203-1112 or 719-457-0820 and enter confirmation code 7477257. 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.
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 stock-based compensation expense, the
amortization of patents and customer list in connection with the
acquisition of the company's predecessor, change in fair value of
embedded derivatives in preferred stock, dividends on preferred stock
recorded as interest expense and the related tax effect of the
applicable items. Management uses the non-GAAP financial measures for
planning purposes, including analysis of the company's performance as
against prior periods, 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 the company's 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 at the end of 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.
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) 2006 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)
(Unaudited)
- ----------------------------------------------------------------------
July 1, Dec. 31,
----------- -----------
2006 2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $58,820 $29,099
Short-term investments 156,508 25,065
Accounts receivable - net 46,565 49,700
Inventories 47,271 40,649
Deferred income taxes 6,504 6,504
Deferred cost of sales 1,161 8,665
Prepaids and other current assets 8,221 4,111
----------- -----------
Total current assets 325,050 163,793
----------- -----------
PROPERTY AND EQUIPMENT--Net 4,026 2,588
INTANGIBLE ASSETS--Net 8,785 9,421
OTHER ASSETS 2,898 240
----------- -----------
TOTAL $340,759 $176,042
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other payables $31,283 $29,083
Accrued expenses 7,992 7,434
Income taxes payable - 3,179
Deferred revenue 3,583 11,771
----------- -----------
Total current liabilities 42,858 51,467
DEFERRED INCOME TAXES 304 304
DEFERRED RENT 16 28
DEFERRED REVENUE 2,192 978
----------- -----------
Total liabilities 45,370 52,777
STOCKHOLDERS' EQUITY 295,389 123,265
----------- -----------
TOTAL $340,759 $176,042
=========== ===========
RACKABLE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
- ----------------------------------------------------------------------
Three Months Ended Six Months Ended
----------------------- ----------------------
July 1, July 2, July 1, July 2,
2006 2005 2006 2005
----------- ----------- ----------- ----------
REVENUE $88,648 $43,960 $173,040 $74,449
COST OF REVENUE 68,465 34,772 133,363 59,333
----------- ----------- ----------- ----------
GROSS PROFIT 20,183 9,188 39,677 15,116
----------- ----------- ----------- ----------
OPERATING EXPENSES:
Research and
development 2,542 497 4,340 845
Sales and marketing 6,447 3,698 11,295 6,679
General and
administrative 4,583 1,881 8,113 3,530
----------- ----------- ----------- ----------
Total operating
expenses 13,572 6,076 23,748 11,054
----------- ----------- ----------- ----------
INCOME FROM OPERATIONS 6,611 3,112 15,929 4,062
OTHER INCOME (EXPENSE)--Net:
Change in fair value
of embedded
derivatives in
preferred stock - - - (4,192)
Interest income 2,014 17 2,678 19
Interest expense - (746) - (1,528)
Other income --net 618 - 862 -
----------- ----------- ----------- ----------
Total other income
(expense)--net 2,632 (729) 3,540 (5,701)
----------- ----------- ----------- ----------
INCOME (LOSS) BEFORE
INCOME TAX PROVISION 9,243 2,383 19,469 (1,639)
INCOME TAX PROVISION (3,917) (1,200) (8,171) (1,533)
----------- ----------- ----------- ----------
NET INCOME (LOSS) $5,326 $1,183 $11,298 $(3,172)
=========== =========== =========== ==========
NET INCOME (LOSS) PER SHARE
Basic $0.19 $0.18 $0.43 $(0.58)
=========== =========== =========== ==========
Diluted $0.18 $0.07 $0.41 $(0.58)
=========== =========== =========== ==========
SHARES USED IN COMPUTING NET INCOME (LOSS) PER SHARE
Basic 27,692,918 6,433,701 25,983,657 5,499,442
=========== =========== =========== ==========
Diluted 29,250,002 16,457,415 27,751,304 5,499,442
=========== =========== =========== ==========
Stock-based compensation is included in the following cost and
expense categories by period (in thousands):
Three Months Ended Six Months Ended
------------------- -------------------
July 1, July 2, July 1, July 2,
2006 2005 2006 2005
--------- --------- --------- ---------
Cost of revenue $819 $23 $1,525 $48
Research and development 973 19 1,484 36
Sales and marketing 1,369 67 2,223 132
General and administrative 978 33 1,664 65
--------- --------- --------- ---------
TOTAL $4,139 $142 $6,896 $281
========= ========= ========= =========
RACKABLE SYSTEMS, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands, except share and per share amounts)
(Unaudited)
- ----------------------------------------------------------------------
Three Months Ended Six Months Ended
---------------------- ----------------------
July 1, July 2, July 1, July 2,
2006 2005 2006 2005
---------------------- ----------------------
NET INCOME (LOSS) - As
Reported $5,326 $1,183 $11,298 $(3,172)
Add back (deduct):
Stock-based compensation 4,139 142 6,896 281
Amortization of patents
and customer list 359 359 718 718
Change in fair value of
embedded derivatives
in preferred stock - - - 4,192
Dividends on preferred
stock recorded as
interest expense - 490 - 1,087
Adjustment to tax
provision (1) (1,698) (193) (2,901) (401)
---------- ----------- ---------- -----------
NON-GAAP NET INCOME $8,126 $1,981 $16,011 $2,705
========== =========== ========== ===========
NET INCOME (LOSS) PER SHARE
BASIC - As Reported $0.19 $0.18 $0.43 $(0.58)
========== =========== ========== ===========
BASIC - Non-GAAP $0.29 $0.31 $0.62 $0.49
========== =========== ========== ===========
DILUTED - As Reported $0.18 $0.07 $0.41 $(0.58)
========== =========== ========== ===========
DILUTED - Non-GAAP $0.28 $0.12 $0.58 $0.17
========== =========== ========== ===========
SHARES USED IN COMPUTING NET INCOME (LOSS) PER SHARE
BASIC - As Reported 27,692,918 6,433,701 25,983,657 5,499,442
========== =========== ========== ===========
BASIC - Non-GAAP 27,692,918 6,433,701 25,983,657 5,499,442
========== =========== ========== ===========
DILUTED - As Reported 29,250,002 16,457,415 27,751,304 5,499,442
========== =========== ========== ===========
DILUTED - Non-GAAP 29,250,002 16,457,415 27,751,304 16,220,049
========== =========== ========== ===========
(1) The provision of income taxes used in arriving at the non-GAAP
net income was computed using an income tax rate of 40.9% and 41.3%
for the three months ended July 1, 2006 and July 2, 2005, respectively
and 40.9% and 41.7% for the six months ended July 1, 2006 and July 2,
2005, respectively
RACKABLE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
- ----------------------------------------------------------------------
Six Months Six Months
Ended Ended
------------ -----------
July 1, July 2,
2006 2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $11,298 $(3,172)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,326 1,746
Deferred income taxes (2,288) (1,784)
Accretion for preferred stock dividends
recorded as interest expense - 1,087
Stock-based compensation 6,896 281
Changes in fair value of embedded derivatives
in preferred stock - 4,192
Change in operating assets and liabilities:
Accounts receivable 3,135 (10,293)
Inventory (6,622) (5,004)
Prepaids and other assets (4,480) (631)
Accounts payable and other payables 2,200 8,310
Accrued expenses 546 297
Income tax payable (3,179) 799
Deferred cost of sales 7,504 -
Deferred revenue (6,973) 1,155
------------ -----------
Net cash provided by (used in)
operating activities 9,363 (3,017)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,005) (352)
Expenditures for intangibles (123) (49)
Purchases of marketable securities (199,270) -
Proceeds from sales and maturities of
marketable securities 67,787 -
------------ -----------
Net cash used in investing activities (133,611) (401)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit, net - (14,061)
Repurchase of common stock from Founders - (6,000)
Payment of notes payable to related
parties - (1,493)
Redemption of mandatorily redeemable
preferred stock - (24,738)
Proceeds from issuance of common stock
upon exercise of stock options 2,240 -
Proceeds from issuance of common stock -
ESPP purchase 829 -
Excess tax benefit of stock options
exercised 12,448 -
Proceeds from issuance of common stock
upon initial public offering - net of
issuance costs - 68,501
Proceeds from issuance of common stock
upon follow on offering - net of
issuance costs 138,452 -
------------ -----------
Net cash provided by financing
activities 153,969 22,209
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 29,721 18,791
------------ -----------
CASH AND CASH EQUIVALENTS - Beginning of
period 29,099 17,111
------------ -----------
CASH AND CASH EQUIVALENTS - End of period $58,820 $35,902
============ ===========
CONTACT: Rackable Systems, Inc.
Madhu Ranganathan, 408-240-8088
investorrelations@rackable.com
or
Sapphire Investor Relations, LLC
Erica Mannion, 212-766-1800 Ext. 3 (Investor Relations)
investorrelations@rackable.com