Exhibit 99.1
FOR IMMEDIATE RELEASE FEBRUARY 13, 2004
Castelle Reports Multi-Year Highs in Sales and
Net Income for Fourth Quarter and Full Year 2003
New FaxPress Premier(TM) Network Fax Servers Expected to
Contribute to Sales Growth in 2004
o Fourth quarter sales reach $2.64 million, highest since Q4 2000
o Company records a non-cash tax benefit of $526,000, or $0.12 per diluted
share in fourth quarter
o Excluding non-cash tax benefit, pro forma net income for fourth quarter
increases approximately 17% from the year-ago quarter to $395,000, or
$0.09 per diluted share
o 2003 full year sales increase nearly 5% from 2002 to $10.21 million,
highest since 2000
o Excluding non-cash tax benefit, pro forma net income for full year rises
approximately 68% from prior year to $1.11 million,
or $0.26 per diluted share
o Balance sheet continues to strengthen with cash at $4.61 million, up from
$3.46 million at end of 2002; Company remains virtually free of
long term debt
MORGAN HILL, CA -- February 13, 2004 - Castelle (Nasdaq: CSTL), a leading
provider of fax solutions for Fortune 1000 companies and small to medium-sized
businesses, today announced financial results for the fourth quarter and full
year ended December 31, 2003. The Company reported that sales and net income, on
both a quarterly and annual basis, rose to levels not seen since 2000 and 1996,
respectively.
For the fourth quarter of 2003 sales totaled $2.64 million, up approximately 2%
from $2.59 million in the fourth quarter of 2002. This represents Castelle's
highest quarterly sales since $3.24 million reported in the fourth quarter of
2000. On a sequential basis, fourth quarter 2003 sales were up 2.7% from $2.57
million in the third quarter. For the full year 2003, sales reached $10.21
million, up 4.6% from $9.76 million in 2002.
Net income for the fourth quarter of 2003 was $921,000, or $0.21 per diluted
share, as determined in accordance with Generally Accepted Accounting Principles
(GAAP), representing an increase of approximately 173% from net income of
$337,000, or $0.08 per diluted share in the same period of 2002. Fourth quarter
net income included a non-cash tax benefit of $526,000, or $0.12 per diluted
share. Excluding this non-cash benefit, pro forma net income for the fourth
quarter of 2003 was $395,000, or $0.09 per diluted share. Net income for 2003
was $1.63 million, or $0.39 per diluted share on a GAAP basis, representing an
increase of 148% over net income of $659,000, or $0.14 per diluted share in
2002. Excluding the non-cash tax benefit, pro forma net income for 2003 was
$1.11 million, or $0.26 per diluted share, representing an increase of 68% over
the net income of $659,000, or $0.14 per diluted share, in 2002.
Scott McDonald, President and CEO of Castelle, said, "The past year was a period
of transition for Castelle, marked by significant financial improvements as well
as reinvestments in engineering and the subsequent introduction of FaxPress
Premier network fax servers. Our fourth quarter and full year results for 2003
are a reflection of how the Company has managed the change while continuing to
grow. Operational success can be seen in our net income and EPS, which have
risen significantly faster than sales due to cost containment and an emphasis on
profit margin."
As of December 31, 2003, cash and cash equivalents increased to $4.61 million,
up from $3.46 million at the end of 2002. Cash and cash equivalents at the end
of 2003 totaled $1.35 per outstanding share. Castelle remains virtually free of
long-term debt at the end of 2003.
FaxPress Premier Expected to Contribute to Growth in 2004
Castelle expects the recently introduced FaxPress Premier network fax servers
for the enterprise market to contribute to sales growth in 2004. The Company
bases this expectation on the initial market acceptance of FaxPress Premier
following product launches in the U.S. and Europe in the third and fourth
quarters of 2003. FaxPress Premier is Castelle's most significant product
introduction in recent years, taking the Company's fax solution to an entirely
new level by addressing the needs of customers looking for enterprise-level
capabilities. Its patent-pending technology builds on Castelle's existing
FaxPress hardware and software features, offering advanced network capabilities
such as integrated file storage, embedded email gateways and a secure web
interface. FaxPress Premier doubles the number of fax channels available in
Castelle's analog fax server line, and adds T-1 and ISDN support for customers
in a digital environment. To learn more about FaxPress Premier, visit Castelle's
web site at www.castelle.com/products/premier.
Mr. McDonald said, "The initial response to FaxPress Premier, from new as well
as existing customers, is evidence that our new enterprise-level fax server may
become a catalyst for Castelle sales growth. At the same time, we anticipate our
existing core products to maintain sufficient sales volume, which together with
FaxPress Premier would lead to continued financial and operational success in
2004 and beyond."
Use of Pro Forma Operating Results
Since the non-cash tax benefit recorded by the Company in the fourth quarter,
which is not considered indicative of Castelle's core operating results,
Castellle will begin using certain non-GAAP measures to help clarify the overall
understanding of Castelle's current operational performance, its prospects for
the future and to provide a more consistent basis for comparison between
quarters.
Accordingly, pro forma net income and per diluted share for the fourth quarter
and 2003 excluded the favorable impact of a $526,000, or $0.12 per diluted
share, non-cash tax benefit resulting from the Company's release of a portion of
its tax valuation allowance. Prior to the fourth quarter of 2003, Castelle had
not reported significant income tax expenses because it had utilized available
Net Operating Loss (NOL) and tax credit carryforwards in the determination of
its GAAP operating results. For financial reporting purposes, these NOLs were
fully reserved by a valuation allowance due to uncertainty surrounding the
likelihood of their realization. Due to the Company's continued profitability
over the past ten quarters and a determination that it is likely that certain
future tax benefits will be realized as required by GAAP, a portion of the
deferred tax assets were recognized in the fourth quarter of 2003. While the
Company expects to provide for income taxes at an effective tax rate of 40%
commencing in the first quarter of 2004, as of December 31, 2003, the Company
had $12.9 million of NOLs available to offset future taxable income.
Accordingly, the Company does not expect to utilize significant amounts of cash
for income tax payments until these NOLs have been utilized.
The reconciliation of the GAAP statement of operations amounts to the respective
pro forma figures, for the three and twelve months ended December 31, 2003, is
set forth at the end of this press release.
About Castelle
Castelle, a market leader in fax solutions for small to medium-sized workgroups,
develops office automation systems that allow organizations to easily implement
faxing and printing over local area networks and the Internet. Castelle's
network fax servers, FaxPress and FaxPress Premier, provide a simple way to
integrate fax with email, desktop and back-end applications. The Company also
manufactures LANpress print servers, which enable users to locate printers
anywhere on the network. Castelle products are designed to be easy to use and
maintain, and provide an economical way for companies to share resources over
the network. Castelle was founded in 1987 and is headquartered in Morgan Hill,
California. Its products are available through a worldwide network of
distributors, resellers, online retailers, and the Castelle Online Store. Visit
Castelle online at www.castelle.com.
If you would like to be added to Castelle's investor email list, please contact
Karin Smith at ksmith@castelle.com.
FaxPress Premier(TM) and FaxPress(TM) are trademarks; and LANPress(R) is a
registered trademark of Castelle.
Forward-Looking Statements
This press release contains forward-looking statements including references to
demand for Castelle products, sales growth and our ability to control costs,
increase productivity and remain profitable. These statements are subject to
risks and uncertainties, including but not limited to the impact on our results
from fluctuations in demand for our products, introduction of new products by
our competitors, the timely development, acceptance and pricing of new products,
the effectiveness of our cost control and productivity improvement procedures
and general economic conditions as they affect the Company's customers.
Investors are referred to the full discussion of risks and uncertainties
associated with forward-looking statements as contained in our reports to the
Securities and Exchange Commission, including our Forms 10-K and 10-Q. The
Company assumes no obligation to update the forward-looking information.
For more information:
Scott McDonald
President & Chief Executive Officer
Tel. (408) 852-8000
Fax (408) 852-8100
Karin Smith
Senior Marketing Manager
Tel. (408) 852-8034
Fax (408) 852-8134
CASTELLE
Condensed Consolidated Statements of Operations
(in thousands, except percentages and per share data)
Three months ended Twelve months ended
12/31/2003 12/31/2002 12/31/2003 12/31/2002
------------------------------- ----------------------------
Net sales $ 2,637 $ 2,587 $10,214 $ 9,759
Cost of sales 660 655 2,485 2,836
Gross profit 1,977 1,932 7,729 6,923
Operating expenses:
Research and development 379 309 1,590 1,383
Sales and marketing 790 674 3,131 3,016
General and administrative 439 614 1,902 1,943
estructuring charges - -
R - (40)
------------------------------- ----------------------------
Total operating expenses 1,608 1,597 6,623 6,302
Income from operations 369 335 1,106 621
Other income/(expense), net 9 8 (10) 44
------------------------------- ----------------------------
Income before income taxes 378 343 1,096 665
Provision (benefit) for income taxes (543) 6 (537) 6
------------------------------- ----------------------------
Net income $ 921 $ 337 $ 1,633 $ 659
=============================== ============================
Net income per common share:
Basic $ 0.27 $ 0.09 $ 0.50 $ 0.15
=============================== ============================
Diluted $ 0.21 $ 0.08 $ 0.39 $ 0.14
=============================== ============================
Shares used in per share calculation:
Basic 3,370 3,913 3,254 4,539
=============================== ============================
Diluted 4,307 4,010 4,186 4,586
=============================== ============================
As a percentage of net sales:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 25.0% 25.3% 24.3% 29.1%
------------------------------- ----------------------------
Gross profit 75.0% 74.7% 75.7% 70.9%
Operating expenses:
Research and development 14.4% 11.9% 15.6% 14.2%
Sales and marketing 30.0% 26.1% 30.7% 30.9%
General and administrative 16.6% 23.8% 18.6% 19.9%
Restructuring charges - - - (0.5%)
------------------------------- ----------------------------
Total operating expenses 61.0% 61.8% 64.9% 64.5%
Income from operations 14.0% 12.9% 10.8% 6.4%
Other income/(expense), net 0.3% 0.3% (0.1%) 0.4%
------------------------------- ----------------------------
Income before income taxes 14.3% 13.2% 10.7% 6.8%
Provision (benefit) for income taxes (20.6%) 0.2% (5.3%) -
------------------------------- ----------------------------
Net income 34.9% 13.0% 16.0% 6.8%
=============================== ============================
CASTELLE
Pro Forma Condensed Consolidated Statements of Operations
Excluding Deferred tax asset valuation allowance reversal
(in thousands, except per share data)
Three months ended Twelve months ended
12/31/2003 12/31/2002 12/31/2003 12/31/2002
------------------------------------------------------------------------
Net sales $ 2,637 $ 2,587 $10,214 $ 9,759
Cost of sales 660 655 2,485 2,836
Gross profit 1,977 1,932 7,729 6,923
Operating expenses:
Research and development 379 309 1,590 1,383
Sales and marketing 790 674 3,131 3,016
General and administrative 439 614 1,902 1,943
Restructuring recovery - - - (40)
Total operating expenses 1,608 1,597 6,623 6,302
Income from operations 369 335 1,106 621
Other income/(expenses), net 9 8 (10) 44
------------------------------------------------------------------------
Income before income taxes 378 343 1,096 665
Provision (benefit) for income taxes (17) 6 (11) 6
------------------------------------------------------------------------
Net income $ 395 $ 337 $ 1,107 $ 659
========================================================================
Net income per common share:
Basic $ 0.12 $ 0.09 $ 0.34 $ 0.15
========================================================================
Diluted $ 0.09 $ 0.08 $ 0.26 $ 0.14
========================================================================
Shares used in per share calculation:
Basic 3,370 3,913 3,254 4,539
========================================================================
Diluted 4,307 4,010 4,186 4,586
========================================================================
CASTELLE
GAAP To Pro Forma Reconciliation
(in thousands, except per share data)
Three months ended Twelve months ended
December 31, 2003 December 31, 2002
--------------------------------------------------------------------------------
GAAP Excluded Pro forma GAAP Excluded Pro forma
---- -------- --------- ---- -------- ---------
Net sales $ 2,637 - $2,637 $ 10,214 - $ 10,214
Cost of sales 660 - 660 2,485 - 2,485
Gross profit 1,977 - 1,977 7,729 - 7,729
Operating expenses:
Research and development 379 - 379 1,590 - 1,590
Sales and marketing 790 - 790 3,131 - 3,131
General and administrative 439 - 439 1,902 - 1,902
Total operating expenses 1,608 - 1,608 6,623 - 6,623
Operating income 369 - 369 1,106 - 1,106
Other income/(expenses), net 9 - 9 (10) - (10)
--------------------------------------------------------------------------------
Income before income taxes 378 - 378 1,096 - 1,096
Provision (benefit) for income taxes (543) 526 (17) (537) 526 (11)
--------------------------------------------------------------------------------
Net income $ 921 ($526) $ 395 $ 1,633 ($526) $ 1,107
================================================================================
Net income per common share:
Basic $ 0.27 ($0.15) $ 0.12 $ 0.50 ($0.16) $ 0.34
================================================================================
Diluted $ 0.21 ($0.12) $ 0.09 $ 0.39 ($0.13) $ 0.26
================================================================================
Shares used in per share calculation:
Basic 3,370 3,370 3,370 3,254 3,254 3,254
================================================================================
Diluted 4,307 4,307 4,304 4,186 4,186 4,186
================================================================================
CASTELLE
Condensed Consolidated Balance Sheets
(in thousands)
December 31, 2003 December 31, 2002
------------------------- ------------------------
Assets
Current assets:
Cash and cash equivalents $ 4,614 $ 3,460
Accounts receivable, net 873 444
Inventories 1,177 1,110
Prepaid and other assets 134 88
Deferred taxes 380 -
------------------------- ------------------------
Total current assets 7,178 5,102
Property, plant & equipment, net 376 425
Other assets, net 103 108
Deferred taxes 146 -
------------------------- ------------------------
Total assets $ 7,803 $ 5,635
========================= ========================
Liabilities & shareholders' equity
Current liabilities:
Long-term debt, current portion $ 16 $ 21
Accounts payable 314 359
Accrued liabilities 2,668 2,288
------------------------- ------------------------
Total current liabilities 2,998 2,668
Long-term debt, net of current portion 29 44
------------------------- ------------------------
Total liabilities 3,027 2,712
Shareholders' equity 4,776 2,923
------------------------- ------------------------
Total liabilities & shareholders' equity $7,803 $ 5,635
========================= ========================