Redback Networks Inc. (NASDAQ:RBAK), a leading provider of next
generation broadband networking systems, today announced its third
quarter results for the period ending September 30, 2006. Net
revenue increased 95 percent to $70.9 million for the third quarter
of 2006 compared to $36.4 million for the same quarter last year.
Net revenue was up 4 percent for the third quarter of 2006 compared
to the second quarter of 2006. Redback Networks generated $4.5
million in cash in the third quarter of 2006, boosting its overall
cash total to $176.0 million. Redback Networks also added 18 new
customers in the third quarter for its SmartEdge� family of
multi-service edge routers, including a top 20 carrier worldwide.
In less than two years, Redback has won more than 200 SmartEdge
customers worldwide, including 12 of the largest 20 carriers.
Redback has more than 500 SmartEdge and SMS customers worldwide,
including 15 of the 20 largest carriers. "On a worldwide basis,
Redback continues to drive the wire-line carrier market in the
deployment of triple-play networks,� said Kevin DeNuccio, president
and chief executive officer, Redback Networks. �Broadband networks
are becoming more video-centric and we believe Redback and
SmartEdge technology are at the center of a paradigm shift in
network routing to multi-service broadband networks.� �We believe
up to 2 billion wireless and wire-line customers will be upgraded
to new broadband networks from 250 million broadband users today,�
said DeNuccio. �This network upgrade is up to ten times larger than
the last Internet build-out. This trend reinforces our vision that
a single broadband network will unify communication and
entertainment services over time. In short, the network is shaping
up to be the next mass medium.� GAAP net loss for the third quarter
of 2006 was $2.4 million or $(0.03) per share attributable to
common stockholders compared to a GAAP net loss of $8.4 million or
$(0.15) per share in the third quarter of 2005. Non-GAAP net income
was $9.1 million or $0.12 per share, compared to a non-GAAP net
loss of $4.2 million or $(0.08) per share for the third quarter of
2005. Excluded from the non-GAAP results for the third quarter of
2006 were charges relating to amortization of intangible assets,
stock-based compensation, amortization of the fair value of
warrants issued in connection with a lease agreement, certain
federal and state income taxes, and accretion of a dividend payable
to preferred stockholders which was in the second quarter of 2006
and the previous quarters. For comparative purposes, GAAP pre-tax
income excluding stock-based compensation for the third quarter of
2006 was $6.4 million, compared with a GAAP pre-tax loss excluding
stock-based compensation of $7.3 million for the third quarter of
2005. With the adoption of Statement of Financial Accounting
Standards No. 123R (FAS 123R) as of January 1, 2006, Redback
Networks is reporting stock-based compensation expense in its
generally accepted accounting principles (GAAP) results. See the
attached table for a reconciliation of our GAAP results to non-GAAP
results. Third Quarter Conference Call, October 19, 2006, 1:45 p.m.
Redback Networks will discuss these quarterly results in an
investor conference call today at 1:45 p.m. Pacific Time. The
conference telephone number is: Domestic Dial-in: 1-800-559-2403
and International Dial-in: 1-847-619-6534. A live web cast is also
available from the investor relations portion of the Redback�s web
site, http://ir.redback.com. A telephone replay of the conference
call will be available later in the day. Replay information will be
available at Domestic Dial-in: 1-877-213-9653 and International
Dial-in: 1-630-652-3041 Passcode: 15121699. Information on these
calls and web cast can also be found on the company�s web site.
Twelve of the top 20 carriers worldwide deploy Redback's SmartEdge
family of multi-service edge routers to deliver multiple broadband
services to tens of millions of business and residential customers
worldwide. These customers include British Telecom, Belgacom,
BellSouth, China Telecom, China Netcom, Chunghwa Telecom (Korea),
France Telecom and Turk Telecom, among others. About Redback
Networks Redback Networks Inc. manages 50 million broadband
connections (SMS+SmartEdge products) for 15 of the top 20 carriers
worldwide. Redback�s multi-service routing platform delivers next
generation broadband services such as VoIP, IPTV, Video-on-Demand
and on-line gaming. Redback Networks has more than 500 carrier
customers worldwide and is based in San Jose, CA. In 2006, Redback
marks its 10 year anniversary, celebrating ten years of broadband
innovation. For more information, visit Redback Networks at
www.redback.com. REDBACK and SmartEdge are trademarks registered at
the U.S. Patent and Trademark Office and in other countries. NetOp
is a trademark of Redback Networks Inc. All other products or
services mentioned are the trademark, service marks, registered
trademarks or registered service marks of their respective owners.
Note Regarding Forward Looking Statements The statements contained
in this press release that are not purely historical are
forward-looking statements which are subject to the safe harbor
provisions of the Private Litigation reform Act of 1995. These
statements include but are not limited to statements regarding our
expected financial results, our expectations of continued growth of
our SmartEdge product line and our customer base, expectations
regarding the trend in growth of upgrades to broadband networks and
the expected impact on the growth of the Company as a result of
such trends. These statements are only predictions and involve a
number of risks and uncertainties, the outcome of which could
materially and/or adversely affect Redback�s actual future results.
These risks include without limitation the following: final review
of quarterly results by the Company�s independent auditors; growth
trends in the networking industry and in various geographic
regions; variations in customer demand for products and services;
the timing of orders and manufacturing lead times; changes in
customer order trends or customer or product mix, and other risks
relating to Redback�s business as set forth in the Annual Report on
Form 10-K for the year ended December 31, 2005, the Quarterly
Report on Form 10-Q for the quarter ended June 30, 2006, and
Redback�s other most recent reports on Form 10-Q and Form 8-K, and
amendments thereto, on file with the Securities and Exchange
Commission (SEC), and other reports filed with the SEC from time to
time. All forward-looking statements included in this document are
based upon information available as of the date hereof, and Redback
assumes no obligation to update these statements. Non-GAAP
Disclosure To supplement our consolidated financial statements
presented in accordance with GAAP, we use non-GAAP financial
measures, which are adjusted from results based on GAAP to exclude
certain items. These non-GAAP measures are provided to enhance the
user�s overall understanding of our current financial performance
and our prospects in the future. Specifically, we believe the
non-GAAP measures provide useful information to both management and
investors by excluding certain items that we believe are not
indicative of our core operating results. The presentation of this
additional information is not meant to be considered in isolation
or as a substitute for results prepared in accordance with United
States GAAP. � Redback Networks Inc. Condensed Consolidated Balance
Sheets (In thousands) (unaudited) � � � � September 30, 2006
December 31, 2005 Assets � Current assets: Cash and cash
equivalents $ 175,999� $ 43,764� Accounts receivable, net 35,551�
32,708� Inventories 9,029� 12,933� Other current assets � 5,825� �
8,204� Total current assets 226,404� 97,609� � Property and
equipment, net 21,818� 16,944� Goodwill 142,532� 144,401�
Intangibles, net 47,708� 55,669� Other assets � 1,211� � 1,391�
Total assets $ 439,673� $ 316,014� � Liabilities, Mandatory
Redeemable Convertible Preferred Stock, and Stockholders' Equity �
Current liabilities: Accounts payable $ 35,290� $ 28,664� Accrued
liabilities 20,884� 14,759� Borrowings and capital lease
obligations 317� 372� Deferred revenue � 18,212� � 18,288� Total
current liabilities 74,703� 62,083� � Deferred revenue, net of
current portion 13,094� 7,036� Long term liabilities � 1,064� �
1,579� Total liabilities 88,861� 70,698� � Mandatory redeemable
convertible preferred stock -� 47,897� � Stockholders' equity �
350,812� � 197,419� Total liabilities, mandatory redeemable
convertible preferred stock and stockholders' equity $ 439,673� $
316,014� Redback Networks Inc. Condensed Consolidated Statements of
Operations (In thousands, except per share amounts) (unaudited) �
Three Months Ended Nine Months Ended September 30, 2006 June 30,
2006 September 30, 2005 September 30, 2006 September 30, 2005 � Net
revenue $ 70,910� $ 68,222� $ 36,431� $ 196,991� $ 105,277� � Cost
of revenue, excluding amortization 27,368� 27,063� 15,705� 77,037�
42,353� Amortization � 2,706� � 2,709� � 2,726� � 8,122� � 8,170�
Total cost of revenue 30,074� 29,772� 18,431� 85,159� 50,523� � � �
� � Gross profit � 40,836� � 38,450� � 18,000� � 111,832� � 54,754�
� Operating expenses: Research and development 22,694� 20,158�
14,428� 59,985� 44,254� Selling, general and administrative �
22,172� � 19,696� � 11,192� � 59,632� � 32,329� Total operating
expenses � 44,866� � 39,854� � 25,620� � 119,617� � 76,583� � Loss
from operations (4,030) (1,404) (7,620) (7,785) (21,829) � Other
income (loss), net � 2,105� � 953� � (677) � 4,111� � (184) � Loss
before income taxes (1,925) (451) (8,297) (3,674) (22,013) �
Provision for income taxes � 464� � 1,316� � (52) � 2,915� � 212� �
Net loss (2,389) (1,767) (8,245) (6,589) (22,225) � Deemed dividend
and accretion on preferred stock � -� � 113� � 155� � 269� � 461�
Net loss attributable to common stockholders $ (2,389) $ (1,880) $
(8,400) $ (6,858) $ (22,686) � Net loss attributable to common
stockholders per share: Basic $ (0.03) $ (0.03) $ (0.15) $ (0.11) $
(0.42) Diluted $ (0.03) $ (0.03) $ (0.15) $ (0.11) $ (0.42) �
Shares used in computing net loss attributable to common
stockholders per share: Basic � 69,253� � 61,400� � 54,649� �
62,387� � 54,081� Diluted � 69,253� � 61,400� � 54,649� � 62,387� �
54,081� � � Three Months Ended Nine Months Ended September 30, 2006
June 30, 2006 September 30, 2005 September 30, 2006 September 30,
2005 (1) Includes stock-based compensation expense as follows: Cost
of product revenue $ 665� $ 470� $ 87� $ 1,422� $ 265� Research and
development 3,036� 1,978� 205� 6,247� 657� Selling, general and
administrative � 4,635� � 2,892� � 692� � 9,077� � 2,103� Total
stock-based compensation expense $ 8,336� $ 5,340� $ 984� $ 16,746�
$ 3,025� Redback Networks Inc. Reconciliation of GAAP to Non-GAAP
Measures (In thousands, except per share amounts) (unaudited) �
Three Months Ended Nine Months Ended September 30, 2006 June 30,
2006 September 30, 2005 September 30, 2006 September 30, 2005 �
GAAP net loss $ (2,389) $ (1,880) $ (8,400) $ (6,858) $ (22,686)
Adjustments to reconcile GAAP net loss to non-GAAP net income:
Amortization of intangible assets - cost of revenue 2,654� 2,654�
2,654� 7,962� 7,962� Amortization of landlord warrants - cost of
revenue 52� 55� 72� 160� 208� Amortization of landlord warrants -
R&D expense 291� 289� 327� 868� 1,204� Amortization of landlord
warrants - SG&A expense 136� 135� 80� 409� 233� Stock-based
compensation - cost of revenue 665� 470� 87� 1,422� 265�
Stock-based compensation - R&D expense 3,036� 1,978� 205�
6,247� 657� Stock-based compensation - SG&A expense 4,635�
2,892� 692� 9,077� 2,103� Accretion of preferred stock dividend -�
113� 155� 269� 461� Other income -� -� (43) (619) (140) Income tax
effect for Non-GAAP 4� 936� -� 1,790� -� � � � � � Non-GAAP net
income (loss) $ 9,084� $ 7,642� $ (4,171) $ 20,727� $ (9,733)
Non-GAAP net income (loss) per share: Basic $ 0.13� $ 0.12� $
(0.08) $ 0.33� $ (0.18) Diluted $ 0.12� $ 0.10� $ (0.08) $ 0.27� $
(0.18) � Shares used in computing net income (loss) per share:
Basic � 69,253� � 61,400� � 54,649� � 62,387� � 54,081� Diluted �
78,876� � 78,429� � 54,649� � 77,487� � 54,081� � � Use of Non-GAAP
financial information � The non-GAAP information provided in this
press release is a supplement to, and not a substitute for, our
financial results presented in accordance with GAAP. To supplement
our condensed consolidated financial statements presented in
accordance with GAAP, we use non-GAAP financial measures, which are
adjusted from results based on GAAP to exclude certain costs and
expenses. These non-GAAP measures are provided to enhance the
user's overall understanding of our operating performance and our
prospects in the future. Specifically, we believe the non-GAAP
measures provide useful information to both management and
investors regarding financial and business trends relating to our
financial performance by excluding certain costs and expenses that
we believe are not indicative of our core operating results. These
non-GAAP measures are among budgeting and planning tools that
management uses for future forecasting. The presentation of this
additional information is not meant to be considered in isolation
or as a substitute for results prepared in accordance with United
States GAAP. � Stock-based compensation � Redback has incurred
stock-based compensation expense under SFAS 123R for fiscal year
2006, and under APB 25 for earlier comparable periods in its GAAP
financial results. We exclude this item for the purpose of
calculating non-GAAP operating income, non-GAAP net income and
non-GAAP net income per share. The exclusion of stock-based
compensation from the non-GAAP measures is done to allow for a
consistent comparison of the Company's relative historical
financial performance, since the method for accounting for
stock-based compensation changed at the beginning of fiscal year
2006. The nature of stock-based compensation expense also makes it
very difficult to estimate prospectively, since the expense will
vary with changes in the stock price and market conditions at the
time of new grants, varying valuation methodologies, subjective
assumptions and different award types, making the comparison of
current results with forward guidance potentially difficult for
investors to interpret. The tax effects of stock-based compensation
expenses may also vary significantly from period to period, without
any change in underlying performance, thereby obscuring the
underlying profitability of operations relative to prior periods
(including prior periods following the adoption of SFAS 123R). �
Amortization of intangible assets � Amortization of other
intangible assets is excluded from the Company�s non-GAAP financial
measures because it represents a non-cash expense that has no
effect on current or future period cash flows or operations of the
Company. The basis for the amortization comes as a result of the
Company�s emergence from bankruptcy and the adoption of fresh-start
reporting in January 2004, a one-time non-recurring event outside
of the course of normal business operations. This isolated event
and its related financial reporting impact are not indicative of
our ongoing operational performance. � Amortization of fair value
of warrants issued in connection with a lease agreement �
Amortization of fair value of warrants issued in connection with a
lease agreement is excluded from the Company�s non-GAAP financial
measures because it represents a non-cash expense that has no
effect on current or future period cash flows or operations of the
Company. As part of the Company�s bankruptcy plan, the Company
rejected all US based operating leases and entered into new
agreements effective January 3, 2004. In connection with the lease
of its corporate headquarters, the Company issued warrants to the
landlord, which were recorded as a deferred charge and are being
amortized over the life of the original lease which originally
expired on October 31, 2006. This one-time non-recurring event and
its related financial reporting impact are not indicative of our
ongoing operational performance. � Income Tax Amount represents
primarily the federal and state income tax expense from the
utilization of pre-bankruptcy tax net operating losses that was
recorded as a reduction of goodwill for GAAP purposes, off set by
federal and state alternative minimum taxes used for non-GAAP
purposes. Redback Networks Inc. Condensed Consolidated Statements
of Cash Flows (In thousands) (Unaudited) � Nine months ended Nine
months ended September 30, 2006 September 30, 2005 CASH FLOWS FROM
OPERATING ACTIVITIES Net loss before deemed dividend and accretion
on preferred stock $ (6,589) $ (22,225) Adjustments to reconcile
net loss to net cash used in operating activities: � Depreciation
and amortization 17,608� 20,029� Stock-based compensation 16,746�
3,025� Gain on sale of investment (619) �� � Changes in assets and
liabilities: Accounts receivable, net (2,843) 3,310� Inventories
(1,997) (7,433) Other assets 1,290� (2,113) Accounts payable and
accrued liabilities 14,620� 4,234� Deferred revenue 5,982� (1,016)
Other long-term liabilities � (91) � (267) Net cash provided by
(used in) operating activities � 44,107� � (2,456) � CASH FLOWS
FROM INVESTING ACTIVITIES � Purchases of property and equipment
(7,135) (7,080) Proceeds from sale of equity investments � 619� �
�� Net cash used in investing activities � (6,516) � (7,080) � CASH
FLOWS FROM FINANCING ACTIVITIES � Proceeds from issuance of stock
and exercise of warrants 12,030� 7,663� Proceeds from bank
borrowings �� 4,000� Principal payments on capital lease
obligations (479) (2,169) Proceeds from issuance of common stock
upon offering (net of issuance cost) � 83,093� � �� Net cash
provided by financing activities � 94,644� � 9,494� � Net increase
(decrease) in cash and cash equivalents 132,235� (42) Cash and cash
equivalents at beginning of period � 43,764� � 42,558� Cash and
Cash equivalents at end of period $ 175,999� $ 42,516� Redback
Networks Inc. (NASDAQ:RBAK), a leading provider of next generation
broadband networking systems, today announced its third quarter
results for the period ending September 30, 2006. Net revenue
increased 95 percent to $70.9 million for the third quarter of 2006
compared to $36.4 million for the same quarter last year. Net
revenue was up 4 percent for the third quarter of 2006 compared to
the second quarter of 2006. Redback Networks generated $4.5 million
in cash in the third quarter of 2006, boosting its overall cash
total to $176.0 million. Redback Networks also added 18 new
customers in the third quarter for its SmartEdge(R) family of
multi-service edge routers, including a top 20 carrier worldwide.
In less than two years, Redback has won more than 200 SmartEdge
customers worldwide, including 12 of the largest 20 carriers.
Redback has more than 500 SmartEdge and SMS customers worldwide,
including 15 of the 20 largest carriers. "On a worldwide basis,
Redback continues to drive the wire-line carrier market in the
deployment of triple-play networks," said Kevin DeNuccio, president
and chief executive officer, Redback Networks. "Broadband networks
are becoming more video-centric and we believe Redback and
SmartEdge technology are at the center of a paradigm shift in
network routing to multi-service broadband networks." "We believe
up to 2 billion wireless and wire-line customers will be upgraded
to new broadband networks from 250 million broadband users today,"
said DeNuccio. "This network upgrade is up to ten times larger than
the last Internet build-out. This trend reinforces our vision that
a single broadband network will unify communication and
entertainment services over time. In short, the network is shaping
up to be the next mass medium." GAAP net loss for the third quarter
of 2006 was $2.4 million or $(0.03) per share attributable to
common stockholders compared to a GAAP net loss of $8.4 million or
$(0.15) per share in the third quarter of 2005. Non-GAAP net income
was $9.1 million or $0.12 per share, compared to a non-GAAP net
loss of $4.2 million or $(0.08) per share for the third quarter of
2005. Excluded from the non-GAAP results for the third quarter of
2006 were charges relating to amortization of intangible assets,
stock-based compensation, amortization of the fair value of
warrants issued in connection with a lease agreement, certain
federal and state income taxes, and accretion of a dividend payable
to preferred stockholders which was in the second quarter of 2006
and the previous quarters. For comparative purposes, GAAP pre-tax
income excluding stock-based compensation for the third quarter of
2006 was $6.4 million, compared with a GAAP pre-tax loss excluding
stock-based compensation of $7.3 million for the third quarter of
2005. With the adoption of Statement of Financial Accounting
Standards No. 123R (FAS 123R) as of January 1, 2006, Redback
Networks is reporting stock-based compensation expense in its
generally accepted accounting principles (GAAP) results. See the
attached table for a reconciliation of our GAAP results to non-GAAP
results. Third Quarter Conference Call, October 19, 2006, 1:45 p.m.
Redback Networks will discuss these quarterly results in an
investor conference call today at 1:45 p.m. Pacific Time. The
conference telephone number is: Domestic Dial-in: 1-800-559-2403
and International Dial-in: 1-847-619-6534. A live web cast is also
available from the investor relations portion of the Redback's web
site, http://ir.redback.com. A telephone replay of the conference
call will be available later in the day. Replay information will be
available at Domestic Dial-in: 1-877-213-9653 and International
Dial-in: 1-630-652-3041 Passcode: 15121699. Information on these
calls and web cast can also be found on the company's web site.
Twelve of the top 20 carriers worldwide deploy Redback's SmartEdge
family of multi-service edge routers to deliver multiple broadband
services to tens of millions of business and residential customers
worldwide. These customers include British Telecom, Belgacom,
BellSouth, China Telecom, China Netcom, Chunghwa Telecom (Korea),
France Telecom and Turk Telecom, among others. About Redback
Networks Redback Networks Inc. manages 50 million broadband
connections (SMS+SmartEdge products) for 15 of the top 20 carriers
worldwide. Redback's multi-service routing platform delivers next
generation broadband services such as VoIP, IPTV, Video-on-Demand
and on-line gaming. Redback Networks has more than 500 carrier
customers worldwide and is based in San Jose, CA. In 2006, Redback
marks its 10 year anniversary, celebrating ten years of broadband
innovation. For more information, visit Redback Networks at
www.redback.com. REDBACK and SmartEdge are trademarks registered at
the U.S. Patent and Trademark Office and in other countries. NetOp
is a trademark of Redback Networks Inc. All other products or
services mentioned are the trademark, service marks, registered
trademarks or registered service marks of their respective owners.
Note Regarding Forward Looking Statements The statements contained
in this press release that are not purely historical are
forward-looking statements which are subject to the safe harbor
provisions of the Private Litigation reform Act of 1995. These
statements include but are not limited to statements regarding our
expected financial results, our expectations of continued growth of
our SmartEdge product line and our customer base, expectations
regarding the trend in growth of upgrades to broadband networks and
the expected impact on the growth of the Company as a result of
such trends. These statements are only predictions and involve a
number of risks and uncertainties, the outcome of which could
materially and/or adversely affect Redback's actual future results.
These risks include without limitation the following: final review
of quarterly results by the Company's independent auditors; growth
trends in the networking industry and in various geographic
regions; variations in customer demand for products and services;
the timing of orders and manufacturing lead times; changes in
customer order trends or customer or product mix, and other risks
relating to Redback's business as set forth in the Annual Report on
Form 10-K for the year ended December 31, 2005, the Quarterly
Report on Form 10-Q for the quarter ended June 30, 2006, and
Redback's other most recent reports on Form 10-Q and Form 8-K, and
amendments thereto, on file with the Securities and Exchange
Commission (SEC), and other reports filed with the SEC from time to
time. All forward-looking statements included in this document are
based upon information available as of the date hereof, and Redback
assumes no obligation to update these statements. Non-GAAP
Disclosure To supplement our consolidated financial statements
presented in accordance with GAAP, we use non-GAAP financial
measures, which are adjusted from results based on GAAP to exclude
certain items. These non-GAAP measures are provided to enhance the
user's overall understanding of our current financial performance
and our prospects in the future. Specifically, we believe the
non-GAAP measures provide useful information to both management and
investors by excluding certain items that we believe are not
indicative of our core operating results. The presentation of this
additional information is not meant to be considered in isolation
or as a substitute for results prepared in accordance with United
States GAAP. -0- *T Redback Networks Inc. Condensed Consolidated
Balance Sheets (In thousands) (unaudited)
------------------------------------ September 30, 2006 December
31, 2005 ------------------ ----------------- Assets Current
assets: Cash and cash equivalents $ 175,999 $ 43,764 Accounts
receivable, net 35,551 32,708 Inventories 9,029 12,933 Other
current assets 5,825 8,204 ------------------ -----------------
Total current assets 226,404 97,609 Property and equipment, net
21,818 16,944 Goodwill 142,532 144,401 Intangibles, net 47,708
55,669 Other assets 1,211 1,391 ------------------
----------------- Total assets $ 439,673 $ 316,014
================== ================= Liabilities, Mandatory
Redeemable Convertible Preferred Stock, and Stockholders' Equity
Current liabilities: Accounts payable $ 35,290 $ 28,664 Accrued
liabilities 20,884 14,759 Borrowings and capital lease obligations
317 372 Deferred revenue 18,212 18,288 ------------------
----------------- Total current liabilities 74,703 62,083 Deferred
revenue, net of current portion 13,094 7,036 Long term liabilities
1,064 1,579 ------------------ ----------------- Total liabilities
88,861 70,698 Mandatory redeemable convertible preferred stock -
47,897 Stockholders' equity 350,812 197,419 ------------------
----------------- Total liabilities, mandatory redeemable
convertible preferred stock and stockholders' equity $ 439,673 $
316,014 ================== ================= *T -0- *T Redback
Networks Inc. Condensed Consolidated Statements of Operations (In
thousands, except per share amounts) (unaudited) Three Months Ended
Nine Months Ended ---------------------------- -------------------
September June 30, September September September 30, 2006 2006 30,
2005 30, 2006 30, 2005 --------- -------- --------- ---------
--------- Net revenue $ 70,910 $68,222 $ 36,431 $196,991 $105,277
Cost of revenue, excluding amortization 27,368 27,063 15,705 77,037
42,353 Amortization 2,706 2,709 2,726 8,122 8,170 ---------
-------- --------- --------- --------- Total cost of revenue 30,074
29,772 18,431 85,159 50,523 --------- -------- --------- ---------
--------- Gross profit 40,836 38,450 18,000 111,832 54,754
--------- -------- --------- --------- --------- Operating
expenses: Research and development 22,694 20,158 14,428 59,985
44,254 Selling, general and administrative 22,172 19,696 11,192
59,632 32,329 --------- -------- --------- --------- ---------
Total operating expenses 44,866 39,854 25,620 119,617 76,583
--------- -------- --------- --------- --------- Loss from
operations (4,030) (1,404) (7,620) (7,785) (21,829) Other income
(loss), net 2,105 953 (677) 4,111 (184) --------- --------
--------- --------- --------- Loss before income taxes (1,925)
(451) (8,297) (3,674) (22,013) Provision for income taxes 464 1,316
(52) 2,915 212 --------- -------- --------- --------- --------- Net
loss (2,389) (1,767) (8,245) (6,589) (22,225) Deemed dividend and
accretion on preferred stock - 113 155 269 461 --------- --------
--------- --------- --------- Net loss attributable to common
stockholders $ (2,389) $(1,880) $ (8,400) $ (6,858) $(22,686)
========= ======== ========= ========= ========= Net loss
attributable to common stockholders per share: Basic $ (0.03) $
(0.03) $ (0.15) $ (0.11) $ (0.42) ========= ======== =========
========= ========= Diluted $ (0.03) $ (0.03) $ (0.15) $ (0.11) $
(0.42) ========= ======== ========= ========= ========= Shares used
in computing net loss attributable to common stockholders per
share: Basic 69,253 61,400 54,649 62,387 54,081 ========= ========
========= ========= ========= Diluted 69,253 61,400 54,649 62,387
54,081 ========= ======== ========= ========= ========= Three
Months Ended Nine Months Ended ----------------------------
------------------- September June 30, September September
September 30, 2006 2006 30, 2005 30, 2006 30, 2005 ---------
-------- --------- --------- --------- (1) Includes stock- based
compensation expense as follows: Cost of product revenue $ 665 $
470 $ 87 $ 1,422 $ 265 Research and development 3,036 1,978 205
6,247 657 Selling, general and administrative 4,635 2,892 692 9,077
2,103 --------- -------- --------- --------- --------- Total
stock-based compensation expense $ 8,336 $ 5,340 $ 984 $ 16,746 $
3,025 ========= ======== ========= ========= ========= *T -0- *T
Redback Networks Inc. Reconciliation of GAAP to Non-GAAP Measures
(In thousands, except per share amounts) (unaudited) Three Months
Ended Nine Months Ended ----------------------------
------------------- September June 30, September September
September 30, 2006 2006 30, 2005 30, 2006 30, 2005 ---------
-------- --------- --------- --------- GAAP net loss $ (2,389)
$(1,880) $ (8,400) $ (6,858) $(22,686) Adjustments to reconcile
GAAP net loss to non-GAAP net income: Amortization of intangible
assets - cost of revenue 2,654 2,654 2,654 7,962 7,962 Amortization
of landlord warrants - cost of revenue 52 55 72 160 208
Amortization of landlord warrants - R&D expense 291 289 327 868
1,204 Amortization of landlord warrants - SG&A expense 136 135
80 409 233 Stock-based compensation - cost of revenue 665 470 87
1,422 265 Stock-based compensation - R&D expense 3,036 1,978
205 6,247 657 Stock-based compensation - SG&A expense 4,635
2,892 692 9,077 2,103 Accretion of preferred stock dividend - 113
155 269 461 Other income - - (43) (619) (140) Income tax effect for
Non-GAAP 4 936 - 1,790 - --------- -------- --------- ---------
--------- Non-GAAP net income (loss) $ 9,084 $ 7,642 $ (4,171) $
20,727 $ (9,733) ========= ======== ========= ========= =========
Non-GAAP net income (loss) per share: Basic $ 0.13 $ 0.12 $ (0.08)
$ 0.33 $ (0.18) ========= ======== ========= ========= =========
Diluted $ 0.12 $ 0.10 $ (0.08) $ 0.27 $ (0.18) ========= ========
========= ========= ========= Shares used in computing net income
(loss) per share: Basic 69,253 61,400 54,649 62,387 54,081
========= ======== ========= ========= ========= Diluted 78,876
78,429 54,649 77,487 54,081 ========= ======== ========= =========
========= Use of Non-GAAP financial information The non-GAAP
information provided in this press release is a supplement to, and
not a substitute for, our financial results presented in accordance
with GAAP. To supplement our condensed consolidated financial
statements presented in accordance with GAAP, we use non-GAAP
financial measures, which are adjusted from results based on GAAP
to exclude certain costs and expenses. These non-GAAP measures are
provided to enhance the user's overall understanding of our
operating performance and our prospects in the future.
Specifically, we believe the non-GAAP measures provide useful
information to both management and investors regarding financial
and business trends relating to our financial performance by
excluding certain costs and expenses that we believe are not
indicative of our core operating results. These non-GAAP measures
are among budgeting and planning tools that management uses for
future forecasting. The presentation of this additional information
is not meant to be considered in isolation or as a substitute for
results prepared in accordance with United States GAAP. Stock-based
compensation
----------------------------------------------------------------------
Redback has incurred stock-based compensation expense under SFAS
123R for fiscal year 2006, and under APB 25 for earlier comparable
periods in its GAAP financial results. We exclude this item for the
purpose of calculating non-GAAP operating income, non-GAAP net
income and non-GAAP net income per share. The exclusion of
stock-based compensation from the non-GAAP measures is done to
allow for a consistent comparison of the Company's relative
historical financial performance, since the method for accounting
for stock-based compensation changed at the beginning of fiscal
year 2006. The nature of stock-based compensation expense also
makes it very difficult to estimate prospectively, since the
expense will vary with changes in the stock price and market
conditions at the time of new grants, varying valuation
methodologies, subjective assumptions and different award types,
making the comparison of current results with forward guidance
potentially difficult for investors to interpret. The tax effects
of stock-based compensation expenses may also vary significantly
from period to period, without any change in underlying
performance, thereby obscuring the underlying profitability of
operations relative to prior periods (including prior periods
following the adoption of SFAS 123R). Amortization of intangible
assets
----------------------------------------------------------------------
Amortization of other intangible assets is excluded from the
Company's non-GAAP financial measures because it represents a
non-cash expense that has no effect on current or future period
cash flows or operations of the Company. The basis for the
amortization comes as a result of the Company's emergence from
bankruptcy and the adoption of fresh-start reporting in January
2004, a one-time non-recurring event outside of the course of
normal business operations. This isolated event and its related
financial reporting impact are not indicative of our ongoing
operational performance. Amortization of fair value of warrants
issued in connection with a lease agreement
----------------------------------------------------------------------
Amortization of fair value of warrants issued in connection with a
lease agreement is excluded from the Company's non-GAAP financial
measures because it represents a non-cash expense that has no
effect on current or future period cash flows or operations of the
Company. As part of the Company's bankruptcy plan, the Company
rejected all US based operating leases and entered into new
agreements effective January 3, 2004. In connection with the lease
of its corporate headquarters, the Company issued warrants to the
landlord, which were recorded as a deferred charge and are being
amortized over the life of the original lease which originally
expired on October 31, 2006. This one-time non-recurring event and
its related financial reporting impact are not indicative of our
ongoing operational performance. Income Tax
----------------------------------------------------------------------
Amount represents primarily the federal and state income tax
expense from the utilization of pre-bankruptcy tax net operating
losses that was recorded as a reduction of goodwill for GAAP
purposes, off set by federal and state alternative minimum taxes
used for non-GAAP purposes. *T -0- *T Redback Networks Inc.
Condensed Consolidated Statements of Cash Flows (In thousands)
(Unaudited) Nine months ended Nine months ended September 30, 2006
September 30, 2005 ------------------ ------------------ CASH FLOWS
FROM OPERATING ACTIVITIES Net loss before deemed dividend and
accretion on preferred stock $ (6,589) $ (22,225) Adjustments to
reconcile net loss to net cash used in operating activities:
Depreciation and amortization 17,608 20,029 Stock-based
compensation 16,746 3,025 Gain on sale of investment (619) --
Changes in assets and liabilities: Accounts receivable, net (2,843)
3,310 Inventories (1,997) (7,433) Other assets 1,290 (2,113)
Accounts payable and accrued liabilities 14,620 4,234 Deferred
revenue 5,982 (1,016) Other long-term liabilities (91) (267)
------------------ ------------------ Net cash provided by (used
in) operating activities 44,107 (2,456) ------------------
------------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchases
of property and equipment (7,135) (7,080) Proceeds from sale of
equity investments 619 -- ------------------ ------------------ Net
cash used in investing activities (6,516) (7,080)
------------------ ------------------ CASH FLOWS FROM FINANCING
ACTIVITIES Proceeds from issuance of stock and exercise of warrants
12,030 7,663 Proceeds from bank borrowings -- 4,000 Principal
payments on capital lease obligations (479) (2,169) Proceeds from
issuance of common stock upon offering (net of issuance cost)
83,093 -- ------------------ ------------------ Net cash provided
by financing activities 94,644 9,494 ------------------
------------------ Net increase (decrease) in cash and cash
equivalents 132,235 (42) Cash and cash equivalents at beginning of
period 43,764 42,558 ------------------ ------------------ Cash and
Cash equivalents at end of period $ 175,999 $ 42,516
================== ================== *T
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