Announcement posted by Enterasys Networks 29 Apr 2003
Company drives improvements across organization
Improves gross margin to 50.7% and reduces operating expenses
Improves gross margin to 50.7% and reduces operating expenses
Enterasys Networks Inc. (NYSE: ETS), a leading provider of Business-Driven Networks for enterprise customers, today announced financial results for its first fiscal quarter ended March 29, 2003.
Consistent with the Companys previous guidance, net revenue for the first quarter of fiscal 2003 was $104.5 million. This compares with net revenue $121.2 million for the fourth quarter of fiscal 2002 and net revenue of $120.8 million for the first quarter of fiscal 2002. The Company narrowed its net loss available to common shareholders for the first quarter of fiscal 2003 to $14.5 million, or $0.07 per share, compared with a net loss of $30.6 million, or $0.15 per share for the fourth quarter of fiscal 2002, and a net loss of $13.7 million, or $0.07 per share, for the first quarter of fiscal 2002. The fourth and first quarters of fiscal 2002 included net tax benefits of $9.1 million and $61.0 million, respectively.
As of March 29, 2003, the Company had $236.6 million of cash and marketable securities on hand, including $24.6 million of restricted cash. The balance at March 29, 2003, reflects the Companys March 3, 2003 net redemption of all previously outstanding Series D&E preferred shares for $97.1 million in cash, and the Companys collection of approximately $25.5 million of net tax refunds during the first quarter. The Company generated $15.7 million of cash from its first quarter operating activities.
The Companys gross margin for the first quarter continued to improve to 50.7%, compared to a gross margin of 34.9% for the fourth quarter of fiscal 2002, and a gross margin of 40.0% for the first quarter of fiscal 2002. The sequential gross margin improvement in the first quarter resulted primarily from a lower provision for excess and obsolete inventory in the first quarter of fiscal 2003 versus the fourth quarter of fiscal 2002. In addition, the Company saw an improvement in product gross margin.
Total operating expenses for the first quarter declined 12.7% to $66.4 million, compared to $76.1 million in the fourth quarter of fiscal 2002, and $94.4 million in the first quarter of fiscal 2002.
While first quarter revenue declined from prior periods and continues to reflect the impact of a challenging economy, our overall results for the quarter show solid improvement across our operations, stated William K. OBrien, Chief Executive Officer of Enterasys Networks. We are encouraged by our progress to date in serving our installed base of customers well, driving further operational improvements, and, importantly, we have recently begun making strategic incursions into new customer accounts and channel partners. In addition, we believe our new N-Series of advanced layer 3 switches will enhance our competitive position and further strengthen our strategic relationships with customers and key partners.
The Company noted that sales in the first quarter were impacted by a decrease in purchasing levels among customers due to challenging economic conditions, seasonality, and the Companys current product transition. The decline also reflects a decrease in the Companys service revenue associated with lower maintenance contract renewal rates, and shipment delays by stocking distributors in the final days of the quarter.
While the Company did not provide guidance for the remainder of fiscal 2003, management stated that it has not changed its full year goals of achieving modest revenue growth, market share gains, sustainable positive operating cash flow, and profitability by the end of 2003.
We remain optimistic about our business prospects, but cautious in the short term, stated OBrien. We continue to influence factors within our control and focus on aligning our business model to achieve our goals. With the addition of new products and new management talent including Mark Aslett as President, and Leon Woo as EVP of Engineering, I am confident in our ability to drive further improvements and revitalize sales.
Enterasys' recently-announcedMatrix N-Series switching line includes the Matrix N7, the Matrix N3, and the Distributed Forwarding Engine (DFE) modules. The Matrix N7 is a 7-slot modular chassis, the Matrix N3 is a 3-slot modular chassis,andthe Distributed Forwarding Engines are a series of high-performance connectivity modules. Powered by Enterasys' distributed switching architecture, the Matrix N-Seriesoffers extensive management capabilities and a unique, high-availability design that delivers superior performance, scalability, and network availability. The advanced features,port density,and ease-of-use of the Matrix N-Series will help enterprise customers to utilize their networks to boost productivity and efficiency while controlling costs. And, because the Distributed Forwarding Engine modules work in Enterasys' current Matrix E7 chassis as well as the new N7 and N3 chassis, the N-Series offers excellent investment protection for both current customers and new customer alike.
Conference Call:
Enterasys Networks will host a conference call to further discuss these results. The call will be available for replay beginning at 8:00 pm ET today and ending May 8, 2003. To access the replay, dial (00 11 1) 877-519-4471 and enter pass code 3876945, or visit the investor relations section of Enterasys website located at http://www.enterasys.com/corporate/ir/
About Enterasys Networks
Enterasys Networks (NYSE: ETS) is a leading worldwide provider of Business-Driven Networks for enterprise-class customers. Enterasys innovative network infrastructure offerings deliver the security, productivity and agility benefits required by Global 2000 organizations, coupled with the industrys strongest service and support. For more information on Enterasys and its products, including multilayer switches and routers, wireless LANs, VPN, network management, and intrusion detection systems (IDS), visit www.enterasys.com
This press release contains projections and other forward-looking statements regarding the future revenue, cash flows and other financial performance ofus or other future events and circumstances, and actual results, events and circumstances could differ materially. Such statements include, but are not limited to, statements reflecting management's expectations regarding our future financial performance; strategic relationships and market opportunities; and our other business and marketing strategies and objectives. These statements may be identified with such words as "we expect", "we believe", "we anticipate", or similar indications of future expectations. These statements are neither promises nor guarantees, and involve risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Such risks and uncertainties include, among other things, the following factors: the lingering effects of the recently settled SEC investigation and our financial statement restatements could materially harm our business, operating results and financial condition; worldwide economic weakness, deteriorating market conditions and recent political and social turmoil have negatively affected our business and revenues and made forecasting more difficult, which could harm our financial condition; we have a history of losses in recent years and may not operate profitably in the future; our quarterly operating results are likely to fluctuate, which could cause us to fail to meet quarterly operating targets and result in a decline in our stock price; we earn a substantial portion of our revenue for each quarter in the last month of each quarter, which reduces our ability to accurately forecast our quarterly results and increases the risk that we will be unable to achieve previously forecasted results; we may need additional capital to fund our future operations and, if it is not available when needed, our business and financial condition may be harmed; pending and future litigation could materially harm our business, operating results and financial condition; the limitations of our director and officer liability insurance may materially harm our financial condition; our failure to improve our management information systems and internal controls could harm our business; we have experienced significant turnover of senior management and our current management team has been together for only a limited time, which could harm our business operations; retaining key management and employees is critical to our success; there is intense competition in the market for enterprise network equipment, which could prevent us from increasing our revenue and achieving profitability; we may be unable to expand our indirect distribution channels, which may hinder our ability to grow our customer base and increase our revenue; we expect the average selling prices of our products to decrease over time, which may reduce our revenue and gross margins; we use several key components for our products that we purchase from single or limited sources, and we could lose sales if these sources fail to fulfill our need on a timely basis; we depend upon a limited number of contract manufacturers for substantially all of our manufacturing requirements, and the loss of any of our primary contract manufacturers would impair our ability to meet the demands of our customers; and those additional risks and uncertainties discussed inour most recent filings with the Securities and Exchange Commission, includingour annual report on Form 10-K for the fiscal year ended December 28, 2002. Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date hereof. We expressly disclaim any obligation to publicly update or revise any such statements to reflect any change in these forward-looking statements, or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
Consistent with the Companys previous guidance, net revenue for the first quarter of fiscal 2003 was $104.5 million. This compares with net revenue $121.2 million for the fourth quarter of fiscal 2002 and net revenue of $120.8 million for the first quarter of fiscal 2002. The Company narrowed its net loss available to common shareholders for the first quarter of fiscal 2003 to $14.5 million, or $0.07 per share, compared with a net loss of $30.6 million, or $0.15 per share for the fourth quarter of fiscal 2002, and a net loss of $13.7 million, or $0.07 per share, for the first quarter of fiscal 2002. The fourth and first quarters of fiscal 2002 included net tax benefits of $9.1 million and $61.0 million, respectively.
As of March 29, 2003, the Company had $236.6 million of cash and marketable securities on hand, including $24.6 million of restricted cash. The balance at March 29, 2003, reflects the Companys March 3, 2003 net redemption of all previously outstanding Series D&E preferred shares for $97.1 million in cash, and the Companys collection of approximately $25.5 million of net tax refunds during the first quarter. The Company generated $15.7 million of cash from its first quarter operating activities.
The Companys gross margin for the first quarter continued to improve to 50.7%, compared to a gross margin of 34.9% for the fourth quarter of fiscal 2002, and a gross margin of 40.0% for the first quarter of fiscal 2002. The sequential gross margin improvement in the first quarter resulted primarily from a lower provision for excess and obsolete inventory in the first quarter of fiscal 2003 versus the fourth quarter of fiscal 2002. In addition, the Company saw an improvement in product gross margin.
Total operating expenses for the first quarter declined 12.7% to $66.4 million, compared to $76.1 million in the fourth quarter of fiscal 2002, and $94.4 million in the first quarter of fiscal 2002.
While first quarter revenue declined from prior periods and continues to reflect the impact of a challenging economy, our overall results for the quarter show solid improvement across our operations, stated William K. OBrien, Chief Executive Officer of Enterasys Networks. We are encouraged by our progress to date in serving our installed base of customers well, driving further operational improvements, and, importantly, we have recently begun making strategic incursions into new customer accounts and channel partners. In addition, we believe our new N-Series of advanced layer 3 switches will enhance our competitive position and further strengthen our strategic relationships with customers and key partners.
The Company noted that sales in the first quarter were impacted by a decrease in purchasing levels among customers due to challenging economic conditions, seasonality, and the Companys current product transition. The decline also reflects a decrease in the Companys service revenue associated with lower maintenance contract renewal rates, and shipment delays by stocking distributors in the final days of the quarter.
While the Company did not provide guidance for the remainder of fiscal 2003, management stated that it has not changed its full year goals of achieving modest revenue growth, market share gains, sustainable positive operating cash flow, and profitability by the end of 2003.
We remain optimistic about our business prospects, but cautious in the short term, stated OBrien. We continue to influence factors within our control and focus on aligning our business model to achieve our goals. With the addition of new products and new management talent including Mark Aslett as President, and Leon Woo as EVP of Engineering, I am confident in our ability to drive further improvements and revitalize sales.
Enterasys' recently-announcedMatrix N-Series switching line includes the Matrix N7, the Matrix N3, and the Distributed Forwarding Engine (DFE) modules. The Matrix N7 is a 7-slot modular chassis, the Matrix N3 is a 3-slot modular chassis,andthe Distributed Forwarding Engines are a series of high-performance connectivity modules. Powered by Enterasys' distributed switching architecture, the Matrix N-Seriesoffers extensive management capabilities and a unique, high-availability design that delivers superior performance, scalability, and network availability. The advanced features,port density,and ease-of-use of the Matrix N-Series will help enterprise customers to utilize their networks to boost productivity and efficiency while controlling costs. And, because the Distributed Forwarding Engine modules work in Enterasys' current Matrix E7 chassis as well as the new N7 and N3 chassis, the N-Series offers excellent investment protection for both current customers and new customer alike.
Conference Call:
Enterasys Networks will host a conference call to further discuss these results. The call will be available for replay beginning at 8:00 pm ET today and ending May 8, 2003. To access the replay, dial (00 11 1) 877-519-4471 and enter pass code 3876945, or visit the investor relations section of Enterasys website located at http://www.enterasys.com/corporate/ir/
About Enterasys Networks
Enterasys Networks (NYSE: ETS) is a leading worldwide provider of Business-Driven Networks for enterprise-class customers. Enterasys innovative network infrastructure offerings deliver the security, productivity and agility benefits required by Global 2000 organizations, coupled with the industrys strongest service and support. For more information on Enterasys and its products, including multilayer switches and routers, wireless LANs, VPN, network management, and intrusion detection systems (IDS), visit www.enterasys.com
This press release contains projections and other forward-looking statements regarding the future revenue, cash flows and other financial performance ofus or other future events and circumstances, and actual results, events and circumstances could differ materially. Such statements include, but are not limited to, statements reflecting management's expectations regarding our future financial performance; strategic relationships and market opportunities; and our other business and marketing strategies and objectives. These statements may be identified with such words as "we expect", "we believe", "we anticipate", or similar indications of future expectations. These statements are neither promises nor guarantees, and involve risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Such risks and uncertainties include, among other things, the following factors: the lingering effects of the recently settled SEC investigation and our financial statement restatements could materially harm our business, operating results and financial condition; worldwide economic weakness, deteriorating market conditions and recent political and social turmoil have negatively affected our business and revenues and made forecasting more difficult, which could harm our financial condition; we have a history of losses in recent years and may not operate profitably in the future; our quarterly operating results are likely to fluctuate, which could cause us to fail to meet quarterly operating targets and result in a decline in our stock price; we earn a substantial portion of our revenue for each quarter in the last month of each quarter, which reduces our ability to accurately forecast our quarterly results and increases the risk that we will be unable to achieve previously forecasted results; we may need additional capital to fund our future operations and, if it is not available when needed, our business and financial condition may be harmed; pending and future litigation could materially harm our business, operating results and financial condition; the limitations of our director and officer liability insurance may materially harm our financial condition; our failure to improve our management information systems and internal controls could harm our business; we have experienced significant turnover of senior management and our current management team has been together for only a limited time, which could harm our business operations; retaining key management and employees is critical to our success; there is intense competition in the market for enterprise network equipment, which could prevent us from increasing our revenue and achieving profitability; we may be unable to expand our indirect distribution channels, which may hinder our ability to grow our customer base and increase our revenue; we expect the average selling prices of our products to decrease over time, which may reduce our revenue and gross margins; we use several key components for our products that we purchase from single or limited sources, and we could lose sales if these sources fail to fulfill our need on a timely basis; we depend upon a limited number of contract manufacturers for substantially all of our manufacturing requirements, and the loss of any of our primary contract manufacturers would impair our ability to meet the demands of our customers; and those additional risks and uncertainties discussed inour most recent filings with the Securities and Exchange Commission, includingour annual report on Form 10-K for the fiscal year ended December 28, 2002. Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date hereof. We expressly disclaim any obligation to publicly update or revise any such statements to reflect any change in these forward-looking statements, or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.