Network Equipment Technologies Announces Financial Results for Second Quarter of Fiscal 2008

Telecommunications equipment maker Network Equipment Technologies, Inc. (NYSE:NWK), today reported its results for the second quarter of fiscal 2008. Total revenue in the second quarter was $27.3 million, up from $26.3 million in the prior quarter and $19.6 million in the second quarter of the prior fiscal year. Product revenue was $24.0 million, up from $23.0 million in the prior quarter and $17.2 million in the second quarter of the prior fiscal year. Increased sales of our VX and NX products were the primary driver of revenue growth in the second quarter, which is the company’s sixth consecutive quarter of revenue growth. Net income for the quarter was $1.6 million, or $0.06 per share, compared to net income of $1.3 million, or $0.05 per share, in the prior quarter and a net loss of $2.4 million, or $0.10 per share, in the second quarter of the prior fiscal year. Cash and investment balances at the end of the quarter were $97.0 million, compared to $96.6 million at the end of the prior quarter. Cash and investment balances increased by $12.7 million from the end of the second quarter of the prior fiscal year. Total revenue for the six month period ended September 28, 2007 was $53.7 million compared to $37.0 million for the same period of the prior year. Net income for the six month period ended September 28, 2007 was $2.9 million, or $0.10 per share, compared to a net loss of $6.1 million, or $0.25 per share, for the same period of the prior year. Non-GAAP net income for the quarter was $2.5 million, or $0.09, per share, compared with non-GAAP net income of $1.8 million, or $0.06 per share, in the prior quarter and non-GAAP net loss of $2.1 million, or $0.09 per share, from second quarter of fiscal 2007. For the second quarter of fiscal 2008, non-GAAP net income was calculated by excluding $838,000 of non-cash stock-based compensation expense and $124,000 of accretion and other charges resulting from vacating our former manufacturing facility in the fourth quarter of fiscal 2007. For the first quarter of fiscal 2008, non-GAAP net income was calculated by excluding $454,000 of non-cash stock based compensation expense and $79,000 of accretion charges from vacating our former manufacturing facility. For the second quarter of fiscal 2007, non-GAAP net loss was calculated by excluding $280,000 of non-cash stock based compensation expense. Refer to the table below for a reconciliation of GAAP to non-GAAP for net income and earnings per share. President and CEO C. Nicholas Keating, Jr. remarked, "We have executed against a plan we set for the company more than two years ago, and, as a result, are now in a stronger position. Our revenue has grown, margins and profitability have improved and our balance sheet remains healthy. Our growth has been driven by sales of our new products, which continue to provide value to companies seeking advanced network and voice exchange solutions. Fiscal year-to-date revenue from our VX voice exchange platform nearly doubled over the same period last year and we had our most significant revenue quarter to date for our NX5010 network exchange product.” "We continue to focus on expanding our presence in targeted VoIP and secure voice communications markets. In keeping with our plan, we have entered into an agreement to acquire Quintum Technologies, a leading enterprise VoIP access switching and gateway solutions provider, as announced last week. We expect that Quintum will be an excellent complement to our existing business and re-affirms our commitment to the VoIP market,” added Keating. Conference Call Information: The company will be hosting a conference call today to discuss these results at 5:30 p.m. ET. Please dial (888) 396-2356 or (617) 847-8709 and provide conference ID# 24822029 to access the call. The conference call will also be broadcast from http://ir.net.com. A recording of the conference call will be provided by telephone and the internet beginning two hours after completion of the call. The replay may be accessed by telephone through midnight on November 7, 2007; please dial (888) 286-8010 or (617) 801-6888 and enter conference ID# 17079926. A digital recording will be available on the company's website for one year. Visit www.net.com for more information. About Network Equipment Technologies, Inc. For nearly a quarter of a century, Network Equipment Technologies, Inc. (NET) has provided voice and data communications equipment for multi-service networks requiring high degrees of versatility, interoperability, security and performance. NET’s broad family of products are purpose-built for mixed-service, multi-protocol networks; bandwidth-sensitive site communications; high performance, security-sensitive transmissions; and converged communications. The company’s NX (network exchange) and VX (voice exchange) products enable interoperability and integration with existing networks for seamless migration to secure IP-based voice and data communications. Use of Non-GAAP Financial Information To supplement the company's condensed consolidated financial statements presented in accordance with GAAP, NET has provided certain non-GAAP net income (loss) financial measures that exclude expenses for the company’s non-cash stock compensation and charges relating to vacating our former manufacturing facility. These non-GAAP measures may include net income (loss) and net income (loss) per share data that are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance and the company's prospects for the future. NET believes the non-GAAP measures provide useful information to both management and investors by excluding certain expenses that may not be indicative of its core operating results and reflect NET’s ongoing business in a manner that allows meaningful period-to-period comparisons. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. The non-GAAP measures included in this press release have been reconciled to the GAAP results in the attached tables. Forward Looking Statements This press release contains forward-looking statements, within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, relating to products, revenue growth, and our agreement to acquire Quintum Technologies. Investors are cautioned that such statements are based on current expectations, forecasts and assumptions that involve risks and uncertainty that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Factors that could affect such results include our ability to commercialize new products and product enhancements, new competition and technological changes, the timing of orders and satisfaction of conditions to recognize revenue, uncertainties relating to the Quintum acquisition, including the fact that the acquisition remains subject to various conditions that must be satisfied before consummation of the transaction, the challenges involved in integrating an acquired business into the operations of NET, the management of sales changes, and unanticipated or extraordinary expenses, as well as the factors identified in Network Equipment Technologies' most recent Annual Report on Form 10-K and most recent subsequent Quarterly Report on Form 10-Q. Network Equipment Technologies disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. NOTE TO EDITORS: Financial tables follow NETWORK EQUIPMENT TECHNOLOGIES, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts)(unaudited)   Quarter Ended Six Months Ended September 28, 2007   September 29, 2006 September 28,2007 September 29,2006 Revenue: Product $ 23,953 $ 17,216 $ 46,944 $ 32,046 Service 3,379 2,334 6,729 4,948 Total revenue 27,332 19,550 53,673 36,994 Costs of revenue: Cost of product revenue 9,881 7,310 19,389 13,128 Cost of service revenue 2,976 2,421 5,881 4,794 Total cost of revenue 12,857 9,731 25,270 17,922 Gross margin 14,475 9,819 28,403 19,072 Operating expenses: Sales and marketing 4,667 4,246 9,203 8,880 Research and development 5,918 5,302 11,968 10,703 General and administrative 2,835 3,004 5,526 6,269 Restructuring costs 51 3 52 1 Total operating expenses 13,471 12,555 26,749 25,853 Income (loss) from operations 1,004 (2,736 ) 1,654 (6,781 ) Other income (expense), net 14 (69 ) (7 ) (70 ) Interest income, net 675 403 1,367 747 Income (loss) before taxes 1,693 (2,402 ) 3,014 (6,104 ) Income tax provision 101 4 159 6 Net income (loss) $ 1,592 $ (2,406 ) $ 2,855 $ (6,110 ) Per share amounts: Net income (loss): Basic $ 0.06 $ (0.10 ) $ 0.11 $ (0.25 ) Diluted $ 0.06 $ (0.10 ) $ 0.10 $ (0.25 ) Common and common equivalent shares: Basic 26,752 24,848 26,511 24,840 Diluted 27,777 24,848 27,558 24,840 NETWORK EQUIPMENT TECHNOLOGIES, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands)(unaudited)       September 28,2007     March 30,2007 Assets Cash and investments $ 96,974 $ 90,132 Accounts receivable, net 15,951 14,822 Inventories 14,359 10,452 Prepaid expenses and other assets   5,243     3,242 Total current assets 132,527 118,648   Property and equipment, net 10,425 10,581 Other assets   7,177     4,790 Total assets $ 150,129 $   134,019 Liabilities and Stockholders' Equity Accounts payable $ 8,639 $ 8,569 Other current liabilities   15,052     15,274 Total current liabilities 23,691 23,843   Long term liabilities 4,140 3,886 7 1/4% convertible subordinated debentures 24,706 24,706 Stockholders' equity   97,592     81,584 Total liabilities and stockholders’ equity $ 150,129 $   134,019 NETWORK EQUIPMENT TECHNOLOGIES, INC. GAAP TO NON-GAAP NET INCOME (LOSS) RECONCILIATION (Unaudited - in thousands, except per share amounts)   Three Months Ended   Six Months Ended September 28,2007   September 29,2006 September 28,2007   September 29,2006 GAAP net income (loss) $ 1,592 $ (2,406 ) $ 2,855 $ (6,110 ) Cost of product revenue, stock based compensation expense 41 21 69 46 Cost of service revenue, stock based compensation expense 32 9 60 18 Sales and marketing, stock based compensation expense 169 58 282 115 Research and development, stock based compensation expense 102 65 179 143 General and administrative, stock based compensation expense 494 127 702 216 General and administrative, accretion of discount on future cash flows from subleases 78 — 157 — Restructuring costs, costs to vacate former manufacturing facility 46 — 31 — Amortization of intangibles from acquisition — — — — Income tax effect (24 ) — (47 ) (1 ) Non-GAAP net income (loss) $ 2,530 $ (2,126 ) $ 4,288 $ (5,573 )   Non-GAAP net income (loss) per share amounts: Basic $ 0.09 $ (0.09 ) $ 0.16 $ (0.22 ) Diluted $ 0.09 $ (0.09 ) $ 0.16 $ (0.22 )   Common and common equivalent shares: Basic 26,752 24,848 26,511 24,840 Diluted 27,777 24,848 27,558 24,840