RadiSys Announces Second Quarter 2009 Results

RadiSys^® Corporation (NASDAQ:RSYS), a leading global provider of advanced embedded solutions, announced revenues of $78.1 million for the quarter ended June 30, 2009, down 20% versus the same quarter last year. The Company’s GAAP net loss improved to $2.1 million or $0.09 per share in the second quarter, versus a net loss of $3.1 million or $0.14 per share in the same quarter last year. Second quarter non-GAAP net income increased to $4.9 million or $0.19 per diluted share, versus net income of $3.5 million or $0.14 per diluted share in the same quarter last year. Non-GAAP results in the second quarter exclude the impact of restructuring charges, amortization of acquired intangible assets and stock-based compensation expense. A reconciliation of GAAP to non-GAAP results is included in the tables below.

Commenting on the second quarter results, Scott Grout, RadiSys President and CEO stated, "We delivered better than expected results in the second quarter due to strong demand for our next-generation communications products including a customer-driven acceleration of a network build out that was originally planned for the second half of 2009. The growth in our next-generation communication revenues has substantially changed our business model over the past couple of years. As a result of our higher gross margins and lower operating expenses, we delivered non-GAAP operating margins of 7.7% in the second quarter and further strengthened our cash position. We also had another very strong design win quarter in each of our target markets with particular strength in Asia and with our next-generation communications products.” Mr. Grout continued to say, "In addition, we launched initiatives within our operations organization to complete our transition to a fully outsourced manufacturing model, and we established a plan to consolidate our North American product development into our Hillsboro, Oregon and Vancouver, BC design centers. These activities are intended to strengthen our ability to develop and deliver more competitive products while expanding our margin profile over time.”

Second Quarter Financial Highlights

• Revenue was $78.1 million, down 20% from the prior year and up 1% from the prior quarter. As expected, the Company’s traditional wireless and commercial businesses were down from the prior year due to general softness in these markets. 44% of the Company’s revenue came from the Asia Pacific region in the second quarter compared to 31% last year.
• GAAP gross margin was 31.1%, up 6.0 percentage points year-over-year. Non-GAAP gross margin was 33.5%, up 4.1 percentage points year-over-year, mainly due to a favorable mix of next-generation higher margin products as well as improved manufacturing and operational costs.
• Total GAAP R&D and SG&A expenses were $21.8 million, down $4.3 million or 16.6% from the same quarter last year and $1.2 million from the prior quarter. Non-GAAP R&D and SG&A expenses were $20.1 million, down $3.8 million or 15.9% from the same quarter last year and down $0.7 million from the prior quarter.
• The Company recorded a restructuring charge of $3.0 million in the second quarter mainly associated with strategic initiatives in the Company’s manufacturing operations and engineering organizations. The restructuring plan includes completing the transition to a fully outsourced manufacturing model, which will involve transferring the remaining manufacturing in Hillsboro, Oregon to the Company’s contract manufacturing partners in Asia. The plan also includes consolidating the Company’s North American research and development employees and programs, and specifically transferring programs from its Boca Raton, Florida design center into its other existing R&D centers. These efforts are expected to result in a total workforce reduction of 119 employees, of which 84 are in manufacturing, 28 in R&D, principally from the Company’s Boca Raton site, and 7 in SG&A. These transitions are expected to be complete by the third quarter of 2010 and are estimated to save $1.0 to $2.0 million a quarter in manufacturing costs, reduce inventory levels by $5 to $10 million, and save $0.5 to $1.0 million a quarter in development costs, while increasing the Company’s product development and operational capabilities.
• GAAP operating loss was $1.1 million. Non-GAAP operating income was $6.1 million or 7.7% of revenues, which equates to 2.8 percentage points of improvement over the same quarter last year.
• Cash flow from operating activities was $8.3 million and cash and cash equivalents were $87.6 million at the end of the second quarter.

Second Quarter New Product Highlights

The Company had a very strong design win quarter with continued growth in higher margin, next-generation product wins:

• Media Server Product Highlights:

• ATCA Product Highlights:

• Commercial Product Highlights:

Third Quarter 2009 Outlook

The following statements are based on current expectations as of the date of this press release. These statements are forward-looking and actual results may differ materially. Given the ongoing global economic downturn, the Company’s estimates are subject to a higher level of uncertainty than usual. The Company assumes no obligation to update these forward-looking statements.

• Q3 revenue is expected to be between $67 and $73 million. Revenue is expected to be lower sequentially in the third quarter due to further softness in the Company’s traditional wireless communications markets.
• Q3 GAAP and non-GAAP gross margin percentages are expected to be down approximately 3 percentage points from the second quarter’s gross margin rate at the midpoint of the guidance range mainly due to product mix and increased costs associated with the Company’s manufacturing transition plans.
• Q3 GAAP and non-GAAP total R&D and SG&A expenses are expected to be down by approximately $0.5 million sequentially at the midpoint of the guidance range.
• Q3 GAAP results are expected to be between a net loss of $0.15 and $0.09 per share. Q3 non-GAAP EPS is expected to be between $0.02 and $0.08. Both GAAP and non-GAAP expectations assume an effective tax rate of 10%.

In closing, Scott Grout stated, "While we continue to make meaningful progress on winning new, higher margin business and deploying our next-generation products, we do anticipate continued softness in our more traditional communications and commercial markets. In addition to progressing on our core strategies, we are making substantial enhancements to our operating model that will reduce our manufacturing costs, inventory and operating expenses, while growing our overall capabilities to design and deliver market leading products. These enhancements combined with the transformation of our product portfolio to higher-value platform products, place us in an even better position to grow our market leadership and resulting financial model.”

Conference Call and Web-cast Information

RadiSys will host a conference call on Tuesday, July 28, 2009 at 5:00 p.m. ET to discuss the second quarter results, and to review the financial and business outlook for the third quarter of 2009.

To participate in the live conference call, dial (888) 333-0027 in the U.S. and Canada or (706) 634-4990 for all other countries and reference conference ID# 19213480. The live conference call will also be available via webcast on the RadiSys investor relations website at http://investor.radisys.com/.

A replay of the conference call will be available two hours after the call is complete until 11:59 p.m. ET on Tuesday, August 11, 2009. To access the replay, dial (800) 642-1687 in the U.S. and Canada or (706) 645-9291 for all other countries with conference ID# 19213480. A replay of the webcast will be available for an extended period of time on the RadiSys investor relations website at http://investor.radisys.com/.

Forward-Looking Statements

This press release contains forward-looking statements, including statements about the Company’s business strategy, outlook and guidance for the third quarter of 2009. Actual results could differ materially from the outlook, guidance and expectations in these forward-looking statements as a result of a number of risk factors, including, among others, (a) the Company’s dependence on certain customers and high degree of customer concentration, (b) the anticipated amount and timing of revenues from design wins due to the Company’s customers’ product development time, cancellations or delays, (c) the current economic uncertainty and turmoil within the global financial markets, and (d) the factors listed in RadiSys’ reports filed with the Securities and Exchange Commission (SEC), including those listed under "Risk Factors” in RadiSys’ Annual Report on Form 10-K for the year ended December 31, 2008, and other filings with the SEC, copies of which may be obtained by contacting the Company at 503-615-1100 or from the Company’s investor relations web site at http://investor.radisys.com/. Although forward-looking statements help provide additional information about RadiSys, investors should keep in mind that forward-looking statements are inherently less reliable than historical information. All information in this press release is as of July 28, 2009. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.

Non-GAAP Financial Measures

To supplement its consolidated financial statements in accordance with generally accepted accounting principles (GAAP), the Company's earnings release contains non-GAAP financial measures that exclude certain expenses, gains and losses, such as the effects of (a) amortization of acquired intangible assets, (b) stock-based compensation expense recognized as a result of the Company’s adoption of FAS 123R, (c) restructuring charges (reversals), (d) a deferred tax asset valuation charge, and (e) a Canadian deferred tax foreign exchange benefit. The Company believes that the use of non-GAAP financial measures provides useful information to investors to gain an overall understanding of its current financial performance and its prospects for the future. Specifically, the Company believes the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that the Company believes are not indicative of its core operating results. In addition, non-GAAP financial measures are used by management for budgeting and forecasting as well as subsequently measuring the Company's performance, and the Company believes that it is providing investors with financial measures that most closely align to its internal measurement processes. These non-GAAP measures are considered to be reflective of the Company’s core operating results as they more closely reflect the essential revenue-generating activities of the Company and direct operating expenses (resulting in cash expenditures) needed to perform these revenue-generating activities. The Company also believes, based on feedback provided to the Company during its earnings calls' Q&A sessions and discussions with the investment community, that the non-GAAP financial measures it provides are necessary to allow the investment community to construct their valuation models to better align its results and projections with its competitors and market sector, as there is significant variability and unpredictability across companies with respect to certain expenses, gains and losses.

The non-GAAP financial information is presented using consistent methodology from quarter-to-quarter and year-to-year. These measures should be considered in addition to results prepared in accordance with GAAP. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP financial measures.

A reconciliation of non-GAAP information to GAAP information is included in the tables below. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP, and reconciliations between GAAP and non-GAAP financial measures included in this earnings release should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

About RadiSys

RadiSys (NASDAQ:RSYS) is a leading provider of advanced embedded solutions for the communications networking and commercial systems markets. Through intimate customer collaboration and combining innovative technologies and industry leading architecture, RadiSys helps original equipment manufacturers, systems integrators and solution providers bring better products to market faster and more economically. RadiSys products include embedded boards, application enabling platforms and turn-key systems, which are used in today's complex computing, processing and network intensive applications. For more information, visit http://www.radisys.com, write to info@radisys.com, or call 800-950-0044 or 503-615-1100. Editors seeking more information may contact Lyn Pangares at RadiSys Corporation at 503-615-1220 or lyn.pangares@radisys.com.

RadiSys® is a registered trademark of RadiSys Corporation.