VNWK Visual Networks (MM)

ROCKVILLE, Md., Oct. 20 /PRNewswire-FirstCall/ -- Visual Networks, Inc.(R) (NASDAQ:VNWK) today reported financial results for the third fiscal quarter ended September 30, 2005. Revenue for the third quarter was $11.6 million, an increase of 2 percent from $11.4 million reported in the second quarter and a decrease of 16 percent compared with $13.8 million reported in the prior year's third quarter. The company reported net income of $691,000, or $0.02 per share, compared with a net loss of $1.2 million, or $0.03 per share, in the second quarter, and net income of $246,000 or $0.01 per share, in the previous year's third quarter. The company took a one-time litigation charge of $725,000, or $0.02 per share, pursuant to a complete settlement agreement with Paradyne Corporation and Zhone Technologies, Inc. The company exited the quarter with $10.3 million in cash and cash equivalents. Accounts receivable of $7.9 million at September 30, 2005 represented 63 days sales outstanding. "We are pleased with our third quarter performance, as revenue from our Ethernet appliances doubled from the previous quarter and our application performance management software modules continued to see strong demand," said Larry Barker, President and CEO of Visual Networks. "The solid market adoption of our new technologies positions us for growth as four of our major service provider channels -- AT&T, SBC, MCI and Verizon -- enter the final phases of their merger processes." Third Quarter Highlights: * Added over 20 new enterprise customers; * Recorded approximately 25 percent of quarterly revenues from sales of newest products -- Ethernet appliances and application performance management and Voice over Internet Protocol (VoIP) software modules; * Returned to profitability; * Hired Daniel Kim as director of sales for new Asia/Pacific operations; * Announced forthcoming release of Select Bandwidth Manager for Citrix Presentation Server which provides granular visibility into Citrix application protocols; * Launched VoIP Planner, new synthetic call generation solution for VoIP; * Introduced VoIP Advisor product bundle for distribution by our VAR partners; * Passed our ISO 9001 Surveillance Audit; * Raised $10 million in a private placement; * Settled outstanding IP litigation via agreement with Paradyne Corporation and Zhone Technologies, Inc; and * Addressed nearly 300 prospective customers at events in Chicago and Philadelphia as presenting sponsor of Network World's VoIP technology tour. Future Expectations The company expects fourth quarter revenue to be in the range of $12.0 to $13.0 million and EPS to be in the range of $0.02 and $0.04. Broadcast of Third Quarter Results Visual Networks' management will host a discussion of this afternoon's announcement with investors and financial analysts today, Thursday, October 20, 2005 at 4:45 p.m. (EDT). To participate in the teleconference, please dial 617.614.4925 and enter passcode 20656386. A live web cast of the call will also be available at http://www.visualnetworks.com/news. For those unable to listen to the live call, a replay will be available from 6:45 PM EDT on October 20, 2005 until 6:45 p.m. EDT on October 22, 2005 by dialing 617-801-6888 and entering passcode 93791602. An archive of the call will be available online shortly following the conclusion of the live call on Visual Networks' Web site at http://www.visualnetworks.com/news. About Visual Networks Visual Networks, Inc. (NASDAQ:VNWK) is a leading provider of network and application performance management solutions. The company's technologies enable enterprises to reliably and securely manage the delivery and performance of key applications such as Voice over IP (VoIP) across their infrastructures. Visual Networks' products increase application and network availability, optimize the use of bandwidth across the network, and reduce operating costs across traditional and IP-based infrastructures. For more information, visit http://www.visualnetworks.com/. Note to Investors This press release contains forward-looking information within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and is subject to the safe harbor created by those sections. The forward-looking information is based upon current information and expectations regarding Visual Networks and its subsidiaries. These estimates and statements speak only as of the date on which they are made, are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results could materially differ from what is expressed, implied, or forecasted in such forward-looking statements. Visual Networks assumes no obligation to update the information contained in this press release. Visual Networks' future results may be impacted by risks associated with market acceptance of Visual UpTime Select, fluctuations in IT budgets and spending, issues related to the Company's distribution channels, rapid technological change and the emerging services market, potential fluctuations in quarterly operating results, its dependence upon sole and limited source suppliers and fluctuations in component pricing and availability, its dependence upon key employees, and its ability to retain employees. Visual Networks' future results may also be impacted by other risk factors listed from time to time in its SEC filings, including, but not limited to, the Company's Quarterly Reports on Form 10-Q and its Annual Report on Form 10-K. Visual Networks, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited) For the For the Three Months Ended Nine Months Ended September 30, September 30, 2004 2005 2004 2005 Revenue $13,817 $11,572 $38,481 $32,574 Cost of revenue 4,284 3,393 11,609 9,867 Gross profit 9,533 8,179 26,872 22,707 Operating expenses: Research and development 2,378 2,045 7,439 6,790 Sales and marketing 4,054 3,982 11,826 11,947 General and administrative 2,560 1,917 7,012 5,817 Restructuring - - - 716 Total operating expenses 8,992 7,944 26,277 25,270 Income (loss) from operations 541 235 595 (2,563) Other income (expense) - (125) (262) (672) Settlement of litigation - (725) - (725) Gain on derivative liability - 1,931 - 1,931 Interest expense, net (295) (625) (991) (1,144) Net income (loss) $246 $691 $(658) $(3,173) Basic and diluted income (loss) per share $0.01 $0.02 $(0.02) $(0.09) Visual Networks, Inc. Condensed Consolidated Balance Sheets (in thousands) (unaudited) December 31, September 30, 2004 2005 Assets Current assets: Cash and cash equivalents $11,317 $10,292 Accounts receivable, net 9,335 7,921 Inventory 3,822 3,000 Other current assets 940 566 Total current assets 25,414 21,779 Property and equipment, net 2,001 1,420 Total assets $27,415 $23,199 Liabilities and Stockholders' Equity Liabilities: Accounts payable and accrued expenses $9,341 $8,423 Convertible debentures, net of unamortized debt discount 8,163 - Deferred revenue 3,388 1,769 Total current liabilities 20,892 10,192 Long-term debt, net - 8,187 Total liabilities 20,892 18,379 Stockholders' equity 6,523 4,820 Total liabilities and stockholders' equity $27,415 $23,199 Visual Networks, Inc. Condensed Consolidated Statements of Cash Flows (in thousands, except per share data) (unaudited) For the For the Three Months Ended Nine Months Ended September 30, September 30, 2004 2005 2004 2005 Cash Flows from Operating Activities: Net income (loss) $246 $691 $(658) $(3,173) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 319 297 1,063 968 Bad debt expense 58 (61) 52 (51) Deferred compensation expense 33 33 154 99 Non-cash interest expense 218 139 718 536 Gain on derivative liability - (1,931) - (1,931) Early extinguishment of debt - 125 262 672 Changes in assets and liabilities: Accounts receivable (2,054) 1,238 (4,358) 1,465 Inventory (1,152) 331 189 822 Other assets 42 417 (587) 120 Accounts payable and accrued expenses 1,133 1,401 1,297 (916) Deferred revenue (209) (571) (1,240) (1,619) Net cash provided by (used in) operating activities (1,366) 2,109 (3,108) (3,008) Cash Flows from Investing Activities: Net sales of short term investments 528 - 1,530 - Expenditures for property and equipment (340) (134) (762) (387) Net cash provided by (used in) investing activities 188 (134) 768 (387) Cash Flows from Financing Activities: Repayment of convertible debentures - (2,000) (1,500) (9,000) Repayment of short-term debt - (4,000) - - Proceeds from long-term debt - 10,000 - 10,000 Exercise of stock options and issuance of common stock under employee stock purchase plan 140 23 686 1,370 Net cash provided by (used in) financing activities 140 4,023 (814) 2,370 Net increase (decrease) in Cash and Cash Equivalents (1,038) 5,998 (3,154) (1,025) Cash and Cash Equivalents, Beginning of Period 13,555 4,294 15,671 11,317 Cash and Cash Equivalents, End of Period $12,517 $10,292 $12,517 $10,292 Visual Networks, Inc. Additional Financial Information The following presents additional financial information about Visual Networks for the three months ended December 31, 2004, March 31, 2005, June 30, 2005 and September 30, 2005 respectively (dollars in thousands). 12/31/04 3/31/05 6/30/05 9/30/05 Days Sales Outstanding Calculation: Days sales outstanding ("DSOs"') are calculated as follows: Accounts Receivable $9,335 $6,356 $9,098 $7,921 Quarterly sales/ $14,162/ $9,564/ $11,438/ $11,572/ Days in quarter 92 90 91 92 Days sales outstanding 60.6 59.8 72.4 63.0 Inventory Turns Calculation: Inventory turns are calculated as follows: Days in year 366 365 365 365 Inventory/ $3,822/ $4,024/ $3,331/ $3,000/ (Quarterly COGS/ ($4,271/ ($3,399/ ($3,075/ ($3,339/ Days in quarter) 92) 90) 91) 92) Inventory turns 4.4 3.4 3.7 4.4 Employees: Research and development 57 57 44 46 Sales and marketing 62 68 61 59 Manufacturing and customer service 12 11 9 9 General and administrative 28 27 15 15 Total Employees 159 163 129 129 Revenue: Uptime: Classic $1,899 $883 $53 $- Select 11,385 8,338 11,022 11,235 IP Insight 857 338 354 324 Royalties 20 5 9 13 Total $14,161 $9,564 $11,438 $11,572 Revenue: Hardware $5,853 $4,508 $3,990 $5,337 Software 6,026 3,129 5,413 4,197 Services 2,282 1,927 2,035 2,038 Total $14,161 $9,564 $11,438 $11,572 Common stock outstanding 33,982 34,492 34,656 34,676 Weighted average share calculations: Basic weighted average shares outstanding 33,546 34,241 34,607 34,784 Effect of dilutive securities: Employee stock options 2,441 - - 374 Diluted weighted average shares outstanding 35,987 34,241 34,607 35,158 Net income (loss) $673 $(2,695) $(1,169) $691 Basic income (loss) per share $0.02 $(0.08) $(0.03) $0.02 Diluted income (loss) per share $0.02 $(0.08) $(0.03) $0.02 DATASOURCE: Visual Networks, Inc. CONTACT: Donald Clarke, EVP and Chief Financial Officer, +1-301-296-2711, , or David Peikin, Director of Marketing and Corporate Communications, +1-301-296-2262, , both of Visual Networks, Inc. Web site: http://www.visualnetworks.com/

Copyright