RACKABLE SYSTEMS ANNOUNCES FOURTH QUARTER AND FISCAL-YEAR 2007 FINANCIAL RESULTS
Record Revenue Quarter
Gross Margin Expansion
Strengthened Balance Sheet
FREMONT, Calif., February 6, 2008 – Rackable Systems, Inc. (NASDAQ: RACK), a leading provider of servers and storage products for large-scale data centers, today announced financial results for the fourth quarter and fiscal year 2007.
Total revenue for the fourth quarter of 2007 was $111.7 million, up 4.5% compared to $106.9 million in the fourth quarter of 2006. Total revenue for the fiscal year 2007 was $353.2 million compared to $360.4 million in fiscal year 2006. GAAP gross margin for the fourth quarter of 2007 was 25.1%, compared to 18.8% in the fourth quarter of 2006. Non-GAAP gross margin for the fourth quarter of 2007 was 21.7%, compared to 19.8% in the fourth quarter of 2006. GAAP gross margin for fiscal year 2007 was 13.9%, compared to 21.4% in fiscal 2006. Non-GAAP gross margin for fiscal 2007 was 18.4%, compared to 22.4% in fiscal year 2006.
GAAP net loss per share was ($0.65) for the fourth quarter of 2007, compared to GAAP net income of $0.02 per diluted share in the fourth quarter of 2006. Non-GAAP net income per diluted share was $0.18 in the fourth quarter of 2007, compared to $0.19 in the fourth quarter of 2006.
GAAP net loss per share was ($2.42) for fiscal year 2007, compared to GAAP net income of $0.40 per diluted share in fiscal year 2006. Non-GAAP net income per diluted share was $0.17 for fiscal year 2007, compared to $0.94 in fiscal 2006.
During the fourth quarter, the company recorded a preliminary pre-tax goodwill impairment charge of $ 23.9 million. The GAAP net loss from operations and GAAP net loss reported for the fourth quarter of 2007 and for fiscal year 2007 both included this goodwill impairment charge.
"We are very pleased with our Q4 2007 execution, achieving our strongest quarter ever in revenues and a significant increase in gross margins," said Mark J. Barrenechea, President and Chief Executive Officer of Rackable Systems. "2007 was a breakthrough year for innovation, demonstrated by the launch of our award-winning ICE Cube modular data center and numerous advancements in our broad range of server and storage products. We took the necessary steps to streamline our day-to-day operations, and our focus remains strong on providing energy efficient, Eco-Logical data center solutions for our growing customer base."
Rackable Systems ended the fourth quarter of 2007 with $198.1 million of cash, cash equivalents and short-term investments compared to $160.5 million as of December 30, 2006, representing an increase of 23% during the period.
Business OutlookBased on current business trends, Rackable Systems' financial projections for FY 2008 are as follows:
- Annual revenue is projected to be in the range of $ 353 - $388 million
- Annual GAAP Gross Margin is projected to be in the range of 16.5% to 19.5%
- Annual Non-GAAP gross margin is projected to be in the range of 17% - 20%
- Positive non-GAAP EPS for the full year 2008
Non-GAAP financial measures disclosed in this press release exclude excess and obsolete inventory charges associated with next-generation technology shifts and related recoveries; goodwill impairment; stock-based compensation; severance costs associated with executive management departures; write-off of in-process research and development; amortization of intangible assets related to the Terrascale acquisition; amortization of patents and customer lists; quarterly payout related to the Terrascale acquisition; and related adjustments to tax provision, including a valuation allowance charge.
The reconciliation between GAAP and non-GAAP financials is provided in the tables accompanying this press release.
Conference Call Information Rackable Systems will discuss these financial results and its outlook for 2008 in a conference call at 2:00 p.m. PST today. The public is invited to listen to a live web cast of the call on the Investor Relations section of the company's website at
www.rackable.com. A replay of the web cast will be available approximately two hours after the conclusion of the call and remain available until the next earnings call. An audio replay of the conference call will also be made available approximately two hours after the conclusion of the call. The audio replay will remain available for five days and can be accessed by dialing 719-457-0820 and entering the confirmation code 4367486.
Cautionary Statement Regarding Forward Looking StatementsThe statements in this press release regarding 2008 projected financial results and primary operational focus are forward-looking statements. Actual results may differ materially due to a number of risks and uncertainties including: Rackable Systems operates in a very competitive market, and increased competition has in the past, and may continue, to cause pricing pressure on Rackable Systems' products, which would negatively affect Rackable Systems' gross and operating margins, as well as other financial measures; a significant portion of the company's revenues come from a small number of customers, and so the delay in placing an order, or the failure of a significant customer to place additional orders, could have a significant negative effect on Rackable Systems' financial performance; orders for Rackable Systems' products can be received at the end of the quarter, and so a delay in placing an order could have a significant negative effect on Rackable Systems' financial performance for the quarter; the failure of the RapidScale products to achieve market acceptance; Rackable Systems is unable to control component pricing, such as DDR memory pricing as has happened in the past, and as a result component pricing can rise unexpectedly, negatively impacting Rackable Systems' gross margins as well as other financial measures; Rackable Systems may be required to write-off additional significant amounts of excess and obsolete inventory; new products by competitors may come on the market, which would decrease the demand for Rackable Systems' products. Detailed information about other potential factors that could affect Rackable Systems' business, financial condition and results of operations is included in Rackable Systems' Form 10-K under the caption "Risk Factors", in Part I, Item 1A of that report, filed with the Securities and Exchange Commission ("SEC") on February 28, 2007 and further updated in the latest Quarterly Report on Form 10-Q under the caption "Risks Factors," in Part II, Item 1A of that report, filed with the SEC on November 8, 2007 and available at the SEC's Web site at
www.sec.gov. Rackable Systems undertakes no responsibility to update the information in this press release.
Use of Non-GAAP Financial MeasuresThe non-GAAP financial measures discussed in the text of this press release and accompanying non-GAAP supplemental information are financial measures used by Rackable Systems' management to evaluate the operating performance of the company and to conduct its business operations. Non-GAAP gross margin discussed in this press release excludes stock-based compensation expense and excess and obsolete inventory charges related to next-generation technology shifts and related recoveries. Non-GAAP operating income (loss) discussed in this press release excludes stock-based compensation expense, goodwill impairment, excess and obsolete inventory charges related to next-generation technology shifts and related recoveries, severance costs associated with executive management departures, write-off of in-process research and development, amortization of intangibles recorded in connection with the Terrascale acquisition, amortization of patents and customer list in connection with the acquisition of the company's predecessor and cash payments related to the Terrascale acquisition. Non-GAAP net income and net income per share excludes the same items as non-GAAP operating income (loss) and, as well, excludes the related tax effects of the applicable items. Management presents non-GAAP financial measures because it considers them to be important supplemental measures of performance. Management believes that the excluded charges are not central to the company's core operating performance and uses the non-GAAP financial measures for planning purposes, including analysis of the company's core operating performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. Management excludes from its non-GAAP gross margin, non-GAAP operating income (loss) and non-GAAP net income (loss) the items cited above, whether or not recurring, to facilitate its review of the comparability of the company's core operating performance on a period to period basis as well as to better understand the fundamental economics of a specific period's operational and financial performance. Management uses this view of the company's operating performance for purposes of comparison with its business plan and individual operating budgets and allocations of resources. Management also believes that the non-GAAP financial measures provide additional insight for analysts and investors in evaluating the company's financial and operational performance in the same way that management evaluates Rackable Systems' financial performance. However, these non-GAAP financial measures have limitations as an analytical tool, as they exclude the financial impact of transactions necessary or advisable for the conduct of the company's business, such as the granting of equity compensation awards and the acquisition of Terrascale, as well as exclude the financial impact of other events affecting the company such as the operational ramifications of excess and obsolete inventory charges and are not intended to be an alternative to financial measures prepared in accordance with GAAP. For example, the benefits of having acquired intangible assets may be reflected in the company's financial performance, but the amortization of those intangibles is not. In addition, the charges for excess and obsolete inventory associated with next-generation technology platform shifts reflects operational decisions and purchases by the company in a previous period that resulted in a cash outlay that the company will not be able to recover, but the ramifications of this operating decision are not reflected in the non-GAAP financial measures. Hence, to compensate for these limitations, management does not review these non-GAAP financial metrics in isolation from its GAAP results, nor should investors. Pursuant to the requirements of SEC Regulation G, a detailed reconciliation between the company's GAAP and non-GAAP financial results is provided at the end of this press release. Investors are advised to carefully review and consider this information as well as the GAAP financial results that are disclosed in the company's SEC filings.
About Rackable SystemsRackable Systems, Inc. (NASDAQ:RACK) is a leading provider of Eco-Logical™ servers and storage products for large-scale data center deployments. The company's products are designed to provide benefits in the areas of density, thermal efficiency, serviceability, power distribution, data center mobility and remote management. Founded in 1999 and based in Fremont, California, Rackable Systems is a founding member of The Green Grid and serves Internet, enterprise software, federal government, entertainment, financial services, oil and gas exploration and high performance-computing customers worldwide.
Rackable Systems and Eco-Logical are trademarks or registered trademarks of Rackable Systems®, Inc.
RACKABLE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
December 29, December 30,
2007 2006
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 49,897 $ 30,446
Short-term investments 148,215 130,025
Accounts receivable, net 49,957 104,070
Inventories 53,138 68,137
Deferred income taxes 499 7,408
Deferred cost of sales 456 2,375
Prepaids and other current assets 18,967 12,934
------------ ------------
Total current assets 321,129 355,395
PROPERTY AND EQUIPMENT -- Net 8,285 5,372
GOODWILL - 22,871
INTANGIBLE ASSETS -- Net 22,732 14,007
OTHER ASSETS 922 9,125
------------ ------------
TOTAL $ 353,068 $ 406,770
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 48,390 $ 61,102
Accrued expenses 16,382 19,894
Income taxes payable - 247
Deferred revenue 5,190 5,972
------------ ------------
Total current liabilities 69,962 87,215
DEFERRED INCOME TAXES 3,031 431
DEFERRED RENT 868 23
DEFERRED REVENUE 3,089 3,412
------------ ------------
Total liabilities 76,950 91,081
STOCKHOLDERS' EQUITY 276,118 315,689
------------ ------------
TOTAL $ 353,068 $ 406,770
============ ============
RACKABLE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended For the Year Ended
------------------------- -------------------------
December 29, December 30, December 29, December 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
REVENUE $ 111,650 $ 106,876 $ 353,155 $ 360,376
COST OF REVENUE 83,620 86,756 304,183 283,400
------------ ------------ ------------ ------------
GROSS PROFIT 28,030 20,120 48,972 76,976
------------ ------------ ------------ ------------
OPERATING
EXPENSES:
Research and
development 7,327 5,518 26,281 16,485
Sales and
marketing 9,143 8,742 34,245 27,051
General and
administrative 7,661 7,293 36,152 21,893
Goodwill
impairment 23,872 - 23,872 -
------------ ------------ ------------ ------------
Total
operating
expenses 48,003 21,553 120,550 65,429
------------ ------------ ------------ ------------
INCOME (LOSS) FROM
OPERATIONS (19,973) (1,433) (71,578) 11,547
OTHER INCOME --
Net: 2,386 2,065 8,588 8,297
------------ ------------ ------------ ------------
INCOME (LOSS)
BEFORE INCOME TAX
PROVISION (17,587) 632 (62,990) 19,844
INCOME TAX
PROVISION (1,370) (69) (6,567) (8,372)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (18,957) $ 563 $ (69,557) $ 11,472
============ ============ ============ ============
NET INCOME (LOSS)
PER SHARE
Basic ($0.65) $ 0.02 $ (2.42) $ 0.43
============ ============ ============ ============
Diluted ($0.65) $ 0.02 $ (2.42) $ 0.40
============ ============ ============ ============
SHARES USED IN NET
INCOME (LOSS) PER
SHARE
Basic 29,233,217 28,012,081 28,785,807 26,947,888
============ ============ ============ ============
Diluted 29,233,217 29,452,182 28,785,807 28,618,309
============ ============ ============ ============
Stock-based compensation is included in the following cost and expense
categories by period (in thousands):
Three Months Ended For the Year Ended
------------------------- -------------------------
December 29, December 30, December 29, December 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
Cost of revenue $ 285 $ 1,042 $ 2,152 $ 3,583
Research and
development 1,098 2,067 4,887 5,069
Sales and
marketing 794 2,197 5,465 6,245
General and
administrative 1,926 2,482 10,731 5,858
------------ ------------ ------------ ------------
Total $ 4,103 $ 7,788 $ 23,235 $ 20,755
============ ============ ============ ============
RACKABLE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the For the
Year Year
Ended Ended
December December
29, 30,
2007 2006
---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (69,557) $ 11,472
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 7,392 3,566
Loss on disposal of fixed assets 73 -
Impairment loss on fixed assets 188 -
Impairment of goodwill 23,872 -
Provision for doubtful accounts receivable,
net of writeoffs 105 311
Deferred income taxes 12,856 (9,620)
Write-off of acquired in-process research
and development - 2,840
Stock-based compensation 23,235 20,755
Changes in operating assets and liabilities:
Accounts receivable 54,008 (53,833)
Inventories 14,432 (27,197)
Prepaids and other assets (5,919) (8,889)
Accounts payable and other payables (13,140) 32,055
Sales tax payable (103) -
Accrued expenses (2,563) 11,199
Income taxes payable 392 (2,932)
Deferred cost of sales 1,910 6,200
Deferred revenue (1,106) (3,511)
---------- ----------
Net cash provided by (used in) operating
activities 46,075 (17,584)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (584,009) (547,017)
Proceeds from sales and maturities of
marketable securities 565,836 442,089
Purchases of property and equipment (4,500) (3,938)
Terrascale acquisition, net of cash acquired (350) (31,886)
Expenditures for intangibles (9,122) (152)
---------- ----------
Net cash used in investing activities (32,145) (140,904)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon
follow on offering -- net of issuance costs - 138,452
Excess tax benefit of stock options exercised 1,639 14,971
Repurchased restricted stock (617) -
Proceeds from issuance of common stock upon
exercise of stock options 2,682 4,906
Proceeds from issuance of common stock upon
ESPP purchase 1,843 1,541
---------- ----------
Net cash provided by financing
activities 5,547 159,870
---------- ----------
Effect of exchange rate changes on cash
and cash equivalents (26) (35)
NET INCREASE IN CASH AND CASH EQUIVALENTS 19,451 1,347
CASH AND CASH EQUIVALENTS -- Beginning of period 30,446 29,099
---------- ----------
CASH AND CASH EQUIVALENTS -- End of period $ 49,897 $ 30,446
========== ==========
RACKABLE SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended For the Year Ended
------------------------- -------------------------
December December December December
29, 30, 29, 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
GAAP GROSS PROFIT $ 28,030 $ 20,120 $ 48,972 $ 76,976
Add back (deduct):
Stock-based
compensation 285 1,042 2,152 3,583
Excess and
obsolete
inventory
charges
associated with
next-generation
technology
shifts and
related
(recoveries) of
these written-
down
inventories (4,129) - 13,898 -
------------------------- -------------------------
Non-GAAP GROSS
PROFIT $ 24,186 $ 21,162 $ 65,022 $ 80,559
========================= =========================
GAAP GROSS MARGIN 25.1% 18.8% 13.9% 21.4%
Add back (deduct):
Stock-based
compensation 0.3% 1.0% 0.6% 1.0%
Excess and
obsolete
inventory
charges
associated with
next-generation
technology
shifts and
related
(recoveries) of
these written-
down
inventories -3.7% - 3.9% -
------------ ------------ ------------ ------------
Non-GAAP GROSS
MARGIN 21.7% 19.8% 18.4% 22.4%
============ ============ ============ ============
GAAP INCOME (LOSS)
FROM OPERATIONS $ (19,973) $ (1,433) $ (71,578) $ 11,547
Add back (deduct):
Stock-based
compensation 4,103 7,788 23,235 20,755
Excess and
obsolete
inventory
charges
associated with
next-generation
technology
shifts and
related
(recoveries) of
these written-
down
inventories (4,129) - 13,898 -
Goodwill
impairment 23,872 - 23,872 -
Severance costs
associated with
executive
management
departures - - 781 -
Write-off of in-
process
research and
development and
amortization of
intangible
assets -
Terrascale
acquisition 1,133 553 2,906 3,530
Amortization of
patents and
customer list 321 359 1,398 1,436
Quarterly payout
related to
Terrascale
acquisition 1,266 - 5,151 -
------------ ------------ ------------ ------------
Non-GAAP INCOME
(LOSS) FROM
OPERATIONS (2) $ 6,593 $ 7,267 $ (337) $ 37,268
============ ============ ============ ============
GAAP NET INCOME
(LOSS) $ (18,957) $ 563 $ (69,557) $ 11,472
Add back (deduct):
Stock-based
compensation 4,103 7,788 23,235 20,755
Excess and
obsolete
inventory
charges
associated with
next-generation
technology
shifts and
related
(recoveries) of
these written-
down
inventories (4,129) - 13,898 -
Goodwill
impairment 23,872 - 23,872 -
Severance costs
associated with
executive
management
departures - - 781 -
Write-off of in-
process
research and
development and
amortization of
intangible
assets -
Terrascale
acquisition 1,133 553 2,906 3,530
Amortization of
patents and
customer list 321 359 1,398 1,436
Quarterly payout
related to
Terrascale
acquisition 1,266 - 5,151 -
Adjustment to
tax provision /
benefit (1) (2,302) (3,631) 3,192 (10,150)
------------ ------------ ------------ ------------
Non-GAAP NET
INCOME (2) $ 5,307 $ 5,632 $ 4,876 $ 27,043
============ ============ ============ ============
GAAP NET INCOME
(LOSS) PER SHARE
- DILUTED ($0.65) $ 0.02 ($2.42) $ 0.40
Add back:
Stock-based
compensation,
excess and
obsolete
inventory
charges
associated with
next-generation
technology
shifts and
related
(recoveries) of
these written-
down
inventories,
goodwill
impairment,
severance costs
associated with
executive
management
departures,
write-off of
in-process
research and
development and
amortization of
intangible
assets -
Terrascale
acquisition,
amortization of
patents and
customer list,
quarterly
payout related
to Terrascale
acquisition and
adjustment to
tax provision -
benefit. $ 0.83 $ 0.17 $ 2.59 $ 0.54
------------ ------------ ------------ ------------
Non-GAAP NET
INCOME PER SHARE
- DILUTED $ 0.18 $ 0.19 $ 0.17 $ 0.94
============ ============ ============ ============
SHARES USED IN
COMPUTING NET
INCOME (LOSS) PER
SHARE
DILUTED - GAAP 29,233,217 29,452,182 28,785,807 28,618,309
============ ============ ============ ============
DILUTED - Non-GAAP 29,468,908 29,452,182 29,356,526 28,618,309
============ ============ ============ ============
(1) The provision for income taxes used in arriving at the non-GAAP
net income was computed using an income tax rate of 40.9% for the
three months and year ended December 29, 2007 and includes a $13.2
million valuation charge for the year ended December 29, 2007. The
valuation allowance was recorded to adjust the realizability of
deferred tax assets at the beginning of the year due to a projected
pre-tax loss that will result in a cumulative pre-tax loss position
for fiscal years 2007, 2006, and 2005.
(2) Non-GAAP net income and non-GAAP net loss from operations for the
year ended December 29, 2007 includes $1.3M of charges related to an
order cancellation by one customer, $0.8M of charges related to
severance payments and $1.9M of charges related to sales & use tax.
All of these were recorded in the three months ended March 31, 2007.
RACKABLE SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION FROM NON-GAAP TO GAAP FINANCIAL PROJECTIONS
(in millions except for per share amounts)
Revenue and Gross Margin Projections
---------------------------------------------
FY 2008
-----------------------
Low High
----------- ----------
Estimated revenues $ 353.0 $ 388.0
Non-GAAP gross margin 17.0% 20.0%
Non-GAAP estimated gross profit $ 60.0 $ 77.6
Less:
Estimated stock based compensation expense
under cost of revenue $ (1.8) $ (1.8)
----------- ----------
GAAP estimated gross profit $ 58.2 $ 75.8
----------- ----------
GAAP estimated gross margin 16.5% 19.5%
Percentage difference - Non-GAAP and GAAP
gross margin 0.5% 0.5%
EPS Projection
---------------------------------------------
FY 2008
-----------
Estimated GAAP earnings per share $ (0.57)
Estimated stock based compensation expense $ 0.66
Amortization of intangible assets -
Terrascale acquisition $ 0.11
Quarterly payout related to Terrascale
acquisition $ 0.08
Estimated tax impact of non-GAAP adjustments
and to reconcile GAAP to non-GAAP tax rate $ (0.11)
-----------
Estimated non-GAAP earnings per diluted share
(1) $ 0.17
===========
Estimated number of diluted shares (in
millions) 30.2
-----------
Footnote:
(1) For reconciliation purpose only, the Company has estimated 2008
non-GAAP EPS of $0.17 or flat year over year.
Contact Information:
Copyright Business Wire 2008
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