ATLANTA, April 15, 2008 (PRIME NEWSWIRE) -- Verso Technologies, Inc. (Nasdaq:VRSO), a global provider of next generation network solutions, announced today its fourth quarter and year end 2007 financial results. For the fourth quarter of 2007, the Company announced revenue of $12.4 million, gross margin of 18%, inclusive of an impairment charge of $2.3 million related to an acquired technology intangible asset, and cash and restricted cash on hand totaling $3.0 million at December 31, 2007. Non-GAAP operating expenses, which exclude one-time charges and non-cash stock-based compensation, were reduced by approximately $145,000 to $7.6 million, an approximate 2.0% reduction over the third quarter of 2007 levels. Free cash flow from continuing operations improved by 41% over the third quarter of 2007. This represents the second consecutive quarter of improved free cash flow for the Company. The fourth quarter of 2007 was the second full quarter of financial results since the Company implemented the July 2007 operational restructuring initiatives.
The Company initiated its financial initiatives in the first quarter of 2008. The Company has entered into a letter of intent pursuant to which an investment fund has expressed its intent to provide the Company with an aggregate of $17 million of financing in the form of debt and equity. The Company and the investor are finalizing the terms of the initial preferred stock equity investment and the investor has pre-funded an initial $600,000 in good faith, which the Company has received and intends to use for general corporate purposes. The securities to be sold to the investment fund will be sold without registration under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.
Free cash flow from continuing operations (which is defined as net cash used in or provided by continuing operations less capital expenditures) for the fourth quarter of 2007 was a negative $1.7 million as compared to a negative $2.9 million for the third quarter of 2007. Loss from continuing operations for the fourth quarter of 2007 was $10.2 million, or $0.15 per share, as compared to losses of $5.0 million and $0.08 per share for the previous quarter and $4.4 million and $0.11 per share for the fourth quarter of 2006.
Total revenue for the fourth quarter of 2007 was $12.4 million, a sequential quarterly decrease of 5.3% from the $13.1 million reported in the third quarter of 2007 and 11.2% below the $14.0 million reported in the fourth quarter of 2006. Product revenue for the fourth quarter of 2007 was $9.1 million, which represent decreases of 6.1% over the third quarter of 2007 and 7.2% compared to product revenue of $9.9 million recorded in the fourth quarter of 2006. Services revenue was $3.3 million for the fourth quarter of 2007, compared to $3.4 million and $4.1 million for the third quarter of 2007 and fourth quarter of 2006, respectively.
Non-GAAP gross profit for the fourth quarter of 2007 was $4.5 million compared to $5.0 million for the third quarter of 2007 and $5.9 million for the fourth quarter 2006. Gross profit margin on an adjusted basis for the fourth quarter of 2007 was 36%, as compared to the 38% gross margin realized in the third quarter of 2007 and 42% gross margin recorded in the fourth quarter of 2006.
Operating expenses were $10.8 million, or 87% of revenue in the fourth quarter of 2007 as compared to $8.4 million, or 64% of revenue in the third quarter of 2007 and $8.9 million, or 64% of revenue in the fourth quarter of 2006. Operating expenses in the fourth quarter of 2007 included $2.9 million in impairment of goodwill costs associated with the Company's acquisition of sentitO Networks and $325,000 in stock-based compensation. Non-GAAP operating expenses, which exclude impairment charges, restructuring expenses and stock-based compensation, were $7.6 million for the fourth quarter of 2007, or 61% percent of revenue. This compares to non-GAAP operating expenses of $7.6 million, or 54% of revenue, for the fourth quarter of 2006.
As of December 31, 2007, the Company had cash of $3.0 million, including $344,000 of restricted cash, and total debt of $20.2 million, including $10.1 million of indebtedness under the company's $14.0 million credit facility.
For 2007, total revenues were $50.6 million compared to $42.5 million for 2006. For 2007, free cash flow from continuing operations was negative $10.5 million, compared to negative $9.4 million for 2006. The company had impairment charges related to intangible assets of $5.2 million in 2007 and none in 2006. The company had reorganization costs of $751,000 in 2007 and 674,000 in 2006 and non-cash stock based compensation expense of $1.4 million in 2007 and $852,000 in 2006. For 2007, gross profit margins were 32%, or $16.2 million, compared to 40%, or $17.2 million for 2006. Operating expenses for 2007 were $36.3 million, compared to $29.3 million for 2006. Operating expenses, excluding impairment charges, reorganization costs and non-cash stock based compensation for 2007 and 2006 were $31.3 million and $27.8 million, respectively. As a percent of revenue, operating expenses excluding impairment charges, reorganization costs and non-cash stock based compensation for 2007 was 61.7% compared to 65.3% in 2006. The net loss was $27.1 million, or $0.47 per share and $17.8 million, or $.51 per share for the years ended 2007 and 2006, respectively.
"The financial component of our restructuring has begun successfully with our partner Falcon Investors on terms that are favorable to our shareholders," said Mark Dunaway, Chief Executive Officer, President, and Chief Operating Officer of Verso. "This is a company-friendly investor group that sees itself as our partner in turning the company around. This investment will not only provide us with the capital needed to take care of our current obligations, but will also provide us with an improved debt structure. We will continue to address our capital structure with the help of our financial partners over the near term and expect to make further positive changes that will be announced in the coming months. Our fourth quarter was disappointing largely due to the financial strain that the Company has been under. We experienced a similar impact on our first quarter 2008 revenue as well. You can expect to see us size this company appropriately to our revenue very quickly now. This latest development with our recapitalization is an important and positive step towards our goal of providing a stable financial platform upon which the Company can operate but it must be combined with a business that makes money in order for us to increase shareholder value. We look forward to updating you as our efforts progress. In the meantime, we continue to focus on lowering operating expenses and improving free cash flow in every way possible."
Financial and Operational Highlights
* On April 15, 2008, the investment fund with which the Company has been negotiating the terms of an initial equity investment in the Company pre-funded a portion of its contemplated initial equity investment. * The Company settled a legal proceeding for a total of $350,000, of which $100,000 will be payable on May 1, 2008 and $250,000 which was paid in common stock. * The Company completed a small private placement in the first quarter of 2008 in order to make a payment of $730,000 to Clarent Corporation in exchange for its agreement to extend the due date of the principal amount of the Clarent note to not later than August 15, 2008. On March 31, 2008 the court with jurisdiction over the Clarent estate approved the extension. * At December 31, 2007 the Company's cash and restricted cash position was $3.0 million.
Major Customer Actions and Milestones
During the fourth quarter, and in recent weeks, the company announced the following major customer actions and milestones:
* The Company announced a worldwide reseller agreement with Nortel for the optimization of VoIP over WiMAX. The agreement calls for Verso to provide product installation, support, maintenance and other services to Nortel and its customers. * The Company completed successful satellite interoperability tests for its backhaul solution with Hughes Network Systems. As a result, Verso's optimized NetPerformer satellite solution will now be offered to wireless carriers worldwide for GSM and CDMA backhaul applications through Hughes. * Verso and ADVANTECH announced successful interoperability testing for the optimization of cellular satellite backhaul. The ADVANTECH Satellite Networks open standard DVB-RCS satellite platform and Verso's cellular optimized solution create a combined solution which allows 2G and 3G operators to offer new services to remote regions economically. The combined IP-based system has the ability to support other services such as WiFi or WiMAX, VoIP services, or the provision of internet connectivity. * Verso announced a successful end-to-end WiMAX deployment of its MetroNet Bundle with Splendor Telecom of Beirut, Lebanon. Splendor is launching a unique service focusing on the Arab community abroad with a prepaid online account feature.
Verso Fourth Quarter Conference Call
The Company will hold its fourth quarter 2007 conference call today at 5 PM Eastern Time. During the call, Verso's senior management will discuss the Company's financial results for the fourth quarter and year end 2007 and respond to questions from participants. All interested individuals are invited to participate in the call by calling 1.866.269.9612 (U.S.) or 1.612.288.0340 (international). The conference code is 918243. If you are unable to participate in the live conference and would like to listen to a replay of the call, you may hear a digitized replay beginning on April 15, 2008 at 7:30 PM ET and ending on April 29, 2008 at 11:59 PM by calling 1.800.475.6701 and keying in the code 918243 or by going to the Verso company website, www.verso.com, and accessing a recording of the call under the "Investors" section of the website beginning on April 18, 2008.
About Verso Technologies
Verso is a global provider of next generation network solutions offering a core-to-edge product portfolio primarily for telecommunications service providers. The company's products enable its customers to secure and optimize network bandwidth, generate additional revenue and reduce costs. Verso's applications and services are cost effective, deploy quickly and provide a superior return on investment. For more information, contact Verso at www.verso.com or call 678.589.3500.
Forward-Looking Statements
Certain statements contained in this release that are not statements of historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "anticipate," "intend," "will," and similar expressions are examples of words that identify forward-looking statements. Forward-looking statements include, without limitation, statements regarding our future financial position, timing of future orders, business strategy and expected cost savings. These forward-looking statements are based on our current beliefs, as well as assumptions we have made based upon information currently available to us. These forward-looking statements may be affected by the risks and uncertainties in our business and are qualified in their entirety by the cautionary statements and risk factor disclosure contained in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2007. We do not assume, and expressly disclaim, any obligation to update these forward-looking statements.
Earnings Measurement Quality
The company provides supplemental information regarding its operational performance using certain non-GAAP financial measures including free cash flow and non-GAAP gross profit and operating expenses. Free cash flow from continuing operations ("free cash flow") reflects the company's net cash flow from continuing operations activities less capital expenditures. Non-GAAP gross profit and operating expenses represent GAAP gross margin and operating expenses excluding charges that are considered by management to be outside of the company's core operating results and certain non-cash expenses related to stock-based compensation. The company uses free cash flow and non-GAAP gross profit and operating expenses, among other measures, to evaluate its operating performance.
Management believes free cash flow provides investors with an important perspective on the cash available to service debt, make strategic acquisitions and investments, maintain its capital assets, and fund ongoing operations and working capital needs. As a result, free cash flow is a significant measure of the company's ability to generate long-term value. It is useful for investors to know whether this ability is being enhanced or degraded as a result of the company's operating performance. The company believes the presentation of free cash flow is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by management. In addition, free cash flow is also a primary measure used externally by the company's investors and analysts in its industry for purposes of valuation and comparing the operating performance of the company to other companies in its industry.
As free cash flow is not a measure of performance calculated in accordance with GAAP, free cash flow should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance or net cash flow provided by operating activities as a measure of liquidity. Free cash flow, as the company calculates it, may not be comparable to similarly titled measures employed by other companies. In addition, free cash flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of the company's ability to fund its cash needs. As free cash flow deducts capital expenditures from net cash flow provided by continuing operating activities, the most directly comparable GAAP financial measure, users of this financial information should consider the types of events and transactions which are not reflected.
While non-GAAP financial measures are not an alternative to generally accepted accounting principles used in the United States ("GAAP"), the company's management uses the non-GAAP financial measures to evaluate the company's historical and prospective financial performance in the ordinary course of business. The company believes that providing to the company's investors the non-GAAP financial measures, in addition to the most comparable GAAP presentation, allows the investors to better evaluate the company's progress and its financial results over time and to compare the company's results with the results of the company's competitors.
VERSO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(in thousands, except share data)
For the three months For the year ended
ended December 31, December 31,
---------------------- ----------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
(Unaudited) (Audited)
Revenue:
Products $ 9,148 $ 9,863 $ 35,938 $ 27,880
Services 3,296 4,146 14,697 14,650
---------- ---------- ---------- ----------
Total revenue 12,444 14,009 50,635 42,530
---------- ---------- ---------- ----------
Cost of revenue:
Products:
Product costs 5,205 4,905 20,099 14,367
Amortization of
intangibles 311 160 1,021 677
Impairment of
acquired technology
asset 2,250 -- 2,250 --
---------- ---------- ---------- ----------
Total cost of
products 7,766 5,065 23,370 15,044
Services 2,434 3,041 11,076 10,319
---------- ---------- ---------- ----------
Total cost of revenue 10,200 8,106 34,446 25,363
---------- ---------- ---------- ----------
Gross profit 2,244 5,903 16,189 17,167
---------- ---------- ---------- ----------
Operating expenses
General &
administrative 3,700 3,266 13,017 10,653
Sales and marketing 1,929 2,229 8,886 8,234
Research and
development 1,574 2,182 7,945 7,805
Depreciation and
amortization 684 531 2,754 1,930
Impairment of goodwill 2,945 -- 2,945 --
Reorganization expense -- 674 751 674
---------- ---------- ---------- ----------
Total operating
expenses 10,832 8,882 36,298 29,296
---------- ---------- ---------- ----------
Operating loss from
continuing
operations (8,588) (2,979) (20,109) (12,129)
Other income (loss) (52) (14) (305) (22)
Equity in loss of
investment (24) 127 (139) (1)
Interest expense, net (1,551) (1,489) (6,146) (5,624)
---------- ---------- ---------- ----------
Loss from continuing
operations before
income taxes (10,215) (4,355) (26,699) (17,776)
Income taxes -- -- -- --
---------- ---------- ---------- ----------
Loss from continuing
operations (10,215) (4,355) (26,699) (17,776)
---------- ---------- ---------- ----------
Loss from discontinued
operations (350) -- (350) --
---------- ---------- ---------- ----------
Net loss $ (10,565) $ (4,355) $ (27,049) $ (17,776)
========== ========== ========== ==========
Net loss per common
share- basic and
diluted:
Loss from
continuing
operations $ (0.15) $ (0.11) $ (0.47) $ (0.51)
Loss from
discontinued
operations (0.01) -- -- --
Net loss per common
share- basic and
diluted $ (0.16) $ (0.11) $ (0.47) $ (0.51)
========== ========== ========== ==========
Weighted average shares
outstanding - basic
and diluted 66,930,402 40,037,255 57,022,761 35,092,598
========== ========== ========== ==========
SELECTED BALANCE SHEET DATA
December 31, December 31,
2007 2006
------------ ------------
(Audited) (Audited)
Cash and cash equivalents $ 2,658 $ 1,134
Restricted cash 344 1,041
Accounts receivable, net 8,817 10,058
Inventories 6,615 7,184
Total current assets 20,930 21,498
Total assets 34,263 36,849
Credit facility, current portion 8,440 3,945
Current portion of convertible debentures 5,906 3,375
Notes payable, current portion 2,985 --
Total current liabilities 33,130 21,536
Credit facility, net of current portion 1,688 3,938
Convertible debentures, net of current
portion 1,170 4,700
Notes payable, net of current portion -- 2,862
Total debt 20,189 18,820
Total liabilities 36,657 34,170
Total shareholders' equity (deficit) (2,394) 2,679
Reconciliation of Consolidated GAAP Financial Measures to Non-GAAP
Financial Measures
(Unaudited, in thousands)
Free cash flow from continuing operations ("free cash flow") reflects the Company's net cash flow from continuing operations activities less capital expenditures. The Company uses free cash flow, among other measures, to evaluate its operating performance. Management believes free cash flow provides investors with an important perspective on the cash available to service debt, make strategic acquisitions and investments, maintain its capital assets, and fund ongoing operations and working capital needs. As a result, free cash flow is a significant measure of the Company's ability to generate long term value. It is useful for investors to know whether this ability is being enhanced or degraded as a result of the Company's operating performance. The Company believes the presentation of free cash flow is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by management. In addition, free cash flow is also a primary measure used externally by the Company's investors and analysts in its industry for purposes of valuation and comparing the operating performance of the Company to other companies in its industry.
As free cash flow is not a measure of performance calculated in accordance with GAAP, free cash flow should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance or net cash flow provided by operating activities as a measure of liquidity. Free cash flow, as the Company calculates it, may not be comparable to similarly titled measures employed by other companies. In addition, free cash flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of the Company's ability to fund its cash needs. As free cash flow deducts capital expenditures from net cash flow provided by continuing operating activities, the most directly comparable GAAP financial measure, users of this financial information should consider the types of events and transactions which are not reflected.
The Company provides below a reconciliation of net cash used in continuing operations to free cash flow from continuing operations, the most directly comparable amount reported under GAAP. In addition, the Company has provided a reconciliation of GAAP gross profit to non-GAAP gross profit and GAAP operating expenses to non-GAAP operating expenses which excludes charges such as stock-based compensation and one-time items such as reorganizational costs and impairment charges related to intangible assets.
For the three months ended For the year ended
---------------------------- ------------------
December 31, Sept. 30, December 31,
------------------ -------- ------------------
2007 2006 2007 2007 2006
-------- -------- -------- -------- --------
Reconciliation of
Net Cash used in
Continuing
Operations to
Free Cash Flow
from Continuing
Operations:
Net cash used in
continuing
operations $ (1,669) $ (895) $ (2,828) $ (9,870) $ (9,002)
Less: Capital
expenditures (64) (65) (109) (312) (351)
-------- -------- -------- -------- --------
Free Cash Flow
from continuing
operations $ (1,733) $ (960) $ (2,937) $(10,182) $ (9,353)
======== ======== ======== ======== ========
For the three months ended For the year ended
---------------------------- ------------------
December 31, Sept. 30, December 31,
------------------ -------- ------------------
2007 2006 2007 2007 2006
-------- -------- -------- -------- --------
Gross Profit:
GAAP gross profit $ 2,244 $ 5,903 $ 5,021 $ 16,189 $ 17,167
Add: Impairment of
acquired
technology asset 2,250 -- -- 2,250 --
-------- -------- -------- -------- --------
Non-GAAP gross
profit $ 4,494 $ 5,903 $ 5,021 $ 18,439 $ 17,167
======== ======== ======== ======== ========
For the three months ended For the year ended
---------------------------- ------------------
December 31, Sept. 30, December 31,
------------------ -------- ------------------
2007 2006 2007 2007 2006
-------- -------- -------- -------- --------
Operating Expenses:
GAAP operating
expenses $ 10,832 $ 8,882 $ 8,445 $ 36,298 $ 29,296
Less: Stock-based
compensation 325 652 376 1,350 852
Less: Reorgani-
zation costs -- 674 362 751 674
Less: Impairment
of goodwill 2,945 -- -- 2,945 --
-------- -------- -------- -------- --------
Non-GAAP
operating
expenses $ 7,562 $ 7,556 $ 7,707 $ 31,252 $ 27,770
======== ======== ======== ======== ========