bits..this is the old story...nothing has changed..They never mentioned the emc oem deal and they haven't announced the nt deal which apparently has existed for 6 months now..there numbers have been a blow out ...over 100% compounding growth for a reason: Sales of OEM appliances to EMC Corporation were 47 percent of total net revenues in the fiscal first quarter, compared to 42 percent in the fiscal fourth quarter of 2003
Network Engines Ups Revenues in Q1
CANTON, Mass. -- Network Engines, Inc. (NASDAQ: NENG - message board), a leading development, manufacturing and distribution partner for storage and security software and network equipment providers, today reported fiscal first quarter 2004 results for the period ended December 31, 2003.
Net revenues for the fiscal first quarter of 2004 increased 25 percent to $35.9 million, compared to $28.8 million reported in the fiscal fourth quarter of 2003. The Company reported a GAAP net loss of $2.1 million, or $0.06 per share, for the first quarter. These results include a non-cash intangible asset impairment charge of $3.6 million related to the recently announced amendment to the distribution agreement with EMC Corporation associated with the sale of EMC-approved host bus adapters (HBAs). The $2.1 million net loss for the first quarter of fiscal 2004 compared to net income of $1.1 million, or $0.03 per share, in the fiscal fourth quarter ended September 30, 2003. Net income in the fourth quarter of 2003 included the reversal of a restructuring accrual of approximately $377,000 and the reversal of $175,000 for an estimated legal liability.
"We are pleased with our revenue growth, which exceeded our previous revenue guidance resulting in our ninth consecutive quarter of revenue growth. Excluding the impairment charge, our operations also continued to improve quarter over quarter," said John Curtis, President and Chief Executive Officer of Network Engines. "We have continued to make progress in the execution of our growth strategy, which includes expanding our existing and new OEM Appliance relationships and developing and distributing server appliances with our ISV partners."
First Quarter Financial Performance Highlights
Net revenues increased 25 percent from the prior quarter to $35.9 million in the quarter. Sales of OEM appliances to EMC Corporation were 47 percent of total net revenues in the fiscal first quarter, compared to 42 percent in the fiscal fourth quarter of 2003.
Gross profit was 19.7 percent compared to 20.0 percent in the fiscal fourth quarter of 2003.
Operating expenses were $9.2 million, including the $3.6 million non-cash intangible asset impairment charge. The first quarter operating expenses compared with $4.8 million of operating expenses in the fiscal fourth quarter of 2003, which included the aforementioned $552,000 expense reversals.
Net loss was $2.1 million, or $0.06 per share, and includes the aforementioned $3.6 million non-cash intangible asset impairment charge. These results compared to net income of $1.1 million, or $0.03 per share in the fourth quarter of fiscal 2003, which included $552,000 of expense reversals.
Cash and cash equivalents totaled $35.1 million at the close of the quarter, compared to $36.8 million at the close of the fiscal fourth quarter of 2003.
OEM Appliance Operations
Revenues from the OEM Appliance business increased 42 percent to $19.9 million, compared with $14.0 million in the fiscal fourth quarter. During the quarter, the Company continued to realize strong growth with its largest OEM partner, EMC Corporation, while revenue from other OEM Appliance customers increased by 66 percent to $3.2 million in the fiscal first quarter of 2004.
Distribution Operations
Revenues from our Distribution operations increased 7 percent to $15.9 million during the fiscal first quarter of 2004 from $14.8 million in the prior quarter. Substantially all of the revenue was from the traditional TidalWire distribution business consisting of the sale of third-party data storage networking components. Recent events included:
The Company announced on December 10, 2003 that effective January 1, 2004, Network Engines' distribution agreement with EMC Corporation for the sale of EMC-approved HBAs was amended resulting in increased costs associated with that business. In the first quarter, the sale of EMC-approved HBAs accounted for 30 percent of total revenues and 67 percent of Distribution operations revenues.
In December, the Company announced its first firewall appliance for Microsoft Exchange based on the Microsoft Internet Security and Acceleration (ISA) Server. The appliance will be sold through the Company's Distribution operation as a Network Engines branded product and is expected to be generally available in March.
"The EMC-approved HBA distribution business continues to be a strategic asset, enabling us to maintain and enhance our relationships with our value added reseller and system integrator channel customers. In the coming quarters, we expect to leverage these channel relationships as we bring new server appliances to market. While the amendment to the EMC distribution agreement will lower our gross profit percentages in the near term, I expect that the impact of this amendment will become less significant if we can successfully execute our strategy of selling higher-margin server appliances through our distribution channels," continued Curtis.
Business Outlook
Based on current forecasts from certain partners, the expected impact of the amended EMC HBA distribution agreement and historical and seasonal trends, the Company currently anticipates the following results for its fiscal second quarter ending March 31, 2004:
Net revenues in the range of $30 million to $34 million.
OEM Appliance revenues between $19 million and $21 million.
Distribution revenues in the range of $11 million to $13 million.
Gross profit in the range of 16 percent to 18 percent.
Operating expenses between $5.5 million and $5.8 million.
Net income (loss) on a GAAP basis between a net loss of $(200,000) to net income of $300,000.
Cash position between $33 million and $35 million.
"In the storage industry, the March quarter is typically the weakest quarter of the calendar year. As a result, we expect revenues for the March quarter for both OEM Appliance and Distribution operations to be relatively flat to down," stated Doug Bryant, Vice President of Finance and Administration and Chief Financial Officer. "The guidance range for distribution revenue is lower than the prior quarter because of expected seasonality plus an element of uncertainty as a result of the recently amended EMC HBA distribution contract. We will continue to focus on expense controls as one of our most important financial metrics, but in a manner consistent with the execution of our long-term growth strategy."
Network Engines Inc.
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