DLGC Dialogic, Inc. (MM)

Dialogic Inc. (Nasdaq:DLGC), the Network Fuel™ company, today announced fourth quarter and full year financial results for the period ending December 31, 2012.

Fourth Quarter 2012 Highlights

• Total revenue was $37.9 million
• Gross Margin was 60.6%
• Net Loss was $4.7 million or $0.32 per share
• Cash on hand was $6.5 million

Full Year 2012 Highlights

• Total revenue was $160.0 million
• Gross Margin was 57.3%
• Net Loss was $37.8 million or $4.04 per share

GAAP Results

Revenue for the fourth quarter of 2012 was $37.9 million compared to $42.4 million in the third quarter of 2012 and $50.0 million in the fourth quarter of 2011. Gross Margin for the fourth quarter of 2012 was 60.6% compared to 61.8% in the third quarter of 2012 and 58.1% in the fourth quarter of 2011. Operating Expense for the fourth quarter of 2012 was $28.5 million compared to $26.4 million in the third quarter of 2012 and $33.9 million in the fourth quarter of 2011. Net Loss for the fourth quarter of 2012 was $4.7 million, or $0.32 per share compared to $0.3 million, or $0.03 per share, in the third quarter of 2012 and $9.2 million, or $1.46 per share, in the fourth quarter of 2011. Cash on hand for the fourth quarter of 2012 was $6.5 million compared to $2.7 million in the third quarter of 2012 and $10.4 million in the fourth quarter of 2011.

Revenue for full year 2012 was $160.0 million compared to $198.1 million in 2011. Gross Margin for 2012 was 57.3% compared to 58.4% in 2011. Operating Expense for 2012 was $122.5 million compared to $152.0 million in 2011. Net Loss for 2012 was $37.8 million, or $4.04 per share, compared to a net loss of $54.8 million in 2011, or $8.75 per share.

Non-GAAP Results

Total Revenue for the fourth quarter of 2012 was $39.1 million compared to $42.5 million in the third quarter of 2012 and $50.4 million in the fourth quarter of 2011. Gross Margin for the fourth quarter of 2012 was 64.5% compared to 65.3% in the third quarter of 2012 and 65.8% in the fourth quarter of 2011. Operating Expense for the fourth quarter of 2012 was $23.8 million compared to $23.9 million in the third quarter of 2012 and $28.8 million in the fourth quarter of 2011. Adjusted EBITDA for the fourth quarter of 2012 was $1.4 million compared to $3.8 million in the third quarter of 2012 and $4.4 million in the fourth quarter of 2011.

Total Revenue for 2012 was $162.4 million compared to $203.0 million in 2011. Gross Margin for 2012 was 65.0% compared to 64.0% in 2011. Operating Expense for 2012 was $104.7 million compared to $127.5 million in 2011. Adjusted EBITDA for 2012 was $0.8 million compared to $2.4 million in 2011.

Restructuring:

In December 2012, the company initiated a plan to further streamline operations and reduce operating costs, including specific workforce reductions. In the fourth quarter of 2012, the company recorded $2.3 million for severance and related charges for workforce reductions that were implemented in the first quarter of 2013. In total, the Company recorded $5.8 million for severance and related charges for the full year 2012.

Quote

"Throughout 2012 we focused on transitional activities including operational, organizational, and financial initiatives that significantly improved the health of the company," said Kevin Cook, President and CEO. "We successfully realigned our product organization to focus on our most promising solutions, evolved the talent on our senior management team and Board of Directors, eliminated $22.8 million in operating expenses year over year and restructured our long-term debt."

"Dialogic is now in a transformational phase and we have positioned the company favorably for 2013 and beyond. Core to our strategy is Network Fuel™, a go-to-market approach that elevates the performance of service provider networks and application platforms and enables these customers to offer a dynamic subscriber experience including video, voice, data — and whatever's next," added Cook.

Conference Call Details:

Date: March 21, 2013

Time: 4:30pm EDT

Dial-in number: 800.860.2442 International callers: 412.858.4600

Live Webcast: investor.dialogic.com

Replay Information:

A replay of the webcast will be accessible from the "Investor Relations" section of the Dialogic website. A telephonic replay of the conference call will be available one hour after the call and will run for 30 days. Parties in the United States should call 1-877-344-7529 and enter passcode 10026340#. International parties should call +1-412-317-0088 and enter passcode 10026340#.

About Dialogic:

Dialogic (Nasdaq:DLGC), the Network Fuel™ company, inspires the world’s leading service providers and application developers to elevate the performance of media-rich communications across the most advanced networks. We boost the reliability of any-to-any network connections, supercharge the impact of applications and amplify the capacity of congested networks. Forty-eight of the world’s top 50 mobile operators and nearly 3,000 application developers rely on Dialogic to redefine the possible and exceed user expectations.

For more information on Dialogic and the communications solutions energized by our technology, visit www.dialogic.com and www.dialogic.com/en/showcase. Also, visit our social media newsroom for the latest news, videos and blog posts.

This press release may contain forward-looking statements regarding future events that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results. These forward-looking statements involve risks and uncertainties, as well as assumptions that if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include but are not limited to our ability to continue to achieve operational, organizational and financial savings through initiatives already in process or which may be put in process, generate positive cash flow and support continued revenue growth, the potential market for and market acceptance of our products, industry and competitive market conditions, gross margin expansion, creating new revenue opportunities, reducing operating expenses and other risks and uncertainties described more fully in our documents filed with or furnished to the SEC. More information about these and other risks that may impact Dialogic's business is set forth in the "Risk Factors" section in our Quarterly Report on Form 10-Q for the period ended September 30, 2012, as filed with the SEC. These filings are available on a website maintained by the SEC http://www.sec.gov/. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Dialogic is a registered trademark and Network Fuel is a trademark of Dialogic Inc. or a subsidiary. (DLGC-IR)

GAAP Financial Tables

            Dialogic Inc. Consolidated Statements of Operations (GAAP) (In thousands, except per share data)   Three Months Ended December 31,   Twelve Months Ended December 31,   2012       2011       2012       2011   Revenue: Products $ 28,980 $ 38,660 $ 121,229 $ 157,088 Services   8,932       11,352       38,740       40,996   Total revenue   37,912       50,012       159,969       198,084     Cost of revenue: Products 10,483 15,753 48,521 60,990 Services   4,445       5,207       19,712       21,422   Total cost of revenue   14,928       20,960       68,233       82,412   Gross profit   22,984       29,052       91,736       115,672     Operating expenses: Research and development, net 9,326 12,300 42,785 54,562 Sales and marketing 9,521 12,464 41,456 54,293 General and administrative 7,414 8,369 31,180 35,921 Restructuring charges   2,270       793       7,030       7,214   Total operating expenses   28,531       33,926       122,451       151,990   Loss from operations (5,547 ) (4,874 ) (30,715 ) (36,318 )   Other income (expense): Interest and other income (expense), net 85 76 180 73 Interest expense (1,894 ) (4,789 ) (10,730 ) (18,016 ) Change in fair value of warrants 2,932 - 5,086 - Foreign exchange loss, net   (331 )     118       (1,378 )     (266 ) Total other income (expense), net   792       (4,595 )     (6,842 )     (18,209 ) Loss before provision (benefit) for income taxes (4,755 ) (9,469 ) (37,557 ) (54,527 ) Income tax (benefit) provision   (91 )     (306 )     213       282   Net loss $ (4,664 )   $ (9,163 )   $ (37,770 )   $ (54,809 )   Net loss per share - basic and diluted $ (0.32 ) $ (1.46 ) $ (4.04 ) $ (8.75 ) Weighted average shares of common stock used in calculation of net loss per share - basic and diluted   14,409       6,289       9,341       6,265             Dialogic Inc. Consolidated Balance Sheets (In thousands, except share and per share data)   December 31,   2012       2011   ASSETS Current assets: Cash and cash equivalents $ 6,501 $ 10,353 Restricted cash 900 1,497 Accounts receivable, net of allowance of $1,217 and $3,622, respectively 34,248 47,460 Inventory 8,306 20,127 Prepaid expenses 4,639 3,580 Other current assets   4,354       5,577   Total current assets 58,948 88,594 Property and equipment, net 5,978 7,947 Intangible assets, net 25,089 33,267 Goodwill 31,223 31,223 Other assets   2,147       2,311   Total assets $ 123,385     $ 163,342     LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 16,994 $ 21,569 Accrued liabilities 21,270 22,449 Deferred revenue, current portion 12,742 14,872 Bank indebtedness 11,717 12,509 Income taxes payable 1,007 1,665 Interest payable, related parties   -       3,452   Total current liabilities 63,730 76,516 Long-term debt, related parties, net of discount 66,536 94,675 Warrants 1,985 - Other long-term liabilities   8,978       7,587   Total liabilities   141,229       178,778   Commitments and contingencies Preferred stock, $0.001 par value: Authorized - 10,000,000 shares; Issued and outstanding - 1 share - - Stockholders' deficit: Common stock, $0.001 par value: Authorized - 200,000,000 shares; Issued and outstanding 14,415,652 and 6,295,230 shares, respectively 14 6 Additional paid-in capital 257,658 222,087 Accumulated other comprehensive loss (22,423 ) (22,206 ) Accumulated deficit   (253,093 )     (215,323 ) Total stockholders' deficit   (17,844 )     (15,436 ) Total liabilities and stockholders' deficit $ 123,385     $ 163,342    

Use of Non-GAAP Financial Measures

Some of the measures in this press release are non-GAAP financial measures within the meaning of the SEC Regulation G. Dialogic believes that presenting non-GAAP Adjusted EBITDA is useful to investors, because it reflects the operating performance of Dialogic. Dialogic management uses these non-GAAP measures as important indicators of the company's past performance and in planning and forecasting performance in future periods. Dialogic considers EBITDA, as adjusted, an important measure of its ability to generate cash flows to fund operating activities, service debt, fund capital expenditures and fund other corporate investing and financing activities. EBITDA, as adjusted, eliminates the non-cash effect of tangible asset depreciation and amortization of intangible assets and stock-based compensation, as well as certain nonrecurring expenses. EBITDA should be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities. The non-GAAP financial information Dialogic presents may not be comparable to similarly-titled financial measures used by other companies, and investors should not consider non-GAAP financial measures in isolation from, or in substitution for, financial information presented in compliance with GAAP. You are encouraged to review the reconciliation of GAAP financial measures to non-GAAP financial measures included elsewhere in this press release.

In respect of the foregoing, Dialogic provides the following supplemental information to provide additional context for the use and consideration of the non-GAAP financial measures used elsewhere in this press release:

"EBITDA" is defined as earnings before interest, income taxes, depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA, plus adjustments for nonrecurring items or other adjustments. Adjusted EBITDA includes EBITDA and also restructuring and integration costs, product rationalization, non-cash stock compensation expense, purchase accounting adjustments, SEC inquiry expenses and other income (expense) items, which includes the change in the fair value of warrants and foreign exchange gain (loss). Dialogic considers Adjusted EBITDA as a key metric in evaluating its financial performance.

Non-GAAP Financial Tables

                      Dialogic Inc. Reconciliation of Condensed Consolidated Statement of Operations to Adjusted EBITDA Results Three Months Ended December 31, 2012 (in thousands, except per share data) (unaudited)   GAAP  

Depreciation and Amortization

 

Restructuring and Integration Costs

 

Product Rationalization

 

Stock-based Compensation Expense

 

Purchase Accounting Adjustments

  SEC Inquiry  

Other Adjustments

 

Adjusted EBITDA

Revenue: Products $ 28,980 - - - - 73 - 737 $ 29,790 Services 8,932 - - - - 149 - 200 9,281   Cost of revenue: Products 10,483 (1,016 ) - - (61 ) - - - 9,406 Services 4,445 - - - - - - - 4,445   Operating expenses: Research and development, net 9,326 (303 ) - - (130 ) - - - 8,893 Sales and marketing 9,521 (620 ) - - (157 ) - - - 8,744 General and administrative 7,414 (358 ) (352 ) - (245 ) (60 ) (232 ) - 6,167 Restructuring charges 2,270 - (2,270 ) - - - - - -   Total other income (expense), net 792 - - - - - - (792 ) - Income tax benefit   (91 )   -     -     -     -     -     -     91       - Net (loss) income $ (4,664 )   2,297     2,622     -     593     282     232     54     $ 1,416   Net (loss) income per share - basic and diluted $ (0.32 ) $ 0.10 Weighted average shares of common stock used in calculation of net (loss) income per share - basic and diluted   14,409     14,409     Dialogic Inc. Reconciliation of Condensed Consolidated Statement of Operations to Adjusted EBITDA Results Three Months Ended December 31, 2011 (in thousands, except per share data) (unaudited)   GAAP  

Depreciation and Amortization

 

Restructuring and Integration Costs

 

Product Rationalization

 

Stock-based Compensation Expense

 

Purchase Accounting Adjustments

  SEC Inquiry  

Other Adjustments

  Non-GAAP Revenue: Products $ 38,660 - - - - 144 - - $ 38,804 Services 11,352 - - - - 281 - - 11,633   Cost of revenue: Products 15,753 (2,096 ) - - (79 ) (18 ) - (1,500 ) 12,060 Services 5,207 - - - - - - - 5,207   Operating expenses: Research and development, net 12,300 (376 ) - - (199 ) - - - 11,725 Sales and marketing 12,464 (1,270 ) - - (196 ) - - - 10,998 General and administrative 8,369 (776 ) (175 ) - (225 ) - (1,147 ) - 6,046 Restructuring charges 793 - (793 ) - - - - - -   Total other expense, net (4,595 ) - - - - - - 4,595 - Income tax benefit   (306 )   -     -     -     -     -     -     306       - Net (loss) income $ (9,163 )   4,518     968     -     699     443     1,147     5,789     $ 4,401   Net (loss) income per share - basic and diluted $ (1.46 ) $ 0.70 Weighted average shares of common stock used in calculation of net (loss) income per share - basic and diluted   6,289     6,289     Dialogic Inc. Reconciliation of Condensed Consolidated Statement of Operations to Adjusted EBITDA Results Three Months Ended September 30, 2012 (in thousands, except per share data) (unaudited)   GAAP  

Depreciation and Amortization

 

Restructuring and Integration Costs

 

Product Rationalization

 

Stock-based Compensation Expense

 

Purchase Accounting Adjustments

  SEC Inquiry  

Other Adjustments

  Non-GAAP Revenue: Products $ 32,140 - - - - 165 - - $ 32,305 Services 10,251 - - - - (77 ) - - 10,174   Cost of revenue: Products 11,070 (1,226 ) - (516 ) (86 ) 371 - - 9,613 Services 5,118 - - - - - - 5,118   Operating expenses: Research and development, net 9,266 (324 ) 4 - (146 ) 73 - - 8,872 Sales and marketing 9,261 (471 ) 19 - (175 ) 6 - - 8,641 General and administrative 7,375 (269 ) (486 ) - (238 ) 69 (64 ) - 6,387 Restructuring charges 457 - (457 ) - - - - - -   Total other expense, net (78 ) - - - - - - 78 - Income tax provision   56     -     -     -     -     -     -     (56 )     - Net (loss) income $ (290 )   2,290     920     516     645     (431 )   64     134     $ 3,848   Net (loss) income per share - basic and diluted $ (0.03 ) $ 0.38 Weighted average shares of common stock used in calculation of net (loss) income per share - basic and diluted   10,229     10,229     Dialogic Inc. Reconciliation of Condensed Consolidated Statement of Operations to Adjusted EBITDA Results Twelve Months Ended December 31, 2012 (in thousands, except per share data) (unaudited)   GAAP  

Depreciation and Amortization

 

Restructuring and Integration Costs

 

Product Rationalization

 

Stock-based Compensation Expense

 

Purchase Accounting Adjustments

  SEC Inquiry  

Other Adjustments

  Non-GAAP Revenue: Products $ 121,229 - - - - 507 - 737 $ 122,473 Services 38,740 - - - - 976 - 200 39,916   Cost of revenue: Products 48,521 (5,860 ) - (5,337 ) (210 ) 156 - - 37,270 Services 19,712 - - - (95 ) - - - 19,617   Operating expenses: Research and development, net 42,785 (1,409 ) 4 - (636 ) 73 - - 40,816 Sales and marketing 41,456 (2,739 ) 19 - (708 ) 6 - - 38,035 General and administrative 31,180 (1,494 ) (2,550 ) - (840 ) 9 (475 ) - 25,830 Restructuring charges 7,030 - (7,030 ) - - - - - -   Total other expense, net (6,842 ) - - - - - - 6,842 - Income tax provision   213     -     -     -     -     -     -     (213 )     - Net (loss) income $ (37,770 )   11,502     9,557     5,337     2,489     1,239     475     7,992     $ 821   Net (loss) income per share - basic and diluted $ (4.04 ) $ 0.09 Weighted average shares of common stock used in calculation of net (loss) income per share - basic and diluted   9,341     9,341     Dialogic Inc. Reconciliation of Condensed Consolidated Statement of Operations to Adjusted EBITDA Results Twelve Months Ended December 31, 2011 (in thousands, except per share data) (unaudited)   GAAP  

Depreciation and Amortization

 

Restructuring and Integration Costs

 

Product Rationalization

 

Stock-based Compensation Expense

 

Purchase Accounting Adjustments

  SEC Inquiry  

Other Adjustments

  Non-GAAP Revenue: Products $ 157,088 - - - - 2,808 - - $ 159,896 Services 40,996 - - - - 2,082 - - 43,078   Cost of revenue: Products 60,990 (8,568 ) - - (261 ) 1,110 - (1,500 ) 51,771 Services 21,422 - (25 ) - (63 ) - - - 21,334   Operating expenses: Research and development, net 54,562 (1,674 ) (65 ) - (764 ) - - - 52,059 Sales and marketing 54,293 (5,158 ) (21 ) - (971 ) (389 ) - - 47,754 General and administrative 35,921 (3,180 ) (461 ) - (968 ) - (3,673 ) - 27,639 Restructuring charges 7,214 - (7,214 ) - - - - - -   Total other expense, net (18,209 ) - - - - - - 18,209 - Income tax provision   282     -     -     -     -     -     -     (282 )     - Net (loss) income $ (54,809 )   18,580     7,786     -     3,027     4,169     3,673     19,991     $ 2,417   Net (loss) income per share - basic and diluted $ (8.75 ) $ 0.39 Weighted average shares of common stock used in calculation of net (loss) income per share - basic and diluted   6,265     6,265