PT Announces Fourth Quarter 2012 Financial Results

PT Announces Fourth Quarter 2012 Financial Results  ROCHESTER, NY -- (Marketwire) -- 02/21/13 --  PT (NASDAQ: PTIX), a leading global provider of advanced network communications solutions, today announced its unaudited financial results for the fourth quarter 2012.  Revenue in the fourth quarter 2012 amounted to $5.3 million, compared to $9.1 million in the fourth quarter 2011. Revenue for 2012 amounted to $23.3 million, compared to $36.2 million for 2011.  On the basis of generally accepted accounting principles (GAAP), the net loss in the fourth quarter 2012 amounted to ($4.0 million), or ($.36) per basic share, based on 11.1 million shares outstanding, including charges for the impairment of software capitalization costs and purchased intangible assets totaling $.14 per share, a charge for excess OEM inventories of $.12 per share, restructuring costs of $.04 per share, amortization of purchased intangible assets of $.02 per share, a discrete income tax charge of $.01 per share, and stock-based compensation expense of $.01 per share. GAAP net income in the fourth quarter 2011 amounted to $.5 million, or $.04 per diluted share, based on 11.1 million shares outstanding, including stock compensation expense of $.01 per share, amortization of purchased intangible assets of $.03 per share and write-off of software development costs of $.02 per share.   The GAAP net loss for 2012 amounted to ($7.1 million), or ($.64) per basic share, including charges for the impairment of software capitalization costs and purchased intangible assets totaling $.14 per share, a charge for excess OEM inventories of $.12 per share, restructuring costs of $.04 per share, amortization of purchased intangible assets of $.10 per share, a discrete income tax charge of $.01 per share, and stock-based compensation expense of $.02 per share. The GAAP net loss for 2011 amounted to ($1.2 million), or ($.10) per basic share, based on 11.1 million shares outstanding. This loss includes restructuring expense of $.02 per share, stock compensation expense of $.03 per share, an impairment charge against vendor software of $.04 per share, write-off of software development costs of $.02 per share, amortization of purchased intangible assets of $.10 per share and litigation expenses of $.04 per share.   The non-GAAP net loss in the fourth quarter 2012 amounted to ($.3 million), or ($.03) per basic share, compared to non-GAAP net income of $1.0 million, or $.09 per diluted share in the fourth quarter 2011. The non-GAAP net loss for 2012 amounted to ($2.4 million), or ($.22) per basic share, compared to net income of $1.5 million, or $.13 per diluted share for 2011. Please refer to the reconciliations between GAAP and non-GAAP financial measures contained in this release.   On December 31, 2012, the Company had cash and investments amounting to $14.3 million, working capital of $15.5 million and no long-term debt.  On January 10, 2013, PT announced its decision to sharpen its strategic business focus, concentrate on its high value-add communications product families, transition away from other product portfolio elements, and implement operational expense reductions. In conjunction with this decision, the Company reduced its personnel by ten employees, or 8% of its workforce as of January 10, 2013. As a result of this action, the Company expects to incur first quarter 2013 pre-tax restructuring charges of approximately $.3 million, representing employee-related costs, which will result in cash expenditures. This action reduced operating expenses by approximately $.7 million per year. When combined with the savings from the restructuring PT announced in October 2012, the Company has reduced its break-even expense level by more than $2 million per year. During the first half of 2013, we expect to increase our sales and marketing investments in our Diameter signaling product to accelerate its penetration in this growing market.   "While our fourth quarter revenues and net loss are disappointing, we are confident that we have taken the necessary measures, both in the fourth quarter and since, to stabilize the Company's operations and place us firmly on the path to profitability," said John Slusser, president and chief executive officer. "These measures were based upon focusing our efforts on high-value add, strong-margin products that provide the best prospects for revenue growth as global economic conditions improve. We enter 2013 with a lean, focused and dedicated group of employees and an exciting new Diameter signaling product, our Universal Diameter Router (UDR). Our ability to provision a complete signaling evolution path in a single, highly-integrated, carrier-grade end solution set -- spanning from today's legacy network upgrades to next-generation 4G LTE architectures -- positions us very well in the network signaling marketplace going forward."  About PT (www.pt.com)   PT (NASDAQ: PTIX) is a global supplier of advanced, high availability network communications solutions. Its SEGway(TM) Diameter and SS7 Signaling Systems provide tightly integrated signaling and advanced routing capabilities and applications that uniquely span the mission critical demands of both existing and next-generation 4G LTE and IMS telecommunications networks. The Company's IPnexus(R) Multi-Protocol Gateways and Servers enable a broad range of IP-interworking in data acquisition, sensor, radar, and control applications for aviation, weather and other infrastructure networks. Established in 1981, PT is headquartered in Rochester, NY and markets and sells its products worldwide through its direct sales organization as well as through channel partners that include major telecommunications equipment vendors, government prime contractors and value-added resellers.  Forward-Looking Statements  The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. This press release contains forward-looking statements which reflect the Company's current views with respect to future events and financial performance, 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 provisions of those Sections. The Company's future operating results are subject to various risks and uncertainties and could differ materially from those discussed in the forward-looking statements and may be affected by various trends and factors which are beyond the Company's control. These risks and uncertainties include, among other factors, business and economic conditions, rapid technological changes accompanied by frequent new product introductions, competitive pressures, dependence on key customers and the potential loss of key customers, inability to gauge order flows from customers, fluctuations in quarterly and annual results, the reliance on a limited number of third party suppliers, limitations of PT's manufacturing capacity and arrangements, the protection of PT's proprietary technology, errors or defects in our products, the effects of pending or threatened litigation, the dependence on key personnel, changes in critical accounting estimates, potential impairments related to investments, foreign regulations, possible loss or significant curtailment of significant government contracts or subcontracts, and potential material weaknesses in internal control over financial reporting. In addition, during weak or uncertain economic periods, customers' visibility deteriorates causing delays in the placement of their orders. These factors often result in a substantial portion of PT's revenue being derived from orders placed within a quarter and shipped in the final month of the same quarter. Forward-looking statements should be read in conjunction with the most recent audited Consolidated Financial Statements, the Notes thereto, Risk Factors, and Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company, as contained in the Company's Annual Report on Form 10-K, and other documents filed with the Securities and Exchange Commission.  Non-GAAP Financial Measures  As a supplement to the GAAP-based consolidated financial statements contained in this press release, the Company is providing a presentation of non-GAAP financial measures which can be useful to investors to gain an overall understanding of the Company's current financial performance. Specifically, the Company believes the non-GAAP financial measures provide useful information to investors by excluding certain expenses the Company believes are not indicative of its core operating results. The non-GAAP financial measures exclude certain expenses such as the effects of (a) amortization of purchased intangible assets, (b) write-offs of software capitalization and purchased intangible assets, (c) OEM excess inventory charges, (d) stock-based compensation costs, (e) restructuring costs, (f) litigation expenses, and (g) impairment charges -- vendor software.  Management utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of our business, in making operating decisions and forecasting and planning for future periods. We also consider the use of the non-GAAP financial measures to be helpful in assessing various aspects of our business operations.  Non-GAAP financial measures are not meant to be considered a substitute for the corresponding GAAP financial information and should not be considered in isolation from measures of financial performance prepared in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool and that these measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP financial information.  A reconciliation of non-GAAP measures to GAAP measures is included herein.  A conference call will be held on Friday, February 22, at 10:00 a.m., New York time, to discuss the results. All institutional investors can participate in the conference by dialing (866) 494-3746 or (416) 915-1196. The call will be available simultaneously for all other investors at (866) 494-3387 or (416) 915-1198. A digital recording of this conference call may be accessed immediately after its completion from February 22 through February 26, 2013. To access the recording, participants should dial (866) 245-6755 or (416) 915-1035 using passcode 62275. A live webcast of the conference call will be available on the PT website at www.pt.com and will be archived to the site within two hours after the completion of the call.   PT is a trademark of Performance Technologies, Inc. The names of actual companies, products, or services may be the trademarks, registered trademarks, or service marks of their respective owners in the United States and/or other countries.                                                                                             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES                                    CONSOLIDATED BALANCE SHEETS                                                          (unaudited)                                                                                                                                                  ASSETS                                                                                                                                                                 December 31,   December 31,                                                      2012           2011                                                     -------------  -------------                                                                               Current assets:                                                                Cash and cash equivalents                    $   7,546,000  $   9,641,000    Investments                                      4,794,000      2,798,000    Accounts receivable                              3,775,000      5,622,000    Inventories                                      3,615,000      5,421,000    Prepaid expenses and other assets                  932,000      1,155,000    Prepaid income taxes                               206,000         67,000    Deferred income taxes                              445,000        368,000                                                 -------------  -------------      Total current assets                          21,313,000     25,072,000                                                                               Investments                                        1,969,000      3,362,000  Property, equipment and improvements, net          1,683,000      1,891,000  Software development costs, net                    3,716,000      3,932,000  Purchased intangible assets, net                   2,835,000      4,390,000  Deferred income taxes                                               102,000                                                 -------------  -------------      Total assets                               $  31,516,000  $  38,749,000                                                 =============  =============                                                                                                                                                                                                                                                             LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                  Current liabilities:                                                           Accounts payable                             $   1,134,000  $   1,015,000    Accrued expenses                                 1,664,000      1,547,000    Deferred revenue                                 3,002,000      2,808,000    Fair value of foreign currency hedges                              46,000    Other payable                                                     999,000                                                 -------------  -------------      Total current liabilities                      5,800,000      6,415,000  Deferred income taxes                                696,000        553,000                                                 -------------  -------------      Total liabilities                              6,496,000      6,968,000                                                 -------------  -------------                                                                               Stockholders' equity:                                                          Preferred stock                                                              Common stock                                       133,000        133,000    Additional paid-in capital                      17,591,000     17,347,000    Retained earnings                               17,099,000     24,237,000    Accumulated other comprehensive income              15,000       (118,000)   Treasury stock                                  (9,818,000)    (9,818,000)                                                -------------  -------------      Total stockholders' equity                    25,020,000     31,781,000                                                 -------------  -------------      Total liabilities and stockholders' equity $  31,516,000  $  38,749,000                                                 =============  =============                                                                                                                                                                                                                                                   PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES                               CONSOLIDATED STATEMENTS OF OPERATIONS                            FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2012 AND 2011                                        (unaudited)                                                                                                                                            Three Months Ended           Year Ended                                         December 31,             December 31,                                      2012         2011        2012         2011                               -----------  ----------- -----------  -----------                                                                               Sales                     $ 5,275,000  $ 9,051,000 $23,320,000  $36,176,000  Cost of goods sold          2,805,000    4,166,000  12,416,000   18,585,000  Software capitalization                                                       and purchased intangible                                                     asset write-off            1,600,000      175,000   1,600,000      175,000  OEM excess inventory                                                          charge                     1,351,000                1,351,000                                         -----------  ----------- -----------  -----------  Gross profit (loss)          (481,000)   4,710,000   7,953,000   17,416,000                            -----------  ----------- -----------  -----------                                                                               Operating expenses:                                                            Selling and marketing       808,000    1,444,000   4,935,000    6,410,000    Research and                                                                  development              1,234,000    1,782,000   5,583,000    7,124,000    General and                                                                   administrative             872,000      978,000   3,997,000    4,568,000    Restructuring charges       434,000                  434,000      253,000    Impairment charge-                                                            vendor software                                                  400,000                            -----------  ----------- -----------  -----------      Total operating                                                               expenses               3,348,000    4,204,000  14,949,000   18,755,000                            -----------  ----------- -----------  -----------  (Loss) income from                                                            operations                (3,829,000)     506,000  (6,996,000)  (1,339,000)                                                                              Other income, net              11,000       68,000      52,000      154,000                            -----------  ----------- -----------  -----------  (Loss) income before                                                          income taxes              (3,818,000)     574,000  (6,944,000)  (1,185,000)                                                                              Income tax provision                                                          (benefit)                    182,000      101,000     194,000      (22,000)                           -----------  ----------- -----------  -----------      Net (loss) income     $(4,000,000) $   473,000 $(7,138,000) $(1,163,000)                           ===========  =========== ===========  ===========                                                                                                                                                            Basic (loss) earnings per                                                     share                    $      (.36) $       .04 $      (.64) $      (.10)                           ===========  =========== ===========  ===========                                                                               Diluted earnings per                                                          share                                 $       .04                                                                  ===========                                                                                                        Weighted average common                                                       shares(1)                 11,116,000   11,116,000  11,116,000   11,116,000                            ===========  =========== ===========  ===========                                                                                                                                                            (1) Shares used in both basic (loss) earnings per share and diluted earnings per share                                                                                                                                                                                                                                                                                                                     PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES                       RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES                                             (unaudited)                                                                                                                                           Three Months Ended            Year Ended                                        December 31,              December 31,                                     2012         2011         2012         2011                              -----------  -----------  -----------  -----------                                                                               Gross Profit                                                                  Reconciliation                                                                GAAP gross profit                                                             (loss)                $  (481,000) $ 4,710,000  $ 7,953,000  $17,416,000      Amortization of                                                               purchased                                                                    intangible                                                                   assets(a)               265,000      279,000    1,156,000    1,091,000      Software                                                                      capitalization and                                                           purchased                                                                    intangible asset                                                             write-off(b)          1,600,000      175,000    1,600,000      175,000      OEM excess inventory                                                          charge(c)             1,351,000                 1,351,000                   Stock-based                                                                   compensation(d)           4,000        2,000       14,000       11,000                           -----------  -----------  -----------  -----------        Non-GAAP gross                                                                profit              2,739,000    5,166,000   12,074,000   18,693,000                           -----------  -----------  -----------  -----------        Non-GAAP gross                                                                profit percentage                                                            of sales                 51.9%        57.1%        51.8%        51.7%                                                                              Operating Expense                                                             Reconciliation                                                                GAAP operating                                                                expenses                3,348,000    4,204,000   14,949,000   18,755,000      Stock-based                                                                   compensation(d)         (53,000)     (69,000)    (229,000)    (294,000)     Restructuring                                                                 costs(e)               (434,000)                 (434,000)    (253,000)     Litigation                                                                    expenses(f)                                                   (428,000)     Impairment charge -                                                           vendor software(g)                                            (400,000)                          -----------  -----------  -----------  -----------        Non-GAAP operating                                                            expenses            2,861,000    4,135,000   14,286,000   17,380,000                           -----------  -----------  -----------  -----------                                                                               Net Income (loss)                                                             Reconciliation                                                                GAAP net (loss) income  (4,000,000)     473,000   (7,138,000)  (1,163,000)     Amortization of                                                               purchased                                                                    intangible                                                                   assets(a)               265,000      279,000    1,156,000    1,091,000      Software                                                                      capitalization and                                                           purchased                                                                    intangible asset                                                             write-off(b)          1,600,000      175,000    1,600,000      175,000      OEM excess inventory                                                          charge(c)             1,351,000                 1,351,000                   Stock-based                                                                   compensation(d)          57,000       71,000      243,000      305,000      Restructuring                                                                 costs(e)                434,000                   434,000      253,000      Litigation                                                                    expenses(f)                                                    428,000      Impairment charge -                                                           vendor software(g)                                             400,000                           -----------  -----------  -----------  -----------        Non-GAAP net                                                                  (loss) income     $  (293,000) $   998,000  $(2,354,000) $ 1,489,000                           -----------  -----------  -----------  -----------                                                                               Loss per Common Share                                                          GAAP basic and                                                                diluted(h) net (loss)                                                        income per share      $      (.36) $       .04  $      (.64) $      (.10)                          -----------  -----------  -----------  -----------    Non-GAAP basic and                                                            diluted(h) net (loss)                                                        income per share      $      (.03) $       .09  $      (.21) $       .13                           -----------  -----------  -----------  -----------                                                                                                                                                            The Non-GAAP financial measures above, and the reconciliation to our GAAP    results for the periods presented, reflect adjustments relating to the       following items:                                                                                                                                          (a) Amortization of purchased intangible assets - a non-cash expense arising from the acquisition of intangible assets that the Company is required to    amortize over their expected useful life. The amount of purchased intangible assets increased significantly as a result of the acquisition of the USP and SP2000 signaling technologies acquired from GENBAND.                                                                                                      (b) Software capitalization and purchased intangible asset write-off - a     non-cash charge incurred to write down the recorded balance of capitalized   software development projects and purchased intangible assets to their       estimated net realizable value.                                                                                                                           (c) OEM excess inventory charge - a non-cash charge to increase the reserve  for excess and obsolete inventories due to the Company's decision to         transition away from its OEM product line.                                                                                                                (d) Stock-based compensation costs - a non-cash expense incurred in          accordance with share-based compensation accounting guidance.                                                                                             (e) Restructuring costs - costs incurred as a result of restructuring        activities taken to bring operating expenses more in line with expected      revenues.                                                                                                                                                 (f) Litigation expenses - legal expenses not indicative of core operating    activities.                                                                                                                                               (g) Impairment charge - vendor software - One-time impairment charge         recorded in connection with the termination of a marketing reseller          agreement with a vendor, not indicative of core operating activities.                                                                                     (h) Basic and diluted net income per common share are identical for the      three months and year ended December 31, 2011.                                   For more information contact:  Dorrance W. Lamb SVP and Chief Financial Officer  PT  585-256-0200 ext. 7276 http://www.pt.com finance@pt.com