Radisys Reports Third Quarter Results

  Radisys Reports Third Quarter Results

  *Revenue of $54.1 million; ATCA and Software-Solutions of $37.3 million
    accounted for 69% of total revenue.
  *Third quarter Trillium software orders up 23% year over year and 82%
    sequentially.
  *The Company’s Media Resource Function (MRF) product family is taking part
    in over 20 trials in support of our customers’ Voice over LTE (VoLTE) and
    Rich Communication Services (RCS) network deployments.
  *Announces new partnership with Ennoconn Corporation to provide
    manufacturing services and enable the consolidation of the Company’s Asia
    Platform operations to Shenzhen, China contributing over $6 million in
    annual profit once complete.

Business Wire

HILLSBORO, Ore. -- November 5, 2013

Radisys Corporation (NASDAQ:RSYS), a market leader enabling wireless
infrastructure solutions for telecom, aerospace, and defense applications,
announced third quarter 2013 revenues of $54.1 million and a GAAP net loss of
$12.7 million or $0.44 per diluted share. Third quarter non-GAAP net loss was
$4.6 million or $0.16 per diluted share. Third quarter non-GAAP results
exclude the amortization of acquired intangible assets, stock-based
compensation, restructuring and acquisition-related charges, and non-cash tax
expense. A reconciliation of GAAP to non-GAAP results is located in the tables
included at the end of this press release.

Commenting on the third quarter results and the Company’s strategic progress,
Brian Bronson, Radisys' President and Chief Executive Officer stated, “Our
third quarter financial expectations relied heavily on receiving and shipping
a large MRF order from an Asian carrier that ultimately was not received
before quarter end. Our relationship with this carrier is excellent and we are
in the initial stages of what I believe will be a meaningful long-term
partnership that could generate over $10 million of revenue over the next
couple of years.

We continue to make meaningful progress on the key strategic objectives that
are targeted at driving long-term shareholder value. These include:

  *Market Penetration:

       *In MRF, we remain on track to exceed 2013 design win goals and are
         now in trials with four different partners across 20 different
         carriers around the globe.
       *In Trillium software, third quarter orders exceeded expectations
         increasing 23% year over year and 82% sequentially. Continued small
         cell deployments with our partners in Korea are demonstrating the
         commercial readiness of our small cell and overall LTE solutions.
         This proof point is leading to incremental opportunities and is
         expected to be a primary driver of both short and long term Trillium
         software revenue growth.
       *In Platforms, we are seeing early traction with our NFV enabled
         products. We will share more detail on the functionality of these
         platforms as we begin official customer rollout in early 2014.

  *Operational Efficiency - We remain on track to meet or beat the $20
    million in cost reductions announced in July 2013:

       *Our Shanghai design center has been closed and development work
         transitioned to our Shenzhen site;
       *Our Ireland administrative office has been closed and the work
         transitioned to our Hillsboro headquarters; and
       *We have reached agreement with Ennoconn Corporation to provide
         contract manufacturing services in Shenzhen enabling the closure of
         our Penang facility. This is the final step in consolidating our
         Asian Platform operations into a single Shenzhen site and will
         contribute $6 million of additional annual profit beginning in the
         third quarter of 2014.”

Other Third Quarter Financial Highlights

  *Total GAAP Research and Development (R&D) and Selling, General and
    Administrative (SG&A) expenses were $22.0 million and non-GAAP R&D and
    SG&A expenses were $20.5 million.
  *Cash and cash equivalents were $31.6 million at the end of the third
    quarter representing a $2.4 million sequential decrease from the second
    quarter. During the quarter, we paid $1.6 million in cash severance
    associated with our restructuring plans.
  *On November 1, 2013, we amended our Silicon Valley Bank line of credit
    agreement which enables sufficient working capital flexibility to finish
    the Company’s transformation efforts. As of the end of the third quarter,
    our borrowing base was $27.2 million leaving $12.2 million unused and
    available.

Fourth Quarter 2013 Outlook

  *Revenue is expected to be between $44 million and $50 million. At the
    mid-point, the sequential decrease is primarily due to the timing of
    customer orders between the fourth quarter of 2013 and the first quarter
    of 2014 that adversely affects Q4 ATCA revenue. Additionally, we expect
    Software-Solutions revenue to remain relatively flat as we presently do
    not anticipate recognizing revenue on a number of new MRF programs due to
    various terms and conditions and engineering milestones that will not be
    met until 2014.
  *Non-GAAP gross margin is expected to approximate 31% of sales.
  *Non-GAAP R&D and SG&A expenses are expected to decrease to approximately
    $19 million.
  *Non-GAAP net loss is expected to be between $0.12 and $0.24 per share.

Mr. Bronson continued, “Despite a soft telecom spending environment in our
portion of the market, we continue to focus on building tangible long-term
momentum in our target markets. We have made significant strategic and
operational progress over the last four quarters that are not yet showing
through in our financial results. In addition, we are accelerating previously
planned actions to right-size our operating expense structure and are
targeting an estimated $70 million of 2014 Non-GAAP R&D and SG&A expenses.
This expense structure continues to provide the resources required to fund and
execute on our strategic initiatives. We continue to drive towards double
digit revenue growth in our Software-Solutions business and when combined with
our cost reduction initiatives, expect 2014 operating income to improve
materially.”

Conference Call and Webcast Information

Radisys will host a conference call on Tuesday, November 5, 2013 at 5:00 p.m.
ET to discuss its third quarter 2013 results and the financial and business
outlook for the fourth quarter 2013.

To participate in the live conference call, dial 888-333-0027 in the U.S. and
Canada or 706-634-4990 for all other countries and reference conference ID #
92478192. The live conference call will also be available via webcast on the
Radisys investor relations website at http://investor.radisys.com/.

A replay of the conference call will be available two hours after the call is
complete until 11:59 p.m. on Tuesday, November 19, 2013. To access the replay,
dial 855-859-2056 or 404-537-3406 and reference conference ID# 92478192. A
replay of the webcast will be available for an extended period of time on the
Radisys investor relations website at http://investor.radisys.com/.

Forward-Looking Statements

This press release contains forward-looking statements, including statements
about the Company's business strategy, financial outlook and expectations for
the fourth quarter of 2013 and fiscal 2014 and statements related to timing of
revenue recognition, expected customer orders, expense savings or reductions,
operational and administrative efficiencies, revenue growth, margin
improvement, financial performance and other attributes of the Company. These
forward-looking statements are based on the Company's expectations and
assumptions, as of the date such statements are made, regarding the Company's
future operating performance and financial condition, the economy and other
future events or circumstances. Actual results could differ materially from
the outlook guidance and expectations in these forward-looking statements as a
result of a number of risk factors, including, among others, (a) the Company's
dependence on certain customers and high degree of customer concentration, (b)
the Company's use of one contract manufacturer for a significant portion of
the production of its products, including the success of transitioning
contract manufacturing partners, (c) the anticipated amount and timing of
revenues from design wins due to the Company's customers' product development
time, cancellations or delays, (d) matters affecting the embedded system
industry, including changes in industry standards, changes in customer
requirements and new product introductions, (e) actions by regulatory
authorities or other third parties, (f) cash generation, (g) changes in tariff
and trade policies and other risks associated with foreign operations, (h)
fluctuations in currency exchange rates, (i) the ability of the Company to
successfully complete any restructuring, acquisition or divestiture
activities, (j) the Company's ability to successfully manage the transition
from 10G to 40G ATCA product technologies, and (k) other factors listed in the
Company's reports filed with the Securities and Exchange Commission (SEC),
including those listed under “Risk Factors” in Radisys' Annual Report on Form
10-K for the year ended December 31, 2012, copies of which may be obtained by
contacting the Company at 503-615-1100, from the Company's investor relations
web site at http://investor.radisys.com/, or at the SEC's website at
http://www.sec.gov. Although forward-looking statements help provide
additional information about Radisys, investors should keep in mind that
forward-looking statements are inherently less reliable than historical
information. Should one or more of these risks or uncertainties materialize
(or the other consequences of such a development worsen), or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
forecasted or expected. The Company believes its expectations and assumptions
are reasonable, but there can be no assurance that the expectations reflected
herein will be achieved. All information in this press release is as of
November 5, 2013. The Company undertakes no duty to update any forward-looking
statement to conform the statement to actual results or changes in the
Company's expectations.

Non-GAAP Financial Measures

To supplement its consolidated financial statements in accordance with
generally accepted accounting principles (GAAP), the Company's earnings
release contains non-GAAP financial measures that exclude certain expenses,
gains and losses, such as the effects of (a) purchase accounting adjustments,
(b) amortization of acquired intangible assets, (c) stock-based compensation
expense, (d) restructuring and acquisition-related charges (reversals), net,
(e) impairment of goodwill, and (f) non-cash income tax expense. The Company
believes that the use of non-GAAP financial measures provides useful
information to investors to gain an overall understanding of its current
financial performance and its prospects for the future. Specifically, the
Company believes the non-GAAP results provide useful information to both
management and investors by excluding certain expenses, gains and losses that
the Company believes are not indicative of its core operating results. In
addition, non-GAAP financial measures are used by management for budgeting and
forecasting as well as subsequently measuring the Company's performance, and
the Company believes that it is providing investors with financial measures
that most closely align to its internal measurement processes. These non-GAAP
measures are considered to be reflective of the Company's core operating
results as they more closely reflect the essential revenue-generating
activities of the Company and direct operating expenses (resulting in cash
expenditures) needed to perform these revenue-generating activities. The
Company also believes, based on feedback provided to the Company during its
earnings calls' Q&A sessions and discussions with the investment community,
that the non-GAAP financial measures it provides are necessary to allow the
investment community to construct their valuation models to better align its
results and projections with its competitors and market sector, as there is
significant variability and unpredictability across companies with respect to
certain expenses, gains and losses.

The non-GAAP financial information is presented using a consistent methodology
from quarter-to-quarter and year-to-year. These measures should be considered
in addition to results prepared in accordance with GAAP. In addition, these
non-GAAP financial measures are not based on any comprehensive set of
accounting rules or principles. The Company believes that non-GAAP financial
measures have limitations in that they do not reflect all of the amounts
associated with the Company's results of operations as determined in
accordance with GAAP and that these measures should only be used to evaluate
the Company's results of operations in conjunction with the corresponding GAAP
financial measures.

A reconciliation of non-GAAP information to GAAP information is included in
the tables below. The non-GAAP financial measures disclosed by the Company
should not be considered a substitute for or superior to financial measures
calculated in accordance with GAAP, and reconciliations between GAAP and
non-GAAP financial measures included in this earnings release should be
carefully evaluated. The non-GAAP financial measures used by the Company may
be calculated differently from, and therefore may not be comparable to,
similarly titled measures used by other companies.

About Radisys

Radisys (NASDAQ: RSYS) is a market leader enabling wireless infrastructure
solutions for telecom, aerospace, and defense applications. Radisys'
market-leading ATCA, MRF (Media Resource Function), COM Express, and Network
Appliance platforms coupled with Trillium Software and services enable
customers to bring high-value products and services to market faster with
lower investment and risk.

         Radisys® and Trillium® are registered trademarks of Radisys.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)

                        Three Months Ended         Nine Months Ended
                         September 30,               September 30,
                         2013         2012          2013         2012
Revenues                 $ 54,109      $ 63,725      $ 187,725     $ 216,796
Cost of sales:
Cost of sales            37,874        43,687        127,936       142,234
Amortization of          2,069        2,390        6,504        7,223     
purchased technology
Gross margin             14,166        17,648        53,285        67,339
Operating expenses:
Research and             11,456        11,845        35,011        36,104
development
Selling, general and     10,522        11,793        31,145        33,966
administrative
Intangible assets        1,303         1,303         3,911         3,911
amortization
Impairment of goodwill   —             29,748        —             29,748
Restructuring and
acquisition-related      2,881        (2,717    )   4,037        (234      )
charges, net
Loss from operations     (11,996   )   (34,324   )   (20,819   )   (36,156   )
Interest expense         (300      )   (436      )   (913      )   (1,279    )
Other income, net        200          22           573          312       
Loss before income tax   (12,096   )   (34,738   )   (21,159   )   (37,123   )
expense
Income tax expense       624          373          2,230        1,496     
Net loss                 $ (12,720 )   $ (35,111 )   $ (23,389 )   $ (38,619 )
                                                                   
Net loss per share:
Basic                    $ (0.44   )   $ (1.28   )   $ (0.82   )   $ (1.43   )
Diluted (I),(II)         $ (0.44   )   $ (1.28   )   $ (0.82   )   $ (1.43   )
Weighted average
shares outstanding
Basic                    28,931       27,534       28,692       26,985    
Diluted (I),(II)         28,931       27,534       28,692       26,985    

(I) For all periods presented, the computation of diluted earnings per share
excludes the effects of the Company's 2013 and 2015 convertible senior notes,
as they are anti-dilutive.

(II) For all periods presented, the computation of earnings per share excludes
the effects of stock options, restricted stock units and escrow shares, as
they are anti-dilutive.


CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)

                                             September 30,   December 31,
                                                          
                                             2013            2012
ASSETS
Current assets:
Cash and cash equivalents                    $  31,559       $  33,182
Accounts receivable, net                     42,496          51,881
Inventories and inventory deposit, net       26,221          28,907
Other current assets                         10,799         12,018     
Total current assets                         111,075         125,988
Property and equipment, net                  15,660          17,713
Intangible assets, net                       59,869          70,284
Other assets, net                            14,275         18,409     
Total assets                                 $  200,879     $  232,394 
                                                             
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                             $  36,619       $  41,191
Deferred income                              7,625           9,222
Other accrued liabilities                    15,632          16,769
Convertible senior notes, net                —               16,919
Line of credit                               15,000         —          
Total current liabilities                    74,876          84,101
Convertible senior notes, net                18,000          18,000
Other long-term liabilities                  3,422          4,851      
Total liabilities                            96,298         106,952    
Shareholders' equity:
Common stock                                 307,722         303,724
Accumulated deficit                          (203,075    )   (179,686   )
Accumulated other comprehensive income       (66         )   1,404      
Total shareholders’ equity                   104,581        125,442    
Total liabilities and shareholders’ equity   $  200,879     $  232,394 


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

                        Three Months Ended         Nine Months Ended
                         September 30,               September 30,
                         2013         2012          2013         2012
Cash flows from
operating activities:
Net loss                 $ (12,720 )   $ (35,111 )   $ (23,389 )   $ (38,619 )
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Depreciation and         5,480         5,340         16,586        16,448
amortization
Impairment of goodwill   —             29,748        —             29,748
Stock-based              1,639         978           3,761         394
compensation expense
Write off of purchased   —             —             2,868         —
computer software
Net gain from sale of    —             —             (1,532    )   —
software assets
Other adjustments        (87       )   961           58            2,458
Changes in operating
assets and
liabilities:
Accounts receivable      3,272         (2,600    )   9,943         (2,328    )
Inventories and          (1,066    )   510           2,027         4,722
inventory deposit
Accounts payable         101           2,916         (4,860    )   3,895
Deferred income          1,070         170           (1,673    )   (3,002    )
Other operating assets   1,116        (3,538    )   116          (11,087   )
and liabilities
Net cash provided by
(used in) operating      (1,195    )   (626      )   3,905        2,629     
activities
Cash flows from
investing activities:
Capital expenditures     (965      )   (3,264    )   (4,343    )   (9,095    )
Purchase of long-term    —             (368      )   —             (368      )
assets
Proceeds from sale of    25           —            1,107        —         
software assets
Net cash used in         (940      )   (3,632    )   (3,236    )   (9,463    )
investing activities
Cash flows from
financing activities:
Borrowings on line of    —             —             15,000        —
credit
Repayment of
convertible senior       —             (10,081   )   (16,919   )   (10,081   )
notes
Proceeds from issuance   208           290           626           1,100
of common stock
Other financing          (370      )   (98       )   (783      )   (140      )
activities, net
Net cash used in         (162      )   (9,889    )   (2,076    )   (9,121    )
financing activities
Effect of exchange
rate changes on cash     (70       )   123          (216      )   13        
and cash equivalents
Net decrease in cash     (2,367    )   (14,024   )   (1,623    )   (15,942   )
and cash equivalents
Cash and cash
equivalents, beginning   33,926       45,852       33,182       47,770    
of period
Cash and cash
equivalents, end of      $ 31,559     $ 31,828     $ 31,559     $ 31,828  
period


REVENUES BY GEOGRAPHY
(In thousands, unaudited)

         Three Months Ended                       Nine Months Ended
          September 30,                            September 30,                           
          2013               2012                2013                2012              
North     $ 21,975  40.6  %   $ 22,036  34.6  %   $ 79,189   42.2  %   $ 77,987   36.0  %
America
Asia      19,257     35.6      26,412     41.4      65,211      34.7      91,713      42.3
Pacific
Europe,
the
Middle    12,877    23.8     15,277    24.0     43,325     23.1     47,096     21.7  
East
and
Africa
Total     $ 54,109  100.0 %   $ 63,725  100.0 %   $ 187,725  100.0 %   $ 216,796  100.0 %


REVENUES BY PRODUCT GROUP
(In thousands, unaudited)

                    Three Months Ended                       Nine Months Ended
                     September 30,                            September 30,                           
                     2013               2012                2013                2012              
ATCA Platforms       $ 27,744  51.3  %   $ 27,687  43.4  %   $ 94,284   50.2  %   $ 101,869  47.0  %
Software-Solutions   9,563      17.7      11,584     18.2      33,824      18.0      39,746      18.3
COM Express and      13,380     24.7      13,861     21.8      42,225      22.5      37,963      17.5
Rackmount Server
Other Products       3,422     6.3      10,593    16.6     17,392     9.3      37,218     17.2  
Total                $ 54,109  100.0 %   $ 63,725  100.0 %   $ 187,725  100.0 %   $ 216,796  100.0 %


RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES AND AS A PERCENT OF REVENUES
(In thousands, except per share amounts, unaudited)

                     Three Months Ended                           Nine Months Ended
                      September 30,                                September 30,                            
                      2013                 2012                  2013                 2012              
REVENUES:
GAAP revenues         $ 54,109             $ 63,725             $ 187,725            $ 216,796  
(a) Purchase
accounting            —                    —                    —                    300        
adjustments
Non-GAAP revenues     $ 54,109             $ 63,725             $ 187,725            $ 217,096  
                                                                                                       
GROSS MARGIN:
GAAP gross margin     $ 14,166   26.2  %    $ 17,648   27.7  %    $ 53,285   28.4  %    $ 67,339   31.1  %
(a) Purchase
accounting            —                      —                      —                      300
adjustments
(b) Amortization of
acquired intangible   2,069                  2,390                  6,504                  7,223
assets
(c) Stock-based       167                    107                    408                    (98       )
compensation
(d) Restructuring
and                   —                    —                    —                    62         
acquisition-related
charges, net
Non-GAAP gross        $ 16,402   30.3  %    $ 20,145   31.6  %    $ 60,197   32.1  %    $ 74,826   34.5  %
margin
                                                                                                       
RESEARCH AND
DEVELOPMENT:
GAAP research and     $ 11,456   21.2  %    $ 11,845   18.6  %    $ 35,011   18.7  %    $ 36,104   16.7  %
development
(c) Stock-based       (361      )           (284      )           (844      )           (315      ) 
compensation
Non-GAAP research     $ 11,095   20.5  %    $ 11,561   18.1  %    $ 34,167   18.2  %    $ 35,789   16.5  %
and development
                                                                                                       
SELLING, GENERAL
AND ADMINISTRATIVE:
GAAP selling,
general and           $ 10,522   19.4  %    $ 11,793   18.5  %    $ 31,145   16.6  %    $ 33,966   15.7  %
administrative
(c) Stock-based       (1,111    )           (587      )           (2,509    )           (177      ) 
compensation
Non-GAAP selling,
general and           $ 9,411    17.4  %    $ 11,206   17.6  %    $ 28,636   15.3  %    $ 33,789   15.6  %
administrative
                                                                                                       
INCOME (LOSS) FROM
OPERATIONS:
GAAP income (loss)    $ (11,996 ) (22.2 )%   $ (34,324 ) (53.9 )%   $ (20,819 ) (11.1 )%   $ (36,156 ) (16.7 )%
from operations
(a) Purchase
accounting            —                      —                      —                      300
adjustments
(b) Amortization of
acquired intangible   3,372                  3,693                  10,415                 11,134
assets
(c) Stock-based       1,639                  978                    3,761                  394
compensation
(d) Restructuring
and                   2,881                  (2,717    )            4,037                  (172      )
acquisition-related
charges, net
(e) Impairment of     —                    29,748               —                    29,748     
goodwill
Non-GAAP income       $ (4,104  ) (7.6  )%   $ (2,622  ) (4.1  )%   $ (2,606  ) (1.4  )%   $ 5,248    2.4   %
from operations
                                                                                                       
NET INCOME (LOSS):
GAAP net income       $ (12,720 ) (23.5 )%   $ (35,111 ) (55.1 )%   $ (23,389 ) (12.5 )%   $ (38,619 ) (17.8 )%
(loss)
(a) Purchase
accounting            —                      —                      —                      300
adjustments
(b) Amortization of
acquired intangible   3,372                  3,693                  10,415                 11,134
assets
(c) Stock-based       1,639                  978                    3,761                  394
compensation
(d) Restructuring
and                   2,881                  (2,717    )            4,037                  (172      )
acquisition-related
charges, net
(e) Impairment of     —                      29,748                 —                      29,748
goodwill
(f) Income taxes      233                  45                   1,206                690        
Non-GAAP net income   $ (4,595  ) (8.5  )%   $ (3,364  ) (5.3  )%   $ (3,970  ) (2.1  )%   $ 3,475    1.6   %
                                                                                                       
GAAP weighted
average diluted       28,931                 27,534                 28,692                 26,985
shares
Escrow shares         —                      —                      —                      1,146
Dilutive equity
awards included in
non-GAAP earnings     —                      —                      —                      792
per share
Convertible senior
notes dilutive        —                    —                    —                    —          
shares (I)
Non-GAAP weighted
average diluted       28,931               27,534               28,692               28,923     
shares (I)
GAAP net loss per     $ (0.44   )            $ (1.28   )            $ (0.82   )            $ (1.43   )
share (diluted)
Non-GAAP
adjustments           0.28                 1.16                 0.68                 1.55       
detailed above
Non-GAAP net income
per share (diluted)   $ (0.16   )           $ (0.12   )           $ (0.14   )           $ 0.12     
(I)

(I) For the nine months ended September 30, 2012, the diluted earnings per
share calculation includes interest costs, net of tax benefit, related to
dilutive equity shares underlying our 2013 and 2015 convertible senior notes.
For the three months ended September 30, 2013 and the nine months ended
September 30, 2013 and 2012, the diluted earnings per share calculation
excludes the effects of the Company's 2013 and 2015 convertible senior notes,
as they are anti-dilutive.


RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE
NET INCOME (LOSS) PER SHARE
(In millions, except per share amounts, unaudited)

                                                        Three Months Ended
                                                         December 31, 2013
                                                         Low End    High End
GAAP net loss                                            $ (16.6 )   $ (11.9 )
(b) Amortization of acquired intangible assets           3.4         3.4
(c) Stock-based compensation                             1.1         1.1
(d) Restructuring and acquisition-related charges, net   4.0         3.0
(f) Income taxes                                         1.1        0.8     
Total adjustments                                        9.6        8.3     
Non-GAAP net loss                                        $ (7.0  )   $ (3.6  )
                                                                     
GAAP weighted average shares                             29,105      29,105
Non-GAAP adjustments                                     —          —       
Non-GAAP weighted average shares (diluted) (I)           29,105     29,105  
                                                                     
GAAP net loss per share                                  $ (0.57 )   $ (0.41 )
Non-GAAP adjustments detailed above                      0.33       0.29    
Non-GAAP net loss per share (diluted) (I)                $ (0.24 )   $ (0.12 )

(I) For the three months ended December 31, 2013 guidance for the diluted
earnings per share calculation excludes the effects of the shares underlying
our convertible senior notes as the inclusion would be anti-dilutive.


RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE
GROSS MARGIN
(unaudited)

                                                 Estimates at the midpoint
                                               
                                                 of the guidance range
                                                 Three Months Ended
                                                 December 31, 2013         
GAAP                                             26.4                      %
(b) Amortization of acquired intangible assets   4.4
(c) Stock-based compensation                     0.3                       
Non-GAAP                                         31.1                      %


RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE
RESEARCH AND DEVELOPMENT EXPENSE AND
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
(In millions, unaudited)

                               Estimates at the midpoint
                             
                               of the guidance range
                               Three Months Ended
                               December 31, 2013         
GAAP                           $           20.0          
(c) Stock-based compensation   (1.0                      )
Non-GAAP                       $           19.0          


RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE
RESEARCH AND DEVELOPMENT EXPENSE AND
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
(In millions, unaudited)

                               Estimates at the midpoint
                             
                               of the guidance range
                               For the Year Ended
                               December 31, 2014         
GAAP                           $           74.1          
(c) Stock-based compensation   (4.1                      )
Non-GAAP                       $           70.0          

The Company excludes the following expenses, reversals, gains and losses from
its non-GAAP financial measures, when applicable:

(a) Purchase accounting adjustments: Purchase accounting adjustments
consistent of the impact to revenues and cost of sales associated with
adjusting deferred revenue and inventories of acquired companies to fair
value. For deferred revenue, as is the case with our existing business, at the
time of acquisition, the acquired business recorded deferred revenue related
to past transactions for which revenue would have been recognized by the
acquired entity in future periods as revenue recognition criteria were
satisfied. However, purchase accounting rules require us to write down a
portion of this deferred revenue to its then current fair value, which is
equivalent to the cost to complete the outstanding obligations required to
earn the deferred revenue plus a reasonable margin. Consequently, in
post-acquisition periods, we do not recognize the full amount of this deferred
revenue. When measuring the performance of our business, however, we add back
non-GAAP revenue associated with deferrals for which no future obligations
existed as well as obligations we assumed to provide maintenance or support to
customers of the acquired business that were excluded as a result of these
purchase accounting adjustments. We believe that the non-GAAP revenue
disclosures enhance investors' ability to conduct period-over-period analyses
of our results that reflect the full impact of the acquired business's results
together with the results from our pre-existing products and services.

In addition, the non-GAAP financial results exclude the impact to cost of
sales from the markup of inventories required by GAAP as part of the fair
value adjustments required under purchase accounting for business
combinations. This results from marking the acquired company's inventory to
fair value at the time of acquisition. This charge is not factored into
management's evaluation of potential acquisitions or our performance after
completion of acquisitions, because it is not related to our core operating
performance, and the frequency and amount of this type of charge can vary
significantly based on the size and timing of our acquisitions. Excluding this
data provides investors with a basis to compare the company against the
performance of other companies without this variability.

(b) Amortization of acquired intangible assets: Amortization of
acquisition-related intangible assets primarily relate to core and existing
technologies, patents, trade name and customer relationships that were
acquired with the acquisitions of Continuous Computing, Convedia, MCPD and
Pactolus. The Company excludes the amortization of acquisition-related
intangible assets because it does not reflect the Company's ongoing business
and it does not have a direct correlation to the operation of the Company's
business. In addition, in accordance with GAAP, the Company generally
recognizes expenses for internally-developed intangible assets as they are
incurred, notwithstanding the potential future benefit such assets may
provide. Unlike internally-developed intangible assets, however, and also in
accordance with GAAP, the Company generally capitalizes the cost of acquired
intangible assets and recognizes that cost as an expense over the useful lives
of the assets acquired. As a result of their GAAP treatment, there is an
inherent lack of comparability between the financial performance of
internally-developed intangible assets and acquired intangible assets.
Accordingly, the Company believes it is useful to provide, as a supplement to
its GAAP operating results, non-GAAP financial measures that exclude the
amortization of acquired intangibles in order to enhance the
period-over-period comparison of its operating results, as there is
significant variability and unpredictability across companies with respect to
this expense.

(c) Stock-based compensation: Stock-based compensation consists of expenses
recorded under GAAP, in connection with stock awards such as stock options,
restricted stock awards and restricted stock units granted under the Company's
equity incentive plans and shares issued pursuant to the Company's employee
stock purchase plan. The Company excludes stock-based compensation from
non-GAAP financial measures because it is a non-cash measurement that does not
reflect the Company's ongoing business and because the Company believes that
investors want to understand the impact on the Company of the adoption of the
applicable GAAP surrounding share based payments; the Company believes that
the provision of non-GAAP information that excludes stock-based compensation
improves the ability of investors to compare its period-over-period operating
results, as there is significant variability and unpredictability across
companies with respect to this expense.

(d) Restructuring and acquisition-related charges, net: Restructuring and
acquisition-related charges, net: Restructuring primarily relates to
activities engaged in by the Company's management to simplify and focus its
infrastructure. Restructuring and other charges are excluded from non-GAAP
financial measures because they are not considered core operating activities.
Although the Company has engaged in various restructuring activities over the
past several years, each has been a discrete event based on a unique set of
business objectives. The Company does not engage in restructuring activities
in the ordinary course of business. As such, the Company believes it is
appropriate to exclude restructuring charges from its non-GAAP financial
measures because it enhances the ability of investors to compare the Company's
period-over-period operating results.

In addition to restructuring activities, we exclude certain other
acquisition-related items including the following, when applicable: (i)
integration related charges; and (ii) acquisition-related charges.
Acquisitions result in non-recurring operating expenses, which would not
otherwise have been incurred by us in the normal course of our business
operations. Integration charges include, among other things, expenses
associated with operational consolidation, training, rebranding and
consulting. Acquisition-related charges include transaction fees and legal and
professional service expenses incurred in connection with our acquisitions. We
believe that providing non-GAAP information for acquisition-related expense
items in addition to the corresponding GAAP information allows the users of
our financial statements to better review and understand the historic and
current results of our continuing operations, and also facilitates comparisons
to less acquisitive peer companies.

(e) Impairment of goodwill: The goodwill impairment charge relates to a write
down of balances associated with previous acquisitions. The Company excludes
the goodwill impairment charge because it is unusual in nature and does not
reflect the operation of the Company's ongoing business. Additionally, its
exclusion enhances the ability of investors to compare the Company’s
period-over-period operating results.

(f) Income taxes: Non-GAAP income tax expense is equal to the Company's
projected cash tax expense. Adjustments to GAAP income tax expense are
required to eliminate the recognition of tax expense from profitable entities
where we utilize deferred tax assets to offset current period tax liabilities.
We believe that providing this non-GAAP figure is useful to our investors as
it more closely represents the true economic impact of our tax positions.

Contact:

Radisys Corporation
Chief Financial Officer
Allen Muhich, 503-615-1616
allen.muhich@radisys.com
 
Press spacebar to pause and continue. Press esc to stop.