Starent Networks, Corp. Reports Third Quarter 2009 Financial Results
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TEWKSBURY, Mass.--(BUSINESS WIRE)-- Starent Networks, Corp. (Nasdaq: STAR), a leading provider of infrastructure solutions that enable mobile operators to deliver multimedia services, today reported financial results for the third quarter ended September 30, 2009. Net revenues for the third quarter of 2009 were $86.0 million, compared to net revenues of $66.1 million for the third quarter of 2008. Net revenues for the nine months ended September 30, 2009 were $237.5 million, compared to $183.5 million for the same period in 2008.
Net income for the third quarter of 2009 was $15.1 million, or $0.20 per diluted share, compared to net income of $19.6 million, or $0.26 per diluted share, for the third quarter of 2008. Third quarter 2009 results included $6.3 million of non-cash stock-based compensation expenses compared to $4.5 million in the third quarter of 2008. Net income for the nine months ended September 30, 2009 was $43.1 million, or $0.57 per diluted share, compared to $43.0 million, or $0.58 per diluted share, for the same period in 2008. The results for the first nine months of 2009 included $15.9 million of non-cash stock-based compensation expenses compared to $12.4 million in the same period of 2008.
Excluding the impact of stock-based compensation and a one-time tax benefit recorded in third quarter 2008, non-GAAP net income for the third quarter of 2009 was $19.2 million, or $0.25 per diluted share, compared to non-GAAP net income for the third quarter of 2008 of $17.5 million, or $0.24 per diluted share. Non-GAAP net income for the nine months ended September 30, 2009 was $54.0 million, or $0.71 per diluted share, compared to non-GAAP net income of $48.8 million, or $0.66 per diluted share, for the same period in 2008.
Starent Networks recently announced that they agreed to settle all legal disputes with UTStarcom, Inc. Under the settlement, Starent Networks will make a one-time payment to UTStarcom in the amount of $3.5 million, which is reflected in the operating expenses for the third quarter. Included in the settlement is a perpetual royalty-free license to UTStarcom patents and the dismissal of two pending litigations in the United States District Courts for the Northern District of Illinois (filed on May 8, 2007) and the Northern District of California (filed on February 16, 2005).
On October 13, 2009, Cisco and Starent Networks announced a definitive agreement for Cisco to acquire Starent Networks. The agreement was approved by the board of directors at both companies and is expected to close during the first half of calendar year 2010 subject to customary closing conditions and regulatory reviews. Prior to the close, Cisco and Starent Networks will continue to operate as separate companies.
In light of the acquisition announcement, Starent Networks will not host a conference call in conjunction with its third quarter results and will not be updating prior financial guidance for the full year 2009 or providing financial guidance for any future periods.
About Starent Networks
Starent Networks, Corp. is a leading provider of infrastructure solutions that enable mobile operators to deliver multimedia services to their subscribers. Starent Networks has created solutions that provide mobile operators with the functions and services needed for access, mobility management and call control in their networks. Through integrated intelligence and high performance capabilities, Starent Networks' solutions also enhance subscriber management, billing and session policy enforcement. The company's products are capable of supporting a wide range of mobile wireless networks, such as CDMA2000, UMTS/HSPA, LTE, WiFi, and WiMAX. Starent Networks' products have been deployed by over 100 mobile operators in 45 countries. Additional information about Starent Networks is available at www.starentnetworks.com.
Forward Looking Statements
Any statements in this press release about future expectations, plans and prospects for Starent Networks, including statements about the expected timetable for consummation of the merger and its benefits, constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. These statements contain the words "believes," "anticipates," "plans," "expects," "will" and similar expressions. Actual results may differ materially from those currently anticipated due to a number of risks and uncertainties that are subject to change based on factors that are, in many instances, beyond Starent Networks' control. Risks and uncertainties that could cause results to differ from expectations include: uncertainties as to the timing of the merger; uncertainties as to how Starent Networks stockholders will vote their shares with respect to the merger; the risk that competing offers will be made; the possibility that various closing conditions for the transaction may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction; the effects of disruption from the transaction making it more difficult to maintain relationships with employees, customers, suppliers, other business partners or governmental entities, other business effects, including the effects of industry, economic or political conditions outside of Starent Networks' control; transaction costs; actual or contingent liabilities; or other risks and uncertainties discussed in documents filed with the U.S. Securities and Exchange Commission (the "SEC") by Starent Networks, including factors discussed in the "Risk Factors" section of Starent Networks' Annual Report on Form 10-K for the year ended December 31, 2008, and other documents Starent Networks periodically files with the SEC. In addition, the forward-looking statements included in this press release represent Starent Networks' views as of the date of this press release. Starent Networks anticipates that subsequent events and developments will cause its views to change. However, while Starent Networks may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Starent Networks' views as of any date subsequent to the date of this press release.
Non-GAAP Financial Measures
In addition to disclosing financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons why management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying table titled "Use of Non-GAAP Financial Information" as well as the related table that follows it.
IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC
Starent Networks has filed with the SEC and plans to mail to its stockholders a Proxy Statement in connection with the transaction. The Proxy Statement will contain important information about Starent Networks and the transaction and related matters. Investors and security holders are urged to read the Proxy Statement carefully when it is available.
Investors and security holders will be able to obtain free copies of the Proxy Statement and other documents filed with the SEC by Starent Networks through the website maintained by the SEC at http://www.sec.gov.
In addition, investors and security holders will be able to obtain free copies of the Proxy Statement from Starent Networks by contacting Starent Networks Investor Relations at 978-863-3743.
Cisco and Starent Networks, and their respective directors and executive officers, may be deemed to be participants in the solicitation of proxies in respect of the transactions contemplated by the merger agreement. Information regarding Cisco's directors and executive officers is contained in Cisco's Annual Report on Form 10-K for the year ended July 25, 2009 and its proxy statement dated September 17, 2009, which are filed with the SEC. Information regarding Starent Networks' directors and executive officers is contained in Starent Networks' Annual Report on Form 10-K for the year ended December 31, 2008 and its proxy statement dated April 7, 2009, which are filed with the SEC. As of September 30, 2009, Starent Networks' directors and executive officers beneficially owned approximately 15,204,815 shares, or 21 percent, of Starent Networks' common stock. In addition, Starent Networks has entered into retention agreements with its executive officers, which are described in a Current Report on Form 8-K filed by Starent Networks with the SEC on June 11, 2009, and certain of the officers are entering into employment agreements with Cisco, which will become effective as of the closing of the transaction. A more complete description of these agreements and the interests of the officers and directors is available in the proxy statement.
Additional Information and Where to Find It
In connection with the proposed acquisition and required stockholder approval, Starent Networks has filed with the SEC a preliminary proxy statement and will subsequently file a definitive proxy statement. The proxy statement will be mailed to the stockholders of Starent Networks. Starent Networks' stockholders are urged to read the proxy statement and other relevant materials when they become available because they will contain important information about the acquisition and Starent Networks. Investors and security holders may obtain free copies of these documents (when they are available) and other documents filed with the SEC at its website at http://www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by Starent Networks by going to Starent Networks' Investor Relations page on its corporate website at http://ir.starentnetworks.com.
A copy of this press release can be found on the investor relations page of Starent Networks' website at http://ir.starentnetworks.com.
Starent(R), ST40, and the Starent Networks logo are either registered trademarks or trademarks of Starent Networks, Corp. in the United States and/or other countries.
Starent Networks, Corp.
Condensed Consolidated Balance Sheets
(in thousands)
September 30, December 31,
2009 2008
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 407,456 $ 369,351
Accounts receivable 53,836 53,689
Inventories 56,476 48,734
Deferred tax assets, net 6,924 3,449
Prepaid expenses and other current assets 7,830 4,709
Total current assets 532,522 479,932
Property and equipment, net 38,541 29,632
Deferred tax assets, net 15,967 9,699
Other assets 10,910 8,011
Restricted cash 821 943
Total assets $ 598,761 $ 528,217
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 13,753 $ 9,042
Accrued expenses and other current liabilities 24,802 23,359
Accrued income taxes 14,180 1,945
Current portion of deferred revenue 129,505 141,726
Total current liabilities 182,240 176,072
Deferred revenue, net of current portion 7,737 10,959
Other long-term liabilities 2,762 2,985
Stockholders' equity:
Common stock 72 70
Additional paid-in capital 396,397 371,655
Retained earnings (accumulated deficit) 9,553 (33,524 )
Total stockholders' equity 406,022 338,201
Total liabilities and stockholders' equity $ 598,761 $ 528,217
Starent Networks, Corp.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(unaudited) (unaudited)
Revenues:
Product $ 73,160 $ 55,450 $ 202,119 $ 156,497
Service 12,810 10,611 35,372 26,960
Total revenues 85,970 66,061 237,491 183,457
Cost of revenues:
Product 10,100 10,151 29,711 28,697
Service 6,405 4,107 16,957 11,823
Total cost of revenues 16,505 14,258 46,668 40,520
Gross profit 69,465 51,803 190,823 142,937
Operating expenses:
Research and development 16,892 13,750 47,478 38,594
Sales and marketing 18,677 17,894 52,009 52,918
General and 10,569 6,129 23,946 17,215
administrative
Total operating expenses 46,138 37,773 123,433 108,727
Income from operations 23,327 14,030 67,390 34,210
Other income, net 1,582 632 3,074 5,676
Income before income tax (expense) 24,909 14,662 70,464 39,886
benefit
Income tax (expense) (9,787 ) 4,926 (27,388 ) 3,131
benefit
Net income $ 15,122 $ 19,588 $ 43,076 $ 43,017
Net income per common
share:
Basic $ 0.21 $ 0.28 $ 0.61 $ 0.62
Diluted $ 0.20 $ 0.26 $ 0.57 $ 0.58
Weighted-average shares
outstanding used in computing
net income per common share:
Basic 71,418 69,683 70,720 69,328
Diluted 76,356 74,192 75,752 74,343
Stock-based compensation included
in the lines above:
Cost of revenues $ 596 $ 376 $ 1,488 $ 1,070
Research and development 2,379 1,594 5,766 4,701
Sales and marketing 1,927 1,457 4,923 3,750
General and 1,404 1,115 3,764 2,909
administrative
$ 6,306 $ 4,542 $ 15,941 $ 12,430
Use of Non-GAAP Financial Information
To supplement our condensed consolidated financial statements presented on a GAAP basis, Starent Networks uses non-GAAP measures of operating results, net income and net income per share, which are adjusted to exclude stock-based compensation expense and the related income tax effect and certain income tax adjustments. We believe these adjustments are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of Starent Networks' underlying operating results and trends and our marketplace performance. The non-GAAP results are an indication of our baseline performance that are considered by management for the purpose of making operational decisions. In addition, these adjusted non-GAAP results are the primary indicators management uses as a basis for planning and forecasting future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or basic and diluted net income per share prepared in accordance with generally accepted accounting principles in the United States. Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and are subject to limitations.
Starent Networks, Corp.
Reconciliation of GAAP to Non-GAAP Items
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(unaudited) (unaudited)
Gross
profit
Total revenues $ 85,970 $ 66,061 $ 237,491 $ 183,457
Total cost of 16,505 14,258 46,668 40,520
revenues
Gross profit $ 69,465 $ 51,803 $ 190,823 $ 142,937
Adjustments to reconcile to
Non-GAAP gross profit:
Stock-based 596 376 1,488 1,070
compensation
Non-GAAP gross $ 70,061 $ 52,179 $ 192,311 $ 144,007
profit
Operating expenses:
Research and $ 16,892 $ 13,750 $ 47,478 $ 38,594
development
Sales and marketing 18,677 17,894 52,009 52,918
General and 10,569 6,129 23,946 17,215
administrative
Total operating $ 46,138 $ 37,773 $ 123,433 $ 108,727
expenses
Adjustments to reconcile to
Non-GAAP operating expenses:
Stock-based compensation
included in:
Research and $ 2,379 $ 1,594 $ 5,766 $ 4,701
development
Sales and marketing 1,927 1,457 4,923 3,750
General and 1,404 1,115 3,764 2,909
administrative
Non-GAAP operating
expenses:
Research and $ 14,513 $ 12,156 $ 41,712 $ 33,893
development
Sales and marketing 16,750 16,437 47,086 49,168
General and 9,165 5,014 20,182 14,306
administrative
Non-GAAP operating $ 40,428 $ 33,607 $ 108,980 $ 97,367
expenses
Income from $ 23,327 $ 14,030 $ 67,390 $ 34,210
operations
Adjustments to reconcile to
Non-GAAP income from
operations:
Stock-based 6,306 4,542 15,941 12,430
compensation (1)
Non-GAAP income $ 29,633 $ 18,572 $ 83,331 $ 46,640
from operations
Income tax (expense)
benefit :
Income tax $ (9,787 ) $ 4,926 $ (27,388 ) $ 3,131
(expense) benefit
Adjustments to reconcile to
Non-GAAP income tax
expense:
Income tax effect (2,244 ) - (4,982 ) -
(2)
Income tax benefit - (6,622 ) - (6,622 )
(3)
Non-GAAP income tax $ (12,031 ) $ (1,696 ) $ (32,370 ) $ (3,491 )
(expense)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(unaudited) (unaudited)
GAAP net $ 15,122 $ 19,588 $ 43,076 $ 43,017
income
Adjustments to reconcile to
Non-GAAP net income:
Stock-based compensation (1) 6,306 4,542 15,941 12,430
Income tax (2,244 ) - (4,982 ) -
effect (2)
Income tax - (6,622 ) - (6,622 )
benefit (3)
Non-GAAP net income $ 19,184 $ 17,508 $ 54,035 $ 48,825
Non-GAAP net income per $ 0.25 $ 0.24 $ 0.71 $ 0.66
common share
Weighted-average shares used
in computing
net income per common share:
Diluted 76,356 74,192 75,752 74,343
Adjustment for stock-based compensation expense. Stock-based compensation
expense is a non-cash expense accounted for in accordance with the fair
value provisions of Statement of Financial Accounting Standards No. 123(R)
(1) (SFAS 123(R)). While stock-based compensation is a large component of our
expense, we believe investors prefer to exclude the effects of stock-based
compensation expense in order to compare our financial performance with
that of other companies and between time periods.
(2) Income tax effect of excluding stock-based compensation. There was no
adjustment for the comparable period in 2008.
Income tax benefit from the 2008 tax valuation allowance release. This
(3) refers to the recognition of an income tax benefit from the reversal of our
tax valuation allowance on U.S. deferred tax assets that was no longer
deemed necessary. There was no adjustment for the 2009 period.
Source: Starent Networks, Corp.
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