Wind River Reports First Quarter Fiscal Year 2007 Results

ALAMEDA, Calif., June 1 /PRNewswire-FirstCall/ -- Wind River Systems, Inc. , the global leader in Device Software Optimization (DSO), today reported its first quarter fiscal year 2007 operating results.

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Total revenue for the first quarter ended April 30, 2006 was $65.0 million, a 5% increase compared to revenues of $61.8 million for the first quarter ended April 30, 2005.

"Wind River continues to make progress in leading the industry shift to device software optimization ('DSO')," said Ken Klein, president, chief executive officer and chairman of Wind River. "DSO is built on four immutable tenets: standardization, open standards, global best practices and a diverse ecosystem. We have laid a foundation to support these tenets and we continue to invest in key areas, including sales and product innovation, which will drive growth this fiscal year and beyond."

Non-GAAP net income for the first quarter of fiscal year 2007, which excludes stock-based compensation expense, amortization of intangibles, restructuring expenses, payroll taxes on exercise of employee stock options, and the income tax impact of these adjustments, was $2.8 million, compared to non-GAAP net income of $2.4 million for the first quarter of fiscal year 2006. Non-GAAP net income per dilutive share was $0.03 for the first quarter of fiscal years 2007 and 2006.

GAAP net loss for the first quarter of fiscal year 2007 was ($2.1) million, or a net loss per share of ($0.02) compared to net income of $1.8 million, or earnings per share of $0.02 for the first quarter of fiscal year 2006. GAAP net income for the first quarter of fiscal year 2007 includes stock-based compensation expense of approximately $5.1 million, as a result of the company's adoption of Statement of Financial Accounting Standards No. 123R, Share-Based Payment ("SFAS 123R"), during the quarter. The primary difference between GAAP earnings in fiscal year 2006 and fiscal year 2007 was the impact of the adoption of SFAS 123R. Net income prior to fiscal year 2007 did not include stock-based compensation expense related to SFAS 123R. Reconciliation between net income on a GAAP and non-GAAP (pro forma) basis is provided in the tables below.

"Our operating expenses were up slightly in the quarter primarily reflecting investments in marketing and sales. We remain committed to delivering 20% operating margins excluding SFAS 123R's expense impact, when we reach quarterly revenues in the high $70 millions. We will continue to manage expenses, including carefully controlling headcount, while investing in areas where we see strong growth opportunities," said Mike Zellner, chief financial officer and senior vice president, finance and administration.

Financial Outlook

The following statements regarding our outlook for the second quarter of fiscal year 2007, for fiscal year 2007, and for other statements in this press release are forward-looking and actual results may differ materially. Please consult the safe-harbor statement at the end of this press release for a description of certain risk factors and Wind River's Securities and Exchange Commission ("SEC") reports for a more comprehensive description of risks that may impact actual results. In response to SEC Regulation Fair Disclosure ("Reg FD"), Wind River plans to discuss its business outlook, based on current expectations, in conjunction with its quarterly earnings releases and conference calls. Wind River does not plan to provide any further financial guidance beyond the information provided in its quarterly earnings release and conference call.

For Q2 Fiscal Year 2007, Wind River expects: -- Revenue to be between $66 million and $68 million. -- GAAP loss per share, including approximately $5 million estimated SFAS 123R expense, between ($0.01) and ($0.02). -- Non-GAAP earnings per share to be between $0.04 and $0.05. For Fiscal Year 2007, Wind River continues to expect: -- Revenue to be between $290 million and $300 million. -- Bookings growth to exceed revenue growth. -- GAAP earnings per share, including approximately $20 - $23 million estimated SFAS 123R expense, to be between $0.12 and $0.17. -- Non-GAAP earnings per share to be between $0.38 and $0.43. Use of Non-GAAP Financial Information:

All references to earnings per share are calculated on a fully-diluted basis. Wind River provides non-GAAP net income and net income per share as an alternative for understanding the company's operating results. Non-GAAP data is not in accordance with, or a substitute for, GAAP and may be materially different from non-GAAP measures used by other companies. Non-GAAP net income and net income per share for the three-month period ended April 30, 2006 and 2005 were computed by adjusting GAAP net income (loss) and net income (loss) per share to exclude non-cash equity-based compensation charges recorded in accordance with SFAS 123R, amortization of restricted stock, amortization of purchased and other intangibles, gain on investments, employer payroll taxes on stock option exercises, realized loss on repurchase of bonds, restructuring charges, and the related income tax impact of adjustments. The non-GAAP earnings per share forecast for the three-month period ending July 31, 2006 and the twelve-month period ending January 31, 2007 was computed by adjusting GAAP earnings per share to exclude the amortization associated with purchased and other intangibles, the impact of the adoption of SFAS 123R, payroll taxes on employee stock option exercises and the related income tax impact of the adjustments. Wind River provides a reconciliation of its GAAP and non-GAAP net income and net income per share for the three-month period ended April 30, 2006 and 2005 on page five of this release. Wind River's management refers to these non-GAAP measures in making operating decisions because they believe they provide meaningful information regarding Wind River's operational performance. For example, the non-GAAP results are an indication of Wind River's baseline performance before gains, losses or other charges that are considered by management to be outside of the company's business operational results. In addition, these non-GAAP financial measures facilitate management's internal comparisons to Wind River's historical operating results and comparisons to competitors' operating results. Wind River includes these non-GAAP financial measures in its earnings announcement because the company believes they are useful to investors in allowing for greater transparency to the supplemental information used by management in its financial and operational decision-making.

Conference Call

The company will host a conference call at 2:00 p.m. Pacific Time on June 1, 2006 to discuss these results. You may listen to the conference call by calling [phone] in the U.S. and [phone] internationally. You may also listen in live via our webcast at http://ir.windriver.com/phoenix.zhtml?c=91814&p=irol- EventDetails&EventId=1210166. A telephone replay of the conference call will be available after 5:00 p.m. Pacific Time on June 1, 2006 until 11:59 p.m. Pacific Time on June 8, 2006. You may listen to the replay of the conference call by calling [phone] in the U.S. and [phone] internationally and enter the conference i.d. 9324762. The audio webcast will be archived on the Investor Relations section of Wind River's website located at http://ir.windriver.com/phoenix.zhtml?c=91814&p=irol-irhome.

About Wind River

Wind River is the global leader in Device Software Optimization (DSO). The company's solutions enable customers to develop and run device software better, faster, at a lower cost and more reliably. Wind River's Workbench, General Purpose Platform and Market-Specific Platforms reduce effort, cost and risk, and optimize quality and reliability at all phases of the device software development process from concept to deployed product.

Founded in 1981, Wind River is headquartered in Alameda, California, with operations worldwide. To learn more, visit Wind River at http://www.windriver.com/ or call Wind River at 1-866-296-5361.

NOTE: Wind River Systems and the Wind River Systems logo are trademarks of Wind River Systems, Inc., and VxWorks and WIND RIVER are registered trademarks of Wind River Systems, Inc. Third party marks and brands are the property of their respective holders.

Forward-Looking Statements

This press release contains forward-looking statements, including those relating to: expected revenue, bookings and GAAP and non-GAAP earnings per share for the second quarter ending July 31, 2006 and the fiscal year ending January 31, 2007, our ability to drive growth this fiscal year and beyond, and our ability to manage expenses and invest in growth opportunities. Words such as "expects," "anticipates," "projects," "intends," "plans," "believes" and "estimates," variations of such words and similar expressions are also intended to identify forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those contemplated herein. Factors that could cause or contribute to such differences include but are not limited to, the potential release of all or a portion of Wind River's valuation allowance associated with its deferred tax assets, the success of Wind River's implementation of its new and current products, business models and market strategies, the ability to address rapidly changing technology and markets and to deliver our products on a timely basis, the ability of our customers to sell products that include the company's software, the impact of competitive products and pricing, weakness in the economy generally or in the technology sector specifically, the success of the company's strategic relationships, the impact of accounting for stock-based compensation pursuant to FASB's Statement of Financial Accounting Standards No. 123R, the impact of other costs and risk factors detailed in Wind River's Annual Report on Form 10-K for the fiscal year ended January 31, 2006, its Quarterly Reports on Form 10-Q and other periodic filings with the Securities and Exchange Commission. Wind River undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Wind River Systems, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) Three months ended April 30, 2006 2005 Revenues, net: Product $26,843 $30,044 Subscription 21,660 16,366 Service 16,473 15,351 Total revenues, net 64,976 61,761 Cost of revenues (1): Product 779 1,622 Subscription 4,002 3,673 Service 10,589 7,886 Amortization of purchased intangibles 133 131 Total cost of revenues 15,503 13,312 Gross profit 49,473 48,449 Operating expenses (1): Selling and marketing 27,619 24,197 Product development and engineering 17,549 16,774 General and administrative 8,211 5,584 Amortization of other intangibles 95 23 Restructuring charges (98) 185 Total operating expenses 53,376 46,763 Income (loss) from operations (3,903) 1,686 Other income (expense), net 1,251 504 Income (loss) before provision for income taxes (2,652) 2,190 Provision (benefit) for income taxes (532) 386 Net income (loss) (2,120) 1,804 Net income (loss) per share: Basic $(0.02) $0.02 Diluted $(0.02) $0.02 Shares used in per share calculation: Basic 85,773 83,702 Diluted 85,773 89,125 (1) Includes stock-based compensation upon the adoption of FASB No. 123R on February 1, 2006 as follows: Cost of revenues: Product $17 $-- Subscription 345 -- Service 212 -- Total cost of revenues 574 -- Operating expenses: Selling and marketing 1,444 -- Product development and engineering 825 -- General and administrative 2,249 -- Total operating expenses 4,518 -- Total stock-based compensation $5,092 $-- Wind River Systems, Inc. Condensed Consolidated Statement of Operations (in thousands, except per share amount) (unaudited) Three months ended Three months ended April 30, 2006 April 30, 2005 Non-GAAP Non-GAAP GAAP Adjust- Non-GAAP GAAP Adjust- Non-GAAP ments(1) ments(1) Revenues, net: Product $26,843 $-- $26,843 $30,044 $-- $30,044 Subscription 21,660 -- 21,660 16,366 -- 16,366 Service 16,473 -- 16,473 15,351 -- 15,351 Total revenues, net 64,976 -- 64,976 61,761 -- 61,761 Cost of revenues: Product 779 (17) 762 1,622 (5) 1,617 Subscription 4,002 (345) 3,657 3,673 (12) 3,661 Service 10,589 (226) 10,363 7,886 (24) 7,862 Amortization of purchased intangibles 133 (133) -- 131 (131) -- Total cost of revenues 15,503 (721) 14,782 13,312 (172) 13,140 Gross profit 49,473 721 50,194 48,449 172 48,621 Operating expenses: Selling and marketing 27,619 (1,470) 26,149 24,197 (82) 24,115 Product development and engineering 17,549 (1,138) 16,411 16,774 (76) 16,698 General and administrative 8,211 (2,256) 5,955 5,584 (9) 5,575 Amortization of purchased intangibles 95 (95) -- 23 (23) -- Restructuring charges (98) 98 -- 185 (185) -- Total operating expenses 53,376 (4,861) 48,515 46,763 (375) 46,388 Income (loss) from operations (3,903) 5,582 1,679 1,686 547 2,233 Other income (expense), net 1,251 -- 1,251 504 2 506 Income (loss) before provision for income taxes (2,652) 5,582 2,930 2,190 549 2,739 Provision (benefit) for income taxes (532) 708 176 386 386 Net income (loss) $(2,120) $4,874 $2,754 $1,804 $549 $2,353 Net income (loss) per share: Basic $(0.02) $0.03 $0.02 $0.03 Diluted $(0.02) $0.03 $0.02 $0.03 Shares used in per share calculation: Basic 85,773 85,773 83,702 83,702 Diluted 85,773 89,351 89,125 89,125 (1): Non-GAAP Adjustments comprise: Stock-based compensation $5,092 $-- Issuance of restricted stock 276 -- Amortization of purchased intangibles 228 154 Restructuring charges (98) 185 Payroll taxes on employee stock option exercises 84 208 Gain on investments -- (310) Realized loss on repurchase of bonds -- 312 Income tax related to non-GAAP adjustments (708) -- Total Non-GAAP Adjustments $4,874 $549 Wind River Systems, Inc. Condensed Consolidated Balance Sheets (in thousands) (unaudited) April 30, January 31, 2006 2006 ASSETS Current assets: Cash and cash equivalents 62,116 59,279 Short-term investments 51,287 44,013 Accounts receivable, net 55,750 65,803 Prepaid and other current assets 14,900 13,224 Total current assets 184,053 182,319 Investments 99,012 115,584 Property and equipment, net 77,745 78,514 Intangibles, net 112,891 93,723 Other assets 13,105 13,104 Total assets 486,806 483,244 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 2,607 5,674 Accrued liabilities 11,935 12,260 Accrued compensation 16,792 16,190 Income taxes payable 706 2,249 Deferred revenues 88,929 84,505 Convertible subordinated debt 42,151 42,151 Total current liabilities 163,120 163,029 Long-term deferred revenues 12,538 13,760 Other long-term liabilities 4,276 3,008 Total liabilities 179,934 179,797 Stockholders' equity: Common stock 88 88 Additional paid-in-capital 800,188 791,709 Treasury stock, at cost (39,693) (35,466) Accumulated other comprehensive loss (4,386) (5,679) Accumulated deficit (449,325) (447,205) Total stockholders' equity 306,872 303,447 Total liabilities and stockholders' equity 486,806 483,244
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