Openwave Systems Inc. Reports Final Fiscal 2007 Second Quarter Results

REDWOOD CITY, Calif., Jan. 25 /PRNewswire-FirstCall/ -- Openwave Systems Inc. , the leading provider of open software products and services for the communications industry, today announced final financial results for its fiscal 2007 second quarter ended December 31, 2006. Revenues for the fiscal second quarter were $84.2 million, compared with $104.5 million in the same quarter in the preceding year and $91.5 million in the prior quarter ended September 30, 2006. The Company reported bookings of $119.7 million in the fiscal 2007 second quarter as compared with $81.4 million in the 2007 first fiscal quarter.

"We are pleased with the strong bookings during the quarter," said David Peterschmidt, president and CEO of Openwave. "In the second half of fiscal 2007, we plan to continue to focus on bookings momentum, new product introductions, sales productivity improvement and tight expense control."

On a GAAP basis, net loss for the second fiscal quarter ended December 31, 2006 was $15.8 million, or $0.17 per share, compared to net income of $8.4 million, or $0.11 per share, for the December quarter in the preceding year and a net loss of $24.5 million, or $0.27 per share in the prior quarter.

Net loss on a non-GAAP basis, which excludes amortization of intangibles, stock-based compensation, gain on sale of technology, impairment charges, acquisition-related costs and restructuring and related costs, for the second fiscal quarter ended December 31, 2006 was $2.5 million, or $0.03 per diluted share compared with net income of $19.3 million, or $0.22 per fully diluted share, during the December quarter of the prior year and a net loss of $0.5 million, or $0.01 per diluted share in the prior quarter. A reconciliation between net income (loss) on a GAAP basis and a non-GAAP basis is provided below in a table immediately following the Condensed Consolidated Statements of Operations.

For further analysis of the quarter, you may listen to the replay of the conference call held on January 4, 2007 on Openwave's website at: http://investor.openwave.com/medialist.cfm . Openwave will not be holding a conference call today.

About Openwave Systems

Openwave Systems Inc. is the leading independent provider of software solutions that ignite mobility for the communications and media industries. Openwave empowers its customers to rapidly transform their business by sparking new revenue streams and market opportunities, building loyal subscriber communities and reducing operational costs. Openwave's broad range of IP-based handset-to-network solutions enable the rapid launch of information, communication and entertainment services across networks and devices and include handset software, content delivery, adaptive messaging, location, music and video services. Openwave is a global company headquartered in Redwood City, California. For more information please visit http://www.openwave.com/.

NOTE: Openwave and the Openwave logo are trademarks of Openwave Systems Inc. All other trademarks are the properties of their respective owners.

Cautionary Note Regarding Forward Looking Statements

This release contains forward-looking statements relating to expectations, plans or prospects for Openwave Systems Inc. that are based upon the current expectations and beliefs of Openwave's management and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Notwithstanding changes that may occur with respect to matters relating to any forward looking statements, Openwave does not expect to, and disclaims any obligation to, update such statements. Openwave, however, reserves the right to update such statements or any portion thereof at any time for any reason.

In particular, the following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: (a) the ability to make changes in business strategy, development plans and product offerings to respond to the needs of our current, new and potential customers, suppliers and strategic partners; (b) the ability to improve sales productivity; (c) the ability to continue to sell our existing products and enhancements; (d) the ability to develop and commercialize new products; (e) risks associated with the development and licensing of software generally, including potential delays in software development and technical difficulties that may be encountered in the development or use of our software; (f) increased global competition and pricing pressure on our products; (g) technological changes and developments; and (h) general risks of the Internet and wireless and wireline telecommunications sectors.

For a detailed discussion of these and other cautionary statements, please refer to the risk factors discussed in filings with the U.S. Securities and Exchange Commission ("SEC"), including but not limited to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2006, and any subsequently filed reports. All documents also are available through the SEC's Electronic Data Gathering Analysis and Retrieval system (EDGAR) at http://www.sec.gov/ or from Openwave's website at http://www.openwave.com/.

For more information please contact: Openwave Systems Inc. Openwave Systems Inc. Mike Bishop Vikki Herrera Investor Relations Public [e-mail]Tel: [phone] Tel: [phone] OPENWAVE SYSTEMS INC. CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED (In thousands) December 31, June 30, 2006 2006 Assets Current Assets: Cash, cash equivalents and short-term investments $393,067 $431,851 Restricted cash 1,250 -- Accounts receivable, net 149,043 152,547 Prepaid and other current assets 24,893 18,564 Total current assets 568,253 602,962 Property and equipment, net 21,710 20,784 Long-term investments and restricted cash and investments 83,374 81,140 Deposits and other assets 10,229 9,169 Goodwill 152,254 148,807 Intangibles, net 53,833 55,727 Total assets $889,653 $918,589 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $11,468 $14,951 Accrued liabilities 73,458 59,077 Accrued restructuring costs 16,617 18,542 Deferred revenue 55,196 58,964 Total current liabilities 156,739 151,534 Accrued restructuring costs, less current portion 55,822 60,922 Deferred revenue, less current portion 7,245 6,814 Deferred rent obligations 1,306 1,055 Deferred tax liabilities, less current portion, net 7,046 11,417 Convertible subordinated notes, net 148,605 148,494 Total liabilities 376,763 380,236 Stockholders' equity 512,890 538,353 Total liabilities and stockholders' equity $889,653 $918,589 OPENWAVE SYSTEMS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-UNAUDITED (In thousands, except per share data) Three Months Ended Dec. 31, Sept. 30, Dec. 31, 2006 2006 2005 Revenues: License $25,045 $29,570 $50,033 Maintenance and support 22,833 22,813 24,259 Services 25,990 25,301 28,282 Projects/ Systems 2,080 6,127 1,914 Content 8,212 7,640 -- Total revenues 84,160 91,451 104,488 Cost of revenues: License 737 1,805 1,343 Maintenance and support 8,053 7,808 8,141 Services 19,522 19,976 19,351 Projects/ Systems 1,278 2,398 1,092 Content 3,307 3,955 -- Amortization of intangible assets 2,138 1,689 1,532 Total cost of revenues 35,035 37,631 31,459 Gross profit 49,125 53,820 73,029 Operating Expenses: Research and development 19,554 20,317 21,186 Sales and marketing 26,392 27,557 28,978 General and administrative 17,736 16,406 17,392 Stock option review and related costs 750 5,492 -- Restructuring and other related costs 2,024 10,960 (1,370) Acquisition-related costs and amortization 3,353 2,948 714 Gain on sale of technology and other -- (1,287) (3,250) Total operating expenses 69,809 82,393 63,650 Operating income (loss) (20,684) (28,573) 9,379 Interest and other (expense), net 4,913 5,860 999 Impairment of non-marketable equity securities -- -- (104) Pretax income (loss) (15,771) (22,713) 10,274 Income taxes 17 1,824 1,830 Net income (loss) $(15,788) $(24,537) $8,444 Basic net income (loss) per share $(0.17) $(0.27) $0.11 Diluted net income (loss) per share $(0.17) $(0.27) $0.11 Shares used in basic net income (loss) per share 93,352 91,815 75,003 Shares used in diluted net income (loss) per share 93,352 91,815 79,433 Stock-based compensation by category: Maintenance and support $423 $182 $605 Services 541 283 512 Research and development 684 585 2,116 Sales and marketing 2,233 2,678 4,203 General and administrative 2,664 1,978 3,875 $6,545 $5,706 $11,311 Six Months Ended December 31, December 31, 2006 2005 Revenues: License $54,615 $98,747 Maintenance and support 45,646 48,647 Services 51,291 50,208 Projects/ Systems 8,207 10,228 Content 15,852 -- Total revenues 175,611 207,830 Cost of revenues: License 2,542 3,563 Maintenance and support 15,861 15,915 Services 39,498 36,039 Projects/ Systems 3,676 5,867 Content 7,262 -- Amortization of intangible assets 3,827 3,113 Total cost of revenues 72,666 64,497 Gross profit 102,945 143,333 Operating Expenses: Research and development 39,871 45,341 Sales and marketing 53,949 58,484 General and administrative 34,142 35,055 Stock option review and related costs 6,242 -- Restructuring and other related costs 12,984 6,905 Acquisition-related costs and amortization 6,301 1,428 Gain on sale of technology and other (1,287) (7,549) Total operating expenses 152,202 139,664 Operating income (loss) (49,257) 3,669 Interest and other (expense), net 10,773 669 Impairment of non-marketable equity securities -- (104) Pretax income (loss) (38,484) 4,234 Income taxes 1,841 3,466 Net income (loss) $(40,325) $768 Basic net income (loss) per share $(0.43) $0.01 Diluted net income (loss) per share $(0.43) $0.01 Shares used in basic net income (loss) per share 93,189 72,542 Shares used in diluted net income (loss) per share 93,189 77,224 Stock-based compensation by category: Maintenance and support $605 1,006 Services 824 899 Research and development 1,269 4,144 Sales and marketing 4,911 8,768 General and administrative 4,642 6,698 $12,251 $21,515 OPENWAVE SYSTEMS INC. RECONCILIATION OF GAAP NET INCOME(LOSS) TO NON-GAAP NET INCOME(LOSS) (In thousands, except per share data) Three Months Ended Dec. 31, Sept. 30, Dec. 31, 2006 2006 2005 Reconciliation between GAAP and Non- GAAP net income (loss): Net income (loss) $(15,788) $(24,537) $8,444 Exclude: Restructuring and other related costs 2,024 10,960 (1,370) Acquisition-related costs and amortization* 5,491 4,637 2,741 Amortization of stock-based compensation 6,545 5,706 11,311 Stock option review and related costs 750 5,492 -- Gain on sales of technology -- (1,287) (3,250) Impairment of non-marketable equity securities -- -- 104 Interest expense on convertible debt, if dilutive*** -- -- 1,283 Tax impact of reconciling items** (1,488) (1,488) -- Fully diluted non-GAAP net income (loss) per share $(2,466) $(517) $19,263 GAAP net income (loss) per share - diluted $(0.17) $(0.27) $0.10 Exclude: Restructuring and other related costs $0.02 $0.12 $(0.02) Acquisition-related costs and amortization* $0.06 $0.05 $0.03 Amortization of stock-based compensation $0.07 $0.06 $0.13 Stock option review and related costs $0.01 $0.06 $-- Gain on sales of technology $-- $(0.01) $(0.03) Impairment of non-marketable equity securities $-- $-- $-- Interest expense on convertible debt, if dilutive*** $-- $-- $0.01 Tax impact of reconciling items** $(0.02) $(0.02) $-- Non-GAAP net income (loss) per share - diluted $(0.03) $(0.01) $0.22 Shares used in computing fully diluted earnings per share 93,352 91,815 87,587 Six Months Ended December 31, December 31, 2006 2005 Reconciliation between GAAP and Non- GAAP net income (loss): Net income (loss) $(40,325) 768 Exclude: Restructuring and other related costs 12,984 6,905 Acquisition-related costs and amortization* 10,128 5,213 Amortization of stock-based compensation 12,251 21,515 Stock option review and related costs 6,242 -- Gain on sales of technology (1,287) (7,549) Impairment of non-marketable equity securities -- 104 Interest expense on convertible debt, if dilutive*** -- 2,565 Tax impact of reconciling items** (2,976) -- Fully diluted non-GAAP net income (loss) per share $(2,983) $29,521 GAAP net income (loss) per share - diluted $(0.43) $0.01 Exclude: Restructuring and other related costs $0.14 $0.08 Acquisition-related costs and amortization* $0.11 $0.06 Amortization of stock-based compensation $0.13 $0.26 Stock option review and related costs $0.07 $-- Gain on sales of technology $(0.01) $(0.09) Impairment of non-marketable equity securities $-- $-- Interest expense on convertible debt, if dilutive*** $-- $0.03 Tax impact of reconciling items** $(0.04) $-- Non-GAAP net income (loss) per share - diluted $(0.03) $0.35 Shares used in computing fully diluted earnings per share 93,189 85,378 *Acquisition-related costs relates to payments due under the terms of the Musiwave and Solomio acquisitions. Also includes $495 and $672 thousand of acquisition-related hedging costs in the three and six months ended December 31, 2005. Amortization relates to acquired intangible assets. **Beginning in FY Q3 2006 with the Musiwave acquisition, the tax impact of reconciling items became material and therefore will be included in the non-GAAP reconciliation prospectively. The tax impact relates to amortization of acquisition-related intangibles and tax benefits related to stock-based compensation. ***The associated interest expense and convertible shares are included if the result is dilutive to net income per share. OPENWAVE SYSTEMS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED (In thousands) Three Months Ended Dec. 31, Sept. 30, Dec. 31, 2006 2006 2005 Cash flows from operating activities: Net income (loss) $(15,788) $(24,537) $8,444 Adjustments to reconcile net income (loss) to net cash (used for) provided by operating activities: Depreciation, amortization of intangibles and stock-based compensation 13,896 12,608 15,892 Noncash restructuring charges 1,687 2,471 -- Provision for doubtful accounts 1,978 -- 26 Other non-cash expenses, net (1,466) (2,348) (644) Proceeds from sale of technology and other -- (1,287) (3,250) Changes in operating assets and liabilities, net of effect of acquisitions (16,178) 7,959 (11,511) Net cash (used for) provided by operating activities (15,871) (5,134) 8,957 Cash flows from investing activities: Purchases of property and equipment, net (3,152) (4,655) (2,686) Acquisition, net of cash paid (8,532) -- -- Proceeds from sale of technology and other -- 1,287 3,250 Proceeds (purchases) of investments, net 49,355 (17,997) (129,734) Restricted cash and investments, and non-marketable securities (863) 2,045 -- Net cash (used for) provided by investing activities 36,808 (19,320) (129,170) Cash flows from financing activities: Payment on note payable (305) -- -- Net proceeds from issuance of common stock (817) 25 285,348 Cash (used for) provided by financing activities (1,122) 25 285,348 Effect of exchange rates on cash and cash equivalents 99 21 -- Net increase (decrease) in cash and cash equivalents 19,914 (24,408) 165,135 Cash and cash equivalents at beginning of period 151,023 175,431 128,577 Cash and cash equivalents at end of period $170,937 $151,023 $293,712 Six Months Ended December 31, December 31, 2006 2005 Cash flows from operating activities: Net income (loss) $(40,325) $768 Adjustments to reconcile net income (loss) to net cash (used for) provided by operating activities: Depreciation, amortization of intangibles and stock-based compensation 26,504 30,861 Noncash restructuring charges 4,158 414 Provision for doubtful accounts 1,978 718 Other non-cash expenses, net (3,814) (812) Proceeds from sale of technology and other (1,287) (7,549) Changes in operating assets and liabilities, net of effect of acquisitions (8,219) (18,449) Net cash (used for) provided by operating activities (21,005) 5,951 Cash flows from investing activities: Purchases of property and equipment, net (7,807) (6,005) Acquisition, net of cash paid (8,532) -- Proceeds from sale of technology and other 1,287 7,549 Proceeds (purchases) of investments, net 31,358 (141,948) Restricted cash and investments, and non-marketable securities 1,182 2,116 Net cash (used for) provided by investing activities 17,488 (138,288) Cash flows from financing activities: Payment on note payable (305) -- Net proceeds from issuance of common stock (792) 299,587 Cash (used for) provided by financing activities (1,097) 299,587 Effect of exchange rates on cash and cash equivalents 120 -- Net increase (decrease) in cash and cash equivalents (4,494) 167,250 Cash and cash equivalents at beginning of period 175,431 126,462 Cash and cash equivalents at end of period $170,937 $293,712