SANTA CLARA, Calif., July 21 /PRNewswire-FirstCall/ -- Foundry Networks(TM), Inc. , a performance and total solutions leader for end-to-end switching and routing, today announced financial results for its second quarter ended June 30, 2008.
Foundry's revenue for the second quarter of 2008 was $160.7 million, compared to $143.2 million in the second quarter of 2007, and compared to $150.1 million in the first quarter of 2008, an increase of 12% and 7% respectively. Net income was $18.3 million or $0.12 per diluted share, compared to net income of $15.6 million, or $0.10 per diluted share in the second quarter of 2007, and net income of $13.9 million, or $0.09 per diluted share in the first quarter of 2008.
Revenue for the first six months of 2008 was $310.7 million, compared to $279.1 million for the first six months of 2007, an increase of 11%. Net income for the first six months of 2008 was $32.2 million, or $0.21 per diluted share, compared to net income of $24.7 million, or $0.16 per diluted share, for the same period in 2007.
Included in Foundry's results for the second quarter of 2008 was $11.2 million of non-cash stock-based compensation expense. Excluding these expenses and the related tax effect, non-GAAP net income in the second quarter of 2008 was $25.3 million and non-GAAP net income per diluted share was $0.17 per share. Please refer to the table below for a reconciliation of GAAP to non-GAAP net income.
In the second quarter of 2008, North American non-Federal commercial revenue represented 58.2% of total revenue; a record for the segment, primarily due to increased revenue from service provider customers. Sales to Europe, the Middle East and Africa (EMEA) represented 14.8% of total revenue and were essentially flat in absolute dollars from the first quarter of 2008. Sales to Japan represented 3.1% of total revenue while the rest of Asia represented 6.6%. Sales to the U.S. Federal Government represented approximately 17.3% of total sales.
The Company's cash and investments balance was $950.1 million in the second quarter of 2008. During the quarter, the Company spent $15.7 million repurchasing 1.2 million shares of Foundry common stock at an average price of $12.84 per share. To date, the Company has spent $158.7 million to repurchase 10.0 million shares of Foundry common stock at an average price of $15.82 per share.
Quarterly Highlights -- Revenue breakdown: US Commercial = 58.2%, Federal = 17.3%, EMEA = 14.8%, Japan = 3.1%, Rest of Asia = 6.6% -- Technology breakdown: Layer 2/3 Switching = 50.7%, Internet & Metro Routers = 24.8%, Layer 4-7 = 8.6%, Support = 15.9% -- Chassis revenue = 71.7%, stackable revenue = 28.3% -- Enterprise revenue = 73.0%, service provider = 27.0% -- Total headcount as of June 30, 2008 = 1,068 -- DSO = 63 days -- Book-to-bill was greater than one -- Gross margin improvement driven primarily by stable pricing and cost reduction About Non-GAAP Financial Measures
Foundry uses non-GAAP net income and non-GAAP net income per share for internal planning purposes, to assess the results of its business on an ongoing basis, to determine management compensation, and for the convenience of analysts and investors. These measures are not in accordance with, or an alternative to, similarly-named measures under GAAP. The measures are intended to supplement GAAP financial information, and may be different from non-GAAP financial measures used by other companies. Foundry believes these measures provide useful information to its management, board of directors and investors regarding Foundry's performance when used in conjunction with GAAP information. Foundry believes it is useful to investors to receive information about how items in the statement of operations are affected by stock-based compensation, litigation settlement charges, the expenses related to the stock option investigation and restatement of the Company's consolidated financial statements and the related income tax effect. Stock- based compensation expense consists of expenses recorded under SFAS 123(R), "Share-Based Payment," in connection with awards 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 expense 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 SFAS 123(R); 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. The Company also excludes legal, accounting and one-time employee compensation costs related to the stock option investigation and restatement of the Company's consolidated financial statements in addition to litigation settlement charges because these payments do not reflect the Company's ongoing business and the exclusion of these payments improves the ability of investors to compare its period-over-period operating results. However, investors should be aware that non-GAAP measures have inherent limitations and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP.
About Foundry Networks
Foundry Networks, Inc. is a leading provider of high- performance enterprise and service provider switching, routing, security and Web traffic management solutions, including Layer 2/3 LAN switches, Layer 3 Backbone switches, Layer 4-7 application switches, wireless LAN and access points, metro and core routers. Foundry's customers include the world's premier ISPs, metro service providers, and enterprises, including e-commerce sites, universities, entertainment, health and wellness, government, financial and manufacturing companies. For more information about the company and its products, call 1.888.TURBOLAN or visit http://www.foundrynet.com/.
FOUNDRY NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Net revenue: Product $134,843 $120,784 $260,705 $236,002 Service 25,836 22,456 50,029 43,051 Total net revenue 160,679 143,240 310,734 279,053 Cost of revenue: Product 51,591 51,695 100,006 102,832 Service 7,596 5,444 15,779 10,910 Total cost of revenue 59,187 57,139 115,785 113,742 Gross margin 101,492 86,101 194,949 165,311 Operating expenses: Research and development 21,925 17,853 43,653 39,103 Sales and marketing 46,391 38,470 93,527 78,560 General and administrative 10,205 11,771 22,044 22,704 Other charges, net - 3,067 - 5,600 Total operating expenses 78,521 71,161 159,224 145,967 Income from operations 22,971 14,940 35,725 19,344 Interest and other income, net 6,428 10,514 15,728 20,897 Income before provision for income taxes 29,399 25,454 51,453 40,241 Provision for income taxes 11,073 9,822 19,221 15,518 Net income $18,326 $15,632 $32,232 $24,723 Basic net income per share $ 0.13 $0.11 $ 0.22 $0.17 Weighted average shares used in computing basic net income per share 145,092 147,285 146,163 147,194 Diluted net income per share $ 0.12 $0.10 $0.21 $0.16 Weighted average shares used in computing diluted net income per share 149,059 154,034 150,219 153,668 FOUNDRY NETWORKS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) June 30, December 31, 2008 2007 ASSETS (unaudited) (2) Assets: Cash and investments (1) $950,119 $965,668 Accounts receivable, net 112,362 124,234 Inventories 49,531 42,384 Prepaid expenses and other current assets 14,294 12,439 Deferred tax assets 85,112 79,214 Property and equipment, net 7,616 9,658 Other long-term assets 5,697 5,234 Total assets $1,224,731 $1,238,831 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable $21,627 $23,892 Accrued payroll and related expenses 40,753 50,806 Other accrued expenses 12,441 12,382 Income taxes payable 12,833 11,860 Deferred product and support revenue 90,368 80,767 Other long-term liabilities 460 475 Total liabilities 178,482 180,182 Stockholders' equity 1,046,249 1,058,649 Total liabilities and shareholders' equity $1,224,731 $1,238,831 (1) Includes $101.3 million of long-term marketable securities at June 30, 2008 and $58.1 million at December 31, 2007. (2) Derived from audited condensed consolidated financial statements as of December 31, 2007. FOUNDRY NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Six Months Ended June 30, 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $32,232 $24,723 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,129 5,649 Stock-based compensation expense 25,159 19,515 Provision for doubtful accounts 89 (230) Provision for sales returns (729) (888) Inventory provisions 4,274 3,035 Benefit for deferred income taxes (5,898) (5,500) Excess tax benefits from stock-based compensation (555) (934) Changes in operating assets and liabilities: Accounts receivable 12,513 (12,718) Inventories (11,411) (10,665) Prepaid expenses and other assets (3,860) (6,290) Accounts payable (2,263) 1,414 Accrued payroll and related expenses (10,053) 108 Income taxes payable 564 6,641 Other accrued expenses 43 287 Deferred product and support revenue 9,600 9,069 Net cash provided by operating activities 54,834 33,216 CASH FLOWS FROM INVESTING ACTIVITIES: Maturities and purchases of investments, net (64,495) (72,629) Purchases of property and equipment, net (1,625) (4,093) Net cash used in investing activities (66,120) (76,722) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuances of common stock under stock plans, net of repurchases 12,459 4,486 Repurchase and retirement of common stock (75,580) - Excess tax benefits from stock-based compensation 555 934 Net cash provided by (used in) financing activities (62,566) 5,420 Decrease in cash and cash equivalents (73,852) (38,086) Effect of exchange rate changes on cash (169) (121) Cash and cash equivalents, beginning of period 331,961 258,137 Cash and cash equivalents, end of period $ 257,940 $219,930 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for income taxes, net of refunds received $27,131 $18,229 FOUNDRY NETWORKS, INC. RECONCILIATION OF GAAP TO NON-GAAP NET INCOME AND EPS (unaudited) (in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Net income excluding certain charges and benefits (Non-GAAP) $25,271 $23,809 $48,287 $44,975 Stock-based compensation expense (1) (11,158) (9,893) (25,159) (19,515) Stock option investigation and related compensation costs (2) - (3,067) - (13,186) Income tax effect 4,213 4,783 9,104 12,449 Net income $18,326 $15,632 $32,232 $24,723 Diluted net income per share excluding certain charges and benefits (Non-GAAP) $0.17 $0.15 $0.32 $0.29 Stock-based compensation expense (1) (0.08) (0.06) (0.17) (0.13) Stock option investigation and related compensation costs (2) - (0.02) - (0.08) Income tax effect 0.03 0.03 0.06 0.08 Diluted net income per share $0.12 $0.10 $0.21 $0.16 (1) Includes stock-based compensation expense as follows: Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Cost of product revenue $430 $319 $905 $634 Cost of service revenue 752 414 1,722 863 Research and development 3,837 3,440 8,717 6,778 Sales and marketing 4,494 3,902 9,972 7,597 General and administrative 1,645 1,818 3,843 3,643 Total $11,158 $9,893 $25,159 $19,515 (2) Reflects expenses related to the independent review of our stock option practices, which began in June 2006, and related legal, accounting, and compensation costs as follows: Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Cost of product revenue $- $- $- $250 Cost of service revenue - - - 228 Research and development - - - 3,305 Sales and marketing - - - 3,128 General and administrative - - - 675 Other charges, net - 3,067 - 5,600 Total $- $3,067 $- $13,186
