Enterasys Networks Inc, a global provider of business-driven networks for enterprise customers, today announced financial results for its third fiscal quarter ended 27 September 2003. Net revenue for the third quarter was $98.4 million, compared with net revenue of $108.4 million for the second quarter of 2003.
"While we are disappointed with the sales level for Q3, we continue to make progress and focus on long-term growth," stated William K O`Brien, chief executive officer of Enterasys Networks.
"Consistent with our strategy to refresh our entire product portfolio, Enterasys has launched more products over the past six months than it did over the preceding three years. This is a significant achievement and we are encouraged by the momentum we have established with these products, particularly the N-Series. We remain focused on managing the introduction of new products, serving our loyal customer base, growing our revenues from new customers, and continuously improving our sales process, systems and execution."
The company reported that the Matrix N-Series, its recently announced, high-end Layer 3 switching platform, grew to in excess of 20% of product shipments in the third quarter, representing a 100% increase from the second quarter in terms of revenue. The company reiterated that it expects the N-Series to represent an increasing proportion of its overall product revenue mix going forward.
On 13 October 2003, the company announced that it had significantly expanded the N-Series switching platform with new "Gold" Distributed Forwarding Engine (DFE) products, the Matrix N5 chassis, and enhancements to the existing Platinum products. The company`s overall gross margin for the third quarter was 43.7% compared to a gross margin of 50.3% in the second quarter. The third quarter gross margin includes the impact of two non-cash inventory charges totalling $7.9 million related to our new product transitions, which lowered the reported margin for the quarter by eight percentage points.
Net loss available to common shareholders for the third quarter of fiscal 2003 was $56.1 million, or $0.27 loss per share. The net loss includes charges of:
* $15.9 million related to the settlement of the shareholder litigation (see related press release from 18 October 2003, "[1]Enterasys Networks Announces Settlement of 2002 Shareholder Lawsuits");
* $7.9 million of non-cash write downs related to inventory;
* $8.3 million related to restructuring costs primarily associated with the previously announced workforce reductions in Q2; and
* $8.2 million of non-cash write downs of certain minority investments.
As of 27 September 2003, the company had $198.7 million of cash and marketable securities on hand, including $18.7 million of restricted cash. Additionally, the company expects to receive a net cash inflow of approximately $17.1 million in the fourth quarter as a result of recoveries from certain of its insurers in connection with the previously announced settlement of shareholder litigation.
"We continue to see higher levels of interest from both new and existing customers around our new products than we have seen in prior quarters. We are pleased with the acceptance of these products and remain confident that they will continue creating opportunities for revenue growth," said Mark Aslett, president of Enterasys Networks. "We also recognise there is still uncertainty in the overall spending environment, as well as challenges associated with transitioning existing customers to new products and focusing our sales force outside of the existing customer base."
O`Brien concluded: "Our goals of quarter over quarter revenue growth, market share gains, profitability and sustainable operating cash flow may be somewhat delayed, but we remain fully committed to achieving them in the near-term. Our primary focus is on building a world-class company for the long-term."
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