ENWV Endwave Corp. (MM)

Endwave Corporation (Nasdaq: ENWV), a leading provider of high-frequency RF solutions and semiconductor products that serve markets such as telecommunications, satellite communications, electronic instruments and defense and security, today reported financial results for its first quarter, which ended on March 31, 2010.

On April 30, 2009, Endwave sold its Defense and Security RF module business (D&S). As a result, the Company’s financial statements reflect the D&S business as a discontinued operation.

Revenues for the first quarter of 2010 were $4.8 million. This compares with revenues from these same operations of $3.6 million in the prior quarter and $7.2 million in the first quarter of fiscal 2009. Loss from continuing operations, calculated in accordance with accounting principles generally accepted in the United States (GAAP), for the first quarter of 2010 was $1.3 million, or $0.13 per share. This compares with a loss from continuing operations of $3.4 million, or $0.36 per share in the prior quarter, and a loss from continuing operations of $2.6 million or $0.28 per share in the first quarter of fiscal 2009.

Non-GAAP Results from Continuing Operations

Non-GAAP net loss in the first quarter of 2010 was $966,000, or $0.10 per share. This compares with non-GAAP net loss of $2.0 million, or $0.21 per share in the prior quarter and non-GAAP net loss of $919,000, or $0.10 per share in the first quarter of fiscal 2009.

For the first quarter of 2010, non-GAAP net loss was calculated by excluding non-cash stock-based compensation expense of $331,000 and the reversal of certain restructuring charges that resulted in a gain of $14,000. For the fourth quarter of 2009 non-GAAP net loss was calculated by excluding certain restructuring charges of $1.2 million, inventory reserves and bad debt expense due to a customer liquidation of $191,000 and non-cash stock-based compensation expense of $32,000. For the year ago period, non-GAAP net loss was calculated by excluding restructuring charges of $1.1 million and non-cash stock-based compensation expense of $607,000.

Cash, cash equivalents and investments as of March 31, 2010 were $29.4 million, compared with $66.5 million as of December 31, 2009. On January 21, 2010, the Company repurchased all 300,000 shares of Endwave preferred stock from Oak Investment Partners XI, Limited Partnership (Oak Investments) for $36.0 million in cash. Including deal related fees and expenses, the total cost of the repurchase was $36.2 million and the repurchase resulted in a corresponding decrease to cash, cash equivalents and investments.

“In the first quarter, we were pleased to see revenues from our core RF solutions business increase, while our operating losses were significantly reduced,” said John Mikulsky, Endwave’s President and Chief Executive Officer. “As we begin our new fiscal year, we are encouraged by these financial improvements, along with the continued strength of our balance sheet. In addition, our new semiconductor product line is gaining traction in the market place.”

Conference Call

Endwave Corporation will hold a conference call to discuss its financial results today at 1:30 p.m. Pacific Time (PT). Investors are invited to participate in the conference call by dialing (480) 629-9643 (Conference ID: 4282078) by 1:20 p.m. PT. Starting approximately one hour after the completion of the live call, a replay will also be available until May 5. To access the recording, dial (303) 590-3030 (Access Code: 4282078). Investors are also invited to listen to a live and/or archived webcast of Endwave's quarterly conference call on the investor relations section of the Company's website at www.endwave.com. The webcast replay will be available for 90 days.

About Endwave

Endwave Corporation designs, manufactures and markets high frequency RF solutions and semiconductor products that enable the transmission, reception and processing of high-frequency signals in the telecommunications, satellite communications, electronic instruments and defense and security markets. Endwave has 43 issued patents covering its core technologies including semiconductor and proprietary circuit designs. Endwave Corporation is headquartered in San Jose, CA, with operations in Salem, NH and Chiang Mai, Thailand. Additional information about the Company can be accessed from the Company’s web site at http://www.endwave.com.

Use of Non-GAAP Financial Information

To supplement Endwave's condensed consolidated financial statements presented in accordance with GAAP, Endwave uses certain measures of financial performance that are non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. These non-GAAP measures may include gross margin, net income (loss) and net income (loss) per share data that are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures are provided to enhance investors’ overall understanding of Endwave’s current financial performance and Endwave’s prospects for the future. Specifically, Endwave believes the non-GAAP measures provide useful information to both management and investors by excluding certain expenses that may not be indicative of its core operating results. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. These non-GAAP measures included in this press release have been reconciled to the GAAP results in the attached tables.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:

This press release and the conference call referred to in this press release may contain forward-looking statements within the meaning of the Federal securities laws and is subject to the safe harbor created thereby. Any statements contained in this press release or on the conference call that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “plans,” “intends,” “expects,” “believes” and similar expressions are intended to identify these forward-looking statements. Information contained in forward-looking statements is based on current expectations and is subject to change. Actual results could differ materially from the forward-looking statements due to many factors, including the following: global economic conditions and their impact on our customers; our new semiconductor product line; our suppliers’ abilities to deliver raw materials to our specifications and on time; our customer and market concentration; volatility resulting from consolidation of key customers; our ability to achieve revenue growth and maintain profitability; our successful implementation of next-generation programs, including inventory transitions; our ability to penetrate new markets; fluctuations in our operating results from quarter to quarter; our reliance on third-party manufacturers and semiconductor foundries; acquiring businesses and integrating them with our own; component, design or manufacturing defects in our products; our dependence on key personnel; our ability to develop new or improved semiconductor process technologies; and fluctuations in the price of our common stock. Forward-looking statements contained in this press release and on our conference call should be considered in light of these factors and those factors discussed from time to time in Endwave's public reports filed with the Securities and Exchange Commission, such as those discussed under “Risk Factors” in Endwave’s most recent Annual Report on Form 10-K and subsequently-filed reports on Form 10-Q. Endwave does not undertake any obligation to update such forward-looking statements.

CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)         March 31, 2010   December 31, 2009       Assets Current assets Cash and cash equivalents $ 20,222 $ 55,158 Short-term investments 9,219 11,307 Accounts receivables, net 2,634 3,009 Inventories 5,543 4,879 Other current assets   791     788 Total current assets 38,409 75,141 Property and equipment, net 1,934 1,796 Other assets   93     179 Total assets $ 40,436   $ 77,116   Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 2,407 $ 1,726 Accrued warranty 1,124 1,087 Accrued compensation 655 590 Other current liabilities   747     996 Total current liabilities 4,933 4,399   Other long-term liabilities 655 765 Total stockholders' equity   34,848     71,952 Total liabilities and stockholders' equity $ 40,436   $ 77,116   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited)         Three months ended     March 31, 2010   March 31, 2009 Total revenues   $ 4,834     $ 7,242   Costs and expenses:         Cost of product revenues     3,391       4,819   Research and development     1,006       1,705   Sales and marketing     584       579   General and administrative     1,131       1,779   Restructuring     (14 )     1,067   Total costs and expenses     6,098       9,949   Loss from continuing operations     (1,264 )     (2,707 ) Interest and other income (expense), net     (19 )     106   Loss from continuing operations before benefit from income taxes     (1,283 )     (2,601 ) Benefit from income taxes     -       (8 ) Loss from continuing operations     (1,283 )     (2,593 ) Loss from discontinued operations, net of tax     -       (1,067 ) Net loss   $ (1,283 )   $ (3,660 ) Basic and diluted net loss per share from continuing operations   $ (0.13 )   $ (0.28 ) Basic and diluted net loss per share from discontinued operations   $ -     $ (0.11 ) Basic and diluted net loss per share   $ (0.13 )   $ (0.39 ) Shares used in calculating basic and diluted net loss per share     9,701,126       9,346,568     NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1) (in thousands, except share and per share amounts) (unaudited)         Three months ended     March 31, 2010   March 31, 2009 Total revenues   $ 4,834     $ 7,242   Costs and expenses:         Cost of product revenues     3,338       4,738   Research and development     911       1,577   Sales and marketing     516       471   General and administrative     1,016       1,489   Total costs and expenses     5,781       8,275   Loss from operations     (947 )     (1,033 ) Interest and other income (expense), net     (19 )     106   Loss before benefit from income taxes     (966 )     (927 ) Benefit from income taxes     -       (8 ) Net loss   $ (966 )   $ (919 ) Basic and diluted net loss per share   $ (0.10 )   $ (0.10 ) Shares used in calculating basic and diluted net loss per share     9,701,126       9,346,568    

Basis of presentation:

1.

 

Non-GAAP operating results exclude non-cash stock compensation expense, restructuring and discontinued operations.

 

GAAP TO NON-GAAP NET LOSS RECONCILIATION (in thousands) (unaudited)         Three months ended     March 31, 2010   March 31, 2009 GAAP net loss   $ (1,283 )   $ (3,660 ) Cost of product revenues, stock-based compensation expense     53       81   Research and development, stock-based compensation expense     95       128   Sales and marketing, stock-based compensation expense     68       108   General and administrative, stock-based compensation expense     115       290   Restructuring     (14 )     1,067   Loss from discontinued operations, net of tax     -       1,067   Non-GAAP net loss   $ (966 )   $ (919 )