Openwave Reports Third Quarter Financial Results

Openwave Systems Inc. (Nasdaq:OPWV), one of the world’s leading software innovators enabling revenue-generating personalized services which converge the mobile and broadband experience, today announced that revenues for the third fiscal quarter ended March 31, 2008 were $58.0 million, compared with $63.2 million in the prior quarter ended December 31, 2007 and $62.7 million in the March quarter in the preceding year. Bookings for the quarter were $57.1 million. "I am pleased that we were able to achieve an improved bottom line result despite lower than anticipated revenue,” said Charles Levine, Openwave chairman of the board. "The revenue was impacted by a number of key contracts for which purchase orders had not been received by the end of the quarter.” "The board and management team are committed to executing Openwave’s corporate strategy. In Phase 2, that strategy focuses on streamlining its products and reducing operating expenses. As we drive expenses down and position the company for long-term profitability, our focus will evolve to broadening our customer base and growing our business profitably. We are fortunate to have attracted Bruce Coleman to the interim CEO position to assist us in accelerating the execution of Phase 2. Bruce is a seasoned executive with a unique set of skills that will be invaluable to Openwave in its turnaround.” On a GAAP basis, net loss for the third fiscal quarter ended March 31, 2008 was $14.7 million, or $0.18 per share, compared with net income of $4.9 million, or $0.06 per share, in the prior quarter and a net loss of $32.5 million, or $0.35 per share, in the March quarter in the preceding year. Net loss on a non-GAAP basis for the third fiscal quarter ended March 31, 2008 was $3.3 million, or $0.04 per share, compared with $4.8 million, or $0.06 per share, in the prior quarter and $18.6 million, or $0.20 per share, during the March quarter of the prior year. 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. Non-GAAP Measure The Company's stated results include a non-GAAP measure, non-GAAP net loss. Non-GAAP net loss excludes certain items since they are related to unique non-recurring events, such as restructuring costs, amortization of acquisition-related costs and stock-based compensation, professional fees associated with unusual events, retention bonuses related to when the Company explored strategic alternatives, gains on sales of technology, discontinued operations, and impairments on investments. Non-GAAP net loss excludes these items since they are items that other companies exclude, in order to compare the Company with other companies, such as stock-based compensation, and other expenses which would not be helpful to evaluate the Company's on-going business, such as restructuring costs and discontinued operations. Lastly, non-GAAP net loss excludes non-cash expenses that relate to non-routine events, such as the amortization of intangibles and acquisition-related costs. Management believes this non-GAAP information may be useful to investors because the Company has historically provided this or similar information and understands that some investors find it helpful in analyzing the Company's expenses and comparing them to the expenses of the Company's competitors or others. Management uses this non-GAAP information, along with GAAP information, in evaluating the Company's historical and projected operating results, primarily with a view to assessing ongoing expenses exclusive of specific, non-recurring transactions, as may be the case with our restructuring, professional fees associated with unusual events, impairments, and acquisition-related costs. This non-GAAP information is not prepared in accordance with generally accepted accounting principles and may differ from the non-GAAP information used by other companies. Non-GAAP information should not be considered in isolation from, or as a substitute for, information prepared in accordance with GAAP. Moreover, there are material limitations associated with the use of non-GAAP information. In this regard, while some transactions causing the non-GAAP expenses are non-recurring, the Company in the future may effect new transactions, such as acquisitions or restructurings that will trigger similar expenses. For these reasons, our non-GAAP information may not be as useful to investors as the GAAP information also provided. Conference Call Information Openwave has scheduled a conference call for 5:00 p.m. eastern time today to discuss its financial results for its fiscal third quarter ended March 31, 2008. Interested parties may access the conference call over the Internet through the Company’s web site at www.openwave.com or by telephone at (800) 475-6890 or (913) 312-6696 (international). A replay of the conference call will be available for one week beginning at approximately 8:30 p.m. eastern time today by calling 888-203-1112. The replay can be accessed internationally by calling (719) 457-0820, access code: 6884829. A live webcast of the call, together with supplemental financial information, will also be available on the Quarterly Earnings section of Openwave’s website at http://investor.Openwave.com/ for at least 12 months. About Openwave Openwave Systems Inc. (Nasdaq:OPWV) is one of the world’s leading innovators of software applications and infrastructure designed to enable revenue-generating, personalized services, including merchandising and advertising, which converge the mobile and broadband experience across all of a user’s devices. As the communications industry intersects with the Internet, Openwave software enables service providers to converge services, increasing the value of their networks by accelerating time to market and reducing the cost and complexity associated with new service deployment. Openwave’s unique product portfolio provides a complete range of service management, messaging, location and client technologies. Openwave is a global company headquartered in Redwood City, California. Openwave is a trademark of Openwave Systems Inc. All other trademarks are the properties of their respective owners. Cautionary Note Regarding Forward Looking Statements This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1943 and Section 27A of the Securities Act of 1933, including, but not limited to, material contained in quotations, increased demand for some of the Company’s products and expectations, plans or prospects for Openwave Systems Inc. that are based upon the current expectations and beliefs of Openwave's management. These forward-looking statements are subject to many risks and uncertainties that could cause actual results to differ materially from those projected. Notwithstanding changes that may occur with respect to matters relating to any forward looking statements, Openwave assumes no obligation to update the forward-looking statements included in this press release. In particular, the following factors, among others, could cause actual results to differ materially from those projected: (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) the unknown effects of management changes; and (h) the loss of key personnel. For a detailed discussion of these and other cautionary statements, please refer to the risk factors discussed in the Company’s 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, 2007, its Quarterly Report on Form 10-Q for the periods ended September 30, 2007 and December 31, 2007 and any subsequently filed reports. All documents also are available through the SEC's Electronic Data Gathering Analysis and Retrieval system (EDGAR) at www.sec.gov or from Openwave's website at www.openwave.com. OPENWAVE SYSTEMS INC. CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED (In thousands)         March 31, June 30, 2008 2007 Assets Current Assets: Cash, cash equivalents and short-term investments $ 215,358 $ 240,644 Restricted cash 242 2,061 Accounts receivable, net 59,349 72,894 Prepaid and other current assets 23,671 30,482 Note receivable from sale of discontinued operation 6,425 - Current assets of discontinued operation   -   19,039 Total current assets 305,045 365,120   Property and equipment, net 15,751 19,834 Long-term investments and restricted cash and investments 58,803 37,944 Deposits and other assets 7,756 4,575 Goodwill and intangible assets, net 81,471 86,162 Noncurrent assets of discontinued operation   -   34,652 Total assets $ 468,826 $ 548,287   Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 3,268 $ 10,288 Accrued liabilities 38,853 56,344 Accrued restructuring costs 18,343 26,118 Deferred revenue 45,146 46,342 Convertible subordinated notes, net 149,636 - Current liabilities of discontinued operation   -   18,837 Total current liabilities 255,246 157,929   Accrued restructuring costs, less current portion 44,252 51,140 Deferred revenue, less current portion 12,463 11,917 Deferred rent obligations and long-term taxes payable 6,255 1,649 Deferred tax liabilities, net - 1,349 Convertible subordinated notes, net - 149,017 Noncurrent liabilities of discontinued operation   -   5,034 Total liabilities 318,216 378,035   Stockholders' equity   150,610   170,252 Total liabilities and stockholders' equity $ 468,826 $ 548,287 OPENWAVE SYSTEMS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-UNAUDITED (In thousands, except per share data)               Three Months Ended Nine Months Ended March 31, December 31, March 31, March 31, March 31, 2008   2007   2007   2008   2007   Revenues: License $ 18,394 $ 16,827 $ 14,946 $ 52,544 $ 69,305 Maintenance and support 18,768 20,887 22,917 61,299 68,563 Services   20,881     25,467     24,841     70,353     84,339   Total revenues   58,043     63,181     62,704     184,196     222,207     Cost of revenues: License 988 1,010 872 2,840 3,414 Maintenance and support 7,061 7,702 9,142 23,066 25,003 Services 14,705 20,012 18,319 52,817 61,495 Amortization of intangible assets   1,895     2,035     2,002     5,984     5,487   Total cost of revenues   24,649     30,759     30,335     84,707     95,399   Gross profit   33,394     32,422     32,369     99,489     126,808     Operating Expenses: Research and development 15,433 14,822 17,806 45,182 53,871 Sales and marketing 16,529 19,300 25,216 54,362 74,738 General and administrative 7,696 10,109 19,077 31,725 51,533 Stock option review and associated costs - - 540 - 6,782 Restructuring and other related costs 5,852 328 576 7,388 13,100 Acquisition-related costs and amortization 827 1,093 774 2,749 2,201 Gain on sale of technology   -     -     -     -     (1,287 ) Total operating expenses   46,337     45,652     63,989     141,406     200,938     Operating loss from continuing operations (12,943 ) (13,230 ) (31,620 ) (41,917 ) (74,130 ) Interest and other (expense), net (1,091 ) 2,479 4,020 4,292 14,863 Impairment of investment in private company   -     -     (1,185 )   -     (1,185 ) Pre-tax loss from continuing operations (14,034 ) (10,751 ) (28,785 ) (37,625 ) (60,452 )   Income taxes   714     544     1,347     2,212     4,737   Net loss from continuing operations (14,748 ) (11,295 ) (30,132 ) (39,837 ) (65,189 ) Net loss from discontinued operation, net of tax - (286 ) (2,378 ) (637 ) (7,634 ) Gain on sale of discontinued operation   -     16,455     -     16,455     -   Net income (loss) $ (14,748 ) $ 4,874   $ (32,510 ) $ (24,019 ) $ (72,823 )     Basic and diluted net income (loss) per share from: Continuing operations $ (0.18 ) $ (0.14 ) $ (0.33 ) $ (0.48 ) $ (0.70 ) Discontinued operation   -     0.20     (0.02 )   0.19     (0.08 ) Net income (loss) per share $ (0.18 ) $ 0.06   $ (0.35 ) $ (0.29 ) $ (0.78 )   Shares used in basic and diluted net income (loss) per share 82,557 82,397 92,114 82,341 92,880   Stock-based compensation by category: Maintenance and support $ 121 $ 415 $ 180 $ 736 $ 785 Services 279 510 199 1,089 1,023 Research and development 268 819 422 1,467 1,669 Sales and marketing 486 878 1,356 2,171 6,035 General and administrative 756 802 2,293 2,215 6,935 Restructuring and other related costs - - - - 1,687 Discontinued operation   -     139     232     284     486   $ 1,910   $ 3,563   $ 4,682   $ 7,962   $ 18,620   OPENWAVE SYSTEMS INC. RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET INCOME (LOSS) (In thousands, except per share data)             Three Months Ended Nine Months Ended March 31, December 31, March 31, March 31, March 31,   2008     2007     2007     2008     2007     Reconciliation between GAAP and Non-GAAP net income (loss): Net income (loss) $ (14,748 ) $ 4,874 $ (32,510 ) $ (24,019 ) $ (72,823 ) Exclude: Restructuring and other related costs 5,852 328 576 7,388 13,100 Acquisition-related costs and amortization(a) 2,722 3,128 2,776 8,733 7,688 Amortization of stock-based compensation 1,910 3,424 4,450 7,678 16,447 Professional fees associated with unusual events(b) (710 ) 337 2,920 1,001 9,162 Retention bonuses related to strategic alternatives - - 409 3,398 409 Gain on sale of technology - - - - (1,287 ) Discontinued operation, net of tax - (16,169 ) 2,378 (15,818 ) 7,634 Impairment of investment in private company - - 1,185 - 1,185 Other-than-temporary impairments of investments 2,383 124 - 2,507 - Tax impact of reconciling items(c)   (660 )   (822 )   (792 )   (2,303 )   (2,482 ) Non-GAAP net loss $ (3,251 ) $ (4,776 ) $ (18,608 ) $ (11,435 ) $ (20,967 )   GAAP net income (loss) per share - diluted $ (0.18 ) $ 0.06 $ (0.35 ) $ (0.29 ) $ (0.78 ) Exclude: Restructuring and other related costs $ 0.07 $ - $ 0.01 $ 0.09 $ 0.14 Acquisition-related costs and amortization(a) $ 0.03 $ 0.04 $ 0.03 $ 0.11 $ 0.08 Amortization of stock-based compensation $ 0.03 $ 0.05 $ 0.05 $ 0.09 $ 0.18 Professional fees associated with unusual events(b) $ (0.01 ) $ - $ 0.03 $ 0.01 $ 0.10 Retention bonuses related to strategic alternatives $ - $ - $ - $ 0.04 $ - Gain on sale of technology $ - $ - $ - $ - $ (0.01 ) Discontinued operation, net of tax $ - $ (0.20 ) $ 0.03 $ (0.19 ) $ 0.08 Impairment of investment in private company $ - $ - $ 0.01 $ - $ 0.01 Other-than-temporary impairments of investments $ 0.03 $ - $ - $ 0.03 $ - Tax impact of reconciling items(c) $ (0.01 ) $ (0.01 ) $ (0.01 ) $ (0.03 ) $ (0.03 ) Non-GAAP net loss per share - diluted $ (0.04 ) $ (0.06 ) $ (0.20 ) $ (0.14 ) $ (0.23 )   Shares used in computing diluted earnings per share 82,557 82,397 92,114 82,341 92,880   (a)Acquisition-related costs relates to payments due under the terms of the Widerweb and Solomio acquisitions. Amortization relates to acquired intangible assets. (b)Relates to legal fees regarding the stock option lawsuits, proxy contests and strategic alternatives, net of insurance reimbursement. (c)The tax impact relates to amortization of acquisition-related intangibles and tax benefits related to stock-based compensation. OPENWAVE SYSTEMS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED (in thousands)                   Three Months Ended Nine Months Ended March 31, December 31, March 31, March 31, March 31,   2008     2007     2007     2008     2007   Operating activities: Net income (loss) $ (14,748 ) $ 4,874 $ (32,510 ) $ (24,019 ) $ (72,823 ) Gain on sale of discontinued operation - (16,455 ) - (16,455 ) - Reconciling items: Depreciation, amortization of intangibles and stock-based compensation 6,755 8,719 12,640 23,174 41,942 Non-cash restructuring charges 518 513 576 1,563 1,832 Provision for (recovery of) doubtful accounts (508 ) (646 ) 1,607 (1,927 ) 3,585 Other non-cash items, net 477 (633 ) (1,499 ) (954 ) (4,277 ) Other-than-temporary impairments of investments 2,383 124 - 2,507 - Proceeds from sale of technology - - - - (1,287 ) Changes in operating assets and liabilities, net of effect of acquisitions   (6,386 )   (14,185 )   38,064     (23,533 )   29,460     Net cash provided by (used for) operating activities   (11,509 )   (17,689 )   18,878     (39,644 )   (1,568 )   Investing activities: Purchases of property and equipment, net (1,095 ) (1,418 ) (3,461 ) (4,430 ) (11,268 ) Proceeds from sale of non-operating assets - - - 1,065 - Proceeds from sale of technology and other - - - - 1,287 Acquisitions, net of cash acquired in continuing operations - - (3,558 ) - (12,090 ) Restricted cash related to acquisitions - - - - (1,250 ) Sale of discontinued operation, net of cash divested and costs (3,381 ) 39,382 - 36,001 - Payments and restricted cash related to prior acquisitions (438 ) (546 ) - (984 ) - Proceeds of investments, net 46,133 8,814 19,791 111,617 51,473 Reclass of cash equivalents to short term investments - (9,796 ) - (9,796 ) - Restricted cash and investments   -     420     346     225     1,528     Net cash provided by investing activities   41,219     36,856     13,118     133,698     29,680     Financing activities: Payment on note payable - (113 ) - (113 ) (305 ) Net proceeds from issuance of common stock - 30 187 88 333 Cash used to repurchase stock from employees - - (6 ) (505 ) (944 ) Stock buy back plan - - (100,000 ) - (100,000 ) Employee stock purchase plan   -     536     -     536     -   Cash provided by (used for) financing activities   -     453     (99,819 )   6     (100,916 ) Effect of exchange rates on cash and cash equivalents   -     -     (160 )   -     (40 ) Net increase (decrease) in cash and cash equivalents 29,710 19,620 (67,983 ) 94,060 (72,844 ) Cash and cash equivalents at beginning of period   150,449     130,829     167,685     86,099     172,546   Cash and cash equivalents at end of period, including discontinued operation $ 180,159   $ 150,449   $ 99,702   $ 180,159   $ 99,702   Cash and cash equivalents included in discontinued operation   -     -     (3,335 )   -     (3,335 ) Cash and cash equivalents at end of period $ 180,159   $ 150,449   $ 96,367   $ 180,159   $ 96,367