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NEI Announces Financial Results for Second Quarter 2008
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May 29, 2008

NEI Announces Financial Results for Second Quarter 2008

By Eve Sullivan, TMCnet Editor

NEI, a provider of server appliance products and services for storage, security and communications software vendors, announced an 88 percent increase in net revenues for the fiscal second quarter of 2008, compared to the second quarter of 2007.

Revenues jumped from $29.3 million in 2007 to $55.2 million in 2008, during that period, which ends March 31. The increase was primarily due to the acquisition of Alliance Systems (News - Alert), Inc. in October 2007, the company says.
Meanwhile, the gross profit of net revenues dropped from 20.8 percent in the second quarter of 2007 to 16.1 percent in the second quarter of 2008.
“During the second fiscal quarter, we made good progress in important areas of our business and reported revenues in line with our expectations,” said Greg Shortell, president and CEO of NEI.
“However, we saw many customers place orders at the low end of their forecasts as they experienced instances of delayed buying decisions and deferred purchases from their customers, which we believe are tied to a difficult macro economic environment. In addition, our gross margin was below our expectations primarily related to lower average sell prices based on customer and product mix. Despite the revenue and margin results, we continued to effectively manage our expenses, which enabled us to report profitability and generate $3.6 million in cash for the quarter.”
During the second fiscal quarter, NEI added 11 new appliance design wins, which enabled the company to exceed its goal of 20 design wins for the first half of the fiscal year. About half of the appliance design wins were with customers with run-rate businesses, which are expected to shorten the amount of time needed for the company to begin to generate revenue from those engagements. NEI also made continued progress with its integration of Alliance Systems, which remains on track with its plans.
“While we are very cautious regarding a continued challenging economy, we are also optimistic about the long-term success of our business due to the strength of our value proposition to customers, larger scale, broader capabilities, and value added services,” Shortell said. “Particularly in difficult times, an appliance strategy that lowers the total cost of ownership for users becomes increasingly compelling for independent software vendors, especially when it can help them reduce costs through outsourcing.”
Operating expenses were $8.7 million, or 15.8 percent of net revenues, for the second quarter of 2008, compared to $6.2 million, or 21.1 percent of net revenues, in the second quarter of 2007. Operating income increased to $197,000 in the second quarter of 2008, compared to an operating loss of $84,000 in the second quarter of 2007.
Moving forward, Shortell said, their core strategy remains focused on growing and diversifying revenue by expanding their customer base, developing innovative services and technical capabilities for customers, and carefully managing expenses to maximize profitability.
NEI anticipates net revenues in the range of $50 to $54 million for its fiscal third quarter of 2008, ending June 30, based on current forecasts from certain partners and historical trends. The company also expects gross profit in the range of 15 to 16 percent of net revenues.
NEI also expects operating expenses between $8 and $8.5 million, including an estimated $450,000 of stock-based compensation expense and estimated amortization of intangible assets of $485,000 related to the acquisition of Alliance.
 Eve Sullivan is a contributing editor for TMCnet. To read more of Eve’s articles, please visit her columnist page.



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