Phoenix Technologies Ltd. Reports Third Quarter FY2008 Financial Results

Revenues Up 53% Year-over-Year and Significantly Above Expectations

MILPITAS, Calif., July 22 /PRNewswire-FirstCall/ -- Phoenix Technologies
Ltd. (Nasdaq: PTEC), the global leader in core systems software, today
announced its financial results for the third quarter of fiscal year 2008,
which ended June 30, 2008.
Highlights for Q3 FY2008 included:
-- Total revenues grew 53% to $19.3 million, compared with $12.6 million
in Q3 FY2007;
-- Gross margin expanded to 86% of revenues, compared with 81% in Q3
FY2007;
-- GAAP net loss was ($2.8 million), or ($0.10) per share, compared with a
loss of ($1.8 million), or ($0.07) per share in Q3 FY2007;
-- On a non-GAAP basis, net income was $1.3 million, or $0.04 per diluted
share, compared with a non-GAAP net loss of ($0.3) million, or ($0.01) per
share in Q3 FY2007;
"We are very pleased to report an excellent fiscal third quarter in which
we substantially exceeded revenue expectations and furthered our goal of
embedding Phoenix's technologies at the very heart of the next generation of
computers," stated Woody Hobbs, President and CEO of Phoenix Technologies.
"The quarter reflects a continuation of the trends observed in recent
quarters, including the ongoing strength in our core BIOS business with strong
margins and cash flow. Simultaneously, we are building a new business around
our PC 3.0(TM) vision for a revolutionary transformation of the PC user
experience. We completed the acquisition of BeInSync, and immediately
following the close of the quarter, TouchStone Software, giving us not only
great new products and IP but exceptional engineering teams with which to
accelerate the realization of that vision. We also announced multiple new
strategic alliances with top tier industry partners for Phoenix FailSafe(TM)
and HyperCore(TM) products and, perhaps most importantly, we executed and
announced the first customer contracts for these exciting new products."
Richard Arnold, COO and CFO of Phoenix Technologies, stated, "Our core
BIOS business continues to perform very well, with strong growth, operating
margins and cash flow, and provides us the stable base on which to build as we
migrate Phoenix to a multi-product, multi-channel business. We continue to
make significant investments in research and development to support our
expectations of high-growth FailSafe and HyperCore businesses and we have been
very happy with our ability to attract a number of exceptional new engineers
to our team. Our overall business continues to benefit from the continued
strong global growth in shipments of portable computers, resulting in a total
order backlog of more than $44 million at the end of the quarter, which
provides us with excellent visibility into future period revenues."
Conference Call Dial-in Details:
The Company will conduct its regularly scheduled financial announcement
conference call on Tuesday, July 22, 2008 at 5:30 a.m. PDT/8:30 a.m. EDT.
Investors are invited to listen to a live audio web cast of the quarterly
conference call on the investor relations section of the Company's website at
www.phoenix.com. A replay of the web cast will be available two hours after
the conclusion of the call and will be available for 90 calendar days.
Alternatively investors can listen to the conference call via telephone at:
877-795-3646 (U.S./Canada) or 719-325-4759 (international). An audio replay of
the conference call will also be available approximately two hours after the
conclusion of the call and will be available until Friday, July 25, 2008. The
audio replay can be accessed by dialing 888-203-1112 (U.S./Canada) or 719-457-
0820 (international) and entering conference call ID 7840874.
About Phoenix Technologies
Phoenix Technologies Ltd. (Nasdaq: PTEC) is the global market leader in
system firmware that provides the most secure foundation for today's computing
environments. The PC industry's top system builders and specifiers trust
Phoenix to pioneer open standards and deliver innovative solutions that will
help them differentiate their systems, reduce time-to-market and increase
their revenues. The Company's flagship products and services -- AwardCore,
SecureCore, FailSafe, HyperSpace, BeInSync and eSupport -- are revolutionizing
the PC user experience by delivering unprecedented performance, security,
reliability, continuity, and ease-of-use. The Company established industry
leadership and created the PC clone industry with its original BIOS product in
1983. Phoenix has 155 technology patents and 139 pending applications, and has
shipped in over one billion systems. Phoenix is headquartered in Milpitas,
California with offices worldwide. For more information, visit
http://www.phoenix.com
Phoenix, Phoenix Technologies, Phoenix FailSafe, Phoenix HyperSpace,
HyperCore, ManageSpace, BeInSync, eSupport and the Phoenix Technologies logo
are trademarks and/or registered trademarks of Phoenix Technologies Ltd. All
other trademarks are the property of their respective owners.
Use of Non-GAAP Financial Information
To supplement Phoenix's consolidated condensed financial statements
presented on a GAAP basis, Phoenix also presents non-GAAP net income (loss)
information in this press release. The adjustments in the current quarter
consist principally of non-cash stock compensation expense as required
according to Statement of Financial Accounting Standards (SFAS 123R). These
non-GAAP adjustments, as well as management's reasons for providing non-GAAP
information, are more fully described in the reconciliation between net income
(loss) on a GAAP basis and non-GAAP net income (loss) provided in the
financial statements which accompany this press release.
Safe Harbor
The statements set forth above include forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, regarding the
Company's ability to maintain its current level of financial performance, the
Company's vision for its new products and PC 3.0, and the benefits of our
recent acquisitions. These statements involve risk and uncertainties,
including: our dependence on key customers; our ability to successfully
enhance existing products and develop and market new products and
technologies; our ability to remain profitable; our ability to meet our
capital requirements in the long-term and maintain positive cash flow from
operations; our ability to attract and retain key personnel; product and price
competition in our industry and the markets in which we operate; our ability
to successfully compete in new markets where we do not have significant prior
experience; end-user demand for products incorporating our products; the
ability of our customers to introduce and market new products that incorporate
our products; risks associated with any acquisition strategy that we might
employ; results of litigation; failure to protect our intellectual property
rights; changes in our relationship with leading software and semiconductor
companies; the rate of adoption of new operating system and microprocessor
design technology; risks associated with our international sales and operating
internationally, including currency fluctuations, acts of war or terrorism,
and changes in laws and regulations relating to our employees in international
locations; whether future restructurings become necessary; our ability to
increase the number of volume purchase agreements and pay-as-you-go
arrangements with customers; any material weakness in our internal controls
over financial reporting; changes in financial accounting standards and our
cost of compliance; the effects of any software viruses or other breaches of
our network security, power shortages and unexpected natural disasters; trends
regarding the use of the x86 microprocessor architecture for personal
computers and other digital devices; and changes in our effective tax rates.
For a further list and description of risks and uncertainties that could cause
actual results to differ materially from those contained in the forward
looking statements in this release, we refer you to the Company's filings with
the Securities and Exchange Commission, including, but not limited to, its
annual report on Form 10-K and quarterly reports on Form 10-Q. All forward-
looking statements included in this document are based upon assumptions,
forecasts and information available to the Company as of the date hereof, and
the Company assumes no obligation to update any such forward-looking
statements.
Investor Relations Contacts:
Phoenix Technologies Ltd.
Richard Arnold
Chief Operating Officer and Chief Financial Officer
Tel. +1 408 570 1256
investor_relations@phoenix.com

The Piacente Group, Investor Relations Counsel
Sanjay M. Hurry
Tel. +1 212 481 2050
phoenix@thepiacentegroup.com

PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

June 30, September 30,
2008 2007

Assets
Current assets:
Cash and cash equivalents $46,101 $62,705
Accounts receivable, net of
allowances 3,508 6,383
Escrow deposit 18,706 -
Other assets - current 4,433 3,496
Total current assets 72,748 72,584

Property and equipment, net 3,258 2,791
Purchased technology and intangible
assets, net 14,324 3,571
Goodwill 25,759 14,497
Other assets - noncurrent 3,003 1,037
Total assets $119,092 $94,480

Liabilities and stockholders' equity
Current liabilities:
Accounts payable $2,041 $1,186
Accrued compensation and related
liabilities 4,193 3,922
Deferred revenue 14,042 11,805
Income taxes payable - current 3,401 11,733
Accrued restructuring charges -
current 706 1,905
Other liabilities - current 5,700 1,744
Total current liabilities 30,083 32,295

Accrued restructuring charges -
noncurrent 10 358
Income taxes payable - noncurrent 13,065 -
Other liabilities - noncurrent 2,505 2,055
Total liabilities 45,663 34,708

Stockholders' equity:
Preferred stock - -
Common stock 28 28
Additional paid-in capital 222,804 206,800
Accumulated deficit (57,216) (55,311)
Accumulated other comprehensive
loss (509) (67)
Less: Cost of treasury stock (91,678) (91,678)
Total stockholders' equity 73,429 59,772
Total liabilities and
stockholders' equity $119,092 $94,480

See notes to unaudited condensed consolidated financial statements

PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

Three months ended Nine months ended
June 30, June 30,
2008 2007 2008 2007

Revenues:
License fees $16,883 $10,678 $47,110 $26,077
Subscription fees 20 - 20 -
Service fees 2,373 1,902 6,570 5,275
Total revenues 19,276 12,580 53,700 31,352

Cost of revenues:
License fees 179 201 421 693
Subscription fees 20 - 20 -
Service fees 2,161 1,811 5,678 5,768
Amortization of purchased
intangible assets 373 333 444 916
Total cost of revenues 2,733 2,345 6,563 7,377

Gross margin 16,543 10,235 47,137 23,975

Operating expenses:
Research and development 8,397 5,204 20,069 14,056
Sales and marketing 3,245 2,554 8,885 9,399
General and administrative 6,708 3,615 16,221 12,254
Restructuring 67 (14) 180 3,082
Total operating
expenses 18,417 11,359 45,355 38,791

Income (loss) from operations (1,874) (1,124) 1,782 (14,816)

Interest and other income
(expenses), net 328 479 602 1,514
Income (loss) before income taxes (1,546) (645) 2,384 (13,302)

Income tax expense 1,234 1,129 4,037 2,439

Net loss $(2,780) $(1,774) $(1,653) $(15,741)

Loss per share:
Basic and diluted $(0.10) $(0.07) $(0.06) $(0.61)

Shares used in loss per share
calculation:
Basic and diluted 27,574 26,001 27,385 25,719

See notes to unaudited condensed consolidated financial statements

PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Three months ended Nine months ended
June 30, March 31, June 30, June 30,
2008 2008 2007 2008 2007
Cash flows from operating
activities:
Net loss $(2,780) $(1,365) $(1,774) $(1,653) $(15,741)
Reconciliation to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 868 501 932 1,919 2,644
Stock-based compensation 3,605 3,665 1,169 8,292 3,924
Loss from disposal of
fixed assets (17) - 24 16 51
Change in operating
assets and liabilities:
Accounts receivable 524 942 1,629 2,785 3,232
Prepaid royalties and
maintenance 6 3 18 38 86
Other assets 663 (882) 745 113 1,835
Accounts payable 652 (177) (618) 649 (2,177)
Accrued compensation
and related
liabilities 322 645 162 34 (874)
Deferred revenue (387) 2,267 1,924 2,077 4,148
Income taxes 1,104 1,755 938 4,311 1,281
Accrued restructuring
charges (132) (246) (910) (1,608) (3,186)
Other accrued
liabilities (888) 348 138 (10) (1,618)
Net cash provided by
(used in) operating
activities 3,540 7,456 4,377 16,963 (6,395)

Cash flows from investing
activities:
Proceeds from sales of
marketable securities - - 10,279 - 113,714
Proceeds from maturities
of marketable securities - - (7,500) - 1,000
Purchases of marketable
securities - - - - (89,125)
Purchases of property and
equipment (1,027) (316) (273) (1,958) (373)
Funds held in escrow (18,706) - - (18,706) -
Acquisition of businesses,
net of cash acquired (17,715) - - (17,715) -
Net cash provided by
(used in) investing
activities (37,448) (316) 2,506 (38,379) 25,216

Cash flows from financing
activities:
Proceeds from stock
purchases under stock
option and stock purchase
plans 1,173 1,355 3,582 4,723 5,154
Net cash provided by
financing activities 1,173 1,355 3,582 4,723 5,154

Effect of changes in
exchange rates (149) 191 (4) 89 36
Net increase in cash and
cash equivalents (32,884) 8,686 10,461 (16,604) 24,011
Cash and cash equivalents
at beginning of period 78,985 70,299 48,293 62,705 34,743
Cash and cash equivalents
at end of period $46,101 $78,985 $58,754 $46,101 $58,754

Supplemental disclosure of
cash flow information:
Non-cash financing
activity:
Fair value of stock
issued in connection
with acquisition 2,985 2,985

See notes to unaudited condensed consolidated financial statements

PHOENIX TECHNOLOGIES LTD.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME (LOSS) AND
NET EARNINGS (LOSS) PER SHARE
(in thousands, except per share data)
(unaudited)

Three months ended Nine months ended
June 30, March 31, June 30, June 30,
2008 2008 2007 2008 2007

GAAP net loss $(2,780) $(1,365) $(1,774) $(1,653) $(15,741)

Equity-based
compensation expense (1)
under SFAS No. 123(R) 3,605 3,665 1,169 8,292 3,872

Restructuring (2) 67 44 (14) 180 3,082

Amortization of (3)
purchased intangible
assets 373 - 333 444 916

Non-GAAP net income (loss) $1,265 $2,344 $(286) $7,263 $(7,871)

Non-GAAP earnings (loss)
per share:
Basic $0.05 $0.09 $(0.01) $0.27 $(0.31)
Diluted $0.04 $0.08 $(0.01) $0.25 $(0.31)

Shares used in earnings
(loss) per share
calculation:
Basic 27,574 27,431 26,001 27,385 25,719
Diluted 29,253 29,514 26,001 29,145 25,719

These adjustments reconcile the Company's GAAP net loss to the reported
non-GAAP net income (loss). The Company believes that presentation of net
income and net income per share excluding equity-based compensation,
restructuring cost, and amortization of purchased intangible assets provides
meaningful supplemental information to investors, as well as management, that
is indicative of the Company's core operating results and facilitates
comparison of operating results across reporting periods as well as comparison
with other companies. The Company uses these non-GAAP measures when evaluating
its financial results as well as for internal planning and budgeting purposes.
Equity-based compensation is excluded from non-GAAP results because management
believes it is useful to investors to understand how the expense associated
with the adoption of SFAS No. 123(R) are reflected in net income (loss).
Restructuring costs are excluded from non-GAAP financial results since they
may not be considered directly related to our on-going business operations.
Amortization of purchased intangible assets, principally purchased technology,
is excluded from non-GAAP financial results since it generally cannot be
changed by management after an acquisition has occurred. These non-GAAP
measures should not be viewed as a substitute for the Company's GAAP results,
and may be different than non-GAAP measures used by other companies.
(1) This number represents equity-based compensation expense related to
the Company's adoption of SFAS No. 123(R) beginning October 1, 2005. For the
three months ended June 30, 2008, equity-based compensation was $3.6 million,
allocated as follows: $0.2 million to cost of goods sold, $1.0 million to
research and development, $0.4 million to sales and marketing and $2.0 million
to general and administrative. For the three months ended March 31, 2008,
equity-based compensation was $3.7 million, allocated as follows: $0.1
million to cost of goods sold, $1.0 million to research and development, $0.4
million to sales and marketing and $2.2 million to general and administrative.
For the three months ended June 30, 2007, equity-based compensation was $1.2
million, allocated as follows: $0.1 million to cost of goods sold, $0.4
million to research and development, $0.2 million to sales and marketing and
$0.5 million to general and administrative. For the nine months ending June
30, 2008, equity-based compensation was $8.3 million, allocated as follows:
$0.4 million to cost of goods sold, $2.1 million to research and development,
$1.0 million to sales and marketing and $4.8 million to general and
administrative. For the nine months ending June 30, 2007, equity-based
compensation was $3.9 million, allocated as follows: $0.2 million to cost of
goods sold, $1.0 million to research and development, $0.7 million to sales
and marketing and $2.0 million to general and administrative. Management
believes that it is useful to investors to understand how the expenses
associated with the adoption of SFAS No. 123(R) are reflected in net income.
The quarter ended March 31, 2008 is the first quarter during in which the
Company reported equity-based compensation expense under SFAS No. 123(R) in
respect of stock options granted to the Company's four most senior executives
as approved by the Company's stockholders on January 2, 2008 (the "Performance
Options"). Of the $3.7 million of equity-based compensation for the three
moths ended March 31, 2008, $2.0 million was due to equity-based compensation
expense which resulted from the grant of the Performance Options. Of the $3.6
million of equity-based compensation for the three moths ended June 30, 2008,
$1.9 million was due to equity-based compensation expense which resulted from
the grant of the Performance Options.
(2) The Company has incurred restructuring expenses, included in its GAAP
presentation of operating expense, primarily due to workforce related charges
such as payments for severance and benefits and estimated costs of exiting and
terminating facility lease commitments related to formal restructuring plans
approved by the Board of Directors in June 2006, in September 2006, November
2006 and September 2007. For the three months ended June 30, 2008, cost
related to exiting and terminating 2 facility leases totaled approximately
$0.1 million due to a change in estimate of sublease income. For the three
months ended March 31, 2008, cost related to exiting and terminating 2
facility leases totaled approximately $47,000 and severance and benefits
decreased for over accrued employer taxes of approximately $3,000. For the
three months ending June 30, 2007, no restructuring costs were incurred, and
the Company paid all remaining obligations for severance and benefits and
costs of exiting and terminating facility lease commitments related to the
formal restructuring plans approved by the Board of Directors in June 2006,
September 2006, and November 2006. For the nine months ending June 30, 2008,
restructuring costs were $0.2 million which were composed of severance and
benefits costs of approximately $80,000 and facilities lease costs of
approximately $0.1 million. For the nine months ending June 30, 2007,
restructuring costs were $3.1 million. The severance and benefits costs
totaled $1.8 million. Included as part of the total severance and benefits
cost, the Company decreased the September and November 2006 restructuring
reserves by $0.1 million due to a revised projection of outplacement and
health insurance benefits liability. Costs related to terminating facility
leases totaled $1.3 million. Included as part of the total lease termination
cost, the Company decreased the fiscal year 2003 restructuring reserve for the
Irvine facility by $0.1 million due to a revised projection of the liability
over the remaining term of the lease. The Company believes that these items do
not reflect expected future operating expenses nor does the Company believe
that they provide a meaningful evaluation of current versus past operational
performance.
(3) This number represents amortization of purchased intangible assets,
principally purchased technology, in accordance with SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144") and SFAS
No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed" ("SFAS No. 86"). For the three months ended June 30,
2008, amortization of purchased intangible assets was $0.4 million allocated
to cost of goods sold. For the three months ended March 31, 2008, there was
no amortization of purchased intangible assets. For the three months ended
June 30, 2007, amortization of purchased intangible assets was $0.3 million
allocated to cost of goods sold. For the nine months ending June 30, 2008,
amortization of purchased intangible assets was $0.4 million allocated to cost
of goods sold. For the nine months ending June 30, 2007, amortization of
purchased intangible assets was $0.9 million allocated to cost of goods sold.
Future acquisitions may cause amortization expenses to be higher than these
amounts.
(Logo: http://www.newscom.com/cgi-bin/prnh/20070410/SFTU048LOGO)
SOURCE Phoenix Technologies Ltd.

Richard Arnold, Chief Operating Officer and Chief Financial Officer of Phoenix
Technologies Ltd., +1-408-570-1256, investor_relations@phoenix.com; or
Investor Relations Counsel, Sanjay M. Hurry of The Piacente Group,
+1-212-481-2050, phoenix@thepiacentegroup.com, for Phoenix Technologies Ltd.