Phoenix Technologies Ltd. Reports Fourth Quarter and Full Year 2008 Financial Results

Phoenix Technologies Ltd. Reports Fourth Quarter and Full Year 2008 Financial
Results
- FY 2008 Revenues Up 57%; Company Reports Substantial Turnaround in Cash Flow
-

MILPITAS, Calif., Oct. 23 /PRNewswire-FirstCall/ -- Phoenix Technologies
Ltd. (Nasdaq: PTEC), the global leader in core systems software, today
reported its financial results for the fourth quarter and fiscal year ended
September 30, 2008.
(Logo: http://www.newscom.com/cgi-bin/prnh/20070410/SFTU048LOGO)
Highlights for FY2008 include:
-- Total revenues grew 57% to $73.7 million, compared with $47.0 million
in FY2007;
-- Gross margin expanded to 86.7% of revenues, compared with 79.4% in
FY2007;
-- GAAP net loss declined to ($6.2 million), or ($0.23) per share,
compared with a loss of ($16.4 million), or ($0.63) per share FY2007;
-- On a non-GAAP basis, adjusted to exclude non-cash charges for
amortization of intangible assets, restructuring charges and stock-based
compensation, net income was $7.6 million, or $0.26 per diluted share,
compared with a non-GAAP net loss of $(4.7) million, or $(0.18) per share in
FY2007;
-- Cash flow from operations was $20.5 Million, compared with deficit cash
flow from operations of ($2.4 million) in FY2007;
-- Cash and short-term investment balances, as of September 30, 2008, were
$37.7 million, compared to $62.7 million at September 30, 2007, reflecting
three acquisitions completed during the fiscal year.
"By every measure, fiscal 2008 was a very successful year for Phoenix
Technologies, as evidenced by a 57% increase in revenues and our return to
profitability on a non-GAAP basis," stated Woody Hobbs, President and CEO.
"Our results, which are in line with the five year plan we announced for
Phoenix upon our appointment two years ago, clearly demonstrate that revenues
and gross margins have grown significantly faster than the overall PC
industry, reflecting our focus on the high growth portable PC market and on
signing new volume purchase agreements with major OEMs. We are also extremely
pleased by our strong cash flow from operations, which allows us to fund our
exciting growth strategy."
"During fiscal year 2008 we made substantial progress towards our goal of
transforming Phoenix into a multi-product, multi-channel business," continued
Hobbs. "The launches of our FailSafe and HyperSpace products leverage our
existing customer base and allow us to meet significant and untapped market
opportunities. With the acquisition of BeInSync, TouchStone Software and
General Software, we further expanded our addressable market, added
complementary web-based services and brought technology expertise in-house
that will be the key to future product success. Operationally, strategically
and financially, we are in a much stronger position today than when the fiscal
year began."
Highlights for Q4 FY2008 include:
-- Total revenues grew 27.7% to $20.0 million, compared with $15.7 million
in Q4 FY2007;
-- Gross margin was 83.7% of revenues, compared with 85.2% in Q4 FY2007,
reflecting the commencement of amortization of newly acquired technologies;
-- GAAP net loss was ($4.6 million), or ($0.16) per share, compared with a
net loss of ($0.7 million), or ($0.02) per share in Q4 FY2007, reflecting
higher sales and marketing, research and development and general and
administrative expenses;
-- On a non-GAAP basis, adjusted to exclude non-cash charges for
amortization of intangible assets, restructuring charges and stock-based
compensation, net income was $0.3 million, or $0.01 per diluted share,
compared with a non-GAAP net profit of $3.2 million, or $0.12 per diluted
share in Q4 FY2007;
-- Cash flow from operations was $3.5 million, compared with $4.0 million
in Q4 F2007.
Commenting on the Company's fourth quarter performance, Mr. Hobbs stated,
"We were slightly impacted by the weakening economic environment and a shift
by OEMs towards lower cost PC platforms, such as the netbook. The impact of
the current economic uncertainty is hard to measure, but we remain confident
in our ability to continue to exceed the growth rate of the PC industry.
Furthermore, our new product strategy has begun to bear fruit with the signing
of our first new customers for FailSafe and HyperSpace."
Mr. Hobbs continued, "We are confident that fiscal 2009 will be another
year of substantial growth for Phoenix, in light of the health of our core
BIOS business and the additional market validation for FailSafe recently
received from industry leaders Lenovo and Samsung. It is prudent, however,
given the current economic uncertainty, to revise our guidance for fiscal 2009
revenues from $110 million to $101.5 million, which still implies an expected
year-over-year growth in excess of 37%. Should market conditions stabilize,
enabling us to achieve our original $110 million guidance, we would then
expect to meet our prior guidance of non-GAAP profits of about 10%. However,
given the favorable reaction of our major customers to our PC 3.0 vision, we
intend to continue to invest heavily in these new products and businesses
despite the market slowdown. As a result, should our new guidance of $101.5
million prove accurate, we would expect to report breakeven non-GAAP results."
Mr. Hobbs concluded, "Phoenix already holds an enviable position within
the PC industry, and we believe that we will strengthen our strategic position
even further during fiscal 2009 as our PC 3.0 initiative reaches end-user
markets. With a strong financial foundation and a management team known for
its consistency of execution, we believe we have the opportunity to create
exceptional long-term value for our shareholders."
Conference Call Dial-in Details:
The Company will conduct its regularly scheduled financial announcement
conference call on Thursday, October 23, 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
http://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:
800-762-8779 (U.S./Canada) or 480-629-9041 (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, October 31, 2008.
The audio replay can be accessed by dialing 800-406-7325 (U.S./Canada) or
303-590-3030 (international) and entering conference call ID 3933510#.
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, Embedded BIOS, 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, AwardCore, Phoenix SecureCore, Embedded
BIOS, Phoenix FailSafe, HyperSpace, BeInSync, eSupport and the Phoenix
Technologies logo are trademarks and/or registered trademarks of Phoenix
Technologies Ltd.
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) and the
amortization of intangible assets. 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,
revenue and non-GAAP profit guidance, the Company's vision for its new
products and PC 3.0, the benefits of our recent acquisitions and creation of
shareholder value. 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

- tables to follow -

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

September 30, September 30,
2008 2007
Assets
Current assets:
Cash and cash equivalents $37,721 $62,705
Accounts receivable, net of allowances 6,246 6,383
Other assets - current 8,190 3,496
Total current assets 52,157 72,584

Property and equipment, net 4,125 2,791
Purchased technology and intangible
assets, net 22,323 3,571
Goodwill 54,943 14,497
Other assets - noncurrent 2,994 1,037
Total assets $136,542 $94,480

Liabilities and stockholders' equity
Current liabilities:
Accounts payable $2,855 $1,186
Accrued compensation and related liabilities 6,050 3,922
Deferred revenue 15,010 11,805
Income taxes payable - current 4,099 11,733
Accrued restructuring charges - current 658 1,905
Other liabilities - current 10,318 1,744
Total current liabilities 38,990 32,295

Accrued restructuring charges - noncurrent 8 358
Income taxes payable - noncurrent 13,629 -
Other liabilities - noncurrent 2,508 2,055
Total liabilities 55,135 34,708

Stockholders' equity:
Preferred stock - -
Common stock 29 28
Additional paid-in capital 235,562 206,800
Accumulated deficit (61,786) (55,311)
Accumulated other comprehensive loss (466) (67)
Less: Cost of treasury stock (91,932) (91,678)
Total stockholders' equity 81,407 59,772
Total liabilities and
stockholders' equity $136,542 $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 Twelve months ended
September 30, September 30,
2008 2007 2008 2007
Revenues:
License fees $17,249 $13,578 $64,359 $39,655
Subscription fees 112 - 132 -
Service fees 2,641 2,087 9,211 7,362
Total revenues 20,002 15,665 73,702 47,017

Cost of revenues:
License fees 98 234 519 927
Subscription fees 144 - 164 -
Service fees 2,186 1,609 7,864 7,377
Amortization of purchased
intangible assets 828 471 1,272 1,387
Total cost of revenues 3,256 2,314 9,819 9,691

Gross margin 16,746 13,351 63,883 37,326

Operating expenses:
Research and development 9,591 5,137 29,660 19,193
Sales and marketing 4,384 2,593 13,269 11,992
General and administrative 6,291 4,357 22,512 16,611
Restructuring 57 1,036 237 4,118
Total operating expenses 20,323 13,123 65,678 51,914

Income (loss) from operations (3,577) 228 (1,795) (14,588)

Interest and other income, net 1,000 470 1,602 1,984
Income (loss) before income taxes (2,577) 698 (193) (12,604)

Income tax expense 1,993 1,366 6,030 3,805
Net loss $(4,570) $(668) $(6,223) $(16,409)

Loss per share:
Basic and diluted $(0.16) $(0.02) $(0.23) $(0.63)

Shares used in loss per share
calculation:
Basic and diluted 27,936 26,736 27,523 25,976

See notes to unaudited condensed consolidated financial statements

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

Three months ended
September June September Twelve months ended
30, 30, 30, September 30,
2008 2008 2007 2008 2007
Cash flows from operating
activities:
Net loss $(4,570) $(2,780) $(668) $(6,223) $(16,409)
Reconciliation to net
cash provided by
(used in) operating
activities:
Depreciation and
amortization 1,305 868 944 3,224 3,588
Stock-based compensation 4,010 3,605 2,311 12,302 6,235
Other non cash charges 79 - - 79 -
Loss from disposal of
fixed assets (7) (17) 4 9 55
Change in operating
assets and liabilities:
Accounts receivable (1,245) 524 (1,165) 1,540 2,067
Prepaid royalties and
maintenance (15) 6 (13) 23 73
Other assets 327 663 (235) 440 1,600
Accounts payable 681 652 305 1,330 (1,872)
Accrued compensation
and related
liabilities 1,094 322 644 1,128 (230)
Deferred revenue 444 (387) 109 2,521 4,257
Income taxes 1,306 1,104 1,435 5,617 2,715
Accrued restructuring
charges (28) (132) 1,015 (1,636) (2,171)
Other accrued
liabilities 126 (888) (730) 116 (2,347)
Net cash provided by
(used in) operating
activities 3,507 3,540 3,956 20,470 (2,439)

Cash flows from investing
activities:
Proceeds from sales of
marketable securities - - - - 105,214
Proceeds from maturities
of marketable securities - - - - 9,500
Purchases of marketable
securities - - - - (89,125)
Purchases of property and
equipment (1,137) (1,027) (427) (3,095) (800)
Purchases of technology - - (3,500) - (3,500)
Funds held in escrow - (18,706) - - -
Acquisition of businesses,
net of cash acquired (11,200) (17,715) - (47,621) -
Net cash provided by
(used in) investing
activities (12,337) (37,448) (3,927) (50,716) 21,289

Cash flows from financing
activities:
Proceeds from stock
purchases under stock
option and stock purchase
plans 803 1,173 3,839 5,526 8,993
Repurchase of common stock (254) - - (254) -
Net cash provided by
financing activities 549 1,173 3,839 5,272 8,993

Effect of changes in
exchange rates (99) (149) 83 (10) 119
Net increase (decrease) in
cash and cash equivalents (8,380) (32,884) 3,951 (24,984) 27,962
Cash and cash equivalents
at beginning of period 46,101 78,985 58,754 62,705 34,743
Cash and cash equivalents
at end of period $37,721 $46,101 $62,705 $37,721 $62,705

Supplemental disclosure of
cash flow information:
Non-cash financing
activity:
Fair value of stock
issued in connection
with acquisition 7,930 2,985 - 10,915 -

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 Twelve months ended
September 30, June 30, September 30, September 30,
2008 2008 2007 2008 2007

GAAP net loss $(4,570) $(2,780) $(668) $(6,223) $(16,409)

Equity-based
compensation
expense under
SFAS No. 123(R)(1) 4,010 3,605 2,311 12,302 6,183

Restructuring(2) 57 67 1,036 237 4,118

Amortization of
purchased intangible
assets (3) 828 373 471 1,272 1,387

Non-GAAP net income
(loss) $325 $1,265 $3,150 $7,588 $(4,721)

Non-GAAP earnings
(loss) per share:
Basic $0.01 $0.05 $0.12 $0.28 $(0.18)
Diluted $0.01 $0.04 $0.12 $0.26 $(0.18)

Shares used in
earnings (loss)
per share
calculation:
Basic 27,936 27,574 26,736 27,523 25,976
Diluted 29,460 29,253 27,681 29,219 25,976

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 costs, 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 expenses 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 ongoing 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 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 September 30, 2008, equity-based compensation
was $4.0 million, allocated as follows: $0.2 million to cost of goods
sold, $1.1 million to research and development, $0.5 million to sales
and marketing and $2.2 million to general and administrative. 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 September 30, 2007, non-cash equity-based
compensation was $2.3 million, allocated as follows: $0.5 million to
research and development, $0.3 million to sales and marketing and $1.5
million to general and administrative. For the twelve months ended
September 30, 2008, equity-based compensation was $12.3 million,
allocated as follows: $0.5 million to cost of goods sold, $3.3 million
to research and development, $1.5 million to sales and marketing and
$7.0 million to general and administrative. For the twelve months
ended September 30, 2007, non-cash equity-based compensation was $6.2
million, allocated as follows: $0.2 million to cost of goods sold,
$1.4 million to research and development, $1.0 million to sales and
marketing and $3.6 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 $4.0 million of
equity-based compensation for the three months ended September 30,
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. Of the
$12.3 million of equity-based compensation for the twelve months ended
September 30, 2008, $5.9 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 expenses, 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, September 2006, November 2006 and September 2007. For the three
months ended September 30, 2008, costs related to exiting and
terminating facilities leases totaled approximately $0.1 million due
mainly to an increase in the fiscal year 2003 restructuring reserve
for the Irvine facility by $0.1 million due to projected increased
operating expenses over the remaining term of the lease. 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 September 30, 2007, severance and benefits totaled $0.4 million
and cost related to exiting and terminating 2 facility lease totaled
$0.5 million. In addition, for the three months ended September 30,
2007, the Company increased the fiscal year 2003 restructuring reserve
for the Irvine facility by $0.1 million due to projected increased
operating expenses over the remaining term of the lease. For the
twelve months ended September 30, 2008, restructuring costs were $0.2
million which were composed mainly of terminating facilities lease
costs. For the twelve months ended September 30, 2007, restructuring
costs were $4.1 million. The severance and benefits costs totaled
$2.2 million. Costs related to terminating facility leases totaled
$1.9 million. 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 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 September 30, 2008, amortization
of purchased intangible assets was $0.8 million allocated to cost of
goods sold, which includes the amortization of the new acquired assets
from recent acquisitions. 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 September 30, 2007,
amortization of purchased intangible assets was $0.5 million allocated
to cost of goods sold. For the twelve months ended September 30,
2008, amortization of purchased intangible assets was $1.3 million
allocated to cost of goods sold. For the twelve months ended September
30, 2007, amortization of purchased intangible assets was $1.4 million
allocated to cost of goods sold. Future acquisitions may cause
amortization expenses to be higher than these amounts.

SOURCE Phoenix Technologies Ltd.

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