Napatech Follow

NOTE: THE SALES FOR THE THIRD QUARTER OF 2018 WERE ANNOUNCED IN A SEPARATE STOCK EXCHANGE NOTIFICATION ON 10 OCTOBER 2018. THE WRITE-DOWNS WERE ANNONOUNCED IN A SEPARATE STOCK EXCHANGE NOTIFICATION ON 2 NOVEMBER 2018.

(Copenhagen, 6 November 2018) Napatech A/S ("Napatech", OSE: NAPA) reported revenues of DKK 5.1 million in the third quarter of 2018 (DKK 44.1 million in Q3 2017), representing a decrease of 88%, and an EBITDA of DKK -33.1 million (2.1) following the previously announced commercial decision to take an one-off adjustment to reported revenue of approximately minus DKK 20 million to reduce accumulated inventory within the company's channel. Napatech reiterates its baseline sales target of USD 12 million, within a range of USD 10-15 million, for the second half of 2018.

"Since joining the Napatech team as CEO, my key priorities for the management and the company has been clear: urgently work to regain stability, focusing on our near-term sales development, our internal cost structure and efficiency, our cash position and building on our long-standing and strong relationships with partners and customers to execute on our growth ambitions. We have made some progress, but there is still much work to be done. Compared to the weakness experienced in the first half of 2018, we saw signs of improvement in Q2, which continued in Q3 with secured sales of USD 4.8 million, representing a sequential improvement in our sales performance of 20%, " says Ray Smets, Chief Executive Officer of Napatech, and continues:

"Although behind the corresponding period last year, the sales performance showed that we have taken a few steps closer towards stability. As we moved into Q4 2018, we are making good progress securing new orders within the first weeks of the quarter, which makes me more optimistic with our guidance for the second half of 2018. We reiterate our baseline sales target of USD 12 million, within a range of USD 10-15 million, for the second half of 2018."  

In Q3, Napatech made a commercial decision to take an one-off adjustment to reported revenue of approximately minus DKK 20 million to reduce accumulated inventory within the company's channel by accepting return of goods, with no impact on previously reported cash flow expectations.

"As a result of the ongoing transformation in some of our customers' markets, the buying patterns and timing of orders have changed. These changes have caused postponement of customer projects for several large customers, which have resulted in slower consumption of sold inventory. The intention of this adjustment is to provide greater sales stability for Napatech within the market, building stronger relationships with important value-added resellers, and continued transparency for our shareholders. We believe that this one-off adjustment to our reported revenues will provide improved clarity to the sales and revenue performance of our business going forward, as part of the important actions we are taking to create a solid and stable foundation for our business going forward," says Smets.

After the quarter, on 2 November 2018, Napatech announced an agreement with CounterFlowAI for the sale of the Pandion product line. The agreement defines a transfer of ownership rights for intellectual property and transfer of partnership agreements with an upfront payment and an earn-out installment over 12 months.

"We believe the progress we have made with this arrangement will be a benefit to our operational efficiency and improved performance of our business. The agreement creates a partnership between CounterFlowAI and Napatech where both companies will have a mutual interest in building the Pandion business further, leveraging both existing customer opportunities established by Napatech, and CounterFlowAI's customer relationships and go-to-market capabilities. CounterFlowAI will focus on selling Pandion solutions to its end-user customers, while Napatech provides its SmartNIC software and hardware to CounterFlowAI as a new volume OEM customer. This new arrangement for the Pandion product line will provide Napatech with a stronger focus on development and sales of our core products while we continue to gain the benefit from the Pandion business through SmartNIC sales," says Smets.

Depreciation and amortization for the quarter was DKK 33.1 million, compared to DKK 9.4 million in the third quarter of 2017. The depreciations are primarily affected by the impairment of assets in conjunction with the divesture of the Pandion product line, announced 2 November 2018. The impairment of assets are calculated based on the market value determined by the sales agreement.

Napatech will continue to focus on its core competencies as its position of strength, through execution of its software focused and hardware independent strategy of providing solutions to accelerate network performance, taking advantage of the market shift to reconfigurable computing platforms and the rapidly increasing volume of servers deployed in the market, together with its partners and customers.

"Our long-term outlook is promising as Napatech's products and services become applicable to not only our current, but also new market segments. In other terms, we see a long-term potential significantly larger than our current business as we move to broader markets and support more applications but underline that the short-term visibility is limited and will be affected by quarter-to-quarter order volatility and general business uncertainty. However, as the recent actions and initiatives display, we are taking the right steps to build a solid foundation for our business going forward, and we are looking forward to seeing the positive effects of our implemented and ongoing initiatives in the coming quarters," says Smets.

For more information, please see the attached third quarter 2018 report. Note that the
the sales for the third quarter of 2018 were announced in a separate stock exchange notification on 10 October 2018. The sale of the Pandion network recorder product line to CounterFlowAI was announced 2 November 2018.

Napatech will host an investor, analyst and media presentation at 09.00 (CET) at Hotel Continental in Oslo, Norway. The presentation will be given by CEO Ray Smets, and CFO Heine Thorsgaard will be present. The presentation will be available live at: http://webtv.hegnar.no/presentation.php?webcastId=97451445

This link can also be found on www.napatech.com  

For additional information, please contact:

Ray Smets, Chief Executive Officer
Phone: +45 4596 1500
E-mail: rsm@napatech.com

Media inquiries:
Geir Bjørlo, Corporate Communications AS
Telephone: +-47 915 40 000
E-mail: geir.bjorlo@corpcom.no 

About Napatech

Internet-of-things (IoT), cloud and mobile networking have each changed the way businesses operate, enabling them to rapidly deliver new applications and services to customers and employees. At Napatech, we aim to help organizations to reimagine their business, by harnessing the technologies born in hyper-scale designs, and making their benefits available to every network. Our SmartNICs platform brings cloud-scale performance, economics, innovation and security to datacenters in fortune-5000 enterprises, government agencies, service providers and cloud operators. The Virtual Networking Platform combines standard, low-cost, high-volume servers, with the agility of Napatech's FPGA-based programmable SmartNICs and software, to improve datacenter performance and reduce costs by returning valuable compute resources to applications, services and revenue.

www.napatech.com