Smart move. TidalWire is a distributor of low to mid-range storage networking gear to about 400 resellers. The low to mid-range storage networking market is currently growing faster than the high-end.
Once the deal closes NENG's revenues will be approximately $14M-$15M per quarter with the EMC relationship (Centera OEM) continuing to ramp nicely. Cash and investments will be around $40M with around 36M to 37M total shares outstanding -- ~$1.08 to $1.11 per share -- and a $56M revenue run rate that could easily hit $70M-$80M next year if EMC's Centera's platform continue to gain momentum and if the low-end to mid-range storage networking market continues to grow. The HBA business, in particular, is sensitive to the server upgrade cycle.
This young company has sure bounced back nicely from the lows of last year after its original server appliance business fizzled out. Gotta love the way they cut quickly and cut cleanly after the IBM abandoned them in favor of their in-house server appliance.
Network Engines to Acquire TidalWire
Acquisition Expected to Increase Revenues, Diversify Revenue Base and Accelerate Path to Profitability
Company To Announce Fourth Quarter Results in Line with Guidance
Canton, MA, November 11, 2002 – Network Engines, Inc. (Nasdaq:NENG), a leading provider of enterprise server appliances and integration services, today announced that it has entered into a definitive agreement to acquire TidalWire Inc., a privately held company dedicated to the distribution and support of storage networking products, in a transaction valued at approximately $20 million. The combined company is expected to specialize in the development, manufacture, and distribution of server appliances and complementary components for storage, security and network management applications.
John Curtis, President and CEO of Network Engines commented, “This is an excellent strategic fit. TidalWire is a specialist distributor serving over 400 value-added resellers and systems integrators in North America. They have built a state-of-the-art distribution infrastructure, including award winning CRM and web portal platforms, and a highly experienced customer service team. As a combined company we will be able to offer our Independent Software Vendor (ISV) partners one-stop shopping for appliance development, manufacturing and now distribution.” Curtis concluded, “We believe this transaction will allow us to significantly increase our revenues, accelerate our path to profitability, and diversify our revenue base.”
Transaction consideration will include approximately $9.4 million in cash, 5 million shares of Network Engines common stock (including the conversion of TidalWire options into Network Engines options) and the assumption of outstanding debt. The transaction, which is expected to be accretive immediately upon completion, is expected to close at the end of the current quarter or the beginning of the next quarter. Upon consummation, Network Engines expects the combined company to have a strong balance sheet, including cash of approximately $40 million.
For the fiscal year ended March 31, 2002, TidalWire had revenues of $25.2 million and operating income of approximately $850,000. For the six months ended September 30, 2002, TidalWire had revenues of approximately $18.5 million and operating income of $900,000. As a result of the combined operations, the Company expects to achieve profitability in the quarter ending June 30, 2003.
“Network Engines has leveraged its engineering and manufacturing expertise to become a premier provider of server appliance solutions to the ISV community,” said Jeff Brandes, President and CEO of TidalWire. “Combining with Network Engines represents a significant opportunity to further accelerate our business as a premier distributor for storage networking products and services. As a result of this transaction, we will be able to offer a more diverse range of products and services to our customer base.”
The transaction, which has been approved by the Boards of Directors of both Network Engines and TidalWire, is subject to approval by the shareholders of both companies as well as other customary closing conditions. Needham & Company, Inc. represented Network Engines in this transaction, while Covington Associates served as financial advisor to TidalWire.
TidalWire, founded in 1996, has approximately 30 employees and is currently located in Westborough, MA.
Network Engines today also announced that its fourth quarter results for the period ended September 30, 2002 are in line with its previous guidance. In July, the Company stated it expected to achieve revenue of approximately $5.2 million, operating margins in the range of 17% to 20% and greater than $54 million in cash and equivalents on its balance sheet, excluding the impact of any stock repurchases. A full announcement of quarterly results will be issued at the close of market on Tuesday, November 12, 2002.
tidalwire.com
Sales from Total Tidalwire
EMC Centera NENG Sales 1+1
1Q2002 $ 2.3M $ 3.0M $ 6.4M $ 9.4M
2Q2002 $ 3.4M 4.1M ~ 9.2M 13.3M
3Q2002 ~$ 4.5M 5.2M ~ 9.2M 14.4M
4Q2002 - - - -
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