Tekelec Reports Q1

MORRISVILLE, N.C. -- Tekelec (NASDAQ: TKLC - News) today will file with the Securities and Exchange Commission (the "Commission") its Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (the "Q1 2006 Form 10-Q").

Q1 2006 Results

Revenue for the first quarter of 2006 was $107.5 million, down 23% compared to $138.9 million for the first quarter of 2005. For the first quarter of 2006, the Company had orders of $138.6 million, up 14% compared to $121.5 million for the first quarter of 2005, and a book-to-bill ratio of 1.29. Backlog as of March 31, 2006 was $604.5 million, up 30% compared to backlog of $463.5 million as of March 31, 2005 and up 5% compared to backlog of $573.3 million as of December 31, 2005.

On a GAAP basis, the Company reported a net loss for the first quarter of 2006 of $16.5 million, or $0.25 loss per diluted share, compared to net income of $17.5 million, or $0.24 per diluted share, for the first quarter of 2005. On a non-GAAP basis, the net loss in the first quarter of 2006 was $9.8 million, or $0.15 loss per diluted share, compared to net income of $20.6 million, or $0.28 per diluted share, for the first quarter of 2005. Please refer to the attached financial statement schedules for a reconciliation of the Company's GAAP operating results to its non-GAAP operating results.

At March 31, 2006, Tekelec's consolidated cash, cash equivalents and investments totaled $245.3 million, up from $226.3 million at December 31, 2005, and compared to approximately $237 million at June 30, 2006, excluding proceeds from the sale of IEX which closed on July 6, 2006. Deferred revenues were $305.3 million at March 31, 2006, up from $232.0 million at December 31, 2005 and $179.4 million at March 31, 2005.

The operating results for the first quarter of 2006 highlight the variability and volatility of revenues the Company experienced as a result of its change to the residual method of revenue recognition reflected in the Company's 2005 consolidated financial statements and its restated financial statements and data, which were included in the Company's Annual Report on Form 10-K for the year ended December 31 , 2005 (the `2005 Form 10-K') filed with the Commission on May 30, 2006.

The application of the residual method of revenue recognition in the first quarter of 2006 affected the timing of revenue recognition for certain NSG customer shipments. Although the Company shipped substantially all deliverables under several large orders in the first quarter of 2006, it deferred approximately $21.9 million in revenue relating to these shipments because it did not ship all the products included in the purchase orders. The Company currently expects to deliver the remaining products and related software upgrades called for under these arrangements and record most of the revenue in the second half of 2006, primarily in the fourth quarter. The reversal of previously deferred revenue under the residual method into the first quarter of 2006 was not significant.

The operating results and gross margins for the first quarter of 2006 were adversely impacted by various factors, including lower revenues from our higher margin NSG products and a reduction in SSG gross margins due primarily to pricing pressure in our Alcatel channel and contract mix.

With the filing of the Q1 2006 Form 10-Q, the Company has become current with its filings with the Commission, and now believes it has met all the conditions set by a Nasdaq Listing Qualifications Panel for the continued listing of the Company's Common Stock on the Nasdaq Global Market. The Company also expects to timely file its Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

Frank Plastina, president and chief executive officer of Tekelec, stated "Due primarily to the continued work on the restatement during the second quarter and our current process of closing the second quarter results, we are not in a position to provide guidance for the full year or the second quarter of 2006. However, we do not believe that the first quarter results reflect a trend in our revenues, gross margins, operating income or earnings per share or are representative of the performance we expect for the second quarter or second half of 2006. In fact, we currently expect an improvement in each of these periods relative to the first quarter of 2006. We currently estimate that revenues from our Telecom business for the full year 2006 will increase on a year-over-year basis compared to Telecom revenues of $486.5 million in 2005."

Tekelec