EX-99.1 2 ex99-1.htm EXHIBIT 99.1 Exhibit 99.1

Exhibit 99.1
 
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TurboChef Reports Results for Q3 2005;
 
Accelerates Upgrades to Tornado™ Oven and Increases Warranty Reserve;
 
Cites Progress in Commercial Business;
Residential Oven Prototype to be Unveiled in Mid-November

Atlanta, Georgia, November 2, 2005 - TurboChef Technologies, Inc. (NASDAQ: OVEN) today reported financial results for the quarter ended September 30, 2005.

3rd Quarter Significant Items:

·  
Total revenue for the quarter was $11.8 million; an increase of 10% sequentially.

·  
Subway® continues to be an important customer, having already received 23,000 ovens from TurboChef. Subway is expected to continue to be a significant contributor to future revenues as TurboChef finalizes the international roll out and provides ovens to new Subway restaurants and as existing restaurants assess their needs for additional ovens.

·  
Approximately $7.1 million of total revenue in the quarter was from customers other than Subway restaurants, an increase of 27% sequentially. This represents approximately 60% of the Company’s third quarter revenue versus 40% for the nine months ended September 30, 2005. The Company expects this trend to continue as the commercial customer base expands. TurboChef has made significant progress toward adding additional commercial customers and believes it will continue to show steady growth in its non-Subway business as the Company signs more agreements over the next several quarters.

·  
Comparing results of operations for the third quarter with the comparable period is not meaningful, because total revenue for the 2004 third quarter reflected an unprecedented number of oven sales attributable to the system-wide roll out of the Company’s Tornado oven model to Subway restaurants. The net loss for the quarter of $16.7 million, or $0.59 per share, includes $6.8 million, or $0.24 per share, related to an additional increase in the Company’s warranty provision. The Company previously recorded a $2.8 million, or $0.10 per share, increase in the warranty provision in the 2005 second quarter. Additionally, the Company recorded $6.3 million, or $0.22 per share, as purchased research and development (“IPRD”) from the acquisition of the patent and technology assets of Global Appliance Technologies, Inc. in September. TurboChef previously announced that it had acquired these complementary cooking technologies to expand the Company’s own proprietary commercial and residential speed cook technologies. The Global technologies allow TurboChef to enhance its products with additional or different features as well as expand the range of its product offerings.



·  
The success of Subway’s toasted menu offerings has driven higher than expected usage of the Tornado oven. With the increased number of cook cycles has come an earlier than expected degradation of a certain oven component leading to an unexpected increase in warranty claims for the Subway installed base. The Company’s engineers determined that a change in the control software would improve the longevity and reliability of the ovens. They performed extensive testing of the revised software, and the test results indicate that the software change satisfactorily resolves the oven’s longevity and reliability issues. The Company made the software change in the production line, and it moved to upgrade software in the installed base of ovens on an accelerated basis, including replacing parts that were damaged or believed likely to lead to warranty claims. While this effort initially helped the Company avoid to some extent the higher cost of addressing this upgrade issue through warranty repairs after a failure, there was a significant acceleration of claims related to this issue in the third quarter. As of November 1, 2005, TurboChef has upgraded all but approximately 5,500 of the installed base of Tornado ovens and estimates that substantially all of the ovens will be upgraded by year end 2005.
 
·  
The Company continues to advance toward its goal of introducing a revolutionary residential oven in 2006. In November it will be unveiling its operational residential prototype and conducting a cooking demonstration at its Dallas facilities.

Jan Risi, President and CEO of IPC, the Subway franchisees’ purchasing cooperative, recently commented, “The TurboChef Tornado oven has had a transformational effect on our business in terms of our ability to add new, exciting and high quality menu items that have strengthened our competitive position and resulted in a dramatic increase in sales. We initially chose TurboChef because of its unique and powerful technology; TurboChef's commitment to customer service and support is equally powerful and unique, and the Company has been incredibly responsive to our needs.”

Richard Perlman, Chairman of TurboChef, stated: “We are gratified by Subway’s continued support and strong endorsement of TurboChef. We have learned that our product could and should be improved in certain ways to help keep it operating more reliably for a longer time under extreme high usage circumstances. Although we have incurred additional cost that we could not have anticipated earlier, the result is a superior and unique speed cook oven that has now been successfully battle tested in high numbers. We also have been able to clearly demonstrate the high level of service and support that we offer our customers.”

Financial Review

For the three months ended September 30, 2005, total revenue was $11.8 million compared with $31.0 million the year ago quarter. Cost of product sales for the third quarter of $14.5 million included a charge of $6.8 million to increase the Company’s warranty reserve. Cost of product sales for the third quarter continued to reflect the impact of price pressures on certain materials and component parts, as well as increased freight and handling charges resulting from higher energy costs. Beginning October 1, 2005, the Company implemented price increases for the Tornado and High h Batch ovens designed to help achieve its objective of normalized margins in the range of 37 - 40%.

The Company recorded IPRD of $6.3 million to reflect the results of a preliminary purchase price allocation to the patent and technology assets acquired in the Global transaction. This charge is an allocation of the purchase price to recognize the fair value of in-process research and development for new products and modifications to existing products that have not reached technological feasibility or were not ready for commercial production.

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Selling, general and administrative expenses (“SG&A”) for the quarter included legal fees of approximately $600,000 associated with certain litigation matters. SG&A also included increased personnel costs and other administrative expenses in support of the early 2006 launch of the Company’s residential ovens and to augment the infrastructure required for sales, customer service and support activities to more effectively address the commercial market. Higher selling and marketing expenses were incurred reflecting the growth of the volume of sales made to non-Subway customers and for our participation in several trade show events, including a large bi-annual show.

The Company reported a net loss of $16.7 million or $0.59 per diluted share for the third quarter compared with net income of $6.4 million or $0.24 per diluted share for the year ago quarter.

About TurboChef

TurboChef Technologies, Inc. is a leading provider of equipment, technology and services focused on the high-speed preparation of food products for the worldwide commercial primary cooking equipment market and is developing equipment for residential markets through the application of its high-speed cooking technologies. TurboChef’s user-friendly speed cook ovens employ proprietary combinations of heating technologies to cook a variety of food products at speeds faster than, and to quality standards that it believes are comparable or superior to, that of conventional heating methods. The address of TurboChef’s principal executive offices is Six Concourse Parkway, Suite 1900, Atlanta, GA 30328. Visit TurboChef at www.turbochef.com.

TurboChef will be hosting a conference call to discuss its results on Wednesday, November 2, 2005 at 4:45 p.m. EST. To monitor the conference call, please dial (706) 634-4985 (access code: 1792849) or access the audio feed through a webcast link on our website at www.turbochef.com. A replay of the conference call will be available through our website.

For more information, contact:
James A. Cochran
Chief Financial Officer
TurboChef Technologies, Inc.
Six Concourse Parkway
Suite1900
Atlanta, Georgia 30328
(678) 987-1700

Forward-Looking Statements

Certain statements in this release, and other written or oral statements made by or on behalf of TurboChef, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements regarding future events and developments and TurboChef’s future performance, as well as management's expectations, beliefs, plans, guidance, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. These forward-looking statements are subject to a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, the following: the uncertainty of market acceptance and demand for TurboChef’s products, the ability to obtain additional financing necessary to expand operations, the uncertainty of consumer acceptance of new products or technologies that may be offered by TurboChef, the dependence on a limited number of customers, relationships with and dependence on third-party equipment manufacturers and suppliers, impact of competitive products and pricing and other risks detailed in TurboChef’s filings with the Securities and Exchange Commission. The words “looking forward,”“believe,”“expect,”“likely,”“should” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only for the date the statement was made. TurboChef Technologies, Inc. undertakes no obligation to publicly update any forward-looking statements, whether as a result of future events, new information or otherwise.



 

 
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TURBOCHEF TECHNOLOGIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                   
                   
   
Three Months Ended September 30,
  
Nine Months Ended September 30,
  
   
2005
  
2004
  
2005
  
2004
  
                   
Revenues:
                          
 Product sales
  
$
11,413
  
$
30,335
  
$
41,366
  
$
33,390
  
 Royalties and services
    
401
   
671
   
1,601
   
982
 
Total revenues
    
11,814
   
31,006
   
42,967
   
34,372
 
                           
Costs and expenses:
                          
 Cost of product sales
    
14,519
   
19,302
   
36,540
   
20,923
 
 Research and development expenses
    
953
   
308
   
3,125
   
816
 
 Purchased research and development
    
6,285
   
-
   
6,285
   
-
 
 Selling, general and administrative expenses
    
6,412
   
4,527
   
17,234
   
9,743
 
 Depreciation and amortization
    
775
   
438
   
1,802
   
699
 
Total costs and expenses
    
28,944
   
24,575
   
64,986
   
32,181
 
                           
Operating (loss) income
    
(17,130
)
  
6,431
   
(22,019
)
  
2,191
 
                           
Other income (expense):
                          
 Interest income
    
484
   
3
   
1,153
   
43
 
 Interest expense and other
   
(69
)
  
(15
)
  
(194
)
  
(22
)
     
415
   
(12
)
  
959
   
21
 
                           
Net (loss) income
  
$
(16,715
)
$
6,419
  
$
(21,060
)
$
2,212
  
                           
Per share data:
                          
Net (loss) income per share: 
                          
 Basic
  
$
(0.59
)
$
0.64
  
$
(0.76
)
$
0.24
  
 Diluted
    
(0.59
)
  
0.24
   
(0.76
)
  
0.09
 
                           
Weighted average number of common shares outstanding 
                          
 Basic
    
28,525,088
   
9,987,607
   
27,814,518
   
9,295,864
 
 Diluted
    
28,525,088
   
26,676,983
   
27,814,518
   
25,626,925
 
 
 
 
 
4
 
TURBOCHEF TECHNOLOGIES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
           
   
September 30,
  
December 31,
  
   
2005
  
2004
  
           
Assets:
              
               
Current assets:
              
               
Cash and cash equivalents
  
$
46,656
  
$
12,942
  
Restricted cash
    
-
   
3,196
 
Accounts receivable, net of allowance of $186 and $197, respectively
    
8,578
   
9,542
 
Other receivables
    
2,052
   
43
 
Inventory, net
    
11,732
   
8,155
 
Prepaid expenses
    
501
   
426
 
               
Total current assets
    
69,519
   
34,304
 
               
Property and equipment, net
    
6,476
   
2,678
 
               
Developed technology, net
    
6,972
   
7,577
 
Goodwill
    
5,934
   
5,808
 
Covenant not-to-compete
    
1,991
   
-
 
Other assets
    
318
   
389
 
               
Total assets
  
$
91,210
  
$
50,756
  
               
Liabilities and Stockholders’ Equity:
              
               
Current liabilities:
              
Accounts payable
  
$
5,853
  
$
8,401
  
Other payables
    
1,445
   
1,445
 
Accrued expenses
    
3,548
   
3,135
 
Deferred revenue
    
1,668
   
1,338
 
Accrued warranty and upgrade costs
    
5,302
   
2,586
 
Deferred rent, current
    
247
   
-
 
               
Total current liabilities
    
18,063
   
16,905
 
               
Deferred rent, long-term
    
1,524
   
-
 
Other liabilities
    
77
   
72
 
               
Total liabilities
    
19,664
   
16,977
 
               
Commitments and contingencies
              
               
Stockholders’ equity:
              
               
Preferred membership units exchangeable for TurboChef common stock
    
967
   
6,351
 
Common stock, $.01 par value, authorized 100,000,000 shares,
              
issued 28,581,212 and 24,313,158 shares at September 30, 2005 and
              
December 31, 2004, respectively
    
286
   
243
 
Additional paid-in capital
    
143,630
   
79,508
 
Accumulated deficit
    
(73,337
)
  
(52,277
)
Notes receivable for stock issuances
    
-
   
(46
)
               
Total stockholders’ equity
    
71,546
   
33,779
 
               
Total liabilities and stockholders’ equity
  
$
91,210
  
$
50,756
  
 
5
 
TURBOCHEF TECHNOLOGIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
           
           
   
Nine Months Ended September 30,
  
   
2005
  
2004
  
           
Cash flows from operating activities:
              
Net (loss) income
  
$
(21,060
)
$
2,212
  
Adjustments to reconcile net (loss) income to net cash used in operating activities:
              
Purchased research and development 
    
6,285
   
-
 
Depreciation and amortization 
    
1,802
   
699
 
Amortization of deferred rent 
    
(56
)
  
-
 
Amortization of deferred loan costs 
    
104
   
-
 
Non-cash compensation expense 
    
100
   
113
 
Provision for doubtful accounts 
    
53
   
28
 
Other 
    
53
   
18
 
Changes in operating assets and liabilities, net of effects of acquisition: 
              
      Restricted cash
    
3,196
   
-
 
      Accounts receivable
    
977
   
(15,885
)
      Inventories
    
(4,051
)
  
(5,252
)
      Prepaid expenses and other assets
    
(2,111
)
  
(179
)
      Accounts payable
    
(2,601
)
  
6,365
 
      Accrued expenses and warranty
    
3,129
   
5,744
 
      Deferred revenue
    
330
   
(32
)
               
Net cash used in operating activities 
    
(13,850
)
  
(6,169
)
               
Cash flows from investing activities:
              
Acquisition of business, net of cash acquired
    
(192
)
  
(7,278
)
Cash paid for intangible assets
    
(7,292
)
  
-
 
Property and equipment expenditures
    
(2,649
)
  
(2,363
)
Other
    
119
   
(100
)
               
Net cash used in investing activities 
    
(10,014
)
  
(9,741
)
               
Cash flows from financing activities:
              
Issuance of common stock, net
    
54,839
   
10,007
 
Proceeds from notes receivable for stock issuances
    
46
   
-
 
Payment of note payable
    
-
   
(380
)
Payment of deferred loan costs
    
(156
)
  
-
 
Proceeds from the exercise of stock options and warrants
    
2,852
   
861
 
Other
    
(3
)
  
2
 
               
Net cash provided by financing activities 
    
57,578
   
10,490
 
               
Net change in cash and cash equivalents
    
33,714
   
(5,420
)
Cash and cash equivalents at beginning of period
    
12,942
   
8,890
 
Cash and cash equivalents at end of period
  
$
46,656
  
$
3,470
  
               
NON CASH INVESTING AND FINANCING ACTIVITIES:
              
               
Noncash investing activity - landlord leasehold improvements
 
$
1,832
  
$
-
  
               
Noncash financing activity - conversion of Enersyst preferred membership units
    
5,384
   
-
 
               
Noncash financing activity - issuance of stock in exchange for purchased research and development
    
993
       
               
Noncash financing activity - issuance of preferred membership units exchangeable for TurboChef common stock in connection with Enersyst acquisition
    
-
   
6,351
 
               
               
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
              
Cash paid for income taxes
  
$
201
  
$
-
  
Cash paid for interest
    
35
   
-
 
 
 
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