Network Engines Inc. (NENG) is a leading provider of application platforms, appliances and support services for software developers, original equipment manufacturers (OEMs) and service providers worldwide. The Company’s application platforms are server-based pre-configured network infrastructure devices designed to deliver specific software application functionality and increase the security of that software application in a customer’s network.

The Company offers application platform customers a suite of services associated with the design, development, manufacturing, brand fulfillment and post-sale support of these devices. It produces and fulfills devices for its customers, and derives revenues primarily from the sale of value-added hardware platforms to these customers. These customers subsequently resell and support the platforms under their own brands to their customer base.

Founded in 1997 , the Company is headquartered in Canton, Massachusetts.

Source: Reuters.com, SEC Filings.

Financial Summary

For the third fiscal quarter ended June 30, 2009, the Company reported losses of -$0.01 per share. Revenues came in at $33.33 million, better than the $31.99 million consensus of the two analysts covering the company, but -11.03% below the prior year’s third-quarter results.

The Company’s net income declined to a loss of $8.48 million from a year earlier gain of $2.50 million, despite a 65.09% increase in revenues from $119.63 million to $197.50 million. The decline can be attributed to an increase in the cost of goods sold as a percentage of sales from 80.56% to 83.62%.

In 2008, NENG’s cash reserves fell by $34.40 million. However, the Company earned $1.25 million from its operations for a Cash Flow Margin of 0.63%. The Company used $34.99 million on investing activities and also paid $636,000 in financing cash flows. The Company uses little or no debt in its capital structure.

Source: Reuters.com

Analysts polled by Thomson Reuters rate NENG a “Hold,” with two analysts rating the stock a “Hold,” no change from last month.

On a scale ranging from 1 (Buy) to 5 (Sell), NENG’s average rating is 3.00, the same rating as one month ago.

For the stock’s 12-month price target, an analyst following the company expects the share price to remain relatively unchanged over the next year.

NENG operates in the Security Software & Service industry, an industry with a $15 billion market capitalization. Since its founding in 1997, the Company has established a reputation as one of the most trusted software deployment partners in the industry. Certified with ISO-9001-2000 and TL-9000, the Company boasts expertise in storage, security, enterprise and carrier communications. With more than 30 standard products, the Company offers the largest selection of purpose-built, turnkey platforms and appliances in the industry. Customers can benefit from a more rapid deployment of application-ready solutions with platform integrity through partnership with the Company. NENG’s high availability solutions are designed to maximize the customer’s return on investments and reduce maintenance, service and support costs. The Company provides comprehensive lifecycle management services – everything software developers and service providers need to design, deploy and maintain their application as an enterprise-ready platform or appliance.

Products and Services

Purpose-Built Turnkey Designs: The Company specializes in designing standard 32- and 64-bit server technologies on Linux or Window OS, multi-core and multi-processing environments, Advanced Telecom Computing Architecture (ATCA), NEBS and high-reliability server designs for an array of mission-critical applications.

Purpose-Built Custom Designs: The Company has specialty in customer-branded chassis, customized motherboards, I/O ports, cooling systems, expansion capabilities, power conservation and virtualized systems. NENG’s team of engineers has the expertise in CAD design, simulation modeling, software development and virtualization to reduce OPEX and CAPEX.

Custom Branding: NENG offers a full range of branding services that include custom bezels, packaging, user manuals, CDs, quick reference guides and more. The Company’s in-house designers can help create brand lift with the perfect look and feel.

NENG is the leading pure-play provider of hardware-driven appliance solutions for storage, security, enterprise and carrier communications. It offers a range of hardware reference platforms, system software and value-added utilities that provide a superior delivery vehicle for critical and distributed applications.

The Company brings comprehensive technology expertise and proven, best practices methodologies for managing the complete lifecycle of appliances and communications platforms. The Company’s products are designed to ease deployment, enhance manageability and increase security; its patent-pending software technology enables a wide range of server-based applications to be offered as easily managed network appliances.

NENG also offers a variety of signaling servers, IP and media gateways developed by AudioCodes and Dialogic that offer all the features you could need for interfacing TDM and VoIP.

Company Highlight

Addressing the unique performance and network challenges faced by software developers in branch office and remote environments, the Company announced in June the availability of two new low-cost, long-life appliance platforms, the S-650 and S1100. In addition to an Intel Atom 330 processor feature, which boosts computer power, the new “S” series solutions also offer more affordable performance, quiet operation and five-year market availability.

In June, NENG’s Smart Services has been named the recipient of a 2008 Communications Solutions Product of the Year Award by global integrated media company Technology Marketing Corporation (TMC). The award recognizes the company’s excellence in the advancement of voice, data and/or video communications.

Despite a tough selling environment, the Company reported that it has again increased cash to finish the Fiscal Q3 2009 with $19.7 million on its balance sheet. The Company demonstrated continued success in achieving new design wins and made solid progress in its efforts to expand customer base and grow revenue opportunity.

NENG president and CEO Greg Shortell said the Company increasingly benefits from the trend of software developers focusing on their core strategic competencies and outsourcing non-core aspects of their business to reduce expenses, adding that the Company’s ability to seamlessly address all issues surrounding the hardware on which their software runs, thereby reducing their hardware investment and improving their customers’ satisfaction is a value which is resonating throughout the marketplace.

The Company said its position as a ’super middleweight’ player in the integration space, which is supported by the strength of its balance sheet and customer confidence, is providing the Company a sustainable competitive advantage. The Company expressed confidence in its growth strategy as its looks into fiscal 2010.

NENG’s next earnings announcement is expected November 02, 2009.

NENG trades above its 13-day moving average. This bullish sign is significant because the moving averages are also positively trending.

The MACD for GGC currently indicates a bullish signal. The MACD is above the signal line, a 9-day moving average of the MACD. The MACD is also above the critical level of 0, which implies the past price action had been positive. Overall, the chart is trending bullish.

Trading within its Bollinger Bands, the stock reflects neither an overbought nor oversold condition relative to its recent price trend.

NENG has a negative Return on Assets of -13.68%, compared with an industry average 2.06%%; Return on Investment of -18.17%, compared with an industry average of 3.06%; and a Return on Equity of -18.91%, compared with an industry average of 3.79%.

Source: Thomson Financial

Data provided by Thomson Financial

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