Corvis delivered Q1:01 earnings per share of $(0.07), in-line with our estimate
and First Call consensus, and revenues of $84 million which were 40% higher than
our $60 million estimate and reflected 30% sequential growth. We are reducing
our Q2:01 revenue projection to $55 million from $65 million and EPS estimate to
$(0.08) from $(0.07). However, for the full year, our 2001 EPS forecast of a
loss of $(0.21) improves from our previous $(0.23) estimate, on unchanged
revenues of $320 million. We are increasing our 2002 EPS estimate to $0.10 from
$0.05 on unchanged revenues of $550 million. In the March quarter, Corvis
recorded sales of $66 million from the commercial deployment of both all-optical
switching and core long haul network equipment to Broadwing Communications
which is currently running live commercial traffic, as well as $18 million in
revenues from Williams' successfully completed trial. The Broadwing all-optical
network has been running live commercial traffic and employs Corvis'
all-optical switch. Corvis continues to expect to recognize revenue from
Broadwing in all four quarters of 2001. Gross profit margins of 37.1% reflected
a modest decline from Q4:00's 38.2% profit margin, and were 290 basis points
below our 40% our estimate for the quarter. We expect gross margins will
decline over the course of 2001 to exit the year at 30%, as the company's sales
patterns will reflect a larger proportion of lower-margin chassis initially,
followed by revenues on line cards carrying a significantly higher margin
profile. Management noted a more competitive pricing environment and that the
company felt pressures both from existing and prospective customers. Research
and development expenditures of $40.9 million were 15% higher on an absolute
basis than our projected $35.4
million, but at 48% of sales, were lower than our projection of 59%. Sales and
marketing expenses of $15.4 million were above our $12.6 million estimate, but
represented a smaller percent of revenues (18.3% of revenue versus our expected
21%). G&A expenses equaled $11 million, below our $12 million forecast.
Management commented that the company intends to contain operating expenses in
response to pricing pressures and the timing of revenue recognition, and in
order to meet year-end financial goals and target of recording an operating
profit in H1:02. Our revised model reflects a reduction in operating expenses
of $58 million over the balance of the year, which more than offsets the
reduction in gross profit margins. Consequently, our current 2001 earnings per
share estimate improves by two pennies and our 2002 estimate reflects a $0.05
improvement over our previous model. Employees totaled 1,625 at the end of the
quarter, up from 1,452 in the end of Q4:00. We expect this number will be
reduced, given the operating expense reductions.
Balance Sheet Solid
Corvis completed the quarter with cash and cash equivalents of $877.8 million,
reflecting a large portion of cash from the sale of equity in Corvis' public
offering in July 2000. In terms of working capital management, Corvis recorded
accounts receivable of $63.7 million. According to our calculations , accounts
receivable days sales outstanding totaled 68 days and inventory turns equaled
0.9.
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