Newbridge Networks conference call, August 25, 1998, hosted by John Lawlor, Alan Lutz, Ken Wiggelsworth, Scott Marshall, and Terry Matthews.
Lutz: Two primary questions to ask to assure progress:
1. Are we getting better at running the business? This involves expense control, balance sheet management, reduction of inventory, reduction of receivables, and consistently delivering EPS growth.
2. Are we growing revenues? Specifically, are we growing existing business and are we launching new businesses for growing revenues in the future?
Let me first explain discontinuity between 1Q98 and 1Q99. 1Q98 had $69 million in sales from UBNetworks, and 1Q99 had $7million. A reduction of $62 million. We've compensated for the differential in growth in primary business.
1. Are we getting better at running the business?
Q1 is bigger than last quarter. This is not an accident. We closed orders, we identified customers and closed sales, made some existing deals bigger. All geographical areas showed growth. Exchange rate didn't help, also NN employee received raises across the board. Even with all this, we came in below estimates on expenses. $1 million under target. Inventory is down. DOS is lower by 7 days. Have $10M cash balance --- first time in several quarters. Improved. Excluding UB Net we had record revenues. Almost record revenues with UBNet. Record backlog now. Significant product transition from 2.3 to 3.1. Shipped 3.1 version of 36170. People want the product! Expect to ship quite a bit more in current quarter. Packet had double-digit growth. 22% in TDM.
Have new wins in 36170, wireless wins in Canada, also xDSL, and a large US carrier.
Ken Wiggelsworth: [reviews numbers: ]
WAN/Packet --- $183 million, up 22% QQ. Strong in Canada, China, Austria.
Alan:
As noted on conference call on June 28, we created 3 new groups. Desire to grow the access business $1 billion --- wireless LMCS/LMDS wins are significant.
TM:
Good quarter. For years ATM has been known as multi-service solution. MaxLink and Connexus show the technology ????
Each have said $400 million Canadian over next few years. Technology and management of networks is important.
We are radio independent. We can introduce multi-services on radio-independent network with ATM as underpinning. Go after world of MMDS --- Canada a year ahead of U.S. in licensing. This quarter we had the first production LMDS shipments, first major wins, with substantial growth to come, and are pursuing all companies involved, including 50 in the U.S., 10 of which are major. We are pleased to make the grade with LMDS.
In the same access space, we have ADSL/SDSL. 96 channels per shelf in 36170. Best managed solution, highest density ports. Best technical partners, and there I mean 3Com and Efficient Networks. Best per-subscriber costs. We offer premium service, multi-service, fully managed environments. Managed right to end point --- soft-provisioned.
International market for LMDS is huge. A world-wide phenomenon. Ranges from 2 « gHz to 42 gHz. BCTel and NBTel, recent ADSL wins. ADSL/SDSL very active right around the planet. If we're successful, we can grow access.
Alan:
There'll be a press release tomorrow indicating we've come to a master agreement with SBC of approximately $300 million over 3 years. We are working to definitize into purchase orders now.
Q&A
Robertson Stephens:
Q: Could you give more color on the 3.1 release late in Q>
A: The area has been hot. ATM sales would have been higher if f 3.1 had been out earlier. There is a lot in customer labs, moving into service. Shipping frame relay to China right now. Shipping everything we can make.
Q: WAN packet up 11%?
A: Yes
Q: Double-digit growth in 3.1?
A: Yes, and more volume based on new release.
BT Alex Brown:
Q: When will SBC shipments and revenues be recognized?
A: We're defining purchase orders now. We'll be specific as soon as contracts are made definitive. Much sooner than later.
Q: Can you give update on WorldCom and MCI?
A: Best thing to do is to ask them. Our relationship is good.
Q: What about new hire, VP Marketing?
A: Not completed yet. We'll announce when done.
Cowen and Co:
Q: Can you go over high points of 3.1?
A: Broad spectrum of features --- traffic management enhancements, SVC enhanced processor engine, cell relay, frame relay, circuit emulation cards upgraded. Internetworking, CSI included.
Q: What are competitive challenges for 36170, do you need OC-48?
A: 50/100 gbps, each interface is 100% protected and 50% is redundant. Near-term opportunity, we have to help them become service providers.
Q: Cost savings on track?
A: More than we expected in Q1. Still on diet for 2Q. No reason to think SG&A reductions won't be on target for year.
Q: Timing of LMDS revenues?
A: More near-term than many expect. MaxLink shipped significant amounts at end of Q1. Also pleased with ADSL. Relationship with Stanford is good. Also Alcatel. OC-48? Big pipes are important. How much wire speed can you get out is key question. People should get sophisticated and ask to what extent are they filled? From 800 mbps to 50/100 gbps --- do you fill them?
Kauffman [?}
Q: What's status of TDM in Asia?
A: Asia was up double-digits Q/Q. Solid chunk of that was China. Maybe 2/3. Desire to go global. Don't think there are streams of business that are going away. Maybe 18 months to transition Asian activities to Hong Kong. TDM is over half in China, other areas 50-50.
Sales by region:
NSA 53%
Eu/ME/Africa 32%
Asia-Pacific 15%
First Associates:
Q: SBC agreement, what products are involved?
A: We're moving towards defining now. Bulk is 36170 ATM switch, CSI management, MainStreet product line, augmented with TDM. "Basically everything."
Goldman Sachs:
Q: Linearity of shipments?
A: [Long discussion of task forces and moving linearity --- total Greek, but employees are happy.]
Q: Siemens Alliance?
A: Sales increased in Q1. Working actively to keep it strong and vibrant relationship. Continue to make progress.
HSB Securities:
Q: [Give light on] helping vendors become ISPs? Include vendor financing?
A: We can't divulge financial arrangements with any of our customers. Recognize all are starting up. May be some consolidation eventually.
Q: What % of business is in U.S.?
A: Market is over 10X larger. More available financing for new operations.
Q: Significance of radio independence?
A: We can go after MMDS in the U.S. Financing is bigger. BTW, major financers of infrastructures see this as the next big play for financing projects.
Q: Competition?
A: We happen to be the first to develop and to believe in LMDS. There are special things about NN. NN's management system has a 100 to 1 capacity differential between it and competitors. Service providers want multi-service --- large scale, fully managed, ATM-based, radio-independent environment. This is a massive differentiator
Furman Selz:
Q: What about the 36190?
A: 190 --- improved large switch product. With alliance, competing in large international network. Also important to expand 170 to go to 50/100 gbps. Investing aggressively in that area. Enlarged R&D.
Q: Would a big 170 change Siemens' alliance?
A: Expanded product line in Q. Sales with Siemens have increased. Always planned to evolve 170. Both switches will get bigger. Need 50 gbps in 170. Also 190 needs to grow larger. Cost reductions, larger port densities.
Q: UB/Vivid?
A: We're selling to customers who want it. Focusing on other areas. CSI, enterprise - we want 20% revenues there. Several ways to do it. More definitive there in future. Not abandoning it.
Q: How did you get SBC?
A: Brilliant product superiority. Scaleable product. Feature rich on introduction. Single software stream.
JP Morgan:
Q: TDM growth?
A: BtB greater than 1. Also WAN/packet greater than 1. Sequential $183 million vs. $150 million. $183 million indicative of business more than $150 or $130 before.
Kearns Capital [our curmudgeon Mr. MacLellan]
Q: TDM up $30m vs. concensus, enterprise down 50%. . . [pts. out lower margins and asks if TDM margins are higher than normal.]
A: There is 1 pt. difference in margins. Launch the 3.1 was part of that. New product introductions generally have slightly higher costs. Gross margin fluctuations can be compensated for in SG&A.
We've developed DSP product [refers to DSL, I believe]. New NTU product up to 1mbps down twisted pair. Whole upgrade of 3600 to address needs of customers. Will impact revenues on-going. Don't worry about gross margins.
Midland Wayland:
Q: Revenues from LMDS?
A: Nothing material in Q1.
Q: What percentage is Siemens?
A: 14%.
Q: Any new activity in CSI?
A: Will be part of SBC portfolio, in trials now.
Nesbitt-Burns:
Q: What part of LMDS was included in earlier guidance?
A: Hard to give guidance in a situation like this. We are a year ahead of competition. So, no, we gave no advance guidance. Hard to give revenue guidance when you launch a new business. This is first production of LMDS on the planet.
Q: Is business opportunity bigger now than before?
A: Yes, more than we thought. Challenge is to build the business. It is global. We've dedicated R&D, incented the team. . . told them to buy their Maseratis from bonuses from successful products.
Nutmeg Securities:
Q: Percentage of revenues from telcos?
A: 71%
Q: Impact of global currency turmoil and of Canadian dollar?
A: All impacts are nearly immaterial. Bottom line: not significant.
Q: Update on BT contract? GPT? Also AT&T managed bandwidth?
A: BT is good. Continues. Want multi-service win continues. . . . 3.1 in circuit emulation environment that can replace multiplexes, cross-connects, and SS7 interface sub-part of networks. Common software stream.
Q: DWDM, Cambrian? Is NN becoming solidly positioned in that place?
A: Moving into trials. Key words are scale and totally managed. Much talk of protocol and bit rate independence that can move away from high cost interfaces. NN [has] built-in ability to operate on WDM. We offer a product with WDM embedded in machine. This is a "Monster Advantage."
Alan:
We have made a strong solid first step towards transitioning the company into a high-growth, revenue-generating engine. Revving up PR that will give out periodic updates. Stand by for additional good news. We will keep you completely informed.
>>>>>>
I take full responsibility for all errors of transcription.
Pat
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