Here is a company whose CEO speaks the GG book language second only to you Mike. And it looks like he has learned some good stuff. The is a "shiny pebble" in Uncle Frank's terminology but could the G&K thread give some special consideration for a tiny gorilla or king in the making designation to a guy who speaks and practices gorilla talk and walks gorilla walk? See below. Held for awhile. Not sorry. Some DD might not be a wasted effort on HLIT. Cha2
Talk : Communications : Harmonic Lightwaves (HLIT)
To: Eric Jacobson (2857 )
From: Eric Jacobson Wednesday, Jul 21 1999 8:10PM ET
Reply # of 2864
Just listened to the CC. Overall, much like last CC, very positive, visibility good, not a whole lot of new news. T is 40% of sales! Analysts were all positive. Here's my summary:
Tony Ley - introductions, company intro.
Robin - financial highlights:
net sales $37.9 m, up 109%; domestic sales up 147% QOQ, 49% sequentially
Domestic 69% of total sales, up from 58%
T - business grew substantially, 40% of revenue, no other 10% customers, although RCN, Cox, and Charter significant.
Int'l sales up 56%, representing 31% of total in current quarter.
Some int'l markets improving - UK, Asia, booked new orders from Hong Kong and Korea; difficult in eastern Europe and Latin America;
Made scheduled shipments to China and booked new orders.
61% of sales from transmission, 35% from receivers and return path, 4% from digital.
Total digital sales down from prior quarter. However, new customers, set stage for future growth.
Customer interest and quotations growing.
Gross margin up, attributable to increasing production volumes, reduced start up costs. Sees opportunities for increases in gross margin, but more limited.
2Q - R&D, slightly down sequentially due to difficulty in hiring engineers. Also costs offset by R&D grants.
S&M - approx. $6.1 m due to expansion of sales efforts
G&A- $1.9 m
Operating margin, 30.4%, lower expenditures than target model, due to increased sales, unable to keep up.
Road show - said they could deliver double digit operating margins, and they've delivered sooner than expected.
Interest income from add'l cash balances, also discounts from pre-payments.
Taxes - 25% - takes into account all 1999 operating losses.
Secondary offering - net proceeds $57 m, plus $4m from warrant exercise. Capital expenditures slightly higher $7-8 million this year for purchase of production equipment. Paid off modest debt.
Cash and investments of $73.8 m.
Receivables - up, DSO 64, up slightly from 62, but pleased with around 60.
Inventories - 3.6 turns, improvement QOQ, higher due to increased demands.
Digital products taking longer to produce significant revenues. Golden Channels pushed out to Q4.
Improving conditions due to business with T, good book-to-bill (hints is positive), sees increasing revenues and performance through 1999.
Tony - pleased with sales and stronger financial position.
Summary of 3 major business areas:
Fiber optic for cable - strong growth, especially in Metrolink, DWDM in cable plant first significant change, Harmonic market leader. Enables targeted services - VOD, internet, telephony, DWDM offers considerable savings. T using DWDM in growing number of metro areas - most T rebuilds are based on DWDM. Also initial deployment by other MSOs, some shipments to int'l customers, trials by other operators, see widespread sales over next 12 months. Most operators use traditional approach. Powerblazer, increasingly in int'l markets as well as US.
Delivery to T for Mux-node in Salt Link City, building block in new architecture; also to BLS for first major telco application. BLS FTC - transmission overlay for TV, Maxlink optical amplifiers.
Transend - TV Cabo in Portugal, upgrading cable with Transend, already installed in Spain; Image Communications in Canada, deployed; HLIT continues to augment with video server gateway, which makes VOD economically viable; encryptomultiplexer ?
Cyberstream - Teledanmark chose cyberstream for internet service, already made substantial purchase 1-way DVD compliant modems; Europe On -Line networks, internet in the sky, provides internet access through satellite, worlds largest satellite system. Modest sales, situation about to change, cablecos transitioning to digital, market for broadband and wireless is still small, early reaction is encouraging, engaged in customer trials, expect significant revenue over next 12 months.
Summary -right place at right time. Cable spending driven by T and MSFT for interactive services. Backed by financial resources and bandwidth. 1 million cable modems worldwide and growing. Excited about opportunities.
Q&A
1. SG Cowan, congratulations on awesome Q. With revenue so strong, what is visibility of growth thru rest of year - sequential? Particularly with T so large, visibility on sequential growth?
Answer - comfortable with continuing sequential growth, good visibility with T, clearly T issues could be significant, but with current plans, comfortable with seq. increases in revenues.
b. Challenges with such high growth - component availability?
Answer - under control, material components are #1 on radar, but managing to work with them. Delighted with capacity of Harmonic to ramp. Confident able to grow.
c. WDM, comments on market size, competitiveness?
Answer - taking longer for others committed to other architectures to grasp new DWDM, seeing more interest, growing rapidly,
d. Backlog?
Answer - strong backlog, positive BTB, good performance, backlog as good as ever.
2. Unterberg Tobin ? - a. detail on other domestic operators, what product lines are they buying if not DWDM?
Answer: Supply all major companies TWX, Cox, Charter, RCN, most have defined how they want to build. They are buying Powerlink, Powerblazer, plans are modestly or substantially increased from last year, Charter making acquisitions, will push architecture concepts to new properties, sees market growing as acquisitions are made, see growth across product lines.
b. Muxnode - shipping to others, or just to T?
Answer: First step in long path, new architecture from T, several steps to go, first trial in SLC, today only T, but T is publishing papers about it.
3. Warburg Dillon Read - a. if you take TCI out of results, sequentially, US flat, int'l down, will int'l and rest of domestic market grow sequentially?
Answer: Yes, we always see quarterly fluctuations, steady growth, expect it to pick up; int'l down a little, but good news is strength in incoming order rate, much of which hasn't shipped, encouraged by Asia, new and existing customers, beginning to think int'l has turned the corner
b. How much was R&D grant?
Answer - Don't know for sure, $100-200K range.
c. Digital down sequentially - both product lines ?
Answer: Cyberstream was flat, Transend was down.
4. Perry Capital - component availability a constraint - outlook for next 2 quarters?
Answer: Always concerned about optical component supply, good relationship with suppliers, no real problems that inhibits quarter so far. Can't be sure, but optimistic about 3-6 months, suppliers are performing, trying to qualify other suppliers, not relaxed, but it hasn't been a problem.
5. Soundview - great quarter, R&D, new class of carrier with T activity, how serious a strain the inability to make hires, able to ramp to desired level?
Timing problem, trying to hire the right people, takes time, financial performance has improved their ability to hire and attract employees. Still have core team.
6. CIBC Oppenheimer - Golden Channel - counted on it in the 3Q, but what's status?
Answer: Same story, being delayed by regulatory and political issues in Israel, trying to accelerate installation.
Metrolink - are most 8 wavelengths, and what is desirability of shipping 16 wavelengths?
It depends on application, have 16 operating, depends on geography of system, it is an economic question, but mostly 4 and 8 wavelength systems shipped.
7. Altus Investments(?) - does 40% of business to T create limit to how much of T's needs you can supply?
Believe we have a big piece of T's business, but not sole source, one other supplier, about 50% of what T is buying.
Harmonic Lightwaves (NASDAQ: HLIT)Time: 4:00PMLast Trade
72 13/16
Change + 7 13/16 (+12.02%)Bid
52-week range: 7 5/8 - 68 3/8 |
