Thread- IMVHO, the most significant statements out of ECIL's earnings PR is bolded below. Sounds like they are going to pull a MRVC. But the biggest differences is ECIL is pulling it off via a base of strong financial fundamentals in the parent, and IMO with better visibility. -MikeM(From Florida)
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ECI Telecom Announces Second Quarter 2000 Revenues From Core Strategic Businesses Rise 45%- Company Outlines Restructuring Plan
August 2, 2000 PETAH TIKVA, Israel--ECI Telecom Ltd. today announced consolidated results of operations for the second quarter ended June 30, 2000.
Revenues for the second quarter of 2000 were $317.2 million, an increase of 17% compared to $271.6 million recorded in the second quarter of 1999. Gross profits were $145.5 million compared to $147.2 million in the second quarter of 1999. Operating income for the second quarter of 2000 was $2.0 million compared to $56.1 million for the same period last year. Net income for the second quarter of 2000 was $6.7 million or $0.07 per diluted share compared to $53.6 million or $0.57 per diluted share last year. Second quarter 2000 results include a charge for in-process R&D of $28.8 million associated with the acquisition of Winnet and Wavepacer and $1.6 million associated with the disposal of HiTV.
Excluding these non-recurring items, net income from continuing operations for the second quarter of 2000 was $37.1 million or $0.40 per diluted share, compared to net income from continued operations of $57.3 million, or $0.61 per diluted share for the same period last year.
Revenues for the six months ended June 30, 2000 were $605.5 million, an increase of 12% compared to $541.3 million for the comparable period in 1999. Gross profits were $280.1 million compared to $293.4 million for the first half of 1999. Operating income for the first half of 2000 was $29.8 million compared to $5.8 million for the same period a year ago. Net income, including one-time events was $68.3 million, or $0.73 per diluted share, compared to a net loss of ($8.5 million) or ($0.07) per diluted share for the first half of 1999. Excluding the one-time events (in-process R&D, capital gains, and restructuring costs), net income from continuing operations for the first half of 2000 was $68.1 million or $0.73 per diluted share compared to $111.5 million or $1.18 per diluted share for the same period last year.
Commenting on the results, Doron Inbar, President and CEO said, "The improved growth trend that started in the first quarter of this year accelerated and strengthened in the second quarter. Our aggregate revenue growth of 17% year over year masks stronger growth in our core strategic businesses. Our Access business, which includes access solutions over fiber, copper and wireless, had revenues of $111.0 million, an increase of 47% over last year.
Similarly, core Transport, which consists of Optical Networking products and Digital Cross Connects, grew 40% to $109.7 million. Next Generation Telephony Solutions (NGTS), which consists of IP Telephony products and ATM media gateways, grew from $1.5 million in the second quarter of 1999 to $4 million in the second quarter of this year.
Our non-core businesses which include legacy DCME (Digital Circuit Multiplication Equipment) products and Business systems, among others, decreased 20.6% to $92.6 million. Legacy DCME declined 40% to $47.5 million.
"Excluding non-core businesses, revenue growth for the quarter was 45%, year over year. Demand for ECI products is very strong with our book-to-bill ratio reaching 1.25. The decrease in gross margins once again reflects the anticipated decline in legacy DCME sales, the significant acceleration of lower margin ADSL (Asynchronous Digital Subscriber Line) sales and negative foreign currency translation.
"Within the Core Transport cluster, we experienced strong demand for our Optical Networking products and Digital Cross Connects and penetrated major new accounts in Europe.
"Our Broadband Access business continues to gain momentum with ADSL sales up 80% sequentially and we made good progress in the integration of WavePacer into the ADSL division. During the quarter, we announced receipt of a $165 million order for Innowave from GVT, an emerging service provider in Brazil. The contract is expected to reach $215 million. We also announced the acquisition of Winnet, a US LMDS company, which positions Innowave to offer a full range of fixed access wireless local loop solutions.
"Within NGTS, we had a new commercial release of the ITX 1000 and penetrated several key new accounts. We successfully completed trials of the ATM media gateways. ECtel, in which ECI holds 75%, had a strong quarter with sales up 31%.
"The second quarter saw intense M&A activity as we continued to acquire companies that strengthen ECI's strategic growth areas, and divest ourselves of activities that are not central to our operations. During the quarter, as noted above, we purchased Winnet, and signed MOUs to divest the Business Systems Division and HiTV.
"Finally, during the last 7 months, management has focused on two main goals: reaccelerating the growth of the company, and increasing the Company's value to its shareholders. In order to accomplish these goals, we increased our focus on 5 growth areas and exited businesses that do not contribute to our strategic goals. We are pleased with the improved performance of our core businesses.
We also strongly believe that ECI's current market valuation does not reflect the true value of its components. In line with the company's current strategy of continued focus, management has decided to take one major step forward in its plan and presented the Board of Directors with a plan to enhance the Company's value to its customers, shareholders and employees. The cornerstone of the plan is to create individual high growth public companies, which will enjoy the clarity and energy that comes with independence.
Each of the business units is at a different stage of development, and there are many operational, legal and tax issues to be addressed. Therefore, the timing of the process will vary for each company. Management is confident that as these issues are resolved it will be able to distribute this value to shareholders.
"These companies will continue to benefit from the strength, global distribution network and strong customer relations of ECI via its well positioned Regional Business Units (RBU's). The 5 companies will be: Transport (digital cross connects), Optical Networks, Access, Next Generation Telephony, and Innowave. We have attached a table summarizing the revenues of each of these activities in the past six quarters.
"We believe that creating separate, independent public entities will confer many benefits. It will allow us to improve the clarity and the positioning of our unique solutions and supplement them via focused M&A activity. It will improve performance by allowing employees to participate in the success of their companies in a more meaningful way. Finally, the increased transparency will allow investors to more accurately judge the value of our activities, and we are convinced, result in a higher total value to shareholders, customers and employees.
Mr. Inbar added, "We may experience some short-term impacts as a result of our efforts to strategically restructure the company. Gross margins will decline for the reasons mentioned above. We will accelerate strategic investments in the new product lines, which will enhance our newly independent units, but may impact operating margins. I look forward to keeping you informed as to our progress as we continue to execute on our plans "
Further to the Board of Directors' decision, an interim quarterly cash dividend of $0.05 per share will be paid on or about August 31st, 2000. The dividend, net of taxes to be withheld at source and in compliance with Israel's foreign currency law, will be paid to shareholders of record as of close of business on August 10th, 2000. |
