As always, if you have the time, you should visit the Redback.com site and go to the Investors portion of the site to listen to a replay of the conference call. As with last quarter, I'm listening to the live event as I type these notes.
Review of my random Q3 notes before going on to the Q4 notes
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• 60.2% gross margins (lower due to new products, SmartEdge has lower gross margins than the SMS product line, but will increase in 2001 as they add value added services)
• The first half of 2001 should see gross margin at 60% increasing in the second half of the year as the value added applications (IP functionality) are coupled with the SmartEdge. SmartEdge gross margins started out at 40-50%, but will increase as the IP functionality is added over the next few quarters. SMS gross margins are 70%. SMS 10000 has gross margins in the 60's. They don't want to get too specific due to competitive reasons, but the SmartEdge margins will increase. They see no pricing pressure all over the world in their SMS wins. Bingo for dominance there!
• IP functionality in beta by year end and should be added to product in Q2.
• Net Income should increase to 18% by Q4 (not sure if that was 2000 or 2001, but I think they meant 2001)
• Quarter ended with $474 Million cash (down $18 million from previous Q)
• Increasing demand for products warrant increased inventory to meet demand.
• Jabil will manufacturer the SMS product line going forward.
• $645 Million in revenue for next year is the "2001 guidance"
• 30 customers in trials now for SmartEdge - ramping up in 6 months
• 50% revenue came from the new products (SMS 10000 and SmartEdge)
• SmartEdge provided $16 M of the $80 M in revenue.
• Rapid acceptance from customers.
• New word heard from an analyst in a question during the CC - score points for him - 'granularity'. I guess it's better than 'color'.
• Seeing robust demand on all fronts. Positive book to bill. Strong demand across the globe.
• Quest is a large SmartEdge customer.
• US West is a SMS 10000 customer.
• 30 customers in trial or deployment with SmartEdge. Last quarter was 3.
• Abatis technology will offer complete solutions for customers to offer value added services.
• Competitive front? Who do you see? They see the same competitors and they continue to win all the larger accounts. Cisco, Nortel and Unisphere (Siemens). Ragavan said that Redback won every major deal they bid for against these competitors.
• Abatis products will be about $50 M revenue in 2001.
• Strong acceptance in Europe and Asia Pacific. They see an increase during next year where the revenues from these geographies will be 40 - 50% of total revenues.
• Aggressive DSL expansion in Asia and Europe as well growth in fiber penetration in Europe and Asia.
• SmartEdge growth is growth for the coming year.
• International growth - Japan, Taiwan, Korea, Singapore.
• Euro has not been a factor for Redback at all.
• Great quarter!"
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Q4 and year end Conference Call notes
Earnings release:
biz.yahoo.com
• Revenues of $114.6 Million. This is 339% year over year revenue growth and 42% sequential revenue growth. Pro forma EPS of $.05.
• International revenue grew 121 percent sequentially. "The international markets are in the early phases of implementing their broadband access strategies,'' remarked Ragavan.
• "With global customer base and growing international presence, our strong cash position and powerful product portfolio, we begin 2001 well positioned to capitalize on the coming migration to next generation broadband and metro optical networks."
• Ended the quarter with $434 Million in cash (decline of $40 M because of increase of AR)
• SmartEdge is gaining momentum in the metropolitan optical market
• Efforts underway to improve the gross margin in the second half of year with the Strata plan
• Only vendor with edge to edge vision in the new access networks (next generation)
• Diversified global customer base. This allows them to tolerate temporary fluctuations of gross margins.
• Qwest, Genuity and Korea Telecom were all 10% or more customers
• Encouraged by the trend in international sales
• positive book to bill
• sees forward demand for the Smart Edge
• 54.3% gross margin (60.2% in prior quarter) It was down for all the right reasons. Three of them: Shift to Smart Edge. International customers and the diverse customer base (large customers with larger orders). The larger the order, the lower the gross margin due to volume discount. However, this improves (increases) operating margins. This will increase net income throughout the year. The business model is flexible enough to be in the range of 50 - 55% and still meet guidance. Q1 will be around 50%. The gross margins will pick up in the second half of the year.
• Net income will increase through the year from 6% to 16%
• DSO's will increase to the 80's due to large orders at the end of the quarter at the customers request
• Positive book to bill. No exposure to vendor financing.
• Preparing the new buildings for occupancy.
• $735 Million guidance for fiscal 2001 (up from last quarters guidance of $645 M)
• gross margins begin the year at 52% and grow to 55%
• R&D begins at 22% and ends at 18%
• EPS guidance remains unchanged from Q3
• SmartEdge growth in the quarter. SMS growth. Sees the market surrounding around two vendors of which Redback is one. Due to this, Redback is not going to break out the SMS and SmartEdge gross margins for competitive reasons.
• International vs. domestic will be a lumpy balance. Orders are becoming larger. Mix between international and domestic, etc... will fluctuate. As well as mix between SmartEdge and SMS will fluctuate.
• Deferred revenue of $8 Million was for the German company that leased and paid the amount due this quarter. This is the one that took the heat from TheStreet.com. They were conservative and didn't put the revenue on the books last quarter and waited until this quarter when they got the customers money. They will see more orders from this German company in 2001.
• Margins will trend up through the year.
• They shipped every SmartEdge product that they could possibly ship due to the large orders.
• Met the goal of IP functionality with their ASICs and software by end of Q4. They worked on first trial. Current trials are going on and will take Q1 and Q2 to complete. Revenues will be realized at the end of Q2 for this new product. For competitive reasons, they will not indicate what the product is, but it will add significant amounts of IP functionality.
• Seldom ever lose a large international customer when the bid.
• Management spent a lot of time with analysts on the gross margin issues. Management sees their margins as right on target and the margins are allowing them to increase their profitability.
• SMS growth continues to be strong. They see this continuing in fiscal 2001. They will not break out the product numbers for competitive reasons.
• Market is rapidly consolidating around two vendors - Redback and the obvious other (Cisco). Redback is taking share from the other vendor due to the migration abilities of the unique Redback product.
• SMS traction in the cable market by end of year. Interesting opportunities for the SMS in the wireless market and will expand this in the latter half of 2001 and in 2002.
• Redback has always focused on the larger customers that are going to survive. They are looking forward to a strong 2001.
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