Ok DLGC Sports fans, the following is a review of the fiscal 2Q 1997 quarterly EPS report.
Financials: Revenue came in at 63.2 million for the quarter and this was up 11% sequentially from Q1. The Americas business led with an 18% sequential growth. The high density products outpaced growth with 19% sequential growth. The mix was 60% high density & 40% low density. Revenue grew 26% YOY and International grew 49% & represents 33% of total revenue. Gross margins were up sequentially to 63% which was a record for the company. They were up across the board in all product areas. The lower margins in the low density business appear to be behind the company. Also, improvements in the software business (SPOX DSP Bios) are helping margins.
Operating Expenses at 32.7 million grew less than revenue sequentially, growth was 6.8% sequentially Vs 10.7 growth of revenue. Engineering was 19.9% of revenue vs 21.5% in q1. SG&A was 31.4% vs 31.8% in q1. This reflects a sequential improvement in all operating line items with Tom Amato onboard :-)
Balance Sheet: DLGC has a strong balance sheet. DSO's improved nicely from 60 in q1 to 54 days in q2. Also, inventory turns improved from 3.1 to 3.2 in q2 which helps DLGC's cash flow and improves the quality of earnings.
Operations Review from Howard Bubb CEO. DLGC experienced solid broad based growth in the quarter with growth in Europe & Asia continuing strong in the quarter and accounting for 33% of total revenue. High density products (Dualspan) with 60 DSP & digital network ports per card contributed significantly to revenue now that several of their customers have commenced volume production. Sun Microsystems has announced that they will be working with DLGC to make the span card technology available to their developers building telcom applications on their new SUN PCI ultra 30 workstation. This is a first major adoption of DLGC's new PCI technology. Their early lead in internet telephony gateways is widening with Erricson, Netspeak, and Array Systems continueing to expand their trials of T1 & E1 gateways and VocalTech is also entering large scale trials. Effusion previously known as telepresence has also entered DLGC's early adoptor & trial programs. DLGC is focusing on standards based gateways which they believe are key to large scale deployments with telecom equipment vendors and PTT's. They are one of the few vendors that have publically demonstrated complience with H323 protocal and the G723.1 coders adopted by MSFT CSCO COMS Nortel and other members of the voice over IP (VOIP) & the Intl Multimedia Teleconferencing Consortium. DLGC has also worked with MSFT to demonstrate interoperability with MSFT's NetMeeting product. The 2 to 8 port low end of the internet telephony market DLGC continues to ship high volumes of their gatenet 2 cards (Small business and call centers). Jeff Fulver a leading internet telephony consultant has selected DLGC gateways for his Free World Dial-up project which has increased DLGC's visibility world wide. DLGC's low density voice products also experienced excellent growth in unit volume during the quarter. They are continuing to win back business from the clones. Revenue growth was positive and prices have stopped going down. The fax business growth was consistant with the overall growth of DLGC (26%) as they expanded into the internet fax areana and began shipping volumes of their new basic rate fax card into Europe. Spectron and CT connect had a good second quarter. TXN selected DLGC's SPOX DSP BIOS for all of their high volume C5X DSP product line. The design and licensing revenue for SPOX hit an all time high. DM3 which offers very high density media processing and streaming performance continued to move to market in the quarter. Demonstrations were made of its internet telephony streaming capability on a 120 channel voice and ISDN features & 48 channels of fax processing. Early adoptors and developers are using their DM3 product for developement today, and they expect to see their clients products shipping before year end. Standards continue to play a key role in the CT industry. They are the principal driver of change in the telecom industry and they effect the fundamental economics of client buying decisions across a broad range of computing & telecommunications products. The ECTF's H100 hardware bus standard is a doublewide SC bus, and as such is completely compatable with the products DLGC has been shipping for the last 3 years. This is important because it will unify the industry around a single set of standards both hardware & software offered by the ECTF. DLGC believes this will allow a more rapid adoption of open CT standards throughout the entire telecom industry which will fuel the growth of open CT vendors :-) As they see more vendors & customers move to standards they believe clients will move to both H100 hardware standards & the S100 software standards which are much more important in that they allow complete independence of hardware vendor platforms. DLGC's CT media product is the only s100 complient product on the market today & it is the software platform of choice for major telecom vendors like Rockwell, Fujitsu, and Erricson today as well as the smaller CT tool and application developers. The recent announcement by SUMA & DLGC during the quarter (project Sigma) is centered on the developement of the industries first integrated Telco capable programmable switching platform utilyizing the newest industry standards; H100, S100 & DLGC's new DM3 technology to build what currently takes several racks of equipment into a single shelf.
During Q&A Howard reflected on the current growth of the industry being in the low 20% range. Also, Howard was asked about the Lucent/Octel combination and how it might impact DLGC going forwrd. Howard commented that both Lucent & Octel were clients of DLGC and that it was too early to speculate on the impact of the merger. Tom Amato has the goal of slowing operating expenses as a % of renenue over the next several quarters. Also, the 3rd quarter is off to a good start with decent momentum.
Personal Observation: This company certainly has a lot on its plate and is in a major spending phase to take the CTI industry to its next major leg of growth. I would just firmly reiterate that I do believe it will be DLGC not Lucent that leads the CTI industry to the next major growth phase (DM3). However, like most things in life good things come to those who wait, and CTI will be no exception. However, IMO the wait with DLGC will be well worth our while..
Hope this helps!
Happy Investing,
Jay |
