OPpenheimer joins legg mason at the upgrade party
ú Book-to-bill ratio reported as positive. Diversification away from paging continues and could be enhanced by an acquisition. Business mix trends are favorable. As indicated in the past quarters, the company has been focusing its efforts on diversifying its product portfolio and, as a result of these efforts, the company's non-paging infrastructure business accounted for 26% of the company's total revenues, compared with 14% in the same period last year. During the quarter the domestic one-way paging business accounted for only 23% of total sales, compared to 48% in the second quarter in 1996. Overall domestic business decreased approximately 10%, which was offset by an international sales increase of 29% over the same quarter last year, and accounted for 46% of the company's revenues compared with 38% last year. During the second quarter, two customers accounted for more than 10% of revenues each, one being PageNet. Geographic regions posting growth were the Far East, Europe and Latin America. The biggest international market during the second quarter was China, and the fastest growing market was Europe, up 150%. As an indication of Glenayre's success in Asia, the company has captured over 70% of the high-speed paging market in Taiwan. Also, SKT in South Korea, the second largest paging operator in the world with over 7 million subscribers, selected Glenayre for a majority of its high-speed paging infrastructure business. This quarter the company experienced the highest international bookings in Glenayre's history; these orders accounted for 68%of total orders for the quarter. The company enjoyed a positive book-to-bill ratio, and the high level of activity suggests that it can be repeated in coming quarters. The company is likely to enhance these trends with an acquisition, which we would welcome. Even if slight dilution will be necessary, we believe the right fit will be viewed positively and will help the stock regain its lost multiple.
ú ú Increasing EPS estimates to reflect resumed business momentum. Comparisons to get easy in the next quarter. Domestic business represents upside potential. We have adjusted our model to reflect the resumed business momentum achieved despite the dramatic decline in domestic activity. (See the attached model for our new assumptions.) The company now believes the domestic one-way paging business has bottomed out (evidenced by leveling-off quarter-to-quarter shipments), although Motorola recently indicated that it envisions continued softness. Overall growth was strong internationally, accounting for almost half of revenues.
ú Wireless Messaging Group's sales were down, while Integrated Network and Wireless Interconnect business group sales were up. The Wireless Messaging Group's net sales were down approximately 9% from the same period last year. Domestic net sales were down 21%, while international sales were up 8% from the second quarter in 1996. NPCS sales accounted for approximately $16 million of the company's domestic paging net sales for the quarter, compared to $3 million in 1996. Integrated Network Group sales were up from $8 million to $21 million, an increase of 159%. The growth was mainly due to an increase in international sales, which increased 578% from the second quarter last year. Wireless Interconnect Group sales increased from $7.1 million to $7.6 million, an increase of 8%.
ú Recent achievements and contract announcements summarized. Glenayre's Wireless Messaging Group announced that it was the first company to transmit both one-way and two-way messages concurrently on the same infrastructure as part of its ReFLEX testing with PageMart Wireless. The company successfully transmitted FLEX, ReFLEX and Pocsag messages in the same RF network for the first time. The Integrated Network Group announced that the company's NVP modular voice processing systems were chosen to provide voice mail and enhanced services for the launch of PCS by GTE Wireless. The group also signed a letter of intent with Nortel to jointly market Glenayre's NVP system along with Nortel's new DMS programmable services architecture. The Wireless Messaging Group announced several international contracts: a $5.1 million expansion contract in China; a $31 million contract from Taiwan's national telecommunications company to deploy a high-speed nationwide paging network; a $7 million volume purchase agreement from CellPage, Puerto Rico's largest paging provider; a $3.3 million contract from DirectTel International for a construction of a high-speed paging system in South America; and a $8 million contract from three paging operators in Taiwan.
ú Balance sheet remains strong. The company continues to have sufficient capital to grow the business. Glenayre has $143 million in cash, up about$10 million from last quarter, and no debt. Accounts receivable days outstanding are 101 days, up from 108 days during the first quarter but down from 94 days during 4Q1996. This is mainly due to increasing sales of international business. Inventory turned 3.1 times during the second quarter compared with 3.4 times at the end of 4Q1996. As the company has indicated in the past, inventories will improve once NPCS products start shipping. |
