Goldman Sachs comments (lifted from the Yahoo board, accuracy not ascertained)
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Goldman Sachs Comments on Sonus
by: sunneit
Long-Term Sentiment: Strong Buy 10/09/03 10:58 pm
Msg: 209080 of 209089
- Sonus exceeded our quarterly revenue estimate and achieved pro−forma breakeven two quarters earlier than we had expected.
- The company continues to benefit from a shift in carrier spending towards cost− effective, packet−based telecom gear − most recently evidenced by last night’s announcement that AT&T has joined Sonus’ growing list of high− quality customers.
- We are increasing our 2004 revenue and EPS estimates to reflect continued product and customer traction.
- Key issues to watch include the company’s ability to sustain a recurring revenue base that is supported by carrier IP−traffic growth, the development of new product features, as well as the addition of new customers.
- While valuation remains lofty, we believe shares will continue to move higher in the near−term due to the company’s strong quarterly operating performance and positive estimate revisions.
Full details
RAISING OUR NUMBERS. We are increasing our 2003 EPS estimate to breakeven ($0.00) from negative ($0.03) and are increasing our 2003 revenue estimate to $101 million (62% YOY rev growth) from $93 million. We are also increasing our 2004 EPS estimate to $0.08 from $0.04 and are increasing our revenue estimate to $175 million (73% YOY rev growth) from $155 million.
QUARTERLY RESULTS AND GUIDANCE. Sonus reported 3Q03 EPS of positive $0.01 on revenues of $28.6 million, versus our estimated EPS loss of ($0.01) and revenues of $25.4 million (which were in-line with consensus). 3Q03 gross margins of 61.4% exceeded our estimate of 57.5% due to product mix (higher software sales) and improving fixed-cost coverage. Operating expenses increased 3% sequentially, driven primarily by increased sales and marketing expenses (sales commissions and participation in industry trade shows). The company is guiding 4Q03 revenues to be up 10-15% sequentially and estimates that it should earn positive $0.01 during the quarter.
CUSTOMER TRACTION AND INCREASED APPLICATIONS. Verizon, Qwest, Global Crossing and AT&T were all 10% customers in the quarter and accounted for about 65% of quarterly revenues. The company recognized revenues from a total of 17 customers in the quarter and international sales comprised 26% of quarterly revenues versus 21% last period.
Verizon, Qwest and Global Crossing are using Sonus’ solution primarily to support long distance voice and data traffic growth. International carriers such as NTT and China Netcom are beginning to use Sonus equipment for access (i.e. Class 5) applications. Sonus also continues to make traction into the wireless service provider accounts with its cost-saving Smart Wireless platform. In addition to a large North American service provider, we believe Sonus is making significant traction with a large European wireless carrier as well.
STRONG BALANCE SHEET AND POSITIVE CASH FLOW. The company closed the quarter with $293 million in cash, or about $1.20 per share. While the majority of this increase in cash is due to the 17 million share offering from September, it is important to note that Sonus also generated $4 million of positive cash flow from operations during the quarter. Deferred revenues were essentially flat quarter-to-quarter at $34 million - new incremental revenues offset those revenues that were recognized in the period.
VALUATION. At $8.30 per share and a market cap of $1.8 billion, Sonus is trading at 104x our 2004 EPS estimate of $0.08 and more than 10x our 2004 sales estimate of $175 million. While difficult to justify, stocks such as these will likely continue to trade at a premium to commtech peers (the average wireline and data networking vendor trades at 4.5-5x its 2004 sales estimate) due to their next-gen, packet-based products, the lack of legacy equipment exposure, high profitability and relatively strong top and bottom line growth. |
