Q3 CC notes:
I need to re-listen and will provide an update tomorrow, it is time to drink.:)
- Sonus chose to settle the pending shareholder litigation from the 2004 restatements for $40M even though they felt the facts of the case were in their favor. Thought it best to get it behind them. They took the full $40M charge and if they choose to apply the $15.3M in insurance they "could" utilize, it will be recorded as a gain in the future. Sounds like they are reserving the $15.3M for any other pending litigation they have.
- Financial basics are: Revenue was $76.6M, slightly ahead of Q2. GM was 61.5%, OM was 5.1%. DR increased to $92.6M from $86.6M, so this was not deferred revenue dropping down. They did reclassify $13M of LT DR to ST DR, need to re-listen for the explanation. Cash went way up to $377.6M, a lot sounds like from employees finally being able to exercise options after the 2007 restatement.
- Orders increased in Q3 as the quarter progressed, but the BTR for Q3 was still less than 1. That acceleration continued into Q4 and they are experiencing the fastest order level ever at this point in a quarter. They expect BTR to be above one for the year based on a record Q4, they also expect the types of orders that book and ship in the same quarter to be a record.
- The Big news of the day, and EVER(so far). British Telecom! BT was the first incumbent worldwide to announce a complete NGN upgrade to IP. Sonus signed their deal with them at the end of October, sounds like orders will commence soon but there will be no revenue recognized in Q4, they did not get specific for 2008 but did hear it should be moving to DR at least.
- Orders from Euroland for the first nine months of 07 were double the first nine months of 06, and this includes nothing from BT. I think the PPT slide also indicated Q3 orders in NA were up strongly over Q306.
- In Q3 they were selected by a major operator in Canada with a global reach that includes South America.
- ATT Mobility AND ATT Classic contributed to revenue in Q3, business is expanding at ATT wireline. Level3 and Qwest continued to expand with Sonus, as did Carphone. ATT was the only 10%er, the Top 5 were 60% versus 65% in Q2.
- The have a major new project in Malaysia.
- A record 74 customers contributed to revenue in Q3 versus the then record 70 in Q2. NA was 84% in Q3 vs. 74.5% in Q2
- Employee count down to 940 from 975, sounds like they did a small layoff strategically but said they continue to hire in certain areas.
- Q4 guidance. At least $95M in Q4, by far a record, and operating margins will hit their target of 17%-20%. They will offer a full FY2008 forecast at the next call, they are working with the carriers on their capex budgets now.
- BT is a softswitching application, Class5 access, appears they have displaced Ericsson. Hassan indicated this is a subscriber based revenue model. Said the business would be similar to ATT and Qwest, did not catch what the comparison meant. Expect orders in the near future.
- Expect orders to still grow at the 20%-25% industry rate and they will exit the year with an increased backlog.
- Was asked about LightSpeed and fIOS but did not take the bait, but did say any expanded broadband deployment is good for them. Even though we know both ATT and VZ would like to be offering Class IP Voice, he said that is in the future, another way of saying Nortel and Lucent aren't getting the job done and this opportunity lies ahead, possibly for Sonus.
- Hassan said you may hear about pricing pressure from commodity gateway suppliers, but that does not apply to Sonus, where pricing is stable. Said Sonus software is far beyond the competition, they do not compete with other vendors, they only compete with incumbency. Highlighted many major operators now consider Sonus their incumbent NG vendor.
- Danced around the question about whether BT was the previously discussed Top10, but since they just won this one and that was in the Spring, we know it isn't. Did go on to list the Top5 - ATT, NTT, DT, VZ, FT.
- Said the ASPs on an ASX were $30 to $60 per line(port), depending on configuration. Said everything related to providing the AGCF should be considered as part of the deal beyond just the ASX, and was specific the AGCF functionality was all they were talking about "today".
- Said other vendors pricing issues specific to VoIP do not apply to Sonus, they are without peer.
- Sonus is the preferred vendor at BT for this project, #1 not #2, they clearly displaced Ericsson but are referring to it as a new project. Very classy. This was a direct sale, not a re-sell or a partnership.
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