2Q98 ASND CC Summary from djane
Mory comments
No discussions w/AFCI. "No truth to rumors"
$327M revenues. "Best quarter ever." 7.3% seq. growth
$59.1M net income. .29/sh fully diluted
[interesting that he didn't brag about 12.8% seq. growth]
Book to bill over 1. Indicator of market/ASND momentum
North America deregulation.
CLECs as powerful agent of change and large customer group
1st to deploy xDSL, VoIP and SS7
RBOCs and ILECs facing competition and more deployments
Backbone bandwidth need is growing exponentially
Qwest, Level 3, WMB, AT&T, Frontier & GTE have selected ASND for backbone network
North America (NA) market strong through 1999
Intl "increasing activity," but lagging NA deployments
Customers evaluating new backbone networks
Expect initial vendor acceptance in Q3 and through 1999
Rest of world is "mixed picture."
Asia. China is major near-term opportunity
Japan showed improvement in Q1-Q298, but remains real question mark for Q298 and early 1999
Latin and South America. See considerable activity, but base is small
Remains optimistic about overall health of overall market
Access switching
Strong seq. growth in intl markets.
SA and NA showed "some seasonally."
Q298 was softer qtr for most larger ISPs following typical strong Q1.
Q3 will be stronger as ISPs add capacity to meet Q4 demand
"Strong reception" for MAX6000 new enhanced product and 56K modem software. Quick deployment by largest customers
Continuing trend. Largest service providers to be larger percentage of sales. Continue market leadership.
Dell'Oro (35.1%) and Dataquest (30.5%) show RAC share for Q198.
Largest installed base of access ports worldwide
Core Systems
Quite pleased w/momentum and customer wins. 47% of revenues
ATM strong growth and GX550 "strong contribution"
NA, Europe and Japan strong seq. growth
Shipped OC-48 optical networking interface.
Allows interconnect directly to DWDM
Backbone demand expected strong in 2H98 and 1999
ATM is backbone technology of choice for largest providers
Core Systems will be growing percent of total revenues
Enterprise Access seq. revenue decline
2H98 and 1999 Focus.
SS7 and VoIP is key
WCOM, AT&T, Level 3 and NTT. ASND is well positioned
NA strong growth in 2H98 and 1999
Intl. 34% Q2 vs. 26% in Q1
intl is key to sustaining growth rate
Competitors entering market are significantly larger than ASND
ASND is well-positioned in marketplace
Ashby comments
327.4M revenues.
Access switching 1.3% growth from Q1
Core Systems 23.4%
Enterprise Access -31.5%
Service 15.2M up slightly
NA 63%, down 4.2%
Intl 33.7%, up 40.4%
Access switching 42% of total revenues
Core switching 47%
Enterprise access 6%
Service 5%
Pleased w/access switching. Significant increase in intl
MAX6000 well received. TNT was main rev generator in NA and intl
Core switching strong demand. 23.4% seq. growth.
GX550 well received
Significant wins in Q2.
704M cash and investments up from 691M in Q1
$269M AR and 74 DSO (up from 72)
70-75 expected DSO.
Inventory increase by $29M
3.6 inventory turns. Lower than expected due to new product intros and deferred revenues
Inventory turns will increase in Q398
Hired 330 employees in Q2. Acceptable turnover.
1.4B revenue in 1998.
4.3% growth in Q1, 7.3% in Q2, approach 10% in Q3
and slightly higher than 10% in Q498
10% seq. growth is one of fastest in industry
Major contracts ship over many quarters
FY1998 $1.20 earnings estimate
Comfortable with .31 EPS in Q3 and .34% in Q4 and $1.20 in 1998
25% operating income. "Best in class"
FY1999 $1.60 earnings estimate
Lower growth in early quarters and gradually increase
Mid 30% revenue growth in 1999
1.9B revenue
Gross margin (GM) slowly decline to 63%
14% R&D
19.% sales and marketing expenses
3% G&A
26% operating income
35% tax rate
Analyst Q&A Session
1. Schwartz (SSB) asked about precise EPS guidance. Ashby said it's easier to forecast after Q2 and want analysts to remain realistic. [i.e., ASND is being conservative and lowballing the estimates.] Mory also said that SS7 will increase deployments of TNT and backbone network in 2 phases.
2. Johnson (BARS). Ashby said increase in deferred revenues and inventory mostly on access side, but he wouldn't give out the amount of finished goods. This revenue is put in "Other Assets."
3. Parmalee (First Boston). ASND said GX550 shipped to more than 10 larger service providers. Profit margins higher on access, then core and then enterprise access.
4. Woo (Thompson). Congrats on great qtr. ASND said hadn't seen 2 CSCO core switches [didn't get #s]. In response to question about CSCO, Mory said CSCO is a great enterprise company, but sell only routers in the carrier space. Mory said CSCO isn't a contender in the WAN space and has no product to effectively compete there.
In response to question about NN 36170, Mory said it was 4 year old technology. ASND had new, state-of-the-art tech with density and speed required for new network.
5. AJ (Goldman). Ashby said GX550 revenue wasn't recognized until Q2 because it wasn't officially released until 4/98. 3 reasons for deferred revenues, including no release from final test, partial shipment, or recourse due to customer finance problems.
6. Raymond James analyst asked about RAC SS7 competitors. ASND said there had been a BAY announcement, but no deployments yet of product comparable to ASND. Mory added that ASND will add enhancements to announced SS7 product.
7. BT Alex Brown analyst asked about access pricing. ASND said there has been general stability in RA pricing. Expect more aggressive pricing in intl and a little in NA. Mory said intl pricing under a little pressure due to strong dollar. But, pricing cutting of competitors 2-3 qtrs ago didn't work.
8. Stix (Cowen) gave congrats for great qtr. He asked about GX550 testing cycle. Mory said new carriers test for 1-2 months and existing carriers with complementary uses test for 2-6 months.
Stix asked about Asia and Europe breakdowns. ASND said intl was 33.7% of revenues, 13% Japan, 5% Asia, 15% Europe and SA/LA remainer.
9. Bellace (ML) asked about new products in Q3/Q4 and R&D priorities. ASND said there would be no new product platforms, but many enhancements to existing products, e.g., SS7 and VoIP. For example, customers are adding VoIP and modem cards to MAX4000. Largest R&D focus on software development.
10. Noel (H&Q) ask3ed about emerging vs. traditional carriers and NTT guidance. ASND said received large NTT order in Q1 and shipped it in Q1/Q2. Expect some follow-on orders in 2H98 and large order in 1999.
ASND said CLECs are substantial piece of business and expect significant increase, but aren't more than 50% of revenues. CLECs are buying both backbone and access.
11. Erickson (DRW) asked about CLECs applications. ASND said voice, data, DSL and fax but not much video.
1st Sahara broadband shipments in Q2. Lots of interest and potential. Lots of RFPs in Q3/Q4.
12. Tobia (Montgomery) asked about inventory turns and deferred revenue. Ashby said it will be close to 5 by Q498 and greater than 5 in 1999. Deferred revenue will be taken in Q3 and majority is from the access side.
13. Armacost (Everen) asked about CSCO IP and ASND ATM market perception. Mory said Qwest and WMB are deploying ATM because it's only platform with QofS at this point. ATM will be the technology of choice. Sell GRF because some customers don't want QofS. Sell IP through IP Navigator or MPLS.
14. Martin (CIBC) gave congrats. ASND said price competition more at low end. DSL will help. In addition, larger ISPs care more about service and functions.
ASND discussed European competition from Siemens and Alcatel, who have been selling to these customers for decades. ASND doesn't know what their win rate will be in intl.
Mory said there would be some TNT-II deployment by late 1998 with SS7 functions, higher density and higher functionality.
15. Sagowa (Sanford Bernstein). Mory said ASND was not prepared to discuss the next generation GRF. There seemed to be a surprised silence before the next question. [Does anyone have an explanation for this?]
Ashby said gross margin wouldn't decrease to 61% and would be stable at 63% and could go up.
End of conference call |
