Notes from Terayon Conference Call, January 18, 2000 ---
It's late and I'm not going to edit.
First, for those who don't follow the company, a quick summary of their acquisitions:
In September '99 their Radwiz acquisition gave them VoIP expertise. "[Producers of] communications access systems based on high-speed IP routing, integrated with telephony. Their innovative systems include both central office DSLAMs (Digital Subscriber Line Access Multiplexers) and customer premises equipment for SOHO business broadband services. Acquiring Radwiz will expedite Terayon's delivery of IP-based telephony solutions, with emphasis on the high-growth SOHO business market. " [The Radwiz acquisition will be accounted for as a purchase . . . valued at approximately $50 million in stock plus transaction costs, expected to close this quarter. ]
In October '99 their Imedia acquisition gave them new customers: Adelphia, Cablecom, Chambers, Charter, Cogeco, Cox, Suburban, Time Warner and Videotron, all using their Cherry Picker video products. [The Imedia acquisition will be accounted for as a purchase . . . valued at $100 million in stock plus transaction costs, expected to be effective late third quarter.]
Also in October, they added Telgate [whose] "advanced and highly integrated Multigate telephony and data access platforms are deployed today by leading service providers to deliver efficient carrier-class voice services over cable. Telegate also provides in-home networking capability for telephony and data, based on the DECT (Digital Enhanced Cordless Telephony) standard. Telegate's systems support voice, high-speed data, and ISDN (Integrated Service Digital Network) services for the business telecommuting market and the SOHO (Small Office/Home Office) market. With its highly complementary customer base, the Telegate acquisition significantly increases Terayon's market footprint. " [valued at approximately $100 million in stock plus transaction costs, expected to close this quarter. ]
Summary of numbers from press release:
Q4 net loss $19.0 million or (.83) per share vs $5.4 or (.33) per share in year ago quarter.
For FY'99 pro forma earnings were $1.2 million or $0.04 vs. net loss of $23.2 million or (2.58) in 1998.
Excluding "a dividend of $23.9 million or 2.66 per share recorded in connection with certain equity financing," net loss was $64.1 million or ($3.11) versus $47.1 mil or (5.25) in FY'98.
Pro forma OpX Q4 14.7 million vs 6.2
Pro forma OpX FY99 40.1 million vs. 20.9 million
A few additional numbers from CC:
Q4 R&D was 5.7 million vs. 3 million in Q498; FY99 R&D was 17.4 million vs. 10.7 FY98.
Q4 OpX of 11.2 million
FY99 OpX of 35.1 million
Q4 S&M 6.3 million vs. 2.1 million
FY99 S&M 15.4 vs. 6.9
Q4 G&A 2.7 million vs. 1.1 million
FY99 G&A 7.4 million vs. 3.2
Head count: 344 vs. 198
DSOs 50 vs. 46, will be 55 to 65 going forward b/c of International sales
5 million in inventory
Radwiz:
$53.6 million tangible and intangible and in-process R&D
Net tangibles 3.2 million
In-process R&D 3.6 million
Intangible assets:
Developing technology 29.9 million
Goodwill 23.9 million
Deferred tax credit 11 million
Other 4 million
In-process development charge in Q4
Intangible assets will be spread over six years.
Any questions, call Ray at 408-919-5806
Discussion of new products: added new customers in North America through acquisition. Contract with i-Cable in Hong Kong. S-CDMA has competitive advantages in Asia where there are wide variations of cable systems. The Cable Labs certification of Teligate (?) cable modem gave us experience. We were selected by Cable Labs to co-author specs for advanced physical layer. We have completed specifications and are well-along in prototype for evaluation to have S-CDMA added to physical layer. New CTO comes from Cable Labs and will guide that effort.
Stats:
113,530 modems shipped
401 head-ends shipped
340,800 total modems shipped
1,528 total head-ends shipped
63% of revenues from NA; 37% International
56% NA; 44% International a year ago
Rogers, Shaw, and UBC (?) were each over 10% of revenues
Q&A:
Q: Sales from Imedia?
A: Not going to report break-down of products. Momentum of CherryPicker picking up.
Q: Top line upside? What drove it? One time vs. on-going customers? New vs. existing?
A: Sales across board were strong. Head-ends are data. Expect to keep this momentum. Use total revenue numbers as reference for future. We won't disclose break-downs. Cherrypickers not broken out.
Q: Can I raise my 3-cent estimate?
A: We'll discuss that after the call.
Q: You had 17 million homes passed at end of year, what was number at beginning?
A: We had 12.5 million at the end of Q3. Don't have numbers for beginning.
Q: Visibility going forward? You were taking orders for Q1 and Q2. . .
A: Visibility in Q1 extremely strong. Some bookings were pulled into Q4. Bookings from Q4 will show up in Q1.
Q: I-Cable --- when will it have revenues? What about other announcements?
A; Chinese, Hong Kong will have revenues in Q2. As they start deployment and we start to get equipment shipped. In the next 6 mos we should have one significant announcement in Mainland China.
Q: Component shortages?
A: No. Not experiencing any shortages in components.
Q: Total amount of 3 largest customers?
A: UPS (?) Shaw and Rogers --- refuse to break out.
Q: Percentage of head-ends to Shaw and Rogers?
A: No. Won't divulge this. Rogers had very little in head-ends. Shaw had some. Most were to new customers.
Q: What about getting major US customers? What about problems in US. . . COMS took over one contract. . .
A: US is in transition. Some are transitioning to DOCSIS now, some later. We sell to Cos for data and sell video to lots of operators. Still in CableVision with data. They're in transition to DOCSIS. We will announce when it's significant --- when we bring DOCSIS based on advanced physical layer we will have good opportunity to penetrate US customers. Some will deploy.
Q: Is it critical to have a major US customer?
A: No. Absolutely not. Not critical to exercise this kind of growth to have any customers in the US.
Q: In Sept you alluded to Rogers Cable and the fact you weren't meeting specifications. Rogers waived specs so you could recognize revenues. 1) Why didn't you meet specs and 2) will problems continue?
A: [long pause] Rogers. . . we agreed to have DOCSIS in certain time frame. We got an exception and were able to recognize revenues. Things are going great.
Q: Would no revenues have been recognized without that exception?
A: No. . . we would have been able to recognize, but we wanted to be in compliance with Rogers and is why we asked for the exception.
Q: Strategic focus in data vs. video?
A: Strategy is to cover all pieces of broadband puzzle. Imedia gives video and voice over cable; Radwiz is DSL --- more specifically SDSL. Terayon building new platforms across the board, including DSL and cable. Won't exclude possibility of more acquisitions --- Positioning for 2001 --- toronado phase of market. Strategic move into wireless a possibility, we might look at that. Not necessarily this year. We are in DOCSIS fray. We will start selling DOCSIS modems between this Q and next --- our own will see a large penetration into US market. Building next gen platform, which will integrate data/voice/video. Working on circuit switch mode. VoIP, and hybrid --- circuit and VoIP. CherryPicker --- making it applicable to DSl world.
Q:: Wireless?
A: Studying and exploring. Not significant market in 2000. Must continue to position in cable and DSL. Throughout year --- making strategic moves, possible acquisition in wireless when it's clear who will be winner.
Q: Sequentially --- Imedia --- is being accretive sooner than you thought, will the others also be earlier than expected?
A: No. Radwiz and Telegate (?) have less synergies. They're in Israel --- dilutive effect not a factor b/c closed in January. By middle of year ---- when we have idea how sales growth in Telegate goes, will know more. We're excited about opportunities (something about VoIP in Europe earlier than expected. . .)
Q: Is it fair to say Imedia will be accretive sooner than expected and it's too early to tell on the others?
A: yes
Q: head-end shipments sequentially? Where going? Most to new, does this indicate modem shipments will improve (based on more homes passed)?
A: Looking at back-log, is extremely strong. Head-ends at same level. Also see sequential growth in modems.
Q: Market share estimates?
A: Tougher to find those numbers. We started in 1998. I'd say 13 to 15%, based on when we began shipping. . .
Q: pricing trends on modems?
A: ASP erosion is close to 5 to 8% Q/Q.
Q: Highlight current status on 1.1, timing?
A: 1.1 --- tremendous progress. We're providing system for testing and will have DOCSIS modems in July-August round. (?)
Q: Success in Europe where customers want proprietary?
A: Europe --- a couple cases where customers started with standard and went back to proprietary.
Q: Clarify issue of DOCSIS and S-CDMA being accepted, time line, and how it's limiting US customer base.
A: Refer to CableLabs letter --- proto-type by mid-year and approved by end of year. Make no mistake this is advanced certification that includes S-CDMA. The US is in transition. Penetration is a function of how fast you have DOCSIS. Once we have 1.1, we have opportunity for accelerated penetration. Some cases need proprietary and will move to DOCSIS.
Q: GMs going forward? Affects of flash pricing?
A: We have achieved our goals of 35-38% --- we believe in the next few quarters we'll be there. Expect erosion to continue. Our numbers include this erosion.
Q: Flash --- has it affected your business?
A: No. No. . . |
