Re: 1999 Q4CC Pairgain on the Edge(pun intended) of Success?
Thread- I edited down the CC to what I thought was important. I also changed a few words so it's not all verbatim. Anyhow I thought I would post for future reference for the, seemingly few, diehard Pairgain fans.
No one has claimed they are expensive at these levels and who knows, maybe they will turn the corner? I bolded what I thought was significant, but it's IMVHO.
BTW you guys take their lack luster stock performance with a good sense of humor. That's nice to see. -MikeM(From Florida)
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PairGain Technologies 1999 Year End Results Conference Call
February 3, 2000 - 2:30 p.m. MT
Mike Pascoe: Good afternoon to you all. Thank you for attending the PairGain year-end 1999 analyst call.....[old CFO] was a strong help to me especially in my first year with the company and I definitely owe him many thanks for that assistance. I also have the pleasure of introducing our new CFO, Rob Price....
Rob Price: Today we reported 1999 revenues of $224.9 million compared to $283.1 million in 1998. Revenues for the fourth quarter ended December 31, 1999 were $51.6 million compared to $60.7 million in the same quarter of 1998.
-T1 access revenues were 50 percent of revenue in the fourth quarter of 1999 and 53 percent of revenue for the full year.
-Revenue from T1 access products decreased 33 percent in 1999 compared to 1998 despite a 2 percent increase in unit shipments.
-Revenues from the subscriber carrier product lines comprise 28 percent of revenues for the fourth quarter and year ended December 31, 1999.
- Included in subscriber carrier revenues are sales of the company's PG-Plus product line
-PG-Plus increased 75 percent over the prior year quarter and were 64 percent higher in 1999 than in 1998.
-During the fourth quarter of 1999 revenues from the company's Avidia product line more than doubled over the prior quarter.
-PairGain ended the year with total cash and short investment of $191.6 million.
-During 1999 the company repurchased a total of 770,000 shares bringing the total shares repurchased to approximately 1.8 million.
M. Pascoe: There can be no doubt that 1999 was a challenging year for PairGain. Quite frankly, we started the year behind the eight ball with two of our key customers taking substantial pieces of our business away [I think Adtran got them] - not the way I would have preferred to start things - but definitely a signal that changes were needed. So, we made them.
Since that time, we've been extremely focused on the business of returning our company to growth. When I joined the company January of last year my belief was that by centering on the fundamentals we would be successful at reaching that goal. It would not be a simple road, but it was essential. During the year we continued down the path of developing the products our customers are asking for and doing that with urgency. This, we believe, will serve to ensure that our market position expands well beyond the traditional incumbent carriers.
In 1999 we chose to continue our heavy investment strategy despite the drop in revenues. We did this for one very simple reason. The market for DSL products is hot, very hot today and yet it is still in its infancy...Well, our investments in products such as Avidia and HDSL2 could not have been better timed for this market onslaught. The next few years will see an explosion in broadband services and we intend to be one of the leaders in that broadband access market.
-Mid year we started shipping HDSL2 products to our customers for field trials. The results of these early incumbent trials were excellent.
-Our HDSL2 offering, the HiGain Solitaire, received official standard certification from an independent nationally recognized testing lab. No one else is as far along as we are towards delivering comprehensive, interoperable HDSL2 solutions.
-We expect some wins in the near term, with HDSL2 revenue beginning to ramp at the end of this quarter.
-1999 also saw the first deliveries of our WideBand System 3190. It is an open span termination shelf that the phone companies are beginning to use to deploy T1 services. Integration of 1:3 multiplexing, SONET interfaces and HDSL2 provides a strong integrated solution for both incumbents and the new carriers, and again, it is what our customers have been asking for and we delivered.
-Our subscriber carrier team working with ANDA, our GR-303 supplier have secured a number of voice CLECs with a very cost effective voice over DSL solution. The new product leverages our PG-Flex and Plus products with the voice concentration capabilities of GR-303.
-The early acceptance and aggressive deployment plans of the voice CLECs has surprised us, very positively so. We have realized healthy bookings from this product already this year and expect the subscriber carrier business to return to good growth in the year 2000.
-Probably the most significant product introduction in 1999 was our Avidia DSL Access Concentrator.
During the year we began shipping the Avidia product in working networks. It was non-trivial to deliver the highest density DSL solution on the market and an integrated ATM platform that also meets the strict requirements of NEBS. We did it and now we plan to leverage our position. Any carrier who plans to deliver differentiated levels of service view this type of multi-service ATM platform as essential to their access plan.
Avida revenue levels will grow significantly quarter over quarter in 2000. We have no doubt that our revenues from this product line will meet and then exceed our goals. Q4 was more than double Q3. Q1 should and will repeat that trend.
I would also like to comment on our customer mix. As I mentioned earlier, our customer base is expanding dramatically. We're seeing momentum build across all product lines and at the end of 1999 we were successful in gaining approval at GTE for the sale of our HDSL solution[my translation: foot is barely in the door]. We also have previously mentioned that we are in good stead to win the HDSL2 business at an incumbent carrier. We have made major headway with this carrier and several other carriers as well, and again, we expect HDSL2 revenues to begin at the end of this quarter and obviously ramp dramatically in Q2.
Our Avidia customer base is also expanding. While addressing the inter-exchange carriers and incumbents opportunistically, our focus is clearly on emerging CLECs throughout the world. I will mention today that we have recently won the business from a major European CLEC with a contract announcement soon to come. As you know, all of these opportunities take time to develop into significant revenue sources, but over this year they will do that.
GlobeSpan will acquire our world class development team, Micro Electronics Group, focused on an area of strategic value to them. At today's closing price the value of the transaction to PairGain is over $280 million or about $3.70 per share.
I am very confident that the PairGain team will execute on our goals to capitalize on the growth in HDSL2, the growth in the data and voice CLEC markets, the emerging growth in the international arena, the growth with incumbents as they evolve their DSL product offerings, and especially the opportunity for us with Avidia.
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Operator: Ladies and gentlemen, we will now begin the question and answer session.
Q: Hi, yes, can you talk about potential, current and potential competitors for Flex-Plus and does that voice over DSL incorporate ATM in it?
A: The Flex-Plus and the ANDA solution is concentrating or providing voice concentration along with the pair gain inherent in our subscriber carrier system is fairly unique. I haven't seen too much competition for that yet. I think our primary challenge there is just making sure the value proposition is sold to these voice CLECs and as we do that we tend to be very successful with it and not an awful lot of competition. I don't expect that to last for long, but that is what we've seen so far.
Q: You've talked about Voice over DSL incorporated under Flex-Plus going forward. Is that, does that also include ATM or is that going over a TDM?
A: It is a TDM solution. What we are seeing is a ? I guess it shouldn't surprise anyone ? we have various camps that are very enamored with ATM and IP over ATM and we're working them very heavily largely with our Avidia switch and we still have an awful lot of carriers out there that are quite enamored with fairly quick and economically sound TDM solutions.
Q: One other question, on the HDSL2 stuff, do you expect an announcement from a major incumbent carrier shortly on this? We've been hearing about this for quite a while and when do you think it becomes official?
A: Sure and I guess, quite frankly, it's probably taking longer than we would like and there has been some challenges along the way, but we still feel very sound that this will happen and I would like to think an announcement over this quarter.
Q: You had mentioned in your prepared remarks that you thought the subscriber carrier segment of the business would experience what you called good growth in 2000. Maybe you could share what you think good growth is and then just a clarification.
A: The growth with subscriber carrier, certainly, we're seeing it come from two sides. We're continuing to work with the incumbents and that's been the traditional business with that and we expect that to remain strong, but we are experiencing healthy orders coming in from these voice CLECs I referred to and that's where a lot of the growth will come from.
Q: When you said cracked into GTE, that was for 4 wire HDSL or 2 wire?
A: 4 wire at this stage.
Q: I was just trying to get maybe a slightly better feel for what Avidia did in the quarter.
A: Yes, the campus product line represented about 10 percent of revenues during the fourth quarter. The Avidia product line represented about 5 percent of revenues. Our megabit access modems represented about 2 percent of revenues.
Q: I think in prior quarters you had mentioned how many customers you have with Avidia. I would love to get an update there.
A: Gee, I don't have that number handy. I would think that ? let's see if Rob has a little bit more than I do. Rob, do you have any insight into that?
A: We have about 68 Avidia customers during the quarter. We did have shipments of over $100,000 to eight of those customers.
Q: How many of those would you expect are taking product for trial or field trial applications versus commercial performance?
A: A number of them at the moment.
Q: I think the prior expectation for Avidia revenues in 2000 was for roughly 50 to 55 million. Is that still an expectation that makes sense?
A: I would say that expectation is still in line. Obviously, we see some significant upside, but we're also cognizant of the fact that sometimes these things take longer than you want.
Q: Let me follow up on that customer number, 68. I'm wondering if we can get a little more specificity on, you know, who is sort of deploying it in networks, who's just got one in a lab.
A: I'm not really sitting here with a list of them, but probably we're talking, you know, not many more than a dozen to fifteen that are moving at any real good rate with the product in terms of the balance. There is a large number. There's just an awful lot of trials, evaluations, and some small numbers that are going into some independents, too, which kind of add up to that number.
Q: You mentioned forward pricing. Is that relating specifically to the Avidia or does that also include HDSL2, and also could you give an update on the HDSL pricing environment?
A: As I think you follow each quarterly call we were seeing that happen. I think, we certainly haven't seen any dramatic downward pressure in the last quarter or so, but we've certainly seen the flow through of what happened during the year hitting us. In terms of where most of the forward pricing is, probably more to do with HDSL2 quite candidly.
Q: Could you somewhat compare and contrast the pricing of HDSL2 versus old fashioned two copper pair HDSL?
A: Well, as you can probably imagine since we're in fairly competitive bids here right now I'd probably rather avoid that question.
Q: Would you say the pricing for HDSL2 is equal or less than HDSL?
A: No, it's fairly higher, Anton.
Q: Would you say that the overall growth of the market will continue at a similar pace or do you think that the adoption of HDSL2 is going to accelerate the demand for HDSL services overall?
A: I would say that we're seeing continued strong demand for HDSL plugs. That will evolve into HDSL2 plugs. I don't expect that to slow down the demand. Whether it will speed it up or not is a good question. Certainly the carriers we've talked to definitely understand the value of moving to a two wire versus a four wire solution. So, we expect to see the volumes continue at the current fairly quick rate of units, perhaps pick up a bit as you've suggested.
Q: Could you discuss a little bit the dynamics surrounding the notion that HDSL2 is really more of a standard than old fashioned HDSL and how there could be and how it would differ from various types of customers, a decoupling between the central office equipment and CP equipment, and whether there will be sort of independent CPE vendors that will be entering this game as well that will not engage really in the central office equipment and how that will, how that is changing from the old HDSL environment.
A: Sure, if you will excuse a fairly quick answer because it's a fairly complex subject. I mean in general, HDSL2 is a standard. I mean it's gone through the ITU and that was not the case with HDSL where you had each supplier having its own version of the line code and therefore interoperability didn't exist. In this case, interoperability will be driven and has already been demonstrated pretty handily. In terms of the impact on the potential for additional suppliers, perhaps, to enter into the market it certainly gives you the potential for it, but we haven't seen any yet.
Q: If we go to the assumption that we're going to do roughly around $50 million in Avidia this year would you characterize the 50 million as more backend loaded in the year? Secondly, related to that do you expect that within that that there would be one customer that would be 25 percent or more of that?
A: Well it will be backend loaded in the sense that, you know, we're talking about a doubling again this quarter over last quarter, but we have to do that again and again really to get to the kind of number we're talking about. So, in that sense it will be backend loaded, but we are feeling pretty comfortable with those numbers. In terms of will any one customer be a 25 percent customer ? Yes, in our planning we have a number of customers that could be 25 percent, but there is enough of them that that doesn't have to happen.
Q: You mentioned that you cracked into GTE in the fourth quarter for HDSL4. What does that mean? Did their purchasing department say that you can go out and try to sell to the regions?
A: Actually, I can't comment any further, but you essentially captured it.
Q: The Avidia sales that you have had so far, are these to terminate ADSL or HDSL? I mean in the beginning what sort of line codes are being enabled by the Avidia platform?
A: Initially, we introduced ADSL and that has been the bulk of the sales. We only recently introduced SDSL and we're starting to ship that now.
Q: Tthe impact of the divestiture of the chip development unit, how much will that reduce your costs and when should we start to factor them, I mean take it out?
A: It will reduce our engineering expense a million per quarter starting Q2.
Q: Can you give us a sense of what sequential growth you've got in units in your HiGain business from Q3 to Q4?
A: In units it was down just slightly.
Q: OK. Thanks. Could you also, could you give us a sense of why you thought you saw a decrease in units this quarter? I wasn't anticipating that. Thanks.
A: It was down just very slightly.
Q: The move of manufacturing to Mexico, what will the impact be on gross margins and when will we see it? Then, so, and then what quarter would you expect to hit profitability in 2000?
A: As far as improvement in margins from the move to Mexico we will begin seeing that to a small degree during the second quarter, but the full effect will be in the third quarter.
Q: On the HDSL2 are you using the Level One chip set or now that you've done your agreement with GlobeSpan are you going to use theirs or will there be a transition?
A: Now, the short answer is we're continuing with the existing chip set. Whether that changes in the long term, I think, is still being discussed.
Operator: Ladies and gentlemen that does conclude your conference for today. You may all disconnect and thank you for participating. |
