AVCI CC:
Challenging market, focus on new products, focus on balance sheet
Rev 10.3 mil, loss 19.4 mill EPS
135 percent Y-Y growth in rev
Carrier market condition difficult, IP traffic growth still in 80 to 100 percent range, Cap Ex down new year, expect IP spending to increase next year though. see opportunities next year
GM for IP service only in 20 to 30 percent range, GM for older voice, frame relay 60 to 70 percent range traditionally, Least profitable but faster growing
Need to change profitability ratio to fuel growth, part of that is QoS and provisioning, AVCI products is part of that
Oct 3 rd product release for year. SSR - stackable version of TSR, scalable, $95,000 entry price
High reliable distributed switch fabric
Customer opportunities double with SSR. Regional POP and smaller carriers and ISP's.
Two next trials due to SSR.
Add sales head to head sales and services. Head from CIEN.
As VP from ERICY
T, ENRON and US govt > 10 percent customers
Shipped more product to T, expect follow on orders
Enron sales less than expected and don't expect follow on orders.
Expect more orders from US govt.
No guidance. Do expect condition in market to flat rest of year and first half of 2002.
Perspective list of customers growing.
Looking forward, confident of core routing market
Financials:
Rev 10.3 mil
Net loss excludes 18.3 mil one time charges
Pro forma numbers
Rec 10.3 mil slightly above 9 mil estimates for Q
5 customers, 3 > 10 percent T, Enron, US govt
service rev about 10 percent
Enron and WMB orders less than expect
GM 23 percent ver 28 percent Y-Y , 45 percent Q-Q due to lower volume, and scraping of some equipment
Op Ex up 200,000 Q-Q
Depr 600,000 and cost saving 400,000 in Q
Saving in rest of year 7 mil
In 2.1 mil, 4.5 percent interest rate, 191 mil cash
One time charges 18.3 mil: inventory write downs and commitment to contract manuf. inventory
Inventory charge 17.2 mil
Serverence 1.1 mil
Head count 340 ver 407 Q-Q
Outsourcing call center activities, eliminate contractors
Cash 179.8 mil at end of Q
Cash flow positive 2003
20.8 mil burn in Q, 14 mil operations, 7 mil Cap Ex
DSO 67 days higher than guidance 60 to 65 day, due to linear of shipments in the Q
Inventory 8.6 mil, 3.7 turn vers 2.8 Q-Q
Defer Rev 3.4 mil flat Q-Q, mostly services
10.4 mil in charges, will take it next Q
Q4 burn rate 30 mil, then 20 mil after that
Q: Trial ongoing. Any near term rev?
A: Mix of time frames. Some could be by early 2002. Hard to tell how many.
Q: Top 3 customers in aggregate?
A: Top 3 accounted for more than 50 percent. No details.
Q: Porportion of rev coming from trials versus additional buys from existing customers?
A: Only customer using in deployed nextwork T. France Telecom in R+D network. T > 10 percent. Strong customers.
Q: Payables went up. Going forward?
A: Included 10.5 with one time provisions. Nothing unusual otherwise. Cautious of payables, but paying on a timley basis. Timing of bills is part of the increase.
Q: Q plans to deploy next year?
A: Will extend trial into next year.
Q: IP traffic growth? 80 to 100 percent. Anymore color? Any recent change?
A: Based on specific carrier comments. Some seeing more than 80 to 100 percent. No change up or down at this point.
Q: Driver of 80 to 100 percent growth?
A: End traffic of internet, broadband access, broadband metro, SAN's.
Q: Number of trials? Still in competitive stages versus just testing new features. Single vers multi chasis
A: Past were 12. Added one more. Some new not announced. Some have got past the first stage, some new trials, rarely see other vendors, 1 or 2 where we are seeing other products competing with us
Q: Size of market today? Growth in market segment?
A: Estimates of 1 bil to 1.5 bil for next year. 1 bil bottom of range for long haul core. Conservative.SSR expands that. 2003 see 3 bil. See flat 2002. 2H if recovery we will go up.
Q: GM decline from fixed cost vers higher component cost?
A: No detail, but 1 mil, 2/3 due to obsolete equipment, 1/3 due to fixed sales cost
Q: Interest income going forward?
A: 34 mil long term paper. Overall model assume 4 percent going forward.
Q: Cap Ex 7 mil. Flat next few Q's?
A: Declining Cap ex in early next year.
Q: Rev to break even?
A: 35 mil per Q. EBDITA
Q: Cash flow positive?
A: Depends on level of cap ex at time, depr. Little higher than 35 mil.
Q: GM near term. Increase service rev. New product. Effect?
A: Service rev 10 percent range due to lower rev number not absolute numbers, product margins still strong and stable, more reasonable pricing on materials, expect GM return to normal levels next Q. 50 percent next year, SSR uses sames module so should limit ramping cost. The GM margin numbers on IP services are lower than I expected. The carriers are doing this to gain share as opposed to doing it to generate profits. Voice is still the lower fixed cost, higher margin business. This confirms what SONS and AFCI are saying.]
[Harry: In general the call did not inspire any near term confidence. The miss by T today and the reduction in cap ex will affect AVCI since it is one of only 3 ten percent customers accounting for 50 percent of rev. It appears no trials are expected to convert till early 2002 and at that there is still a lack of visibility in timing. The only positive is that they are appear to still be the leader in their small be growing segment.] |
