Ditech Share Hit 52-Week High on Breakout 2Q Results
Friday November 21, 2:15 pm ET
By Jen Ryan
NEW YORK -- Shares of Ditech Communications Corp. (NasdaqNM:DITC - News) rose as much as 31% Friday, setting a 52-week high, after the telecommunications-equipment supplier reported what one analyst called a "breakout quarter" and "impressive" guidance.
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After the bell Thursday, Ditech said its fiscal second-quarter net income rose to $2.9 million, or nine cents a share. That compares with a year-earlier loss of $19.6 million, or 65 cents a share, which included a loss of $17.8 million, or 59 cents a share, from discontinued operations.
Revenue for the quarter ended Oct. 31 increased to $14.5 million, up 74% from a year ago and 35% from the previous quarter. For the third quarter, the Mountain View, Calif., company said it expects revenue to break the $20 million mark.
"Overall, it was an outstanding quarter, considering many telecom equipment vendors are still limping along," Roth Capital analyst Dave Kang wrote in a research note Friday.
"We believe the situation should only get better, as the tide should come in to lift the whole sector next year."
At around 1:55 p.m. EST on the Nasdaq Stock Market (News - Websites) , shares of Ditech were up $ 4.18, or 34%, at $16.43 on volume of 2.8 million shares, more than six times its average daily volume of 451,339. The stock traded as high as $16.50 a share earlier in the session, surpassing its previous 52-week high of $13.02 set on Nov. 7.
Ditech's second-quarter results surpassed the company's Oct. 27 forecast, when it projected revenue of $13.4 million to $13.9 million and earnings from continuing operations of six cents to eight cents a share. The company's October outlook lifted the stock 28% the day after it was announced.
In a conference call Thursday, Ditech President and Chief Executive Tim Montgomery credited the higher-than-expected earnings -- the company's first profitable quarter in three years -- on customer demand in the last few days of the quarter, the completion of certain installations and early collections.
Mr. Kang, the Roth Capital analyst, said in a research note Friday that he thinks the company is poised to benefit from market share gains and new product rollouts.
Ditech's main competitor, Tellabs Inc. (NasdaqNM:TLAB - News) , has been refocusing business on core operations, which don't appear to include echo cancellation solutions, from which Ditech derives a substantial amount of its revenue, Mr. Kang wrote.
Echo cancellation products, according to Ditech's Web site, seek to eliminate the echo from telephone calls and provide a "high-quality calling experience."
Additionally, other competitors have revealed plans to turn echo products into embedded solutions, whereas Ditech employs a stand-alone solution, Mr. Kang added.
"With network complexity continuing to increase, we believe the horsepower for echo solutions must increase as well," the analyst wrote, adding that Ditech's competitors appear to be surrendering the high-end echo cancellation market to Ditech.
Ditech's new voice quality assurance product, which provides voice enhancement for a whole range of voice quality impairments, is undergoing trials and will likely contribute modestly to fourth-quarter revenue, Mr. Kang wrote.
The company's new BVP Flex product, a next-generation platform that enables network connection regardless of the network's speed, is also on track to contribute to revenue in the fourth quarter.
Mr. Kang doesn't own shares of Ditech, and Roth Capital doesn't have an investment banking relationship with the company.
-By Jen Ryan, Dow Jones Newswires; 201-938-5294; jennifer.ryan@dowjones.com |
