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Technology Stocks : Comverse Technology -- Ignore unavailable to you. Want to Upgrade?

To: Mark Ambrose who wrote (671)	3/16/1999 10:27:00 PM
From: Kevin M. Reilly	Respond to of 1331

Anybody have any idea about the line item "Royalties and license fees"? Can we expect these fees to keep growing and if so at what rate? Kevin M. Reilly

To: Mark Ambrose who wrote (671)	3/17/1999 10:42:00 AM
From: NotNeiderhoffer	Read Replies (4) \| Respond to of 1331

MA, I must admit that I have known to daytrade while rocking out to Ozzy Osbourne. I draw the line at that Marilyn Manson dude/chick though. Of course it might take a human sacrifice to get this stock higher today. Are you busy for lunch? The quarter was of course quite stellar. It is probably a blessing that they did not report a blowout. That would of taken the stock higher but that would of raised the bar to a level the company does not want. Lets face it they manage expectations very tightly. The number was three cents ahead and in line with the Semi official SI CMVT whisper number Trader Dave helped us out with. Estimates for Jan 2000 and Jan 2001 were bumped up a few pennies by most analysts who also bumped price targets which are now generally in the mid $90's to $100. Consensus EPS numbers now are around $2.80 and $3.38 respectively, and are likely a little conservative. It is tough to peg the year over year growth because last years number only had Boston in for 2 months. One sell sider is guessing that on a pro-forma basis revenue and EPS grew approximately 28% and 48% from a year ago. I would say that is pretty close. The wireless side of the business is also growing quicker than wireline but that is no surprise. They added 10 new network operators in the quarter and now have 280 worldwide. About 70% of revenue came from repeat customers and the backlog was up sequentially 6% to $164.1 million. This should provide us with good visibility for the current quarter. Earnings quality was excellent and the company generated a great deal of cash in the quarter. DSO's dropped from 98 days last quarter to 91 days and inventories came down as well. Inventory turns were up to 5.9x from 4.4x over the last 4 q's. No problems there and they are running a nice tight ship financially. Dont forget that cash is up to about $658 million which is no doubt enough to hire a good exorcist. Some of the new products are coming on strong such as the one touch call return and prepaid wireless stuff. These and other enhanced services are the key to maintaing the growth we need over the next 3-4 years. Those are pretty much the highlights although not an exhaustive list. You people don't pay me enough for that. Mucho thanks to the hardworking sell siders who perform the tough number crunching that I am too busy and lazy to do. I have to go now as the sweet sound of bagpipes are filtering up to my office. Spring is in the air. NotsureifyouhavesympathyforthedevilNeiderhoffer

To: Mark Ambrose who wrote (671)	3/26/1999 12:14:00 PM
From: Beltropolis Boy	Respond to of 1331

fwiw, luke raises price target to a c-note and FY99 estimate to $2.82 (pre-split, natch). ----- Comverse Tech: Excellent 4Q98 Beats Consensus, Ests & Target Raised Again Author: Tim Luke, Mark Sue (212)526-4993 Rating: 1 Company: CMVT Rank (Old): 1-Buy] Rank (New): 1-Buy Price : $83 3/16 52wk Range: $86-29 Price Target (Old): $85 Price Target (New): $100 Today's Date : 03/17/99 Price (As of 3/15): $79 1/8 Revenue (1999): 845.6 Mil. Return On Equity (99): 45.8% Proj. 5yr EPS Grth: 25.0% Shares Outstanding: 51.0 Mil. Dividend Yield: N/A Mkt Capitalization: 4.03 Bil. P/E 1999; 2000 : 28.6 X; 23.8 X Current Book Value: $6.43/sh Convertible: YES Debt-to-Capital: 0.0% Disclosure(s): C, A ----- * Post close on March 16, enhanced services and voice messaging leader Comverse Tech reported excellent 4Q98 (ended January) earnings of $0.66 -- beating our consensus estimate of $0.63 by a comfortable margin. * 4Q98 revenues of $190.1 million (+7% quarter over quarter) beat our high end estimate of $188.5 million, with strength continuing in U.S. and Europe; Asia (15% of sales) was also up quarter over quarter. Backlog improved to a record $164 million versus $155 million in 3Q99, providing impressive visibility into 1H99. * Gross margins improved quarter over quarter to 60.5% versus 60.2% in 3Q98 as the company continued to benefit from repeat orders from existing customers (70% sales are from existing customer base). Operating expenses were broadly in line with expectations, with R&D at 18.9% and sales & marketing at 21.7%. * The balance sheet strengthened with strong cash from operations. Receivables were reduced to $192.3 million from $194 million and trimmed to 93 days on average versus 95 days in 3Q98. Inventories also moved sharply lower. * Following another quarter of excellent results, we are raising our estimates once again. FY99 moves from $2.77 to $2.82, FY00 rises from $3.32 to $3.38. We reiterate our 1 Buy rating and raise our price target to $100, or 30 times our new FY00 estimate. Separately, Comverse Tech announced a 3:2 stock split. ----- Post close on March 16, enhanced services leader Comverse Tech reported another quarter of excellent earnings, with 4Q98 EPS of $0.66 coming in comfortably ahead of our consensus estimate of $0.63. Highlights in 4Q98 included strong revenue growth, improved gross margins, an expanded customer base and increased backlog levels that provide strong visibility for 1Q99 and beyond. Rapid Revenue Growth Continues, Backlog Climbs Again Comverse posted strong fourth quarter revenues of $190.1 million, which came in ahead of our high end estimate of $188.5 million. The company continued to see robust demand for its core enhanced services and messaging platform from both wireless and wireline service providers eager to offer revenue generating service such as voicemail and information services. While the bulk of Comverse's sales were to Europe and the U.S. (over 80%), the company did see a modest sequential uptick in sales to the Asian region (15% of sales with China and Japan remaining strong). We believe Comverse enjoyed especially impressive demand from major operators such as Deutsche Telekom and Sprint PCS in 4Q98 while demand from other key customers such as Bell Atlantic, SBC, and Bell South remained solid in the quarter. During the quarter, Comverse added 10 new customers to its expanding list of international service providers, bringing the total to more than 280. Key customer additions during the quarter include Cable & Wireless and Orange PLC. Comverse had no 10% customers in 4Q98. We are further encouraged that the Comverse Information Systems (CIS) government and commercial voice recording division (10% of sales) also saw steady sequential revenue growth during the quarter. In addition, we continue to be impressed by Comverse's increased backlog levels, which have now reached $164 million -- up over $9 million from $155 million in 3Q98. We maintain that this has already provided Comverse with enviable visibility on its April quarter revenues and earnings. New Products Gaining Momentum We are encouraged by the initial acceptance of Comverse's strong new product stream that includes the new "one touch" call return service. More than 10 customers are deploying the "one touch" service and we look for additional wins in the current 1Q99. Furthermore, management confirmed that it has extended its prepaid wireless customer base from 10 to 15 in 4Q98. We believe Comverse is likely to emerge as a major player in this fast growing market in which Ericsson is currently the market leader. Other important new services that are likely to gain momentum in FY99 include caller assistant, voice dialing and short text messaging. New services may move from the current level of 10% of total Network Systems sales (versus 90% traditional voicemail) to as much as 15% in FY99. These new services should help Comverse continue to outpace the growth of the overall global enhanced services and messaging industry, which we estimate to be expanding at around 25% and which should reach well over $2 billion FY99. Gross Margins Improve Again Gross margins improved in 4Q98 to 60.5% versus 60.2% in the prior quarter as Comverse continued to enjoy repeat business from its existing customer base. Management confirmed that sales to existing customers accounted for around 70% of sales -- in line with the 3Q98 level. Looking forward, we believe further gross margin improvements are likely as Comverse continues its focus on engineering efficiencies and increases its software content. Operating expenses were broadly in line with our expectations, with R&D coming in at $36.0 million, or 18.9% of sales and SG&A at $41.2 million, or 21.7% of sales. Balance Sheet Strengthened, Receivables & Inventories Reduced Comverse closed 4Q98 with cash and equivalents of $657.7 million versus $588.7 million in the prior quarter, with strong cash flows from operations contributions (approximately $50 million). Accounts receivable improved to $192.3 million versus $194.2 million in the prior quarter and also improved to 93 days on average from 96 days on average. Inventories in the fourth quarter also improved sharply -- declining to $47 million versus $56 million in 3Q98, or to 62 days on average from 71 days. Comverse maintains a long-term convertible debt of $415 million. Stock Opinion: Excellent Visibility, Estimates & Price Target Raised, Reiterate 1 Buy Following another round of excellent results, we are once again raising our estimates. Our FY99 earnings estimates move from $2.77 to $2.82 and our FY00 estimates increase from $3.32 to $3.38. Our new revenue targets for FY99 and FY00 and $845 million and $1.001 billion respectively. We believe these new estimates are conservative and are likely to be subject to upward revisions throughout FY99. We have been encouraged by Comverse's expanding customer list and the company's impressive order momentum. With over 280 customers (10 added during the quarter), Comverse continues to offer compelling solutions to service providers that are seeking to generate additional sources of revenue with enhanced services platforms. We believe Comverse is continuing to strengthen its competitive position in the area versus its primary competitors such as Octel/Lucent and Unisys. We maintain that Comverse is continuing to expand its market share across the global enhanced services market. With Comverse continuing to build its backlog to new record levels we believe visibility on 1H99 remains extremely strong. Beyond the impact of the robust revenue growth outlook, our earnings estimates may also be subject to upward revisions as gross margins continue to improve, with Comverse continuing to benefit from a high level of repeat orders from its installed base of customers. Increasing software content may also help boost gross margins. We are reiterating our 1 Buy rating and we are raising our price target from $85 to $100. Our new price target of $100 is based on our view that over the next 12 months investors are likely to focus on Comverse's earnings growth in excess of 25%, allowing the shares to achieve a multiple of approximately 30 times our new calendar 2000 estimate of $3.38. ----- Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities.