Ascend Comm's Q3
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Ascend Comm's Q3
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(FOOL CONFERENCE CALL SYNOPSIS)* Randy Befumo (MF Templar)
ASCEND COMMUNICATION ALEXANDRIA, Va., October 13, 1996/FOOLWIRE/ --- Third quarter net sales were $154.6 million, a 278% increase over net sales of $40.9 million recorded in the third quarter of 1995. Net income for the third quarter of 1996 was $24.9 million or $0.20 EPS, which includes the cost of the merger of $13.9 million and the financial results for NetStar, Inc., which, combined, reduced earnings per share by $0.11 EPS. Results for the third quarter represent a 287% increase over net income of $6.4 million or $0.06 EPS for the third quarter of 1995. Historical financial results have been restated to reflect the pooling of NetStar, Inc. SAFE HARBOR PROVISION. Because of potential impact of Proposition 211, the company stated that their comments might be more brief than usual. TWO ACQUISITIONS. Ascend's recent acquisition of Netstar and Subspace allows them to now go for the lower end of the networking universe. With the acquisition came the company's new GRF 4000 IP switch (Netstar) and the Netwarp family of ISDN terminal adapters (Subspace). NEW PRODUCTS: o THE MAX TNT. The company launched two new products. The first was the MAX TNT (The Next Thing), a carrier-class product. It is the only one shipping with proven software and high reliability. The MAX TNT provides 672 simultaneous dial-up lines and 150 T-1 frame relay lines. Acceptance has been "fairly well" with their customers. The MAX TNT competes with Cascade's AX-800 and AX-1600 (which are not currently being shipped). Pricing is over $700 per port for the Cascade product, compared to Ascend's MAX TNT which is $650 a port. o GRF 4000. The GRF 400 is the first true IP switch that includes Netstar and Ascend technology. This IP switch will give the customer the choice of ATM, Sonat or frame relay, with several applications for aggregation of the traffic through the remote access switches or for the backbone of the network. Customers have been testing it. NEW CUSTOMERS. Ascend has announced several Internet customer relationships this quarter, including Ziplink and North American Internet. North American is using MAX 4000 products. An old customer, UUNet, has begun to use Pipeline 130s as a remote access solution for routing, bridging and firewall. AWARDS. Ascend's MAX product won the world-class award from Network World. FINANCIAL RESULTS INCLUDE NETSTAR & SUBSPACE. The financial results reflect the pooling of interests of Netstar and Subspace. The two acquired businesses contributed less than one million this year and last year, so clearly the sales growth is with the core Ascend business. Without the acquired businesses, 285% year over year and 25% sequential growth. The combined affect of these acquisitions reduced EPS eleven cents REVENUES BY COUNTRY. International business accounted for 40% of revenues, compared to 44% last quarter and 26% last year. North American accounted for 52% of revenues, compared to 56% last quarter and 74% last year. Ascend experienced strong growth in the Pacific Rim, with revenues from there accounting for 27% this quarter, with Japan alone counting for 20%. REVENUES BY CHANNEL ON A GLOBAL BASIS. Internet Service Providers (ISPs) count for 27% of sales, versus 25% last quarter and 28% last year. Resellers were 51%, compared to 50% last quarter and 50% last year. Carriers came in at 21%, relative to 19% last quarter and 24% last year. REVENUES BY PRODUCT. The MAX family of products counted for 83% of sales, compared to 85% last quarter and 66% last year. The Pipeline family of products counted for 12% of sales, compared to 10% last quarter and 21% last year. The balance of sales came from the company's line of multiband product line. They did expect Pipeline to have some recovery, as they concentrated on helping out the resellers in moving the product. MARGINS. The third quarter gross margins were 65.1%. They increased slightly from last quarter and were within the planned 64% to 66% range. The pooling of interests (acquisition) only affected gross margins by 0.1%. The company had 35.7% operating margins compared to 33.6% last quarter. This is well within they target of the high 20s to the low 30s. Profit margins were artificially affected by the fact that taxes were a little higher than usual due to the acquisitions, which included many charges that were not tax deductible. The company anticipates going back to its normal 38% tax rate last quarter. BALANCE SHEET ITEMS. Cash grew in the quarter and the company has no long-term debt. The company's accounts receivable showed 52 days sales outstanding (DSO), up from 49 days last quarter. The objective is 50 to 55 DSO, so this is within their plan. The slight increase is attributable to the international business, where it takes a little longer to collect than the typical 30 day allotment. Inventories improved quite a bit, as the company turned their inventories 5.1 times during the quarter compared to 3.0 times last quarter. This improvement is as a result of continued improvement of relationship with outside contract manufacturing partners. BACKLOG & BOOK-TO-BILL RATIO. The company had a positive book-to-bill. They do not consider backlog important since they ship in 30 days, they will always be dependent on new orders. Investors were cautioned not to weight backlog too strongly. OTHER MISCELLANEOUS POINTS OF INTEREST. Cash flow from operations was positive for the quarter. The headcount was 670, up from 520 last quarter. Netstar and Subspace people counted for 100. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |