Cascade Comm.'s Q3
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Cascade Comm.'s Q3
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Cascade Communications Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSCC)") else Response.Write("(NASDAQ: CSCC)") end if %> UNION CITY, Ca., October 13, 1996/FOOLWIRE/ --- Cascade Communications reported revenue for the third quarter of $94.2 million an increase of 162% and 17% sequentially. Net income for the quarter was $20.3 million or $0.21 per share versus $0.07 for the same period a year ago, a 200% increase. This beat analyst estimates by $0.02 per share.
The B-STDX 8000/9000 product line continues to be the most significant revenue driver for Cascade. This quarter it accounted for between 80-85% of total revenue. They are very happy to report that the Cascade CBX 500 achieved over 10% of revenue for the first time this quarter and represented between 10-15% of total revenue. The STDX 6000 made up the balance of revenue.
Their list of customers grew once again this quarter with shipments to 8 new customers. This compares with 8 new customers for Q2 and brings the total for the year to 23.
The international customers accounted for 21% of Q3's revenue compared to 16% in Q2 and 16% for all of 1995.
INCOME STATEMENT
Looking at the income statement for the quarter gross profits continue to come in at the top end of Cascade's business model of 65% as compared to 64% a year ago. Operating profit expanded to 33.5% from 28% a year ago and 32.2% in Q2. Days outstanding for accounts receivable was 47 which was right in the middle of Cascade's business model of 45 to 50 days. Inventory turns were 7, a decrease from Q2 levels, and at the low end of Cascade's business model of 7 to 10 turns. They have made targeted investments in inventory in anticipation of demand for the LX and CBX products. Capital expenditures were $10.7 million for the quarter and depreciation was $3.6 million. Cash balances increased $15.6 million in the quarter, reaching a total of $100.2 million at the end of Q3.
OPERATING RESULTS
The company felt that their Q3 results demonstrate the strength of their business momentum. They are particularly pleased with the demand for the CBX 500 ATM switch at this stage of its introduction. They are seeing strong demand for the 500's industry leading capabilities in scaling for frame relay networks, in cellular data applications, and in needed ATM service environments.
They continue to expand their overall presence in the rapidly growing WAN market. The introduction of their AX family of carrier class remote access products extends Cascade's reach from the backbone to the end of the network and virtually doubles their available market opportunities. IDC estimates that the carrier class portion of the remote access market will grow from an estimated $849 million in 1996 to approximately $2.8 billion by 2000.
They experienced strong growth over nearly all segments of their business including Internet Service Providers and enterprise users. To date, over 25 ISPs worldwide have Cascade products at the core of their networks. This reaffirms Cascade as the backbone architecture of choice for ISPs according to the company.
EXPANSION AND MANAGING GROWTH
They are very pleased with the quarter's growth in international revenue and remain committed to expanding their international presence. They expect, as they enter the remote access market, and as deregulation becomes more widespread, the level of businesss they experience internationally will increase. In the near term they may experience some fluctuation quarter to quarter in international revenue as a percentage of total revenue.
The management team at Cascade has always understood that one of their most significant challenges they face is managing the growth of their organization. With new products coming online and now over 750 employees, they are even more aware of the need to effectively manage their growth. They continue to fund the payroll with cash generated from operations, keep tight control over their assets, and remain focused on maintaining their margins.
In the third quarter, as in the past, they have grown at a rate greater than the market growth projected by many industry analysts. One research group estimates Cascade has become the worldwide frame relay market leader with approximately 20.8% share of an estimated $1.4 billion frame relay market. In addition, Cascade leads the carrier and Internet service provider portion of the frame relay switch market with a 29.7% and 56% market share respectively. Their goal ultimately is to become the market leader in each of their market segments. Looking at 1997 and beyond, they want to build on their leadership in the frame relay market by gaining share in the ATM and remote access markets.
THE ATM MARKETPLACE
In a few short months since they began commercial shipments of the CBX 500 ATM switch, Cascade has become a leader in this segment. They believe they are already surpassing shipment levels of the early entrants in this market. They continue to believe that, in the near term, ATM Internet ring switches will reside at the core of the network where they will facilitate increased bandwidth demand. As native ATM traffic begins to accelerate they will be in an excellent position with this performance leading product. They also remain convinced that Cascade's innovative architecture and advanced quality and service capabilities are significant competitive advantages, especially in the emerging IP services markets.
The CBX 500 was named the ATM market leader within the Internet Service Provider segment in 1996, giving Cascade a projected 21.7% share in this portion of the ATM market. They continue to see strong growth in the demand for the CBX 500 and their goal is to obtain overall ATM market leadership in the Wide Area Networks area.
THE CARRIER CLASS REMOTE ACCESS MARKET
Cascade announced its entry into the remote access market this quarter with the carrier-class AX 800 and AX 1600 remote access switches. These products were introduced to the industry at Interop Atlanta last month and entered beta test on schedule in September. They expect to be shipping limited volumes for commercial implementation by the end of this quarter. With the introduction of the AX family, Cascade has established an industry standard for performance, scalability and availability, virtually defining a new carrier-class segment of the remote access market.
What do they mean by carrier-class? Current remote access servers were designed for enterprise telecommuting applications. However, like Cascade's B-STDX 8000 and 9000 and CBX 500, the AX 800 and AX 1600 remote access switches were designed from the ground up to meet the rarest demands of public service providers. The AX products deliver unsurpassed performance through a distributed multi-processor architecture that scales as the network expands. Each time a card is added to increase core density, processing capacity is also increased. They provide the highest level of throughput currently available in the industry with an internal high-speed one-gigabit per second system bus. They also combine multi-level hardware redundancy with fully distributed system software guaranteeing the highest level of service availability. And, finally, the AX products division of Cascade is delivering network wide, end to end quality of service through Cascade's industry leading routing capabilities, virtual network navigator, and the Cascade network management system.
The unsurpassed core density and throughput capacity in the AX products family enable service providers to rapidly scale dial-up networks to meet growing access demand while minimizing space requirements and providing the lowest cost per port available in the industry today. Because of Cascade's presence at the core of public service provider networks worldwide and breadth of product line they believe they are ideally positioned to enter and gain both market and mindshare in the carrier-class portion of the remote access market. They already have AX orders on the books and expect that the AX product family will become a leading contributor of revenue in 1997. They also intend to announce several enhancements to the AX family in the next year including, among other things, XDSL support.
THE IBM ALLIANCE
Their business and technology alliance with IBM is now entering its third quarter. Moving existing SNA networks to a switched backbone architecture represents a tremendous opportunity. Their alliance with IBM is to integrate switching, net frame relay, SMDS (switched multi-megabit data service) and ATM (asynchronous transfer mode) at the core of these ATM networks, replacing the existing lease line architecture. Joint development efforts focused on adding SNA functionality to Cascade's acoustic products are fully underway and they expect to provide updated information on their progress over the next several quarters. In addition to their joint development efforts, they continue to ship products to support the upgrade and expansion of the IBM global networks.
NETWORK MANAGEMENT PRODUCTS
Broadband packet networks continue to grow at a rapid pace. The ability to cost-effectively manage these complex virtual worlds will become increasingly important. Their strategy for network management is also one of developing carrier-class products with a focus on scalability. Their goal is to reduce the cost of network management while providing expanded control.
This quarter, Cascade became a corporate member of the Network Management Forum, reaffirming their commitment to playing an active role in developing and maintaining industry standards. In August they took another step forward with their Version 2 architecture provisioning server. This scalable network management system server was designed to expand control over network provisioning, easing the operational tasks associated with provisioning of new ports. This release was designed to be used with service providers' current provisioning systems. Cascade's open system server allows for seamless provisioning across a multi-vendor network, lowering operations costs by allowing carriers to provision more efficiently.
The provisioning server's architecture supports standards set forth by the Telecommunications Management Network, thereby allowing network managers to access the Cascade switches through other network outlets. Going forward, Cascade's network management architecture will focus more prominently on integrating applications programming interfaces on a true open management platform.
The provisioning server also becomes one of the new Cascade server products that will be available in a Web-based network management architecture. Carry-through with the idea of expanding control through scalable solutions eventually all of their Cascade new server products will be accessible via the World Wide Web. This availability will allow users across the globe to more cost effectively connect to them and manage their networks.
Cascade is committed to expanding their network management offerings. As networks scale larger and larger, service providers will be forced to rely more heavily on network management in order to differentiate themselves in an increasingly competitive market. Cascade's extensive and growing network management capabilities continue to be a key competitive advantage for them.
THE EVOLVING NETWORK SERVICE PROVIDER MARKETPLACE
Going forward they believe that private and public companies will continue to look for public network service providers for outsourcing of their data networking and remote access needs. Intranets will evolve into virtual private networks developed and maintained by public service providers. Cascade is extremely well positioned to take advantage of this shift with its presence at the core of the worldwide and public carriers and Internet service provider networks.
As they said before, they also see the industry placing more emphasis on quality of service capabilities associated with virtual private networking. As competition increases, public service providers will be forced to look for ways to differentiate their service. Guaranteed quality of service, that is providing end users with the quality of service that they pay for, will become a primary differentiating factor, especially in IP service markets.
Cascade's proven core routing capabilities, which they call virtual network navigator, has the unique ability to provide quality of service over large, multi-service and multi-protocol networks. Explosive use of telecommuting, increased LAN to LAN traffic, and the continued growth of the Internet are primary drivers of the demand for remote access, frame relay, and ATM. As the industry evolves they will strive to identify and pursue segments of potential growth such as carrier-class remote access, IP switching, and XDSL. * 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 |