ADTRAN's Q3
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ADTRAN's Q3
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
ADTRAN, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ADTN)") else Response.Write("(NASDAQ: ADTN)") end if %> UNION CITY, Ca., October 13, 1996/FOOLWIRE/ --- ADTRAN, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ADTN)") else Response.Write("(NASDAQ:ADTN)") end if %> reported results for both the third quarter and the first nine months ended September 30, 1996. Sales for the quarter increased 30% to $62,634,637. Sales for the nine-month period ended Sept. 30, 1996 increased 37% to $180,484,338. Sales for the third quarter of 1996 decreased one percent from those of the second quarter of 1996.
Net income for the quarter increased 21% to $9,405,557. Net income for the nine-month period ended September 30, 1996 increased 36% to $28,369,165. Net income for the third quarter decreased 9% from that of the second quarter of 1996. Earnings per share for the third quarter increased to $0.24 from $0.20 reported in the prior year and to $0.72 from $0.53 for the comparable nine-month period. Earnings per share for the third quarter decreased from $0.26 reported for the second quarter of 1996.
The company had a revenue shortfall of $5 million from what they anticipated. They believe this is strictly timing. They see no changes in the marketplace and they see no changes in the acceptance of their products in these markets. They basically feel that the markets are continuing their historical growth rate and that the acceptance of their products is excellent in that market.
The July 4th holiday weekend which starts the third quarter is basically a week of low bookings as the purchasing people in the telcos have their holiday season. ADTRAN normally sees very strong bookings prior to and immediately after that week. As they look back at the holiday this year, it is obvious that a significant number of orders were placed by the telcos prior to the holiday which shifted the revenue that normally would be in the third quarter back into the second quarter. That explains some of the extreme increases that they saw in the second quarter. Following that period, the quarterly bookings and the market for their products returned and was very strong throughout the entire quarter.
They ran into two situations during the last week of the quarter. Their shipments to telcos are normally the next day or a two-day shipping cycle. They book approximately $5 million each week for shipment. During the last week of the month they saw a steep decline in the rate of bookings. They have no explanation as to why it occurred. They have, throughout the year from week to week, a significant swing in bookings. This is simply due to the telcos primarily placing their orders when they have completed using the last of the previous shipment. That occurs in a random manner. The normal restocking activity just did not occur the last week of the quarter and they feel that, due to that, they saw probably $3 million that was not booked during the last week that they anticipated.
They also had a situation going on during the quarter in the T1 and HDSL marketplace. During the quarter they had an HDSL product changeover. They were going from their third generation HDSL product to their fourth generation. They saw very strong requirements for HDSL. In fact, they had to build an additional build of the third generation product and spend a good deal of money in expedite fees to be able to get the third generation out to their customers. That changeover was completed at the end of the quarter.
The primary differences in the 3rd and 4th generation is a significantly reduced cost of the new generation as well as a significant improvement in performance in that their HDSL products are now able to totally power a repeater as well as the remote product at the customer's site. They are able to do this with 135 volt rather than higher voltage that does not violate any of the most rigorous safety standards for placing power on the telephone line.
As the orders came in at the end of the quarter, they were unable to ship the last $2 million in product and had to carry that over into the fourth month. Had that been able to go out, that would have added another $2 million in revenues for the year.
With the expediting cost and the product changeover, they are very pleased to note that the pre-tax profit margin for the company came in at 24.6% which is very close to exactly in the middle of the profit margin range and, in fact, from the second to the third quarter, their gross margins improved very slightly but at least they improved rather than declined which one could anticipate as a possibility with the combination of a revenue shortfall and a major changeover in a major product.
They are extremely pleased with the operating performance of the company. They see no negative changes that are going on in their markets. They see them continuing very strong as in the past. They do not look at what they feel are timing occurrences from a revenue standpoint in the third quarter as having any significance to the long term growth and the long term health of the company.
They had over 35% quarter to quarter growth in ISDN between the first and second quarter which simply was not consistent with the line growth they anticipated at that point of 80% per year. Looking for explanations at that time, they commented that they thought some of the extraordinary ISDN growth was due to the Olympics. They normally do not comment on order rates or changes in order rates in their customers. At this point they wish they had never mentioned the Olympics because it is something that of course did occur and is an event that one can usually put a handle to. Looking at the ISDN order rate from the telcos as a group, they find that the changes one could relate to the Olympics are there but are very minor. They saw a much larger change in the ISDN area simply due to the ordering prior to the July 4th weekend coupled with a stocking of ISDN products that relate to the AT&T DLC.
At some point in time they look at ADSL as having a very bright future. Historically their industry does move up in speed but they do so based on price points and on the utility of service that they are able to get for the different price points. This simply places ISDN in a very attractive place that is immediately in front of the enormous wave of usage that is currently experienced in the analog modem world. They feel that with time the users of analog modems will move to ISDN and will move to that price point in significant numbers. They are looking at a product from the viewpoint of the business user or the residential customer who wishes to be able to get into his corporate database. That, at this point, they see is the primary market for ISDN. * 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 |