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ECI Reports Q3

Revenues for Q3 reached $162M, a 26% increase from the $128M recorded in 3Q04, while net income was up slightly from $6M to $6.2M

November 3, 2005

7 Min Read

PETACH TIKVA, Israel -- ECI Telecom Ltd. (NASDAQ: ECIL - News), a global provider of advanced telecommunications solutions to leading carriers and service providers, reported financial results today for the third quarter, ended September 30, 2005.

Revenues for the third quarter 2005 reached $162 million, a 26% increase from the $128 million recorded in the third quarter of 2004 and up 6% compared to the $153 million recorded in the second quarter of 2005.

Net income for the third quarter of 2005 reached $6.2 million, or $0.05 per share on a fully diluted basis, compared with third quarter 2004 net income of $6.0 million, or $0.05 per share and compared with $15.6 million, or $0.13 per share, in the second quarter of 2005. Results for the third quarter include for the first time the full quarterly results of Laurel Networks, which amounted to a $7.7 million loss in the quarter. On a non-GAAP basis, after excluding certain special items included in the second quarter results and the effect of Laurel, ECI's net income increased by $2.5 million, from $11.4 million in the second quarter to $13.9 million in the third quarter. Please see the accompanying Table 4 for a reconciliation of these special items and the effect of Laurel Networks on ECI's results.

Cash flow from operating activities totaled $26.7 million for the third quarter of 2005, bringing the nine month year-to-date cash flow to $151.3 million, including the positive impact in the second quarter of $96 million received for the sale of its receivable from Brazilian carrier GVT. As of September 30, 2005, ECI Telecom's cash, including short and long-term deposits and marketable securities, totaled $231 million, or $1.95 per share with no debt.

Pro forma, non-GAAP net income for the third quarter of 2005 was $8.0 million, or $0.07 per diluted share. ECI's pro forma net income for the three months ended September 30, 2005 differ from results reported under U.S. GAAP due to adjustments made for the following on-going, non-cash items:

  • The amortization of acquired intangible assets.

  • The impact of share-based compensation.



Please see the accompanying Table 5 for a full reconciliation of GAAP to non-GAAP results. Revenues for the Optical Networks Division totaled $85 million for the third quarter of 2005, up 23% from the year ago period and up 4% from the second quarter of 2005. Operating income for the Optical Networks Division jumped 472% over the third quarter last year and reached $12.7 million, up 43% compared to the second quarter of 2005. The Division`s operating margin reached 15% in the quarter. The very strong sequential and year-over-year growth in operating income was driven by the continued strong demand from carriers for ECI's optical solutions. This resulted in increased revenues and improved gross margins for the Division.

Revenues for the Broadband Access Division totaled $68 million for the third quarter of 2005, up 26% from the year ago period and up 8% from the second quarter of 2005. Operating income for the Broadband Access Division reached $4.5 million, compared to $6.4 million in both the year ago and second quarter 2005 periods. The decline in operating income was primarily related to the geographical sales mix during the quarter as well as the ramping up of new IPTV deployments in Europe.

Revenues for the new Data Networking Division (formerly Laurel Networks) were still minimal and totaled $2 million for the third quarter of 2005, while the operating loss was $7.7 million, reflecting the relatively low revenues and intensive R&D efforts currently underway in the Division. ECI`s second quarter 2005 results reflected less than one month of Laurel`s operations, following its acquisition in June 2005 and included an operating loss of $2.3 million on sales of $0.4 million.

Commenting on the results, Doron Inbar, President and CEO said, "We are pleased to report another quarter of outstanding performance. Our core Broadband Access and Optical Networks divisions continue to demonstrate strong revenue growth and as a result ECI Telecom continues to grow faster than the broader telecommunications industry. We are competing successfully in markets that are among the fastest growing sectors of the telecom industry. Our success and the strong demand for our products are a reflection of the quality of our products and our success in deploying next generation 'triple play' broadband communications network solutions.

"These solutions are a necessity for carriers and service providers looking to stay competitive in the new converged communications environment and will drive the industry in the years to come," continued Inbar. "With the delivery of advanced services now being the primary driver in the broadband market, ECI is already enabling carriers to meet these market challenges over both legacy and next-generation IP networks. We are already a major supplier of IPTV solutions to one of our primary European customers, allowing it to deliver hundreds of channels of broadcast TV over DSL to subscribers. During the quarter another primary customer has also notified us that we are expected to be a major supplier to their new major broadband initiative. In addition, our recently announced Hi-FOCuS 5 IP broadband platform strengthens our position in this nascent, fast-growing market. This offering allows us to deliver solutions to both incumbent as well as alternative carriers seeking to build out new, pure IP networks.

"Massive broadband deployments and the associated rollout of bandwidth intensive offerings by wireline and cellular service providers are also driving very strong growth and impressive profitability in our Optical Networks Division. These deployments necessitate building out robust metro networks, for which our Multi-Service Provisioning Platform (MSPP) solutions are very well positioned. We continue to see strong demand in our core geographic markets such as Western Europe, Russia, Ukraine, India and the Philippines.

"We are especially pleased with our recently announced $59 million contract for a nationwide optical backbone wireline network in Costa Rica. This large turnkey project, one of the biggest in our history, will be deployed over the next 24 months, and is a prime example of ECI`s strong market position," concluded Inbar.

Chief Operating Officer Rafi Maor, who will assume the roles of President and CEO effective January 1, 2006, stated, "To complement our strong offering and successful Broadband Access and Optical Network operations, and as part of our strategic effort to be a leading provider of IP based Triple Play solutions, we are committed to build a successful Data Networking Division on the basis of recently acquired Laurel Networks. During the third quarter of 2005, we began the significant effort of integrating Laurel, which now operates as our new Data Networking Division, into ECI. We are focused on leveraging the ECI worldwide sales channel network for our new data networking products. These efforts are expected to continue to ramp and begin bearing fruits in 2006. ECI Telecom now offers full-featured data service support and complete Internet routing in a carrier-class IP-based platform. During the quarter we rolled out our first integrated solution combining our new Edge Router product with our Multi-Service Access Gateway (MSAG) platform to create a comprehensive solution that delivers a full range of IP video services. In the future we also intend to use the advanced IP technology of Laurel as a platform for next generation ECI Access and MSPP products."

Guidance

ECI continues to expect sequential quarterly growth in both revenues and profits for the fourth quarter of 2005.

Based on present market conditions, ECI also expects the growth rate in its business in 2006 to exceed that of the general telecommunications equipment sector.

ECI Telecom Ltd.

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