Tekelec Reports Q2, Buys SIP Vendor

Revenues were $133M, up from $95.6M in last year's Q2, for net income of $5.6M ($0.08/share), up from a net loss of $304,000 ($0.00/share)

August 3, 2005

8 Min Read

MORRISVILLE, N.C. -- Tekelec (Nasdaq:TKLC) today reported financial results for its 2005 second quarter.

Revenue for the second quarter of 2005 was $133.0 million, compared to $95.6 million in the second quarter of 2004. On a GAAP basis, Tekelec's net income was $5.6 million, or $0.08 per diluted share, for the second quarter of 2005, compared to a net loss of $304,000, or $0.00 per diluted share, in the second quarter of 2004. Non-GAAP net income for the second quarter of 2005, which excludes the effects of acquisition-related amortization, non-cash stock-based deferred compensation, and restructuring and other charges, related to the relocation of corporate headquarters and the consolidation of Taqua's manufacturing operations, was $9.4 million, or $0.14 per diluted share, compared to non-GAAP net income of $9.4 million, or $0.14 per diluted share, in the second quarter of 2004. Non-GAAP net income for the second quarter of 2004 excludes the effects of acquisition-related amortization, the write-off of in-process research and development related to the Taqua acquisition in April 2004 and restructuring charges related to the relocation of manufacturing operations. Orders received in the second quarter for Tekelec products and services were $156.4 million, compared to $123.6 million in the second quarter in 2004.

As previously announced today, Tekelec has agreed to purchase the minority interest in Santera for cash in the amount of $75.6 million. The transaction is expected to close in early October 2005.

Tekelec President and CEO Fred Lax commented, "Tekelec's results were strong in the second quarter, with orders up 27% year-over-year and up 29% sequentially, and revenue increasing 39% year-over-year and up 11% sequentially. For the eleventh consecutive quarter, strong order volumes provided us with a book-to-bill ratio greater than one.

"Network Signaling Group revenue increased to $81.5 million, up 20%, compared to $68.0 million in Q2 '04, and increased 10% sequentially, marking the highest quarterly signaling revenue in the history of the Company. We are pleased to announce that Bell Canada has selected Tekelec's Eagle 5 Signaling Application System and integrated network monitoring platform to address its evolving signaling requirements as it enhances its core infrastructure. Bell Canada is replacing legacy signaling and monitoring equipment with Tekelec solutions.

"Switching Solutions Group revenue increased to $33.3 million, up 158%, compared to $12.9 million in Q2 '04, and increased 34% sequentially, as we added 19 new switching customers during the quarter. In another deployment of our wireless media gateway, Celcom, Malaysia's largest mobile operator, will be deploying the T8000 as part of an IP-based next-gen switching solution.

"Communications Software Solutions Group revenue increased to $7.1 million, up 65%, compared to $4.3 million in Q2 '04, but declined 26% sequentially, or $2.4 million. As part of a bundled Tekelec solution, Bell Canada is also deploying Tekelec's network-wide monitoring solution. This implementation will feed the critical business intelligence data required for the applications that run the carrier's customer care, call center operations and customer settlements processes. In a stand-alone deployment, we are pleased to announce that DTAC Thailand, a leading Thai mobile operator, has selected Tekelec's Integrated Application Solution for roaming management. This solution will allow DTAC to better understand the performance of its network, resulting in better service delivery and higher customer satisfaction.

"At Supercomm, we announced our strategy to enable operators to deliver advanced, IP-based services over any fixed or mobile network, utilizing Tekelec 's unique combination of signaling, switching, and applications solutions. Today we are pleased to announce a key milestone in the development of this strategy with the purchase of iptelorg, a German and Czech-based developer of leading edge Session Initiation Protocol (SIP) routing software. This purchase secures a critical IP Multimedia Subsystem (IMS) capability for Tekelec and is part of our strategic focus on providing the same level of carrier-grade reliability, scalability, and innovation to customers' SIP signaling needs that we already supply for their SS7 networks.

"Finally, regarding global expansion, approximately 35% of revenues were generated outside the U.S. during the quarter. This international percentage treats all revenue associated with the Alcatel channel as U.S. sourced revenue, although some of the products are destined for international deployment. In a significant validation of our global expansion initiative, we recently announced that FiberHome Technologies Group, one of the largest providers of telecom equipment and services in China, has agreed to integrate the T9000 distributed switching solution into FiberHome's next-gen network portfolio and to exclusively deploy Tekelec's media gateway in any mid or large size carrier opportunities. This agreement expands Tekelec's presence in China, one of the fastest growing telecom markets in the world."

In a separate release:

Tekelec (NASDAQ: TKLC), a leading developer of telecommunications products for next-generation fixed, mobile and packet networks, today announced that it has amended the terms of the Stockholders' Agreement among Tekelec, Santera Systems and the minority shareholders. The amended agreement provides for a call option with a fixed option exercise price. Tekelec has exercised this option to purchase the minority interest in Santera for $75.6 million in cash. The purchase effectively terminates the minority stockholders indemnification obligations to Tekelec. The transaction is expected to close in early October 2005, subject to the satisfaction of certain closing conditions. Upon closing Tekelec's Income Statement will reflect 100% of Santera's operating results.

"The purchase is significant and reaffirms our belief in our offerings and the long-term opportunities in the next-gen switching space," said Fred Lax, Tekelec's president and CEO. "In the two years since we formed the majority-owned Santera subsidiary, we have become a leading player in the next-gen switching space, with deployments at multiple Tier 1 operators around the globe. Our switching success combined with our industry-leading signaling and communications software solutions uniquely position Tekelec to continuing to provide cost-effective revenue-generating solutions to operators worldwide."

Tekelec's switching growth and leadership have been recognized with industry accolades. During the first quarter of 2005, Dittberner, an independent market research firm, recognized Tekelec as the worldwide market-share leader in media gateway shipments. The company placed first in the worldwide media gateway market with the largest market share growth in the North American space (more than 46 percent), extending its leadership position in the wireless media gateway segment.

Research firm Dell'Oro estimated that Tekelec had the lead market share in hybrid media gateway shipments for the first quarter of 2005. In its recent report, World Next-Generation Carrier Infrastructures Market Update, July 2005, Frost & Sullivan ranked Tekelec second with a 15 percent global market share in global market share for media gateway ports shipped since 2004.

In a separate release:

Tekelec (NASDAQ: TKLC), a leading developer of telecommunications products for next-generation fixed, mobile and packet networks, today announced a key milestone in the development of its Real Convergence strategy. Tekelec has purchased German and Czech-based iptelorg GmbH, developer of leading-edge Session Initiation Protocol (SIP) routing software, securing a critical IP Multimedia Subsystem (IMS) capability for Tekelec.

"We've been collaborating with iptelorg for the past year because of the fast, purpose-built Call Session Control Function (CSCF) capabilities of its SIP Express Router," said Fred Lax, Tekelec CEO. "What became clear to us was that we wanted to do more than license this technology - we wanted to own it, build on it and make it a central part of our IMS strategy to bring the same level of carrier-grade reliability, scalability and innovation to our customers' rapidly growing SIP signaling needs that we provide for their SS7 networks."

iptelorg's SIP Express Router has proven its reliability, speed and value in real-world commercial implementations, anchoring offerings from T-Online International AG and EarthLink, Inc., among others. Its technology is optimized for Tekelec's integrated communications solutions, including the industry-leading EAGLE(R) 5 Signaling Applications System platform.

"The fact that IMS networks are very signaling intensive plays to our strength," Lax continued. "Integrating SIP-signaling applications with our SS7 applications provides a perfect complement to our portfolio, supporting customers with legacy and next-gen environments alike. We help operators evolve their networks at the pace and scale that make sense for their businesses."

Tekelec's leadership in current-generation signaling enables wireline and wireless voice networks to initiate, modify and terminate calls, adding the ability to offer and manage key applications like mobility, call forwarding, number portability and security. SIP routing extends Tekelec's leadership in high-reliability, high-throughput signaling to next-generation networks.

Bringing SIP routing fully in-house further integrates Tekelec's hosted VoIP application servers, softswitch, wireless/wireline media gateway portfolio and billing/network intelligence servers into Real Convergence solutions for customers. This capability lets operators create individual strategies to strengthen their businesses, incorporating revenue-producing offerings like messaging, voice over WiFi, VoIP, presence and other emerging applications. A Tier 1 U.S. operator already is trialing this SIP routing technology as part of a Tekelec IMS solution.

"We will continue to deliver complete signaling solutions that raise the bar for the industry," stated Fred Lax. "We are combining that signaling strength with our growing leadership in the total next-generation switching and applications space to provide our customers with powerful IMS solutions. Jiri Kuthan, Dr. Dorgham Sisalem and their fellow developers at iptelorg are SIP innovators. We are excited to have them join Tekelec to help us extend our leadership in the industry."

Tekelec purchased 100 percent of iptelorg's outstanding stock for approximately $7 million in cash, plus $4 million of Tekelec shares, which are subject to repurchase for a nominal amount if certain of the former iptelorg shareholders terminate their employment with Tekelec within four years. iptelorg will be integrated into Tekelec's Network Signaling Group. Tekelec expects the transaction to have no material impact on its financials, excluding any potential non-cash, in-process research and development charge.

Tekelec Inc.

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