Dude, Where's My Revenues?
Tellium Inc.'s (Nasdaq: TELM) shares dropped 40 percent on Monday after the company warned late on Friday that it expects to report revenues of only $3 million for the second quarter of 2002 (see Tellium Preannounces Q2 Results), a small fraction of the $20 million to $30 million in anticipated revenue that Wall Street analysts had in their spreadsheets.
The company brought in $54.1 million in the first quarter of this year, ended March 31.
The announcement was made quietly after the market closed on Friday. The news came just a week after Tellium laid off 37 percent of its staff, an event from which CEO Harry Carr was absent (see Tellium Wields the Axe and Dude, Where's My Carr?).
In midday trading the stock was down $0.34 (36.56%) to $0.59. This is a far cry from the company’s closing price of $20.93 the day it went public on May 17, 2001 (see Market Gives Tellium a High Five).
The shortfall in the company’s revenues was anticipated -- yet the scale of the miss almost certainly was not. Light Reading reported last week that revenues were expected to be significantly less than first predicted by Wall Street (see Dude, Where's My Carr?). Rick Schafer of CIBC World Markets and Nikos Theodosopoulos of UBS Warburg had both previously stated that they expected revenues to be about $30 million for the quarter. Other analysts like Hasan Imam of Thomas Weisel Partners had anticipated revenues of $15 million. First Call consensus was about $21.58 million.
Tellium also said in its release that it expects loss per share on a pro forma cash basis to be $0.38 to $0.42, after two prior quarters of positive pro forma cash earnings per share. This is a much larger loss than First Call’s estimated loss of $0.12 per share.
In Friday's statement, the company attributed the massive shortfall to the “continued deteriorating conditions in the telecommunications industry." The company has been unable to win new customers, and its existing customers are cutting back. For example, Qwest Communications International Inc. (NYSE: Q) and Dynegy Inc. (NYSE: DYN), which accounted for most of the company’s revenues in the past few quarters, came in extremely weak in this quarter. Qwest has delayed many of its projects while Dynegy has finished its U.S. network deployment.
While analysts covering the company have all reduced their estimates as a result of Friday’s announcement, most of them still seem optimistic about the company’s eventual recovery. This shouldn’t be too surprising, given the fact that five of the eight research analyst firms covering the company also helped underwrite its IPO last year. Morgan Stanley Dean Witter & Co. and Thomas Weisel Partners were both lead underwriters, while UBS Warburg, CIBC, and Wit Soundview all took part.
In a research note published this morning, Schafer of CIBC lowered 2002 estimates to $63 million from $129 million. He also dropped 2003 estimates to $30 million from $160 million.
Theodosopoulos of UBS Warburg lowered his estimate for Tellium's revenue to $67 million from $138 million for 2002 and to $44 million from $123 million for 2003. He also widened estimates for Tellium's cash loss per share to $0.65 from $0.30 for 2002 and to $0.63 from $0.20 for 2003.
Despite the bleak outlook, both of these analysts maintained their “Hold” rating on the stock, pointing to the company’s recent job cuts as a positive step forward.
“We applaud TELM's pro-active approach to rationalizing expenses to match market realities. Despite trading at 30 percent-plus discount to cash ($205 million), however, we expect the shares should continue to languish -- along with carrier capex -- over the next several quarters,” writes Schafer.
Tellium reports that it expects to have $205 million in cash at the end of the second quarter. The company will officially report earnings on July 24th and expects to give third-quarter guidance at that time.
— Marguerite Reardon, Senior Editor, Light Reading