AFC Profits in Odd Times
The bottom line on second-quarter results? While AFC's revenues shrank by 4 percent compared to last year during the comparable period, the company's aggressive cost cutting helped it turn a profit anyway.
AFC reported revenues of $83 million for the second quarter, compared to revenues of $86.3 million for the year-ago period. It says its quarterly profit was $3.3 million, or 4 cents a share, an improvement on the net loss of $2.3 million or 3 cents a share reported during the second quarter of last year.
AFC's pro forma earnings per share were 9 cents; it soundly beat analysts' expectations of $81.2 million in revenues, or 7 cents a share. The company expects its third-quarter revenues to be up to somewhere in the $84 million to $85 million range, with gross margins in the 47 percent to 50 percent range.
"I am feeling more cautiously optimistic about the industry, by which I don't mean that things will get appreciably better anytime soon," said AFC president and CEO John Schofield, who didn't seem confused at the time.
Looking to the future, the company has been prepping for sales in all areas of the access network. It has both point-product solutions, including DLCs, DSLAMs, and fiber-to-the-curb gear -- if carriers are content to add capabilities to existing gear slowly and methodically. But it also has its own access "God box," in case there's equipment replacement or new builds going on.
The company referred to two key equipment deals that will help it out the rest of the year, and it expects revenues to rise slightly in the next three months.
One RBOC has selected AFC to be a second-source supplier for one request for proposal (RFC) that's made the rounds. The company expects to begin lab trials in that deal before the end of the year. It also expects a large ILEC to upgrade some 300 of its central offices with the DSLAM version of AFC's AccessMax system. Installations are due to begin in late August and continue throughout the year.
Along with the highlights, there are some concerns. As Kaufman Bros. LP analysts pointed out in a report last week, four of AFC's largest customers -- Alltel Corp., SBC Communications Inc. (NYSE: SBC), Sprint Corp. (NYSE: FON), and Verizon Communications Inc. (NYSE: VZ) -- are forecasted to cut their capital spending by 13 percent this year. Sprint and Alltel together made up more than 45 percent of AFC's revenues during the second quarter.
Also, the looming possibility of a strike at Verizon has some AFC watchers on edge, though AFC wasn't keen to comment on the scenario. "Its unclear as to what impact, if any, it may have on us," Schofield says.
And then there's Alcatel SA (NYSE: ALA; Paris: CGEP:PA), whose name crops up in almost every breath that mentions AFC winning business in the RBOC accounts. "Clearly, Alcatel is the dominant vendor in the RBOCs," Schofield concedes. "Their installed base is likely to be invested in at a larger rate."
Through it all, AFC continues to cut costs. Its headcount was 748 at end of June, down about 12.4 percent from March's total of 854, a bit larger cut than the company had discussed earlier.
The quarter also saw some profit taking by AFC's top executives, who unloaded stock for tens of thousands of dollars. In May, Schofield sold 8,700 shares for proceeds of $152,685. The company's CFO Keith Pratt and Director Ruann Ernst sold 5,000 shares each for proceeds of $92,250 and $97,450 respectively.
— Phil Harvey, Senior Editor, Light Reading