Metro Hopes Float on Riverstone
Last night Riverstone Networks (Nasdaq: RSTN), a metropolitan area equipment provider, announced its first-quarter earnings, beating analyst expectations with a narrower loss than expected (see Riverstone Closes 1st Quarter).
Pro forma net loss for the quarter was $0.03 per share, compared with a loss of $0.06 per share the previous quarter. Executives on the conference call with analysts said that they expect a $0.01 loss for the year and that the company should be profitable by the third quarter.
Analysts and vendors have been saying it for months, but the metro area network seems like the place to be these days. As companies like Nortel Networks Corp. (NYSE/Toronto: NT) and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) warn of disappointing quarters (see Nortel's Nuclear Winter and Tellabs Tanks on Warning), companies like Extreme Networks Inc. (Nasdaq: EXTR), Foundry Networks Inc. (Nasdaq: FDRY), and Riverstone -- all metropolitan area network Ethernet players -- are reporting positive outlooks (see Extreme, Foundry Get Happy ).
“We’re definitely hot,” said Romulus Pereira, president and chief executive officer of Riverstone, in an interview after the conference call. “Our results show that the metro is the light at the end of the tunnel for the malaised Internet. Carriers have been grappling with how they can make money from access, and they’ve realized that the money is in services. The metro is ground zero for that, and we plan to be a market leader.”
All in all, the company’s quarter looked good. Revenues grew 26 percent to $44.2 million, compared with last quarter’s revenue of $35.1 million. Gross margins also improved to 56.8 percent, a sign that the company has been able to handle pricing pressure from its competitors.
Pereira attributed the strong quarter to Riverstone's broad customer base and its differentiated product offering, which includes multiservice protocol switching (MPLS) and resilient packet ring (RPR) technology on its edge routers. Only one customer, IntelliSpace accounted for more than 10 percent of the company’s sales for the quarter.
“They expanded overseas, and these sales were the result of shipping ahead of installation,” said Pereira. “Our business is diversified enough that in any given quarter any one of our customers could account for 10 percent of our sales.”
Pereira also said the company had started shipping its first products to Qwest Communications International Corp. (NYSE: Q), a deal it won through its partnership with Sonus Networks Inc. (Nasdaq: SONS). While the amount of the contract hasn’t been disclosed, he said he expects it to be a long-lasting one that should generate significant revenue.
The company added several new customers this quarter, including, Retevision, Telia AB, Videotron, Shanghai Post and Telecom, UECOM, Storm Telecommunications Ltd., and CompleTel. Other steady customers, like British Telecom (BT) (NYSE: BTY), Verizon Communications Inc. (NYSE: VZ), and UUNet, remained at the top, too. The company also had strong sales through its OEM agreements with Sonus, Tellabs, and ZTE.
As part of its diversification plan, the company said it saw strong growth overseas. While the percentage of sales dipped downward from 42 percent last quarter to 39 percent this quarter, the company expects to see stronger growth in Europe and Asia as it continues shipping products through its reseller partner ZTE in China.
As far as products go, the company saw a roughly 60/40 split in sales of large-chassis-based products like its RS 8000 and RS 32,000, versus its smaller products like the RS 3000. Its newest product, the RS 16,000, announced earlier this month at Supercomm, is expected to be a big seller in subsequent quarters, adding to the growth in sales of the chassis-based products (see Riverstone Goes Dense). This is good news, considering that the chassis products tend to have higher gross margins, said Pereira.
But the quarter wasn’t entirely without concern. On the conference call, Robert Stanton, chief financial officer told analysts that DSOs (days sales outstanding -- the number of days it takes customers to pay up) went up to 55 days versus 52 days in the fourth quarter of last year. Inventory levels were also up.
In after-hours trading yesterday, Riverstone was trading up to 19.40 per share, according to Instinet, for a daily gain of about 13 percent. But this morning the stock fell 0.79 (4.15%) to 18.24.
- Marguerite Reardon, Senior Editor, Light Reading