Redback in Guidance Guessing Game
Redback Networks Inc. shares did an about-face in after-hours trading last night despite the vendor's apparently solid second-quarter earnings.
Shares climbed after hours by about 5 percent, but gave back most of those gains during Redback's conference call with analysts, eventually settling up 18 cents, about 1.2 percent, at $14.95.
Investors might have been soured by Redback's forecast for the third quarter, which ends in September. In place of the customary revenue range, or a hint of percentage growth, Redback said only that the third quarter would be "up." Kind of the way Shaquille O'Neal is "tall" or Clay Aiken is "annoying."
"We're guiding on a more conservative basis, but we're not guiding flat and we're not guiding down -- we're guiding up," CFO Thomas Cronan told analysts when pressed for specifics.
Not exactly comforting words, given that Redback also said its book-to-bill ratio fell below 1 in the second quarter.
That sometimes indicates revenues are about to decline, but Redback officials said that's not the case here, as the low ratio comes "on the heels of the significant positive book-to-bill we experienced over the last several quarters," CEO Kevin DeNuccio said on the call.
Add it all up, and Redback is sitting on the "second largest backlog that we have had in the last five years," said the CEO.
Moreover, the third quarter is seasonally slow, Cronan said. He and DeNuccio indicated that they expect a strong fourth quarter.
For its second quarter, which ended June 30, Redback reported net losses of $1.8 million, 3 cents per share, on revenues of $68.2 million. For the previous quarter, Redback had reported losses of $2.6 million, 5 cents per share, on revenues of $57.9 million. (See Redback Reports Q2.)
For its second quarter a year ago, Redback reported losses of $7.2 million, 13 cents per share, on revenues of $34.6 million.
Pro forma net income of 10 cents per share beat the analysts' estimate of 7 cents as tallied by Reuters Research .
Redback is riding a hot streak of growth that saw the stock rise to $25 per share before the recent dip in the tech sector. Part of the story is that analysts are intrigued by Redback's growth prospects -- it's selling to all three U.S. RBOCs and has the potential to land even more business. Verizon Communications Inc. (NYSE: VZ) has a request for proposals (RFP) out for edge routers, and investors are still hoping AT&T Inc. (NYSE: T) -- the former SBC -- will buy Redback's SmartEdge routers to upgrade its arsenal of older Redback SMS boxes.
One glitch came in June when analysts noted the BellSouth Corp. (NYSE: BLS) deployment of SmartEdges was shifting to linecards rather than full systems, implying a less steady revenue stream. DeNuccio tried to deflect that concern when asked about the subject, though.
"We are still increasing the size of the footprint and the capacity in the COs [central offices] we're building," he said on the call. "We're still in a mode, in the second half of the year, of building footprint" for BellSouth.
Separately, Redback updated its status in the stock-options scandal, where it is among dozens of companies subpoenaed by the U.S. federal government and/or being investigated by the Securities and Exchange Commission (SEC) . (See Redback in Options Probe.)
As is the case with many other companies, Redback's board has launched its own review into past options practices. The investigation is not complete, but it hasn't turned up anything so far, DeNuccio said. "The committee has informed us that based upon the review thus far, it has not uncovered any evidence of fraudulent activity, nor evidence that raises any questions about the integrity of current management."
— Craig Matsumoto, Senior Editor, Light Reading