Riverstone Makes its Numbers
MAN, what a good quarter it was for Riverstone Networks (Nasdaq: RSTN), considering the gloomy state of the market. A provider of switches and routers in the still hot metropolitan area network (MAN) segment, Riverstone topped growth estimates and reached profitability ahead of expectations -- at least
on a pro-forma basis.
The consensus of analysts predicted a pro forma loss of 2 cents per share, or $2.2 million, on $55 million revenues for the second fiscal quarter ending Sept. 1. Riverstone equaled the revenue projection but topped the earnings outlook with a penny profit, or $1.6 million. The pro forma figures don't include goodwill amortization and stock-based compensation.
How well business will be in the near term, however, is anyone's guess.
"Our crystal ball has all but blown up," says CEO Romulus Pereira regarding uncertainly caused by the Sept. 11 terrorist attacks, "but our long-term guidance is minimally impacted by the New York events." On a positive note, he points out that no one has yet canceled orders following the tragedy. But he plans to hold another conference call with analysts in late October, hoping it will be easier to predict the future then.
Based on generally accepted accounting principles, which include deductions for amortization and stock compensation, Riverstone came out of the latest quarter having done much better than most vendors in the depressed telecom and network equipment market. The company earned $64,000 for a break-even quarter on a per-share basis. That's a big improvement over the first quarter when Riverstone lost $4.7 million, or 4 cents a share. Revenues grew by 25 percent from the first quarter's $44 million. This was Riverstone's eighth consecutive quarter of revenue growth.
Results are all the more impressive when compared with figures from a year ago, when Riverstone lost $12 million on $21 million revenues. Last year's per-share loss cannot be compared with current figures, though, because the company had not yet spun off from parent Cabletron, which has since morphed into Enterasys Networks Inc. (NYSE: ETS).
Not all the latest news was great, however. Gross margins of 57 percent remain equal to the first quarter. Company officials point out that the number is gradually improving from 54 percent a year ago and they predict the long-term figure will be 58 to 60 percent. The company's newest product, the RS 16000, just began shipping in the second quarter and Pereira expects the RS 16000 to become a best seller with high margins.
"Days sales outstanding," the average number of days it takes customers to pay their bills, increased from 55 days to 61 days in the second quarter. Officials blamed the increase on the company's rise in international sales to 49 percent of total revenues for the quarter over a first quarter figure of 39 percent. Some analysts see stronger growth overseas and international diversification as a good sign because many large telecom companies in the United States are burdened by large investments in legacy infrastructure, which won't be retired very quickly. In the current environment, companies that are not picking up more overseas business are generally doing poorly.
But over the long term, Pereira expects the United States to overseas sales to return to a ratio of about 70 to 30.
Demand for Riverstone's products remains high. Inventory turnover, or inventory divided into annual sales, improved to 6.1 from 5.9 in the first quarter. Company officials say the book-to-bill ratio is more than 1:1, which means Riverstone is receiving more orders than it can currently deliver.
— Tom Davey, special to Light Reading, http://www.lightreading.com