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Tekelec Tops $100M

Light Reading
News Analysis
Light Reading
10/26/2004

Tekelec Inc. (Nasdaq: TKLC) showed some evidence that its growth strategy is on track, as it buys up smaller players in the softswitching market in an effort to become a leading voice switching player.

For the first time in its history, the company logged more than $100 million in revenue in one quarter, showing total sales of $106.6 million, compared with $70.7 million in the third quarter of 2003 and $95.6 million in the second quarter. On a GAAP basis, Tekelec's net income was $18.7 million, or $0.27 per diluted share, for the third quarter of 2004, compared to net income of $8.5 million, or $0.13 per diluted share, in the third quarter of 2003.

Gross profit was 75.7 percent, down from 79 percent during the same period last year.

The company’s third-quarter numbers include some special charges, such as a $2.4 million one-time, non-cash writeoff of R&D spending related to its acquisition of VocalData Inc.; a $9.9 million pre-tax gain on Tekelec's investment in Telica Inc., a company that was sold to Lucent Technologies Inc. (NYSE: LU); and a $2.2 million pre-tax gain on the settlement of convertible securities.

The company was upbeat in its outlook, saying the orders it received in the third quarter for Tekelec products and services were $150.8 million, compared to $74.7 million in the third quarter in 2003. It also said it’s seeing an order book-to-bill ratio of approximately 1.4, which “indicates the continuing strength of Tekelec's business, with all Groups achieving a book-to-bill above 1,” according to the quarterly earnings release.

The biggest gains in Tekelec’s numbers came from its signaling division, which sells signaling systems predominately to wireless carriers. The company reported third-quarter revenue in the signaling group of $81.1 million, which is up 43 percent from the prior year’s quarter.

Much of the company’s future revenue upside depends on growth of recent switching acquisitions Santera Systems, VocalData, and Taqua Systems. The company logged $15 million in revenue in its Switching Solutions Group. The company said this included $2.3 million in sales from Taqua in the quarter, up from half a million in the second quarter.

The company remains busy on the acquisition front. On October 14, it announced it would buy Steleus, “a global supplier of real-time performance management and business intelligence communications software solutions for both fixed and mobile telecom networks.” Steleus will form the basis of a new business group, the Communications Software Solutions Group.

Tekelec also announced that Mark Floyd, the CEO of Entrisphere Inc., has joined its board of directors. Prior to joining Entrisphere, Floyd was president of Siemens Information and Communications Networks Inc.

— R. Scott Raynovich, US Editor, Light Reading

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