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Tekelec Gains in Q3, Loses CEO

CEO Fred Lax says he'll leave at the end of the year, his company reports strong Q3 revenues, and Tekelec stock falls

October 28, 2005

2 Min Read
Tekelec Gains in Q3, Loses CEO

Tekelec Inc. (Nasdaq: TKLC) investors may have had a touch of separation anxiety after CEO Fred Lax's resignation Thursday, because the company's Q3 numbers, also announced Thursday, looked pretty good yet TKLC stock fell in trading before and after the bell.

Lax will leave the company at the end of this year and a search has already begun for his replacement, the company says. (See Tekelec CEO Resigns .) Tekelec shares closed down 97 cents, or 5.6 percent, to $16.22 on the Nasdaq Thursday, and lost another 72 cents, or 4.4 percent, in after hours trading.

As the signaling and softswitching company completes its move from California to North Carolina, Lax says he will stay in California for "personal reasons" and to pursue other opportunities. Lax has served as Tekelec’s CEO for the past five years.

Meanwhile Tekelec's third-quarter results looked ugly because of considerable charges for one-time items, but featured strong revenue numbers and beat analyst expectations.

Third quarter profits fell by more than half from a year ago, mainly due to one-time items, restructuring charges and stock compensation costs. The company reported earnings of $8.7 million, or 12 cents per share, down from $18.7 million, or 27 cents, in the year earlier period. (See Tekelec Turns a Q2 Profit.)

However, on a non-GAAP basis, the company earned $13.4 million or 19 cents per share. This bested Thomson First Callanalyst estimates of 17 cents per share. (See VOIP Equipment Revenue Up 18%.)

Revenues came in at $148.1 million, beating analysts' consensus expectations of $145.5 million. The third quarter revenues marked a 39 percent increase over the year earlier period, and an 11 percent gain over last quarter.

Tekelec's long-term goal of transitioning from a signaling to a switching company also progressed nicely during the quarter. (See Tekelec Buys out Santera and Tekelec Buys IMS Know-How.) The signaling group's revenues grew 13 percent to $88.2 million, while the switching group's revenues more than doubled to $37.6 million.

Analysts remain concerned over the fate of Tekelec's Santera media gateway business, which has yet to reach a threshold of profitability since Tekelec took ownership of the product in 2003. Also problematic is the fact that a resale agreement with Alcatel's Spatial Wireless division still accounts for 84 percent of new sales of the gateway. That number reached 90 percent in the second quarter. (See Alcatel Gateway Troubles Tekelec.)

Tekelec is expecting earnings of 12 cents to 16 cents per share on revenues of $150 million to $156 million for the fourth quarter. Analysts are predicting earnings of 20 cents per share on $155.2 million in revenues.

— Mark Sullivan, Reporter, Light Reading

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