Options Probe Spreads to Sycamore
The optical switching vendor said in a filing today that the Securities and Exchange Commission (SEC) had "commenced a formal investigation related to certain stock options granted by the Company during calendar years 1999 through 2001 that were erroneously accounted for under GAAP."
Sycamore noted it had "previously instituted and completed an independent investigation into this matter and subsequently restated financial results for fiscal years 2000 through 2004 and for the first two quarters of fiscal 2005," and that it "intends to continue to cooperate fully with the SEC regarding this matter." (See Sycamore to Restate 2005 Earnings.)
On a conference call today, CEO Dan Smith noted that investigation, but said "at this time we're not in a position to provide any additional commentary."
News of the SEC probe was folded into the company's third quarter earnings report, which featured higher than expected revenues, earnings and margins. That sent the share price up $0.40 (9.80%) to $4.48 in late afternoon trading on Tuesday. (See Sycamore Reports Q3.)
Revenues were $22.9 million, up 10 percent quarter-on-quarter and up 29 percent from a year earlier. Analysts had expected revenues of $20.28 million.
Net income was $10.5 million, or 4 cents per share, compared with a net loss of $12 million a year earlier. Analysts had expected earnings of 3 cents per share. Gross margins were high, at nearly 60 percent, due to a favorable product and customer mix and the sale of product spares. The company has a gross margin target range of the mid-forties to low fifties.
Sycamore has now posted four consecutive profitable quarters. (See Sycamore Shares Slip on Q2 Profit, Sycamore Ticker Shock II, and Sycamore Surprises With Profit.)
On the earnings conference call, CEO Smith noted that continued core network expansion projects, driven by the expected capacity requirements of services such as video on demand, high definition IPTV, interactive gaming and mobile broadband, were fuelling Sycamore's good run.
But the company is still cautious, as it relies so heavily on four main customers, which together accounted for more than 90 percent on the quarter's revenues. Indeed, about $5 million of the revenues came from a spare parts order from one major customer that has just renewed a multi-year maintenance contract.
Existing customers include NTT Communications Corp. (NYSE: NTT), KT Corp. , Sprint Corp. (NYSE: S), and Vodafone Group plc (NYSE: VOD). The company did not add any new customers in the third quarter, though new opportunities around the world are being worked on with partner Siemens Communications Group . (See Siemens and Sycamore Team up.).
Sycamore declined to provide revenue and margin guidance for the fourth quarter. CFO Richard Gaynor noted that "customer concentration, long sales cycles and the unpredictable nature of customer deployment schedules are some of the drivers of the lumpy nature of our business," and make it hard to provide accurate guidance.
CEO Smith said he couldn't comment on the ongoing acquisition of Eastern Research Inc. as the two companies were still separate firms. But he noted that the acquisition was the first in a number of steps the company would be taking to position itself for the future, and that further decisions would be communicated after the eastern deal is finalized, which should happen in "the summer timeframe." (See Sycamore Sings With Eastern Buy.)
— Ray Le Maistre, International News Editor, Light Reading