Sonus Shares Latest Thrill
shares vaulted 11 percent this morning, trading up $0.51 to $5.20 on news that it beat analysts' revenue and profit estimates with its second-quarter 2005 results. That comes after Sonus lost money in the first quarter and did not provide guidance for the second (see Sonus Dips Into the Red).
The company reported that for the quarter ended June 30, 2005, net income nearly doubled to $9.7 million, or 4 cents per share, up from $4.9 million, or 2 cents per share, a year earlier. Analysts had expected the company to post a loss of 1 cent per share, according to Reuters Research.
Revenues grew 37 percent to $58.1 million from $42.4 million in 2004, blowing away the analyst estimates of $38.5 million by $20 million.
Legg Mason Inc. upgraded Sonus shares from a Sell rating to a Hold, but complained of a "lack of rhythm" in Sonus's quarterly results.
But looking forward, Sonus officials told analysts Monday only that revenues for the rest of the year were expected to exceed the $91.5 million taken in the first half. There was no real quarterly or numeric guidence.
While the glowing second-quarter numbers warmed investors overnight, the reality of Sonus's vague guidance for the rest of the year seemed to set in Tuesday.
Shares that had traded as much as 30 percent higher in the after-hours market on Monday sunk back to more modest gains of 10 percent after the stock opened for trading Tuesday morning.
That lack of clarity and foreward vision from Sonus brought back frustrating memories for some analysts, who have longed for some predictability in Sonus's earnings.
One theory on the spectacular second quarter was that Sonus was simply booking revenues that had slipped from the first quarter. In truth, $6 million in revenues had indeed been deferred from the first quarter.
"Q2 book-to-bill came in below 1x -- we believe that much of the revenue upside in the quarter came from revenue that was previously hung up from a revenue recognition perspective (consistent with Sonus’ well-publicized challenges on revenue recognition)," wrote Jefferies & Co. Inc. analyst George Notter in a research note.
The "revenue recognition challenges" that Notter refers to led to its earlier accounting restatements -- and the inquiry by the SEC. Such a history means that investors might need to see a string of impressive quarters before their doubts are quelled. They're still waiting.
Sonus's reporting problems have stemmed at least partly from its low customer count. Only 39 companies contributed to revenues in the second quarter, and one of those was Cingular Wireless LLC , which contributed 41 percent of revenues. So one blip in the Cingular account can throw off (or up) the whole quarter.
Sonus CEO Hassan Ahmed could offer no assurance that the third quarter would not be another disappointment (like the first) and that most of the year's remaining revenue would be reported in the last quarter of the year. Ahmed believes observers can get a much better idea of his company's progress by looking at it in half-year increments, instead of tracking it quarter-by-quarter. Whether or not Sonus can repeat its second quarter results in the third may depend on Cingular. "Cingular is deploying our product more broadly after the AT&T Wireless acquisition being completed," Ahmed told Light Reading Tuesday. "The Cingular business specifically is something we see as contributing to our business throughout the rest of 2005.”
Sources believe that the large chunk of Cingular revenue in the second quarter resulted from Sonus's technology gaining acceptance in the AT&T Wireless portion of Cingular's Network. Cingular acquired the AT&T Wireless network in February 2004.
Jefferies analyst Notter maintained a Hold rating on Sonus, but he also raised his 2005 full-year estimates, raising revenue projections from $167.1 million to $186.2 million. "Consistent with the upside in Q2 results, we are taking our 2005 EPS estimate from $(0.01) to $0.03," wrote Notter. "Our 2006 EPS estimate, however, declines from $0.05 to $0.00 on higher operating expense assumptions."
The news adds to a long lineup of activity at Sonus in 2005. In June, the SEC ended its inquiry into Sonus and gave the company the "all-clear" after Sonus had restated its books from 2001-2003. Also in June, Light Reading reported that Sonus might be the the big beneficiary of business at Then, just a week ago, a finance VP resigned. (See Sonus Cleared by SEC, Stock Jumps, Source: Sonus Has BellSouth Deal, and Sonus Finance VP Quits.) — R. Scott Raynovich, US Editor, and Mark Sullivan, Reporter, Light Reading