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BSS (inc. billing, revenue assurance)

Tough Going for Comverse

Comverse Technology Inc. (Nasdaq: CMVT), one of the biggest Service Provider Information Technology (SPIT) players in the world, has had a tough few years, having only recently emerged from the fiscal wilderness of financial restatements following the major accounting scandal instigated by its former chairman and CEO. (See Comverse Kobi Coughs Up $54M and Comverse Settles Backdating Case.)

Now its latest earnings report suggests it has a new set of challenges to overcome.

Comverse Technology reported revenues of US$405.5 million for its fiscal fourth quarter, down nearly 6 percent from a year ago, and net income of $4.5 million. Its profits before one-time costs (or non-GAAP earnings, which financial analysts use as a measure of ongoing fiscal health) were $30.3 million, or 14 cents per share.

The numbers didn't match Wall Street's expectations of $427.4 million in revenues and 16 cents in non-GAAP earnings and the company's share price duly dipped by 5.7 percent to $6.46 by the close of trading Tuesday.

More than half of its revenues come from Comverse Technology's enterprise security and analytics business Verint Systems Inc. , which generated fiscal fourth-quarter sales of $212 million.

The bulk of the remaining revenues are generated by its business support systems (BSS) and value added services (VAS) subsidiary, Comverse, which is in the process of being spun off. (See Comverse Goes It Alone and Comverse Stock Gets Shared Out.)

And it's Comverse that's an important supplier of SPIT systems (billing, charging, messaging, customer experience management and service delivery platforms) to communications service providers (CSPs) worldwide. (See Comverse Updates Comverse ONE, Comverse Opens Policy Studio for Data Plan Creation, Report: Most Operators to Move to Converged BSS Soon and Comverse Targets IP Messaging.)

But it's tough going at the moment, with sales down significantly year-on-year, as the table below shows.

Table 1: Comverse Fiscal 2012 Results
$ millions Fiscal 2012 Q4 Fiscal 2011 Q4 Fiscal 2012 Full Year Fiscal 2011 Full Year
Revenue $181.5 $235.8 $771.2 $862.8
Operating income $10.0 $16.8 $11.4 -$59.8
Operating margin 5.5% 7.1% 1.5% -6.9%




Comverse provides greater visibility into its business by breaking down its numbers into three lines of business: BSS (billing and customer management systems); VAS (IP messaging platforms, social media applications gateways, service brokers and gateways); and Other (the NetCentrex VoIP applications operation, Mobile Internet business, global corporate functions plus the Starhome roaming systems subsidiary).

Table 2: Comverse Business Line Fiscal 2012 Performance
$ millions Fiscal 2012 Q4 Fiscal 2011 Q4 Fiscal 2012 Full Year Fiscal 2011 Full Year
Comverse BSS revenue $86.6 $98.4 $365.0 $340.5
Comverse BSS operating income $20.8 $19.2 $77.1 $56.4
Comverse BSS operating margin 24.0% 19.5% 21.1% 16.6%
Comverse VAS revenue $80.2 $119.9 $356.4 $460.9
Comverse VAS operating income $24.9 $56.0 $123.9 $175.3
Comverse VAS operating margin 31.1% 46.7% 34.8% 38.0%
Comverse Other revenue $14.8 $17.6 $49.7 $61.4
Comverse Other operating income -$35.6 -$58.4 -$189.6 -$291.5
Comverse Other operating margin -241.5% -332.5% -381.2% -474.4%




It's clear to see, then, that the biggest challenges lie in the VAS line of business, while the performance of the Other is dragged down by corporate expenses. The BSS business line, meanwhile, is faring better and is showing improving margins.

It's still a tough market for the SPIT vendor, but as Comverse Technology CEO Charles Burdick pointed out in the company's earnings report, there are encouraging signs in the market. "Although due to several project deferrals we did not experience expected fourth quarter strength in BSS customer solution order activity, our pipeline remains strong and we expect growth in BSS customer order activity. We continue to gain recognition as a leader in the emerging converged billing BSS segment, with additional new Comverse ONE customer wins along with marketplace and analyst endorsements. Comverse also continues to reinforce its leading market position in value-added services, and its new IP messaging platform and cloud-based Service Enablement Middleware solution has attracted considerable interest among service providers."

— Ray Le Maistre, International Managing Editor, Light Reading

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