Telcordia: Still a $700M+ Player

After years of plying its trade behind closed doors, telecom software giant Telcordia Technologies Inc. has provided an update on its business, which it claims is generating more than $700 million in annual revenues, is cashflow positive, and on course for growth.

Telcordia has been ultra-secretive about its business since it was acquired by private equity firms Providence Equity Partners and Warburg Pincus for $1.35 billion in 2005, but, perhaps spurred by growing demand for some if its non-legacy businesses, it unveiled its sales (including divisional details) and strategy during a recent conference call with analysts and the press. (See HQ Sale Funds Telcordia Deal.)

And in something of a departure for a company known as much for its arrogance and lack of humility as its brain power, CEO Mark Greenquist even admitted some failings he is intending to address. (Nurse, pass the smelling salts, please.) (See Telcordia Names CEO.)

The encouraging news for Telcordia is that the economic downturn is set to hit overall annual sales by less than 5 percent during its fiscal year 2010 (which ends January 31, 2010), while the company, without providing any guidance, says it's focused on a return to sales growth in fiscal 2011. That's a decent performance given that the company is still so reliant on U.S. carriers, which have been tightening their purse strings during the past 12 months.

Table 1: Telcordia's Revenues Fiscal 2006-2010
Fiscal year Revenues
2006 $811 million
2007 $731 million
2008 $711 million
2009 $768 million
2010 $740-$750 million (forecast)
Source: Telcordia

The company had "hoped that the [fiscal] 2009 growth would continue, but reality hit," stated Greenquist, who says the software firm is generating between $20 million and $30 million in cashflow after the cost of servicing its debt, which has been restructured to give Telcordia more breathing space (none of its debt matures until 2012-2013, and it isn't tied to any covenants).

The challenge facing Greenquist is that the bulk of Telcordia's revenues come from its legacy OSS engagements with AT&T Inc. (NYSE: T), Qwest Communications International Inc. (NYSE: Q), and Verizon Communications Inc. (NYSE: VZ) (the "RBOCs"), and those legacy revenues "are declining and will continue to decline," says the CEO.

That decline can be seen in the table below, which shows Telcordia's RBOC revenues dropping from 55 percent of total revenues ($446 million) in fiscal 2006 to 45 percent of sales in fiscal 2009 ($346 million).

Table 2: Telcordia Reports Growing International Sales
Fiscal year RBOC revenues as % of total Domestic non-RBOC revenues as % of total International revenues as % of total
2006 55% 33% 12%
2007 52% 33% 16%
2008 49% 34% 17%
2009 45% 35% 20%
Source: Telcordia

But overseas sales are increasing, from 12 percent ($97 million) in fiscal 2006 to 20 percent ($154 million) in fiscal 2009. The company expects that percentage to increase again during the current financial year (fiscal 2010), during which it has struck new deals in Europe and Asia/Pacific. (See Sonaecom Uses Telcordia's OSS.)

Business unit breakdown
Telcordia has four business units, the largest of which includes the legacy OSS business with the RBOCs that generated hundreds of millions of dollars of revenues for so many years.

  • Operations Solutions (OS) -- the largest division (revenues of $468.5 million in fiscal 2009) that includes legacy OSS tools that are deeply embedded in the AT&T, Qwest, and Verizon networks, and which has been hardest hit by the economic downturn. But it also includes more up-to-date systems such as the Granite inventory management platform, other fulfillment and service assurance tools, planning and engineering systems, and consulting services. Telcordia claims to have the "largest new generation OSS portfolio in the industry," according to the company's chief strategy officer, Adan Pope.

  • Service Delivery Solutions (SDS) -- the second largest division (revenues of 138.2 million in fiscal 2009) is built around the company's converged applications server, which houses Telcordia's service delivery platform (SDP), real-time charging and policy capabilities, and interactive services platforms. This division's main success has come in Brazil, with mobile operator Oi, and in India, with the likes of Aircel Ltd. , Idea Cellular Ltd. and Tata Teleservices Ltd. (See Aircel Charges With Telcordia, Tata, Telcordia Hit TMF India, and Telcordia, Oi Develop Services.)

  • Advanced Technology Solutions (ATS) -- has a strong federal element, as it's focused on government systems, cybersecurity, and research & development activities. It generated revenues of $92.2 million in fiscal 2009.

  • Interconnection Solutions (IS) -- currently the smallest division (fiscal 2009 revenues of $61.4 million), it's set to grow in importance as mobile number portability is launched in India, where Telcordia will provide the underlying capabilities and services in the east and south of the country. The vendor also has number portability deals in Mexico and Turkey, and expects further business as more markets adopt a clearing house approach. (See IndiaWatch: Hold-Ups & Hangovers, AsiaWatch: India Preps Number Portability, Nextel Mexico Uses Telcordia, Telcordia Wins in Malaysia, and Telcordia, Neoris Team Up.)

    Table 3: Telcordia's Revenues by Business Unit
    Fiscal year OS revenues as % of total SDS revenues as % of total IS revenues as % of total ATS revenus as % of total
    2006 71% 13% 8% 8%
    2007 69% 14% 8% 10%
    2008 68% 14% 8% 11%
    2009 61% 18% 8% 12%
    Source: Telcordia

    What's next?
    In search of further growth, Telcordia is looking to make new friends with channel, technology, and implementation services specialists as part of its OSS Partner Framework.

    This is one of the areas where Greenquist is looking for improvements. "Traditionally we haven't been the easiest people to [partner] with, so we're focused on doing a better job," stated the CEO. "We'll continue to invest in areas where we are focused and then partner in adjacent areas," he added.

    Growth through acquisitions isn't part of the stated plan, though. "We're not focused on M&A -- we're focused on organic growth, and don't see the need, or have the strong desire, to be bold on the M&A front. But if it was in the right area... never say never," stated the CEO. "Commercial relationships can give you a lot of what you need. Control, which is what you pay for [with an acquisition], can be overblown."

    Though it seems Telcordia isn't averse to taking a stake in its partners, which is what it did earlier this year with home network management specialist Fine Point Technologies Inc. (See Telcordia Invests in OSS Specialist.)

    The overall focus is to help operators get with their "order to service" and "order to cash" strategies, figure out a way to monetize interactive services, and make it easier for service providers to make money from the increasing demand for access to content (video, music) and applications. "CSPs [communications service providers] do not need to be disintermediated" by the over-the-top content firms, stated Pope.

    — Ray Le Maistre, International News Editor, Light Reading

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