Earnings reports

Verso Aims to Stay Single

Despite its distressed state, Verso Technologies Inc. (Nasdaq: VRSO) officials assured shareholders, analysts, and media yesterday that the company is not being groomed for sale, despite speculation new COO Lewis Jaffe has been brought in to do exactly that.

In fact, much of the conference call's question-and-answer session focused on Jaffe’s reputation as a turnaround specialist. But Jaffe was quick to smack down any M&A chatter. “I’ve never in my career gone into a situation where I said: ‘I’m going to clean it and sell it,’ " he says.

“I know there have been a lot of rumors, and I have read the bulletin boards,” says CEO Steve Odom. “I chose to bring Lew in not to package up the company to sell; I did it because he’s a damn good operator.”

“I would not even think of selling the company right now,” Odom continues.

Rather than talk of a sale, the company elaborated on its cost-cutting plans (fire employees) and market strategy (aim for small accounts with short sales cycles).

Verso says it has already cut 60 people, and “adjusted” the salaries of others still on board. Verso CFO Juliet Reising says the company will realize $5.2 million in savings over the next two quarters as a result.

“We eliminated people that were actually costing us money and not contributing very much, so the benefit of eliminating those people will keep on going in the future,” Odom says. [Ed. note: Sounds like he's really going to miss them.]

Jaffe says the company will focus both product development and sales strategy on smaller, rural carriers in the United States, markets Jaffe believes can yield the quickest sales numbers. Verso, in fact, is now building a new interface to its core Clarent product to make it more competitive with smaller North American carriers. The product was originally designed for the Asian carrier market.

“It gets us back into the forefront of technology,” says Monty Bannerman, Verso’s senior VP of strategic initiatives, who joined the company with some fanfare in November.

“We are going to play at the edges and in emerging markets where they want to put in a simple overlay solution,” says Bannerman. “It is one of the fastest growing parts of the market.”

It's also one of the only markets Verso's gear is suited for. Analysts say the company's gear doesn't have the feature set and scaleability to serve the needs of U.S. RBOCs, who control most of the available capital spending dollars in North America. In tandem with it's one-item menu of a market strategy, Verso officials again declined to give any financial guidance.

Verso’s revenue for the third quarter of 2004 was $11.2 million, compared with $15.3 million in the year earlier quarter, and with $11.3 million in the second quarter.

Though Verso's Clarent boxes are already installed in large numbers in foreign networks, analysts say Verso’s cash flow, which has declined steadily to $10.8 million as of September 30, 2004, may cause carriers to think twice about staying the course.

Verso’s stock price has retreated steadily from a peak in September 2003 of $5 a share to its current position of less than $1. NASDAQ notified Verso that it would delist the stock if its price does not close at higher than a dollar for ten consecutive days before May 10, 2005.

— Mark Sullivan, Reporter, Light Reading

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