Tellabs, Inc. (
Q3 2010 Earnings Call
October 26, 2010 08:30 am ET
Tom Scottino - Senior IR Manager
Rob Pullen - President & CEO
Tim Wiggins - EVP & CFO
Simona Jankowski - Goldman Sachs
Tal Liani - Bank of America
Alex Henderson - Miller Tabak
Jim Suva - Citi
Ehud Gelblum - Morgan Stanley
Michael Genovese - Soleil Securities
Nikos Theodosopoulos - UBS
Rod Hall - JPMorgan
Mark Sue - RBC Capital Markets
Simon Leopold - Morgan Keegan
Good morning. My name is Susan and I will be your conference operator today. At this time, I would like to welcome everyone to the Tellabs investor relations conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)
Thank you. Mr. Tom Scottino, you may begin.
Thank you, Susan, and good morning, everyone. With me today are Tellabs CEO, Rob Pullen; and our Executive Vice President and CFO, Tim Wiggins. If you haven't seen the news release we issued this morning, you can access it at our tellabs.com website.
Before we begin, I'd like to remind you that this presentation contains forward-looking statements about future results, performance or achievements financial and otherwise. These statements reflect management's current expectations, estimates and assumptions. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties, or other factors that may cause Tellabs' actual results, performance or achievements to be materially different. A discussion of the factors that may affect future results is contained in Tellabs most recent SEC filings.
The forward-looking statements made in this presentation are being made as of the time and date of its live presentation. If the presentation is reviewed after the time and date of its live presentation, it may not contain current or accurate information. Tellabs disclaims any obligation to update or revise any forward-looking statement based on new information, future events or otherwise.
This presentation may also include some non-GAAP financial measures. Reconciliations between non-GAAP financial measures and GAAP financial measures can be found at our www.tellabs.com website and in our SEC filings.
Having said that, I'll turn the call over to Rob.
Thanks, Tom, and good morning everyone. We look at the Tellabs' strategic focus on the smart mobile Internet, generated profitable revenue growth again in the third quarter. We had revenue up 10% and we doubled earnings per share compared with the year ago. We'll talk about the fourth quarter in a few minutes.
Over the past two years, we have advanced Tellabs' strategy by focusing our investments in growth products, growth services, and growth markets. That strategy is succeeding because Tellabs has a deep understanding of our customers' networks and their businesses. We've written down innovated new ideas, especially to address the pain points, such as growth of the mobile data traffic, while they have flattening average revenue per user or ARPUs.
We make our solutions work for our customers by combining best-of-breed products with expert professional services. As you know, our customers are building network capacity to keep up with the mobile data traffic growth. Tellabs is strongly positioned in our industry-leading mobile backhaul and increasingly our mobile packet core solutions.
Now let's look at the third quarter. Tellabs' third quarter story is one of strong year-over-year growth in international markets and in data and in transport. For the past couple of years, Tellabs has increased their sales and services resources in international markets. This is no news to any of you. We have particular emphasis in Brazil, Russia, India, China and South Africa. Now, our international business initiative is clearly taking root.
In the third quarter, Tellabs won a dozen new international customers for our growth products. Year-to-date, 44 new international customers have chosen Tellabs' growth products. We're moving in the right direction.
Our third quarter international bookings were the highest in two years. Our third quarter international revenue rose 14% over a year ago and 42% sequentially, as we had indicated on our previous call.
As our international business gains momentum, Tellabs expects the higher percentage of our fourth quarter orders and revenue to come from international. Tellabs' international business is focused on growth products. About 52% of Tellabs' overall third quarter revenue came from growth products, up from about 45% a year ago.
Our data revenue grew 35% compared with the year-ago and Transport revenue was the strongest in 10 quarters, that's probably since the first quarter of 2008. Our Transport revenue was driven by strong digital cross-connect revenue and record revenue from the Tellabs 7100 Optical Transport System, which is increasingly deployed to enable mobile networks.
Tellabs profits grew in the third quarter. Our GAAP gross profit margins were 50.2%, up from 41.7% a year ago and GAAP earnings were $0.15 a share, up from $0.07 a share a year ago.
Now let's turn to the fourth quarter. As we said early, international revenues expected to increase in fourth quarter. North American revenue is forecasted to be down. So in the fourth quarter we expect revenue to be in the range of probably $410 million to $430 million, which is up from $389 million in the fourth quarter of 2009.
We expect fourth quarter gross margin to be 44% plus or minus one or two points. It will depend on product mix, but predominantly as a result of anticipated lower cross-connect sales. We expect fourth quarter 2010 non-GAAP operating expenses to be in the mid-to-high $140 million as a result of higher R&D spending predominantly on our growth products. This excludes approximately $6 million in equity-based compensation. In the fourth quarter non-GAAP tax rate is going to be 32%.