Tellabs Inc. Q1 2010 Earnings Call Transcript

Tellabs Inc. Q1 2010 Earnings Call Transcript
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Tellabs Inc. (TLAB)

Q1 2010 Earnings Call

April 27, 2010 8:30 AM ET

Executives

Thomas Scottino – Investor Relations

Rob Pullen – Chief Executive Officer

Tim Wiggins – Executive Vice President and CFO

Analysts

Jim Suva – Citigroup

Vivek Arya – Banc of America/Merrill Lynch

Ehud Gelblum – Morgan Stanley

Nikos Theodosopoulos – UBS

Rod Hall – JP Morgan

Michael Genovese – Soleil - Elevate Research, Inc.

Jeff Kvaal – Barclays Capital

George Notter – Jefferies & Co.

Simon Leopold – Morgan, Keegan & Company, Inc.

Chandan Sarkar – Auriga U.S.A

Larry Harris – C.L. King & Associates, Inc.

Todd Koffman – Raymond James

Presentation

Operator

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Good morning. And welcome to the Tellabs Investor Relations Call. I would like to turn the conference over to your host, Mr. Thomas Scottino. Sir you may begin.

Thomas Scottino

Thank you, Tamika, 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 presentation contains forward-looking statements about future results, performance or achievements, financial and otherwise. These statements reflect management's current expectations, estimates and assumptions. Forward-looking statements are not guarantees of future performance, and involve risks, uncertainties and 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 statements, based on new information, future events, or otherwise.

This presentation may also include some non-GAAP financial measures. Reconciliation between non-GAAP and GAAP financial measures can be found at our tellabs.com website and in our SEC filings.

Thank you. With that, I’ll turn the call over to Rob.

Rob Pullen

Thanks Tom. Good morning, everyone. Tellabs is helping customers succeed with the mobile internet. We achieved our goal of profitable revenue growth in the first quarter, including record revenue from our growth products.

Our first quarter 2010 revenue increased to $380 million, up 5% from the year ago quarter. Our growth product continue to gain traction, a record of 57% of our first quarter 2010 revenue came from our growth products and services. That's up from 39% in the first quarter of 2009.

Also positively, data revenue more than doubled year-over-year to $131 million, that put us at the high-end of our revenue and our gross margin guidance. We saw strong customer demand for mobile solutions. Revenue for all three data products Tellabs 8600, 8800, and 9100, increased both year-over-year and sequentially. It was a positive sign.

Our first quarter cash flow enabled us to invest 18% of revenue into -- back into research and development, to pay our first cash dividend in February and add cash to our balance sheet.

In 2010 about 85% of our R&D investment is going into our growth products that was around 50% in 2007. We continue to improve Tellabs profitability and generate cash. GAAP gross profit margins improved to 50.7% from 44.2% a year ago. That was marking Tellabs highest gross profit margins in the last 22 quarters, that since third quarter of 2004.

GAAP operating earnings were $36 million, up from $9 million a year ago. GAAP net earnings were at $46 million, up from $7 million a year ago.

We delivered GAAP EPS of $0.12 that was up from $0.02 a year ago. We generated $63 million in cash from operations in the first quarter of 2010. And we added $42 million in cash to our balance sheet in the Q1. We now hold $1.15 billion in cash, cash equivalence and liquid financial instruments and of course, we have no debt.

Our strategy to innovate in growth markets such as mobile internet is working well. We are adding new customers around the world due to our growth products. We received great customer feedback on our mobile internet solutions during Mobile World Congress and CTIA.

I was at Mobile World Congress for example and we met with the Chief Technology Officer of a Tier 1 service provider. He found the value proposition of the SmartCore 9100 platform so compelling, in our meeting he turned to the head of purchasing and asked that the orders that they were about to place for competitors mobile packet core equipment be put on hold so they can trial our solution. The trial is now in process and is doing well.

During the quarter, 23 new customers placed orders for the Tellabs 8600 and 8800, primarily for Tellabs mobile backhaul solution, and this was done all over the world.

In our new mobile packet core, we added two new customers. We also expanded our Clearwire business into Clearwire Spain. We now have seven customers for the Tellabs SmartCore 9100 platform, up from five last quarter.

We continue to work with customers and now increased number of trials to 18 both WiMAX and introduced 3G version of our SmartCore product and now both in WiMAX and 3G trials around the world.

We bought WiChorus for its industry leading mobile packet core platform and now we’re extending it beyond WiMAX into 3G and LTE. We also recognized revenue in the fist first from four new Tellabs 7100 customers both in North America and Latin America.

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