Sunrise Telecom(R) Reports $23.0 Million Sales for Third Quarter of 2007
- Preliminary GAAP loss from operations of $3.9 million
- Fourth quarter 2007 sales projected between $23 million and $27 million
- Backlog at quarter end of $11 million
SAN JOSE, Calif., Nov. 2 -- Sunrise Telecom(R) Incorporated , a leader in test and measurement solutions for today's telecom, wireless and cable networks, today reported sales of $23.0 million for the third quarter of 2007, down 7% compared to $24.8 million in the third quarter of 2006 and down 1% sequentially from $23.2 million in the second quarter of 2007.
Preliminary net loss per share was $(0.06) for the third quarter of 2007, compared to net earnings of $0.02 per share for the third quarter of 2006 and net loss of $(0.05) per share for the second quarter of 2007. Backlog at quarter-end was $11.3 million, compared with $15.9 million at the end of the third quarter of 2006 and $12.4 million at the end of the second quarter of 2007.
"Sales in the third quarter were broad-based, including shipments to new customers and new geographies. The EMEA market was especially strong for us, generating over $10 million in sales, up from $6.8 million last quarter. Strength in EMEA was offset by the softness in the North American market for products targeting access networks," said Sunrise Telecom President and CEO, Paul Marshall.
"Although we were disappointed with our flat sequential revenues in the third quarter, we remain optimistic about Sunrise Telecom's growth potential in the emerging areas of the communications test market. We are currently working on a number of potentially large opportunities involving our new products, such as the STT(R) Metro, the STT xWDM, and the CM2000(TM). In some cases we have secured standardization wins and begun the initial shipments, in others we are in the final stages of the sales process," concluded Marshall.
Wireline
Wireline product sales were $9.6 million, up 13% year-over-year and 28% sequentially. Wireline revenues were driven by European sales of the SunSet MTT(R) handhelds targeting the access portion of the network. Demand for the MTT handhelds also came from second-tier North American carriers, which are now deploying ADSL2+ and VDSL networks.
During the quarter, Sunrise Telecom continued shipments of ADSL2+ modules to a leading French carrier under an earlier standardization win for the MTT platform. Sunrise Telecom achieved deeper penetration of this important account by securing a win for the datacom module on the same platform. Shipments are expected to begin later this year. The company also won a contract for the VDSL-ready MTT product with a major Swiss carrier, further expanding its European customer base.
In the UK, Sunrise Telecom received and shipped a follow-on order for the Ethernet modules on the MTT platform. This carrier customer is deploying networks in new geographic markets and will need to equip its growing technician base with Sunrise Telecom's product.
Sales of testing solutions for copper networks to North American RBOCs continued to be soft, partially offsetting strong international sales and demand from US competitive local exchange carriers. In the third quarter, Sunrise Telecom shipped approximately $1.0 million of its Home Test Toolkit (HTT(R)), which was custom designed for an RBOC to facilitate their Fiber-to-the-x (FTTx) strategy.
Broadband Cable
Broadband cable sales were $6.5 million, down 19% year-over-year and 37% relative to the second quarter of 2007 (when Sunrise Telecom shipped approximately $6 million of the CM750(TM) handhelds that were previously held in backlog). The CM750 is used by one of the major customers of Sunrise Telecom to test digital video over the Fiber to the Premise (FTTP) networks.
During the quarter, Sunrise Telecom commenced shipments of a new product in its CM-family of handhelds, the CM2000. Customer trials of this product began earlier this year, with an official product release announced on October 10, 2007. The CM2000 allows verification and troubleshooting of advanced services over DOCSIS 2.0 networks. The new handheld provides unique upstream/downstream testing capabilities and advanced screen and interface features, explaining its instant success with field technicians during trials. The primary market for the CM2000 is Sunrise Telecom's current installed base of the CM-series family, which includes all major North American cable operators. In the third quarter, Sunrise Telecom received initial orders for the new product from two large Multiple System Operators (MSOs). The company expects an increase in CM2000 orders in the fourth quarter with continued growth in the first half of 2008.
Fiber Optics
Fiber optics revenues were $4.3 million during the third quarter of 2007, down 38% year-over-year and 14% sequentially. Sales of the Scalable Test Toolkit (STT), which targets a broad range of applications in metro networks, remained lumpy due to the high average selling price of this product. The highlight of the quarter was Sunrise Telecom's win at a major Tier 1 North American telephone company to support their rollout of ROADM (Reconfigurable Optical Add/Drop Multiplexer) technology, which makes optical networks more efficient and facilitates the backhauling of the triple play services. Although some of the product was shipped during the third quarter, the bulk of the shipments are expected to occur in the fourth quarter of 2007.
During the quarter, Sunrise Telecom began shipments of its STT Ethernet product to another Tier 1 North American carrier that will use it to test 10 Gigabit video distribution networks, as part of their triple-play strategy. Finally, a number of STTs were sold in Europe and Africa through a combination of direct sales and the distribution network.
Continuing demand for SDH testing equipment in the emerging markets and APAC region also contributed to third quarter sales.
Protocol
Protocol products generated third quarter 2007 revenues of $2.6 million, up 92% year-over-year and 563% sequentially. The strength in the third quarter was primarily driven by the delivery of the Traffic Analysis and Monitoring System (TAMS) solution to three European service providers. The TAMS business is gaining momentum, especially in the VoIP and Wireless data service market. The outlook for the next few quarters is promising due to several large TAMS opportunities where Sunrise Telecom is well positioned to be the chosen supplier.
Financial Results Summary
(In thousands, except per share and percentage data, unaudited)
For the Three
Months Ended
Sept. 30,
2007
Selected Income Statement Data (preliminary)
Net sales $22,987
Loss from operations $(3,887)
Net loss $(3,248)
Diluted earnings per share $(0.06)
Shares outstanding (diluted) 51,349
Gross profit percentage 60%
Backlog at end of quarter $11,309
Selected Consolidated Balance Sheet Data (preliminary)
Sept. 30,
2007
Cash and cash equivalents $11,116
Short-term investments 3,254
Accounts receivable, net of allowance of $673 16,284
Inventories 19,630
Short-term borrowings and current portion
of notes payable 183
Accounts payable 3,034
Other accrued expenses 13,061
Deferred revenue 2,657
Notes payable, less current portion 411
This financial information has not been subjected to completed audit or review procedures, by our independent auditor.
Third Quarter Financial Highlights
In the third quarter of 2007, Sunrise Telecom reported gross margin of 60%, up from 59% in the second quarter of 2007. Sequential margin increase was driven by the specifics of the product mix, including higher contribution of protocol group sales and lower contribution of the CM750 product to total revenues. The positive impact was partially offset by an inventory write-off in the broadband group resulting primarily from the phase-out of older products in the CM family following the introduction of CM2000, the next generation CM-series product. During the quarter, Sunrise Telecom also recorded additional warranty expense in the broadband group, related to new product introduction.
Loss from operations was $3.9 million in the third quarter of 2007. Operating expenses increased by $0.9 million sequentially and by $2.2 million relative to the third quarter of 2006. The increase in operating expenses was driven by legal costs as well as expenses involved in auditing and restating its historical financials. Legal expenses related to the shareholder derivative lawsuit and VeEx litigation were $0.6 million, during the quarter; Audit costs related to the restatement were $0.4 million. Sales and marketing costs were also impacted by Sunrise Telecom's international activities including the expansion of the company's direct presence in Europe.
The company expects reduced legal expenditures in the fourth quarter and beyond as a result of ending the VeEx litigation, as previously announced. Sunrise Telecom also plans to review its business for potential cost cutting opportunities to achieve profitability at lower revenue levels.
Outlook
Based on current backlog and order expectations, the company forecasts fourth quarter sales to be in the $23 to $27 million range. The company has released a variety of products and enhancements this year and more are planned for next, giving it a larger set of new revenue streams in leading emerging applications. Major sources of potential new business for the company are the retooling of worldwide networks to support the delivery of triple-play residential services, the rapid expansion of Ethernet technologies to lower the cost of delivering all services over a converged network, and the ever expanding bandwidth of network cores to support the increasing ubiquity of IP- based video delivery.
Said Sunrise Telecom CFO, Rick Kent, "We are concerned with the operating loss incurred in the third quarter. Some of it was related to temporarily inflated legal and audit expenses; however, we are also dissatisfied with the level of recurring operating costs. We are currently reviewing our business model and looking for cost savings as part of our strategic planning and annual budgeting process. Our goal is to streamline our cost structure and deliver sustainable profitability to our shareholders."
About Sunrise Telecom Incorporated
Sunrise Telecom, a leader in test and measurement solutions for today's telecom, wireless and cable networks. The company's robust portfolio of feature-rich, easy-to-use products enable service providers to deliver premium voice, video, data and next-generation digital multimedia services quickly, reliably, and cost-effectively. Based in San Jose, California, Sunrise Telecom distributes its products through a direct sales force and a global network of sales representatives and distributors. For more information, visit http://www.sunrisetelecom.com/ or email info at sunrisetelecom.com.
SUNRISE TELECOM, the "S" logo, and other trademarks are trademarks of Sunrise Telecom Incorporated and may not be used without permission. Internet Explorer, Windows and Windows CE are registered trademarks of Microsoft Corporation in the United States and other countries.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933, including, but not limited to, material contained in quotations, sales expectations for the fourth quarter of 2007, and increased demand for some of the company's products. These forward-looking statements are subject to many risks and uncertainties that could cause actual results to differ materially from those projected. Specific factors that may cause results to differ include the following: a lack of acceptance or slower than anticipated acceptance for Sunrise Telecom's new or enhanced products and modules; slower than anticipated product development or introduction into the marketplace; unanticipated delays in product delivery schedules; lower than anticipated end-user demand for telecommunications services and a corresponding cutback in spending by customers; increased competitive pressures competition, including from former employees; rapid technological change within the telecommunications industry; Sunrise Telecom's dependence on a limited number of major customers; Sunrise Telecom's dependence on limited source suppliers; deferred or lost sales resulting from order cancellations or order changes; deferred or lost sales resulting from Sunrise Telecom's lengthy sales cycle; unanticipated difficulties associated with international operations; Sunrise Telecom's ability to manage growth and slowdowns; the unknown effects of management changes; the loss of key personnel; the impact of Sunrise Telecom's review of its stock option grant practices; the ramifications of Sunrise Telecom's inability to file required reports with the SEC on a timely basis; any potential claims or proceedings related to such matters, including stockholder litigation and any action by the SEC; any negative tax or other implications for Sunrise Telecom resulting from accounting adjustments and other factors; and protracted litigation, which could disrupt Sunrise Telecom's normal business operations. Some of these risks and uncertainties are described in more detail in Sunrise Telecom's reports filed with the SEC, including, but not limited to, its 2004 Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q for the periods ended March 31, 2005 and June 30, 2005. Sunrise Telecom assumes no obligation to update the forward-looking statements included in this press release.
Investor Contact:
Kate Sidorovich
Investor Relations
415-445-3236
ksidorovich at sunrisetelecom.com
SUNRISE TELECOM INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (preliminary)
(In thousands, except per share data, unaudited)
Three Months
Ended
Sep. 30,
2007
Net sales $22,987
Cost of sales 9,238
Gross profit 13,749
Operating expenses:
Research and development 5,948
Selling and marketing 7,271
General and administrative 4,417
Total operating expenses 17,636
Loss from operations (3,887)
Other income, net 1,160
Loss before income taxes (2,727)
Income tax expense (521)
Net loss $(3,248)
Earnings per share:
Basic and diluted $(0.06)
Shares used in per share computation:
Basic and diluted 51,349
SUNRISE TELECOM INCORPORATED
NET SALES DETAILS (preliminary)
(In thousands, unaudited)
Three Months Ended
Sept. 30, June 30, Sept. 30,
2007 2007 2006
By Product:
Wireline access $9,581 42% $7,472 32% $8,485 34%
Cable broadband 6,451 28% 10,290 44% 8,001 32%
Fiber optics 4,337 19% 5,034 22% 6,997 28%
Protocol 2,618 11% 395 2% 1,364 6%
$22,987 $23,191 $24,847
Three Months Ended
Sept. 30, June 30, Sept. 30,
2007 2007 2006
By Region:
North America
(United States
and Canada) $10,177 44% $13,605 58% $13,673 55%
Asia Pacific 1,656 7% 2,241 10% 5,347 22%
Europe/Africa/
Middle East 10,274 45% 6,818 29% 5,273 21%
Latin America 880 4% 658 3% 554 2%
$22,987 $23,191 $24,847
SUMMARY OF CERTAIN NONCASH EXPENSES (preliminary)
(In thousands, unaudited)
The following expenses are included in the applicable lines of Sunrise Telecom Incorporated's Condensed Consolidated Statements of Operations, as required by GAAP.
Three Months
Ended
Sept. 30,
2007
Share based compensation:
Included in cost of sales $8
Included in research and development 40
Included in selling and marketing 50
Included in general and administrative 31
$129
Amortization of acquisition-related
intangible assets included in general
and administrative $53
