April 25, 2002
Conference Call Notes and Observations
3 Months ended March 31, 2002
Notes From Conference Call
David Huber – President
1. continues to reduce cash burn
2. successfully extended contract with Qwest
3. near term visibility is challenging. RFP and RFI proposals are generally for large scale optical networks. This is a major shift in carrier thinking. Carriers want network architecture to be more flexible (easier provisioning and cost effective over the mid to long term). Corvis feels they fit right into these demands of carriers.
4. Corvis OS was introduced during this quarter.
5. Corvis remains only vendor to have all optical equipment in an all optical network.
6. Optical Convergence Switch (OCS) has continued to receive solid interest among carriers . This Optical convergence switch allows vendors to easily switch from legacy networks to Mesh networks. This has been shipped to 3 carriers. One is EPIK Communications, 2 unnamed North American and also to Broadwing (announced on April 24, 2002).
7. Undersea business recognized revenue from Telefonica. This is the 1st quarter Corvis has recognized undersea revenue.
8. France Telecom is the previously unnamed global carrier. Revenue to be recognized in Q2 and Q3 of 2002.
9. Amended contract with Qwest Communications also includes OCS.
10. Corvis equipment is being used in significant deployment with Broadwing. Corvis set OC-192 records. Bank Of America, over the Broadwing network will transmit mission critical data . This is backboned by Corvis equipment.
11. Williams Communications is still a customer and Corvis mentions them as a long term future customer.
Lynn Andersen, CFO
1. workforce is 856 employees at March 31, 2002
2. all financials were within range of analyst expectations.
3. revenues were generated from Broadwing, Telefonica and Williams Communications. Both Broadwing and Telefonica were > 10 % customers.
4. G&A expense (pro forma showed a % decrease from prior quarter).
5. 10 million has been collected on A/R, since March 31, 2002. Williams is current. DSO of A/R was 120 days.
6. guidance only to be given for Q2’02 due to lack of visibility
a. revenue to be 3 to 6 million dollars
b. gross margins from low 20 % to mid 30 %
c. operating expenses to trend down or at this quarters levels . although may see an up tick due to lab tests , etc.
d. will consider full range of cost initiatives.
e. Expects to exit year of cash at 525 million + or – 5 % .
Question and Answers
1. Williams Communications paid part of receivable right after quarter. Balance is at around $15,000,000 at the moment. Doesn’t expect bankruptcy to hinder trade payables. Williams has always been a timely payer.
2. Rick Shafer (CIBC) mentioned color of cash burn. Lynn Anderson mentioned that 4 mil of cash burn was for restructuring. Basic operating expense level was around 36M (15 % Quarter to Quarter reduction). Looking at 25 – 35 million operating expense level. Rick asked if Corvis will be a consolidator or an acquisition candidate. Dave Huber responded by discussing Corvis as an end to end carrier (basically due to Dorsal acquisition). He said it doubts the target market for customers. Mentioned that undersea market has less competition than land market.
3. question on OSMINE certification for OCS switch. Huber clearly indicated that OSMINE would be a plus. Broadwing looking at OCS, Huber mentioned that there really is only one carrier to compete with on this (my guess is CIENA’s Core Director).
4. gross margins were down this quarter just because of different mix of revenues and deployments. R&D will continue to exhibit financial discipline, yet market demands and industry demands that R&D be a focus. David Huber said that the 3 larges ISP have sent RFP’s or RFI’s for all optical networks. This according to Dave is a clear indication that carriers are looking for efficient cost saving architecture.
5. Broadwing was the largest customer of the quarter, followed by Telefonica.
6. capital expenditure outlook is 10 to 15 million for F2002.
7. cash burn will be down in second quarter. Collections of receivables will help and overall cost containment will help. OSMINE has not been considered in the cash burn forecasts.
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