Wednesday, April 27, 2011

Acme Packet (APKT) Beats Slightly on Top and Bottom Line, Enough to Please Market

The FOMC decision is out today at 12:30 PM, but with no significant change I expect most of today's attention will be on the Bernank's speech and Q&A at 2:15 PM.  The market seems to be on hold until then.


Much like, Acme Packet (APKT) was not doing so well last night in afteer hours but it is as if once midnight struck all memories of the previous day disappeared.  The stock is surging today on a small beat on both the top and bottom lines.

Unlike Riverbed Technology (RVBD) and F5 Networks (FFIV), the stock did not take a beating ahead of earnings, so I am a bit surprised by the "relief rally" from the good (but not 'great') report.   It shows once more how impossible it is to gauge market reaction to earnings.   EPS came in at 27 cents versus 25 expected, and revenue at $74M vs $71.4M.   Gross margins fantastic at 84%.  Internal guidance for the year was upped a bit, but mostly to get more in line with what analysts already expected. Full report here.

More commentary via IBD (written when the stock was down in after hours):

  • Acme Packet, whose biggest customer is phone carrier Verizon Communications (VZ), said Q1 revenue rose 45% from the year-earlier quarter to $74 million. Per-share profit minus items jumped 69% to 27 cents. Analysts polled by Thomson Reuters expected EPS of 25 cents on sales of $71.4 million.  
  • Analysts again expected Acme to boost its outlook Tuesday, and it did. But where Acme now forecasts 34% to 36% sales growth, it really needed to top 40% to impress the Street, says Pacific Crest Securities analyst Brent Bracelin.  "Expectations were very high coming into the first quarter that Acme would raise their revenue outlook for the full year," Bracelin said. "The street baked a lot of optimism into its (2011) estimates. Expectations have been running very high because Acme blew out the numbers last year."
  • "We continue to expect an acceleration in (product) demand in the second half of the year," Andrew Ory, Acme's CEO, said on a conference call with analysts. "The bookings activity is actually quite strong in the back half of the year."
  • Still, its Q1 sales rose just 5% from Q4 2010. Modoff says Acme's order flow from its customers, mostly phone companies, can be choppy but that fourth-quarter sales are usually strongest.  "Acme's normal pattern is to have a strong quarter and then level off sequentially for a quarter," Modoff said. "But they guide on an annual basis. The question for investors is whether that (2011 guidance) is enough, with the stock where it is. 
  • Shares in the Bedford, Mass.- based company have jumped 48% in 2011 and have nearly quadrupled in the past 12 months.  Its lofty valuation has raised questions about its growth potential amid intensifying competition.
  • Acme gets about 90% of revenue from sales of session border controllers, devices that set up Internet calls over landline and, increasingly, wireless phone networks.  SBCs are about the size of a pizza box and plug into other network gear such as routers.
  • Acme Packet's growth is linked to the growing use of an Internet communications standard called session initiation protocol. SIP is used for setting up Internet calls as well as videoconferencing and instant messaging.  In 2010, Acme Packet supplied almost 60% of the SBCs purchased by phone companies, says market research firm Infonetics. Acme faces tougher competition, though, from Sonus Networks (SONS) and privately held Genband. Alcatel-Lucent (ALU), a customer of Acme Packet, in February launched its own SBC devices, says Goldman Sachs analyst Simona Jankowski.
  • Despite the competition from Sonus and others, Peter Minihane, Acme's chief financial officer, said on the call that the company isn't seeing "any pricing pressure" affecting margins.

  • Acme Packet gained 79 new customers in the quarter and introduced three key new products. Management also raised its estimate of Acme Packet's total addressable market from $20 billion to $30 billion as management believes all of these legacy telecom solutions will eventually have to be replaced. Management also spent a considerable amount of time discussing the company's new technologies and how they are being deployed and why they are so important for IP networks.
    [Feb 2, 2011: Acme Packet Goes Ballistic on Analyst Upgrades]
    [Feb 2, 2011: Acme Packet's Fine Quarter, Increase in Guidance]
    [Nov 19, 2010: Acme Packet Catches New Wind on Barclays Upgrade]
    [Oct 29, 2010: Acme Packet with Small Beat, and Raised Guidance]
    [Jul 30, 2010: Acme Packet Punishes Investors Post Earnings Report]

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