MORRISVILLE, N.C. — Amid all the economic doom and gloom, Tekelec is sending strong signals that the maker of telecommunications signaling gear will flourish, not shrivel, in 2009.
Tekelec (Nasdaq: TKLC) shares jumped 11 percent, or $1.39, Wednesday after the Morrisville-based firm announced earnings that topped Wall Street analysts’ expectations. Perhaps more important, Tekelec outlined strong expectations for this year.
While more and more companies are choosing not to forecast revenues and earnings, Tekelec said it expects orders to increase. Buoyed by two acquisitions in 2008, Tekelec continues to add new customers around the world as more telecommunications operators, especially mobile firms, embrace its texting and messaging solutions.
“We were very pleased with our strong operating performance for the fourth quarter and for the full year 2008, which includes record-setting milestones for our company,” Chief Executive Officer Frank Plastina said in a conference call to discuss earnings.
Even though orders fell 14 percent in the fourth quarter compared with the same time period in 2007, Tekelec reported a backlog of $412.1 million in orders. That’s up from $369 million as of Sept. 30 and indicates strong demand entering 2009.
Tekelec earnings hit 27 cents a share, 3 cents higher than expected.
Plastina noted that Tekelec reported earnings of $460.6 million for 2008 – a record. Its products are now used in 103 countries, and positive cash flow hit $106 million as a result. For the year, Tekelec earned 94 cents a share. He called the order backlog of $412.1 million “strong.”
Another factor analysts liked was gross operating margin. Tekelec hit 67 percent for the year, an increase of 6 percentage points over 2007.
But Tekelec is not complacent. Rather, Plastina noted that the company continues strong research and development efforts. Tekelec secured 36 patents in 2008, giving it a portfolio of 185. During the year, Tekelec filed for 112.
New technologies, more products and the acquisitions enabled Tekelec to add three customers in the fourth quarter, giving the company 17 additions for the year, Plastina noted. Another 38 customers came on board through Tekelec’s acquisition of mBalance.
So what’s ahead in 2009?
Well, don’t be surprised if Tekelec makes other acquisitions or continues to grow market share at the expense of competitors. It has financial muscle to do so.
“We exited the fourth quarter with a very strong balance sheet,” Chief Financial Officer William Everett said during the call. “We had cash and cash equivalents of $209.4 million as of Dec. 31, 2008, compared [with] $228.6 million as of Sept.30, 2008. The decrease during the quarter is attributable primarily to the net cash investment of $35.8 million for the purchase of mBalance in December, partially offset by $18.1 million of cash flow from operations generated during the fourth quarter.”
Tekelec also has some new products to announce in response to customer demands, Plastina added.
“We are seeing our customers evolve to new [Internet Protocol] services and architectures,” he said. “The pace of network evolution depends on the subscriber usage patterns, local and regional market dynamics, and their current network architectures. They want flexible migration paths to IP services, and they need to ensure that existing revenue-generating services such as voice and [short message service for texting] are compatible with new IP services. Service providers are also demanding a relatively rapid payback on their network investments, and we have developed solutions that enable them to prove in this business case.”
Plastina noted that the tough economy is affecting capital expenditures, but he said he remained optimistic.
“Understandably, our customers are being cautious and so are we,” he said. “We are financially strong and we have an experienced and disciplined management team who will continue to adapt as required.”
