-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Aoy5V+qWLW4slKSvitT8aLlU+WL2KVwbZMmq0OkVLwop23hCWqas3fPnqDXUEq5Y HMJJo2y+9TcVWrbtx3V/PA== 0000950172-03-003296.txt : 20031112 0000950172-03-003296.hdr.sgml : 20031112 20031112172259 ACCESSION NUMBER: 0000950172-03-003296 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20031110 ITEM INFORMATION: FILED AS OF DATE: 20031112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYCAMORE NETWORKS INC CENTRAL INDEX KEY: 0001092367 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 043410558 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27273 FILM NUMBER: 03995000 BUSINESS ADDRESS: STREET 1: 220 MILL ROAD CITY: CHELMSFORD STATE: MA ZIP: 01824 BUSINESS PHONE: 9782502900 MAIL ADDRESS: STREET 1: 220 MILL ROAD CITY: CHELMSFORD STATE: MA ZIP: 01824 8-K 1 bos288942.txt CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 November 11, 2003 Date of Report (Date of earliest event reported) SYCAMORE NETWORKS, INC. (Exact name of registrant as specified in its charter) Delaware 000-27273 04-3410558 - ---------------------------- ----------- ------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) file number) Identification No.) 220 Mill Road Chelmsford, Massachusetts 01824 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (978) 250-2900 Not Applicable (Former name or former address, if changed since last report) Item 12: Results of Operations and Financial Condition On November 11, 2003, the Registrant reported its first quarter results for the period ended October 25, 2003. A copy of the press release issued by the Registrant on November 11, 2003 concerning the foregoing results is furnished herewith as Exhibit 99.1 and is incorporated herein by reference and the transcript for the conference call with respect thereto is furnished herewith as Exhibit 99.2 and is incorporated herein by reference. The information contained herein and in the accompanying exhibits shall not be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference into such filing. The information in this report, including the exhibits hereto, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. The Registrant provides pro forma financial data in addition to providing financial results in accordance with generally accepted accounting principles (GAAP). These measures are not in accordance with, or an alternative for GAAP, and may be different from pro forma measures used by other companies. The reconciliation between GAAP results and the pro forma results is provided in a table immediately following the Unaudited Consolidated Statements of Operations included with Exhibit 99.1. The items excluded from pro forma results have one or more of the following characteristics: their magnitude and timing is largely outside of the Registrant's control; they are unrelated to the ongoing operation of the business in the ordinary course; they are unusual, and the Registrant does not expect them to occur in the ordinary course of business; or they are non-operational, non-cash expenses involving stock option grants primarily in connection with the Registrant's initial public offering and acquisitions. The non-GAAP financial data is provided to enhance the user's overall understanding of the Registrant's current financial performance and its prospects for the future. Specifically, the Registrant believes the non-GAAP results provide useful information to both management and investors by excluding certain expense and income items that the Registrant believes are not indicative of the Registrant's core operating results because such charges are associated with past events and are not related to current operations. In addition, since the Registrant has historically reported non-GAAP results to the investment community, the Registrant believes the inclusion of non-GAAP numbers provides consistency in its financial reporting. Further, these non-GAAP results are one of the primary indicators management uses for planning and forecasting in future periods. The non-GAAP financial data should be considered in addition to, not as a substitute for or as being superior to, operating losses, cash flows, or other measures of financial performance prepared in accordance with GAAP. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Sycamore Networks, Inc. /s/ Frances M. Jewels - -------------------------------------- Frances M. Jewels Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) Dated: November 12, 2003 EXHIBIT INDEX Exhibit Number Description - ------- ----------- 99.1 Press Release of the Registrant, dated November 11, 2003, reporting the Registrant's first quarter results for the period ended October 25, 2003. 99.2 Transcript for the conference call held by the Registrant on November 11, 2003 with respect to the Registrant's first quarter results for the period ended October 25, 2003. EX-99 3 bos289012.txt EXHIBIT 99.1 Exhibit 99.1 FOR IMMEDIATE RELEASE [GRAPHIC LOGO OMITTED] SYCAMORE NETWORKS, INC. CONTACT: Press Inquiries Investor Inquiries Scott Larson Andrew Kramer Public Relations Investor Relations Sycamore Networks, Inc. Sycamore Networks, Inc. 978-250-3433 978-367-7368 scott.larson@sycamorenet.com andy.kramer@sycamorenet.com - ---------------------------- --------------------------- SYCAMORE NETWORKS, INC. REPORTS FIRST QUARTER FISCAL YEAR 2004 FINANCIAL RESULTS CHELMSFORD, Mass., November 11, 2003 - Sycamore Networks, Inc. (NASDAQ: SCMR), a leader in intelligent optical networking, today reported its first quarter results for the period ended October 25, 2003. Revenue for the first quarter of fiscal 2004 was $8.4 million, compared with $5.9 million for the first quarter of fiscal 2003. Net loss for the first quarter of fiscal 2004, on a generally accepted accounting principles (GAAP) basis, was $12.2 million or $(0.05) per share, compared with a net loss of $17.4 million, or $(0.07) per share for the first quarter of fiscal 2003. Pro forma net loss, a non-GAAP financial measure, for the first quarter of fiscal 2004 was $10.7 million, or $(0.04) per share, compared with a pro forma net loss of $15.0 million, or $(0.06) per share for the first quarter of fiscal 2003. The reconciliation between net loss on a GAAP basis and pro forma net loss is provided in a table immediately following the Unaudited Consolidated Statements of Operations. "Sycamore's first quarter financial results reflect efforts to balance strategic investments in the business with expense management and cash preservation," stated Daniel E. Smith, Sycamore's president and chief executive officer. "Despite challenging market conditions, we continue to support initiatives covering technology innovation, customer relationships and financial management." Conference Call Webcast Sycamore plans to review its first quarter results and discuss its business outlook during a conference call today beginning at 4:30 p.m. EST. A Webcast of the conference call, along with GAAP reconciliation information, is available to all interested parties on the Sycamore web site located at www.sycamorenet.com under the Investor Relations section. Interested investors are encouraged to log onto the broadcast at least 15 minutes prior to the call. Participating in the call will be Sycamore's president and chief executive officer, Daniel E. Smith and chief financial officer, Frances M. Jewels. About Sycamore Networks Sycamore Networks, Inc. (NASDAQ: SCMR) develops and markets optical networking products for telecommunications service providers worldwide. The Company's products enable service providers to easily and cost-effectively transition their existing fiber optic network into an infrastructure that can provision, manage and deliver economic, high-bandwidth services to their customers. For more information, please visit www.sycamorenet.com. Except for the historical information contained herein, we wish to caution you that certain matters discussed in this news release constitute forward-looking statements that involve risks and uncertainties. Actual results or events could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to the rate of product purchases by current and prospective customers; the commercial success of the Company's line of intelligent optical networking products; the Company's reliance on a limited number of customers; new product introductions and enhancements by the Company and its competitors; the length and variability of the sales cycles for the Company's products; competition; manufacturing and sourcing risks; variations in the Company's quarterly results; general economic conditions including stock market volatility and capital market conditions as well as conditions specific to the telecommunications, Internet and related industries; and the other factors discussed in the Company's most recently filed Form 10-K and Form 10-Q, and the other reports filed by the Company from time to time with the Securities and Exchange Commission. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise. Use of Non-GAAP Financial Measures The Company provides pro forma financial data in addition to providing financial results in accordance with GAAP. These measures are not in accordance with, or an alternative for GAAP, and may be different from pro forma measures used by other companies. The items excluded from pro forma results have one or more of the following characteristics: their magnitude and timing is largely outside of the Company's control; they are unrelated to the ongoing operation of the business in the ordinary course; they are unusual, and the Company does not expect them to occur in the ordinary course of business; or they are non-operational, non-cash expenses involving stock option grants primarily in connection with the Company's initial public offering and acquisitions. The non-GAAP financial data is provided to enhance the user's overall understanding of the Company's current financial performance and its prospects for the future. Specifically, the Company believes the non-GAAP results provide useful information to both management and investors by excluding certain expense and income items that the Company believes are not indicative of the Company's core operating results because such charges are associated with past events and are not related to current operations. In addition, since the Company has historically reported non-GAAP results to the investment community, the Company believes the inclusion of non-GAAP numbers provides consistency in its financial reporting. Further, these non-GAAP results are one of the primary indicators management uses for planning and forecasting in future periods. The non-GAAP financial data should be considered in addition to, not as a substitute for or as being superior to, operating losses, cash flows, or other measures of financial performance prepared in accordance with GAAP.
Sycamore Networks, Inc. Unaudited Condensed Consolidated Balance Sheets (in thousands) October 25, 2003 July 31, 2003 ---------------- ------------- Assets Current assets: Cash and cash equivalents $ 221,539 $ 250,595 Short-term investments 428,636 421,784 Accounts receivable, net 7,374 10,769 Inventories 7,311 5,117 Prepaids and other current assets 4,491 3,680 ----------- ----------- Total current assets 669,351 691,945 Property and equipment, net 12,176 14,589 Long-term investments 336,674 323,204 Other assets 2,567 2,890 ----------- ----------- Total Assets $ 1,020,768 $ 1,032,628 =========== =========== Liabilities and Stockholders' Equity Deferred revenue $ 2,629 $ 2,677 Other current liabilities 18,853 18,350 Restructuring liabilities 17,233 19,086 ----------- ----------- Total current liabilities 38,715 40,113 Common stock 272 272 Additional paid-in capital 1,734,576 1,733,476 Accumulated deficit (748,369) (736,192) Other equity (4,426) (5,041) ----------- ----------- Total stockholders' equity 982,053 992,515 ----------- ----------- Total Liabilities and Stockholders' Equity $ 1,020,768 $ 1,032,628 =========== ===========
Sycamore Networks, Inc. Unaudited Consolidated Statements of Operations (in thousands, except per share data) Three Months Ended October 25, October 26, 2003 2002 ---- ---- Revenue $ 8,441 $ 5,938 Cost of revenue 5,719 7,143 Stock-based compensation 180 356 Payroll tax on stock option exercises 5 -- --------- --------- Gross profit (loss) 2,537 (1,561) Operating expenses: Research and development 11,297 13,923 Sales and marketing 4,410 4,941 General and administrative 1,968 1,658 Stock-based compensation 1,305 2,017 Payroll tax on stock option exercises 2 5 --------- --------- Total operating expenses 18,982 22,544 Loss from operations (16,445) (24,105) Interest and other income, net 4,268 6,743 --------- --------- Net loss $ (12,177) $ (17,362) ========= ========= Diluted net loss per share $ (0.05) $ (0.07) Weighted average shares used in computing diluted net loss per share 270,474 262,300
Sycamore Networks, Inc. Unaudited Pro Forma Consolidated Statements of Operations (a Non-GAAP Financial Measure) (a) (in thousands, except per share data) Three Months Ended October 25, 2003 Three Months Ended October 26, 2002 Pro Forma Pro Forma GAAP Results GAAP Results Results Adjustments (Non-GAAP)(a) Results Adjustments (Non-GAAP)(a) ------- ----------- ------------ ------- ----------- ------------ Revenue $ 8,441 $ -- $ 8,441 $ 5,938 $ -- $ 5,938 Cost of revenue 5,719 -- 5,719 7,143 -- 7,143 Stock-based compensation 180 (180) -- 356 (356) -- Payroll tax on stock option exercises 5 (5) -- -- -- -- --------- --------- --------- --------- --------- --------- Gross profit (loss) 2,537 185 2,722 (1,561) 356 (1,205) Operating expenses: Research and development 11,297 -- 11,297 13,923 -- 13,923 Sales and marketing 4,410 -- 4,410 4,941 -- 4,941 General and administrative 1,968 -- 1,968 1,658 -- 1,658 Stock-based compensation 1,305 (1,305) -- 2,017 (2,017) -- Payroll tax on stock option exercises 2 (2) -- 5 (5) -- --------- --------- --------- --------- --------- --------- Total operating expenses 18,982 (1,307) 17,675 22,544 (2,022) 20,522 Loss from operations (16,445) 1,492 (14,953) (24,105) 2,378 (21,727) Interest and other income, net 4,268 -- 4,268 6,743 -- 6,743 --------- --------- --------- --------- --------- --------- Net loss $ (12,177) $ 1,492 $ (10,685) $ (17,362) $ 2,378 $ (14,984) ========= ========= ========= ========= ========= ========= Diluted net loss per share $ (0.05) $ (0.04) $ (0.07) $ (0.06) Weighted average shares used in computing diluted net loss per share 270,474 270,474 262,300 262,300
(a) These Unaudited Pro Forma Consolidated Statements of Operations (a Non-GAAP Financial Measure) are for informational purposes only and are not presented in accordance with GAAP. The adjustments necessary to provide a direct reconciliation of the Non-GAAP Financial Measure to GAAP basis consolidated statements of operations exclude stock-based compensation and payroll taxes on stock option exercises included in gross profit (loss) and operating expenses. EX-99 4 bos289286.txt EXHIBIT 99.2 EXHIBIT 99.2 - ------------------------------------------------------------------------------ Final Transcript - ------------------------------------------------------------------------------ [GRAPHIC OMITTED] - ------------------------------------------------------------------------------ CCBN STREETEVENTS CONFERENCE CALL TRANSCRIPT SCMR - Q1 2004 SYCAMORE NETWORKS EARNINGS CONFERENCE CALL EVENT DATE/TIME: NOV. 11. 2003 / 4:30PM ET EVENT DURATION: 31 MIN - ----------------- --------------------- ------------ -------------------- ---- CCBN STREETEVENTS streetevents@ccbn.com 617.603.7900 www.streetevents.com 1 - ----------------- --------------------- ------------ -------------------- ---- (C) 2003 CCBN.com, Inc. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of CCBN.com, Inc. - ------------------------------------------------------------------------------ FINAL TRANSCRIPT - ------------------------------------------------------------------------------ SCMR - Q1 2004 SYCAMORE NETWORKS EARNINGS CONFERENCE CALL - ------------------------------------------------------------------------------ CORPORATE PARTICIPANTS ANDREW KRAMER Sycamore Networks, Inc. - Director of Investor Relations DANIEL SMITH Sycamore Networks, Inc. - President and Chief Executive FRANCES JEWELS Sycamore Networks, Inc. - CFO CONFERENCE CALL PARTICIPANTS DAVID WAI RBC Capital Markets - Analyst MIKE DEMICHELE Thomas Weisel Partners - Analyst MIKE GENOVESE Salomon Smith Barney - Analyst SIMON LEOPOLD Merrill Lynch & Co. - Analyst CHET WHITE Merriman Curhan Ford & Co. - Analyst TODD KOFFMAN Raymond James & Co. - Analyst MARCUS KUPFERSCHMIDT Lehman Brothers - Analyst PAUL SILVERSTEIN Needham & Company - Analyst PRESENTATION - ------------------------------------------------------------------------------- OPERATOR Ladies and gentlemen, thank you for standing by. Welcome to the Sycamore Networks first quarter fiscal 2004 financial results conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. At that time if you have a question, please press the one followed by the four on your telephone. As a reminder, this conference is being recorded Tuesday, November 11th, 2003. I would now like to turn the conference over to Mr. Andrew Kramer, Director of Investor Relations with Sycamore Networks. Please go ahead sir. - ------------------------------------------------------------------------------- ANDREW KRAMER - SYCAMORE NETWORKS, INC. - DIRECTOR OF INVESTOR RELATIONS Thank you operator. Good afternoon, ladies and gentlemen, and thank you all for joining us today. With me today are Dan Smith, Sycamore's President and Chief Executive Officer and Frances Jewels, our Chief Financial Officer. The purpose of this call is to discuss Sycamore's first quarter fiscal 2004 financial results and related business matters. Today's press release was distributed after the market close at approximately 4pm via Business Wire and First Call. Throughout this conference call, we will be referencing both GAAP and pro forma financial results. We have provided information related to both our GAAP and pro forma financial results along with a reconciliation table between our GAAP and pro forma financial statements in our press release. Additionally please note we have provided GAAP reconciliation information on our website located at www.sycamorenet.com within the Investor Relations section. Before we get started I would like to note the following: Except for historical information, we wish to caution you that certain matters discussed today constitute forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors which are identified in today's press release and discussed in detail in the Company's most recently filed reports on Form 10-K and Form 10-Q and other reports filed by the Company from time to time with the Securities and Exchange Commission. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise. And with that said, I will now turn the call over to Dan Smith. - ----------------- --------------------- ------------ -------------------- ---- CCBN STREETEVENTS streetevents@ccbn.com 617.603.7900 www.streetevents.com 2 - ----------------- --------------------- ------------ -------------------- ---- (C) 2003 CCBN.com, Inc. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of CCBN.com, Inc. - ------------------------------------------------------------------------------ FINAL TRANSCRIPT - ------------------------------------------------------------------------------ SCMR - Q1 2004 SYCAMORE NETWORKS EARNINGS CONFERENCE CALL - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------- DANIEL SMITH - SYCAMORE NETWORKS, INC. - PRESIDENT AND CHIEF EXECUTIVE Thank you, Andy. Good afternoon everyone, and thank you for joining us. This afternoon Sycamore reported first quarter revenue of $8.4 million, a GAAP net loss of $12.2 million, or a GAAP net loss per share of 5 cents, and a pro forma net loss of $10.7 million, or a pro forma loss per share of 4 cents. Fran will provide more details on the financial results later on on the call. During the first quarter, we continued to balance strategic investment in the business with our efforts to carefully manage our expenses and preserve our cash position. Given the current environment and ongoing capital expenditure constraints, we continue to maintain focus on three critical areas of the business, disciplined financial management, technology innovation and expanding customer relationships. I'd like to provide an update on each of these areas, and then briefly review the competitive landscape. First, a key area of focus for Sycamore is disciplined financial management. We continue to place emphasis on controlling expenses and preserving cash. Our first quarter performance demonstrates positive results on these fronts. Moving forward, we plan to make careful, strategic investments that will enable us to advance our technology and broaden our customer base as we continue to participate in trials and evaluations. As you know, our participation in such evaluations and trials may, in the short run, increase our inventory and cash burn. In terms of technology innovation, we continue to invest R&D resources to deliver intelligent optical switching solutions, with the capabilities that address the needs of our existing and prospective customers: Specifically during the first quarter we advanced our products in three dimensions: first, by adding new features and functionality to better support traditional optical networks; second, by enhancing our network protection and restoration schemes; and third, by implementing emerging inter-operability standards for optical networks. During the past quarter, we added new features and functionality that better support traditional optical networks. These additional capabilities further eased the introduction of our optical switching products into existing network infrastructures and complement our broad support of traditional ring-based networking capabilities. As a result, customers benefit by significantly improving network efficiencies while at the same time leveraging their existing network assets. Furthermore, we continued to demonstrate the ability of our switches to interoperate with a number of leading add/drop multiplexer devices in customer testing environments. Another area of Sycamore's continued technology investment and differentiation is the breadth of our protection and restoration schemes. Specifically, our switches deliver carrier class restoration for ring configurations and support an array of next generation mesh protection schemes. Just as critical, we can provide customers with both of these options on the same platform, which enables a smooth, cost-effective migration to a more data optimized service infrastructure. Inter-operability with other equipment in the network continues to be an important capability to current and prospective customers. During the first quarter, we successfully demonstrated multi-vendor inter-operability of MPLS services over a GMPLS-enabled intelligent optical core, at an event held in conjunction with the MPLS 2003 International Conference. This testing encompassed a wide range of platforms which included inter-operability with industry leading router vendors. Now I'd like to turn to customer relationships, a critical area of focus for Sycamore. During the first quarter, we added resources to strengthen our direct relationships with existing and prospective customers. We are also working closely with strategic partners to access a broader set of customers and gain entry into specific market segments. In terms of new customer prospects, we believe that we made important progress during the quarter. As we evaluate near term opportunities, we believe certain prospective customers are nearing the end of their technology trials and evaluations, and are moving closer toward vendor selection. While we are optimistic about the capabilities of our strong product offering, uncertainty remains about the timing and outcome of vendor selection decisions. Even if selected, we face numerous challenges and uncertainties, which impair our visibility in the near term including the following: First, the dollar magnitude of potential customer deployment plans is uncertain. Second, the timing of potential customer deployment plans has not been finalized. Third, in some cases negotiations regarding business terms has yet to commence, and finally continued field testing may be required. In addition, as we moved through the first quarter there was a significant amount of speculation regarding Sycamore's participation in various customer trials and evaluation. While it is always our goal to be responsive to our investors, I would like to remind you of our longstanding policy of not commenting on specific customer trials and evaluations. As a result, during the question and answer portion of this call, we will continue to adhere to this policy and not be commenting on specific customer evaluations or trials. Finally, I would like to provide a brief update on the competitive landscape. As you know, there are limited optical switching opportunities worldwide given the current capital spending constraints. As a result, competition for these opportunities is intense, resulting in continued pricing pressure which may serve to constrain gross margins in the near term. While we believe that the advantages of Sycamore's products are compelling, - ----------------- --------------------- ------------ -------------------- ---- CCBN STREETEVENTS streetevents@ccbn.com 617.603.7900 www.streetevents.com 3 - ----------------- --------------------- ------------ -------------------- ---- (C) 2003 CCBN.com, Inc. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of CCBN.com, Inc. - ------------------------------------------------------------------------------ FINAL TRANSCRIPT - ------------------------------------------------------------------------------ SCMR - Q1 2004 SYCAMORE NETWORKS EARNINGS CONFERENCE CALL - ------------------------------------------------------------------------------ the environment and industry structure still remains challenging. In order to deal with these market dynamics over the next several quarters, we will continue to explore cost savings initiatives to enable us to address this challenge. Now I would like to turn the call over to Fran. - ------------------------------------------------------------------------------- FRANCES JEWELS - SYCAMORE NETWORKS, INC. - CFO Thanks, Dan. First I will discuss the first quarter results and then I'll turn to the financial guidance. Please note that throughout my discussion I will reference both GAAP and pro forma financial information. As discussed earlier we have provided GAAP reconciliation information within the press release and the Investor Relations section of our web site. The first quarter pro forma results exclude stock based compensation and payroll tax on stock option exercises. First turning to the P&L, revenue for the first quarter was $8.4 million. First quarter revenue reflects a decrease from the prior quarter as our business continues to be impacted by constrained service provider cap ex. Specifically we continue to see existing customers modifying their network build plans and prospective customers extending trial and evaluation periods. First quarter service revenue was $2.3 million, or 27% of quarterly revenue. Sycamore had two 10% customers in the first quarter, with all of our quarterly revenue from international customers. In terms of product mix, the majority of first quarter product revenue is from the switching products, which include the SN 3000 and the SN 16000. Transport related products contributed very modestly to first quarter revenue. As we've discussed, we continue to expect a small amount of transport revenue in the near term as customers complete their network deployments. Pro forma gross margin for the first quarter was 32.2%, up from 28.6 last quarter. Despite the sequential decline in revenue, pro forma gross margin increased from the prior quarter due to the following factors: first, the absence of separation costs associated with the fourth quarter work force realignment activities; second, lower personnel and related expenses as a result of lower head count above the line; third, lower customer service and manufacturing expenses as a result of ongoing cost savings initiatives; and finally, a reduction in the provision for warranty charges. Pro forma operating expenses totaled $17.7 million, down from the prior quarter, primarily due to the timing of certain R&D initiatives and the cost savings associated with the Q4 work force realignment activities. Research and development expenses were $11.3 million, compared with $12.4 million last quarter. Sales and marketing expenses were $4.4 million, compared with $4.9 million last quarter. Administrative expenses were $2 million, flat with last quarter. Other income for the first quarter was $4.3 million. The first quarter pro forma net loss was $10.7 million, or a loss of 4 cents per share. Now turning to our GAAP P&L. On a GAAP basis the gross margin was 30.1%, which includes $180,000 of stock based compensation and $5,000 of payroll tax on stock option exercises. GAAP operating expenses totaled $19 million, which include the pro forma operating expenses discussed earlier as well as $1.3 million of stock based compensation and $2,000 of payroll tax on stock option exercises. The first quarter GAAP net loss was $12.2 million, or a loss of five cents per share. In Q1, basic shares outstanding were 270 million. Now turning to the balance sheet. Sycamore ended the first quarter with total cash, cash equivalents, short and long-term investments of approximately $986.8 million, a decrease of approximately $8.7 million from the fourth quarter. Total cash burn includes $1.9 million in restructuring payments and $6.8 million in operating burn. Accounts receivable decreased by $3.4 million, to approximately $7.4 million as a result of strong collections in the quarter. In Q1, the DSO was 79 days, a decrease of 11 days from the prior quarter. As we've discussed previously in recent quarters a significant percentage of the DSO was attributed to one customer with extended payment terms. Excluding the impact of this one customer, DSO's would be 68 days. During the past year, this customer continued to pay in accordance with the contract terms. Accordingly, the receivable balance outstanding declined significantly and the remaining balance is expected to be paid in full in the coming quarters. As a result, we expect that this customer's remaining extended payment term balance will no longer have a material impact on the DSO as it has in the past several quarters. We continue to do business with this customer under industry standard payment terms. Inventory increased by $2.2 million from the prior quarter to $7.3 million, primarily due to our investment in evaluation and trial units. As Dan noted, we expect to continue to invest in evaluation and trial units, which may increase inventory and cash burn in the coming quarters. If we are not successful in closing new business opportunities, we may have to write off a portion of this inventory in a subsequent quarter. At the end of the first quarter, the inventory balance was composed of approximately 5% raw materials and 95% in WIP and finished goods. We ended the first quarter with a total of 368 employees, a reduction of five employees over the fourth quarter. Now moving to the financial guidance. Let me remind you that this discussion includes forward-looking statements and you should review Sycamore's recent SEC filings that identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. - ----------------- --------------------- ------------ -------------------- ---- CCBN STREETEVENTS streetevents@ccbn.com 617.603.7900 www.streetevents.com 4 - ----------------- --------------------- ------------ -------------------- ---- (C) 2003 CCBN.com, Inc. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of CCBN.com, Inc. - ------------------------------------------------------------------------------ FINAL TRANSCRIPT - ------------------------------------------------------------------------------ SCMR - Q1 2004 SYCAMORE NETWORKS EARNINGS CONFERENCE CALL - ------------------------------------------------------------------------------ Given the current market conditions including existing customers modifying their network build plans and prospective customers extending evaluation and trials periods, we have limited visibility for the next quarter. While we are optimistic about the capabilities of our products, we are still uncertain about the timing and outcome of vendor selection decisions. As Dan mentioned, even if selected, we face numerous challenges and uncertainties. As a result, we will not be providing revenue guidance for the second quarter. Due to the issues associated with forecasting revenue, we will not be providing second quarter gross margin guidance. As we've said, gross margins are difficult to forecast due to a number of factors including product mix, volume, overhead absorption, pricing and the effect of increased competitive pressures associated with new business opportunities. With respect to operating expenses, we anticipate second quarter pro forma operating expenses will likely be between $17.5 to $19.5 million. Based on our cash position we expect interest and other income to be $3 to $4 million in the second quarter. Please note that we will not be providing for taxes due to anticipated losses. In Q1, basic shares outstanding was 270 million and we anticipate share count will grow by one to two million in the second quarter. In terms of cash burn, for the past couple of quarters the cash burn has been at or below $10 million. As we look forward, however, we anticipate that second quarter cash burn will likely increase above $10 million as we continue to make the investments in inventory and research and development that we believe are necessary to satisfy the needs of existing and prospective customers. At this time, however, we are not in a position to provide specific ranges of cash burn. Again, I would like to remind you that Sycamore will not comment on its financial guidance unless it's done through a public disclosure. At this point I will turn the call back to the operator to begin the question and answer session. QUESTION AND ANSWER - ------------------------------------------------------------------------------- OPERATOR Thank you. Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three tone prompt to acknowledge your request. If your question has been answered, and you wish to withdraw your polling request, you will need to press the 1 followed by the 3. If you are using a speaker phone, please pick up your handset before entering your request. One moment please for the first question. Our first question comes from the line of Hasan Imam with Thomas Weisel Partners. Please go ahead with your questions. - ------------------------------------------------------------------------------- MIKE DEMICHELE - THOMAS WEISEL PARTNERS - ANALYST Hi guys. This is actually Mike DeMichele for Hasan. I just had a quick question on the inventory uptick. I was wondering if you could categorize that a little bit for us. I mean is it mostly from one customer? Is it, you know, a combination of several? Just some rough percentages there. And kind of what's the expectation of the magnitude of the change in that going forward? And then maybe as a corollary, if you could give us some color, you know. You said you were pretty close on a number of deals, so just wondering how many of those you think are coming to closure where we'll have a sense of whowon, who didn't, what people are doing or what they are not doing? Thanks. - ------------------------------------------------------------------------------- DANIEL SMITH - SYCAMORE NETWORKS, INC. - PRESIDENT AND CHIEF EXECUTIVE I'll take the latter part of the first question first and then Fran can comment on the inventory piece. Again I think you mischaracterized what we said. I think we said, as we always have said, we are not going to comment on timing or magnitude of potential trials. So we're not in a position to answer the second part of that question. And I will ask Fran to cover the inventory portion. - ------------------------------------------------------------------------------- FRANCES JEWELS - SYCAMORE NETWORKS, INC. - CFO Sure. With respect to this quarter's increase, the increase was $2.2 million and as we look forward, we are continuing to participate in trials and evaluations and as Dan spoke to, we are pleased with our progress and will continue to participate in evaluations and trials. Unfortunately, I am going to have to decline to comment on the number of trials and the magnitude within the increase this quarter. But I think it's safe to assume that a majority of that is associated with our participation in trials. - ----------------- --------------------- ------------ -------------------- ---- CCBN STREETEVENTS streetevents@ccbn.com 617.603.7900 www.streetevents.com 5 - ----------------- --------------------- ------------ -------------------- ---- (C) 2003 CCBN.com, Inc. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of CCBN.com, Inc. - ------------------------------------------------------------------------------ FINAL TRANSCRIPT - ------------------------------------------------------------------------------ SCMR - Q1 2004 SYCAMORE NETWORKS EARNINGS CONFERENCE CALL - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------- MIKE DEMICHELE - THOMAS WEISEL PARTNERS - ANALYST Okay. And then let me just try one more. Is there any sense, I think you talked about as a little bit about how the R&D could trend up going forward as you prepare for some of these trials. Just any sense of the magnitude there? Or maybe if not specifically, maybe you could just give general commentary in terms of, let's say, you know, on a per trial basis how much R&D you need to spend to do one trial, generally speaking? - ------------------------------------------------------------------------------- DANIEL SMITH - SYCAMORE NETWORKS, INC. - PRESIDENT AND CHIEF EXECUTIVE I'll cover the R&D. Again the R&D that we are engaging in is not trial specific in the main. It's very, very little customization work that is being done. The things that we are developing are broadly applicable in all the trials and all the situations that we are participating in at this point in time, and we've given guidance with respect to where we think operating expenses are going to be in the second quarter. So I think that's the best as we can characterize the position at this time. - ------------------------------------------------------------------------------- MIKE DEMICHELE - THOMAS WEISEL PARTNERS - ANALYST Okay. Thanks guys. - ------------------------------------------------------------------------------- FRANCES JEWELS - SYCAMORE NETWORKS, INC. - CFO I will just add to that with respect to the OPEX guidance, the range $17.5 to $19.5 certainly contemplates project materials that may be incurred in the second quarter. So some of the uptick that is in the range of OPEX guidance certainly contemplates increases perhaps in the R&D line. - ------------------------------------------------------------------------------- ANDREW KRAMER - SYCAMORE NETWORKS, INC. - DIRECTOR OF INVESTOR RELATIONS Thank you Mike. Next question operator. - ------------------------------------------------------------------------------- OPERATOR Our next question comes from the line of Alex Henderson with Smith Barney. Please go ahead with your questions. - ------------------------------------------------------------------------------- MIKE GENOVESE - SALOMON SMITH BARNEY - ANALYST Yes, thanks. This is Mike Genovese for Alex Henderson. Dan, can you comment on - - I didn't hear you mention Siemens at all in the partnership, how that relationship is going, if you are seeing any traction whether domestically or abroad with that relationship. Thanks. - ------------------------------------------------------------------------------- DANIEL SMITH - SYCAMORE NETWORKS, INC. - PRESIDENT AND CHIEF EXECUTIVE Well again, I think that I didn't specifically talk about it but I will in the sense of I think the, our activities with Siemens remain largely international and we are continuing to make progress with respect to opportunities moving through the sales pipeline there but I think that's all I can characterize at this point in time. - ------------------------------------------------------------------------------- MIKE GENOVESE - SALOMON SMITH BARNEY - ANALYST One other question, there. Have you made the R&D investments to integrate that your switching and their transport? Has that money been spent? Is that a product that a customer could buy today if it was ready to make a purchase? - ------------------------------------------------------------------------------- DANIEL SMITH - SYCAMORE NETWORKS, INC. - PRESIDENT AND CHIEF EXECUTIVE Yes, that development was completed last spring and so the dollars associated with that investment are long since past us. And, yes, it's able to be ordered off the shelf. - ------------------------------------------------------------------------------- ANDREW KRAMER - SYCAMORE NETWORKS, INC. - DIRECTOR OF INVESTOR RELATIONS Thank you very much, Mike. Next question operator. - ------------------------------------------------------------------------------- OPERATOR Our next question comes from the line of Simon Leopold with Merrill Lynch. Please go ahead with your questions. - ------------------------------------------------------------------------------- SIMON LEOPOLD - MERRILL LYNCH & CO. - ANALYST Thank you. I just wanted to first double-check, Dan, in your remarks in the beginning, talking about the customer activity. I believe you implied, but maybe didn't specifically say that there are no new contracts that you've signed but you're making progress. I want to confirm, no new contracts. My second question concerns the inventory. I think the comment was that WIP plus finished goods was at about 95%. Would it be possible to break that up between those two categories as well as compare that to the last quarter's levels? And just finally, if you can give us an update on your thoughts about acquisitions or use of cash. That's it. Thank you. - ----------------- --------------------- ------------ -------------------- ---- CCBN STREETEVENTS streetevents@ccbn.com 617.603.7900 www.streetevents.com 6 - ----------------- --------------------- ------------ -------------------- ---- (C) 2003 CCBN.com, Inc. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of CCBN.com, Inc. - ------------------------------------------------------------------------------ FINAL TRANSCRIPT - ------------------------------------------------------------------------------ SCMR - Q1 2004 SYCAMORE NETWORKS EARNINGS CONFERENCE CALL - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------- DANIEL SMITH - SYCAMORE NETWORKS, INC. - PRESIDENT AND CHIEF EXECUTIVE Okay. I'll take the first part of the question and then the second part of the question Fran will cover with respect to inventories then I will come back to the question in terms of potential acquisitions. I think you are correct, I did not state in my comments with respect to new contracts or the like, and again we have never commented on new contracts or trials or evaluations in process until they are announced and we did not make any announcements in the quarter with respect to new contracts. Fran, if you want to cover the inventory part of the question. - ------------------------------------------------------------------------------- FRANCES JEWELS - SYCAMORE NETWORKS, INC. - CFO Sure. With respect to inventory, the break out between WIP and finished goods combined at 95, and 87 is finished goods and 8% is WIP. In comparison to last quarter, I actually don't have that information with me at this time. - ------------------------------------------------------------------------------- DANIEL SMITH - SYCAMORE NETWORKS, INC. - PRESIDENT AND CHIEF EXECUTIVE With respect to use of the cash, again, I think our strategy and tactics that support that strategy have been first and foremost to focus on the three aspects in our business in terms of the disciplined financial management and the technology innovation and customer relationships. With respect to the technology, we continue to invest at a relatively significant rate in making sure that our switching platforms are the best and the most advanced in the world, and we think we've attained that. I think the other energies in the business are really focused on other things that we could do to complement that strong technology base both in that existing market as well as adjacent and complementary markets. And so we continue to do a lot of work in that area and we're not ready to state what our conclusions are in that thinking process at this point in time. - ------------------------------------------------------------------------------- ANDREW KRAMER - SYCAMORE NETWORKS, INC. - DIRECTOR OF INVESTOR RELATIONS Thank you very much, Simon. Next question operator. - ------------------------------------------------------------------------------- OPERATOR Our next question comes from the line of Chet White with Merriman Curhan Ford & Co. Please go ahead with your question. - ------------------------------------------------------------------------------- CHET WHITE - MERRIMAN CURHAN FORD & CO. - ANALYST Thank you very much. Could I inquire, the opportunities that you have could you kind of categorize, what are you seeing as far as technology and applications? More collapsed ring or sizeable new mesh opportunities? And also just a clarification, you said that you didn't announce any new contracts but there could have been, you just didn't announce any so you didn't discuss any, but at the same time all of your revenue was international this quarter? - ------------------------------------------------------------------------------- DANIEL SMITH - SYCAMORE NETWORKS, INC. - PRESIDENT AND CHIEF EXECUTIVE Yes that's correct, all of the revenue was international this quarter. With respect to the trends that we're seeing, based on the active projects that we see, service providers are really requesting very strong standards-based BLSR support coupled with very strong DCS or digital cross connect functionality and a demonstrable and provable roadmap to mesh. And I think what we are starting to see is that roadmap to mesh is translating into specific deployment goals and objectives for mesh, and so I think we've seen progress in that regard. - ------------------------------------------------------------------------------- CHET WHITE - MERRIMAN CURHAN FORD & CO. - ANALYST Okay. Thank you very much. - ------------------------------------------------------------------------------- OPERATOR The next question comes from the line of Todd Koffman with Raymond James. Please go ahead with your question. - ------------------------------------------------------------------------------- TODD KOFFMAN - RAYMOND JAMES & CO. - ANALYST Thank you. As we listen to your comments or lack thereof, it sounds like your visibility could be construed as maybe getting worse while others are getting better and I think that this may be the first quarter in sometime where you've decided or elected not to provide revenue guidance. My question is what's the contrast between your visibility versus others and what happened in the last few months that made your decision not to provide revenue guidance going forward? Thank you. - ------------------------------------------------------------------------------- FRANCES JEWELS - SYCAMORE NETWORKS, INC. - CFO I think from my perspective, I think there's a difference in this quarter as we look forward for primarily two reasons. The first is that in prior quarters we talked about the lack of visibility while we have a solid existing customer base, we continue, and as we said in previous quarters, we continue to see changes in the network deployment plans of existing customers. And in most quarters, given the range of revenue guidance, we can accommodate shifts between one quarter into the next. This quarter in particular the visibility was more complex and decreased for us because we had certain vendor selection decisions that may or may not happen in the quarter and as Dan talked in his prepared remarks, it certainly seems as though some of the trials that we participated in are getting close to making decisions. And that presents challenges on the upside for us in terms of being able to guide, coupled with - ----------------- --------------------- ------------ -------------------- ---- CCBN STREETEVENTS streetevents@ccbn.com 617.603.7900 www.streetevents.com 7 - ----------------- --------------------- ------------ -------------------- ---- (C) 2003 CCBN.com, Inc. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of CCBN.com, Inc. - ------------------------------------------------------------------------------ FINAL TRANSCRIPT - ------------------------------------------------------------------------------ SCMR - Q1 2004 SYCAMORE NETWORKS EARNINGS CONFERENCE CALL - ------------------------------------------------------------------------------ challenges on the down side with existing customers still changing their network deployment plans. Those factors combined led us to the conclusion that at this point until we get greater certainty it makes sense to not provide the revenue guidance. - ------------------------------------------------------------------------------- ANDREW KRAMER - SYCAMORE NETWORKS, INC. - DIRECTOR OF INVESTOR RELATIONS Thank you very much Todd. - ------------------------------------------------------------------------------- OPERATOR Ladies and gentlemen, as a reminder, please keep your questions to one question and one follow up per queue. Our next question comes from the line of Steve Levy from Lehman Brothers. Please go ahead with your question. - ------------------------------------------------------------------------------- MARCUS KUPFERSCHMIDT - LEHMAN BROTHERS - ANALYST Hi, it's Marcus Kupferschmidt for Steve Levy. Fran, just to clarify on one thing you just said, in terms of trying to better understand the visibility to the current customer base. Now, is vendor selection affecting anything in terms of visibility to the current customer base or is the limited visibility there truly just a function of the constantly changing networks plans? And I have a follow up to that. - ------------------------------------------------------------------------------- FRANCES JEWELS - SYCAMORE NETWORKS, INC. - CFO Vendor selection is, I look at it as two separate comments. The vendor selection comment really goes to new or prospective customers and the existing customer comment is for, you know, customers that we have that continue to work with Sycamore but move orders between quarters. - ------------------------------------------------------------------------------- MARCUS KUPFERSCHMIDT - LEHMAN BROTHERS - ANALYST Okay, great. And then, in terms of the customers that generated revenues this quarter, can you give a sense of the number of those customers and should we assume those were all customers that did generate revenues in prior quarters for Sycamore? - ------------------------------------------------------------------------------- FRANCES JEWELS - SYCAMORE NETWORKS, INC. - CFO Sure, let me give you some flavor with respect to the customers. In terms of product revenue this quarter, there were a total of five customers. Of the five customers, one customer purchased both transport products and switching products, and then there were four for switching only customers. In terms of customer service revenue, all of our customers that purchased products also purchased service and there were, I think four additional customers on top of the, in the customer service revenue mix. - ------------------------------------------------------------------------------- MARCUS KUPFERSCHMIDT - LEHMAN BROTHERS - ANALYST Sure. And of those five customers that generated product revenues, those were all prior revenue generating customers? - ------------------------------------------------------------------------------- FRANCES JEWELS - SYCAMORE NETWORKS, INC. - CFO That's correct, yes. - ------------------------------------------------------------------------------- MARCUS KUPFERSCHMIDT - LEHMAN BROTHERS - ANALYST Okay. Great. Thank you. - ------------------------------------------------------------------------------- ANDREW KRAMER - SYCAMORE NETWORKS, INC. - DIRECTOR OF INVESTOR RELATIONS Thanks Marcus, next question operator. - ------------------------------------------------------------------------------- OPERATOR Our next question comes from the line of Paul Silverstein with Needham and Company. Please go ahead with your question. - ------------------------------------------------------------------------------- PAUL SILVERSTEIN - NEEDHAM & COMPANY - ANALYST Thanks, asked and answered. Thank you. - ------------------------------------------------------------------------------- OPERATOR Our next question comes from the line of David Wai from RBC Capital Markets. Please go ahead with your question. - ------------------------------------------------------------------------------- DAVID WAI - RBC CAPITAL MARKETS - ANALYST Thank you. Can I ask a quick question around competition? I just wanted to go back to your comment on how carriers are looking for a more tangible roadmap to mesh and how that might change the competitive front, whether there are certain products you see out there that are more competitive in that respect versus others? - ------------------------------------------------------------------------------- DANIEL SMITH - SYCAMORE NETWORKS, INC. - PRESIDENT AND CHIEF EXECUTIVE Okay. I guess from my point of view, lots of people talk about mesh but very few people have the capability of delivering it. Even if it's on the road map it's a long way in the future and it's - ----------------- --------------------- ------------ -------------------- ---- CCBN STREETEVENTS streetevents@ccbn.com 617.603.7900 www.streetevents.com 8 - ----------------- --------------------- ------------ -------------------- ---- (C) 2003 CCBN.com, Inc. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of CCBN.com, Inc. - ------------------------------------------------------------------------------ FINAL TRANSCRIPT - ------------------------------------------------------------------------------ SCMR - Q1 2004 SYCAMORE NETWORKS EARNINGS CONFERENCE CALL - ------------------------------------------------------------------------------ something that we have had in operational networks for some time now and consistently in the testing that we're seeing, we're significantly better performing in all aspects of that. - ------------------------------------------------------------------------------- DAVID WAI - RBC CAPITAL MARKETS - ANALYST And, do you see, are there any other competitors that you see are consistently you know maybe or closer to you than others are? - ------------------------------------------------------------------------------- DANIEL SMITH - SYCAMORE NETWORKS, INC. - PRESIDENT AND CHIEF EXECUTIVE I would say we'd see the usual people we see in the RFPs and testing opportunities would be ourselves and Lucent, Ciena and then occasionally Nortel. - ------------------------------------------------------------------------------- DAVID WAI - RBC CAPITAL MARKETS - ANALYST Great. Thank you. - ------------------------------------------------------------------------------- OPERATOR That does conclude our question and answer session at this time. I would now like to turn it back to you for any closing remarks. - ------------------------------------------------------------------------------- ANDREW KRAMER - SYCAMORE NETWORKS, INC. - DIRECTOR OF INVESTOR RELATIONS Thank you very much, operator. I'd like to thank everybody again for joining us on the call today. If you have additional questions and you want to follow up with Investor Relations, please give us a call. Thank you very much and we'll talk to you soon. - ------------------------------------------------------------------------------- OPERATOR Ladies and gentlemen that does conclude the conference call for today. 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All Rights Reserved. - ------------------------------------------------------------------------------- - ----------------- --------------------- ------------ -------------------- ---- CCBN STREETEVENTS streetevents@ccbn.com 617.603.7900 www.streetevents.com 9 - ----------------- --------------------- ------------ -------------------- ---- (C) 2003 CCBN.com, Inc. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of CCBN.com, Inc. - ------------------------------------------------------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----