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| 8-K - FORM 8-K - COMVERSE TECHNOLOGY INC/NY/ | mm02-0310_8k.htm |
EXHIBIT
99.1
February
3, 2010
Dear
Colleagues:
This week
marks the beginning of a new fiscal year for us, and so I’d like to provide you
with an update on some of our recent activities, along with our current plans
and an outlook for the coming year.
Throughout
2009, I shared with you the challenges we faced due to the very difficult global
economic environment, its impact on the wireless industry, and our expectation
that business activity for the year would decline at our Comverse
segment. And indeed we, along with many of our peers, experienced
product bookings and revenue declines during fiscal 2009, and our operations
resulted in a cash decline, an operating loss, and negative segment performance,
which we define as operating income (or loss) excluding certain
items. Product bookings represent projected revenue from orders
signed during a specified period, excluding revenue from maintenance
agreements.
Back in
September, I observed that although our business activity had not yet
stabilized, there were a few good reasons why we were hopeful that some recovery
would materialize toward year-end. Customer spending patterns and
plans appear to have stabilized. And we are seeing more positive
signs in our business as well. With our bookings improving
sequentially in the fourth quarter, we hope this momentum will carry over into
2010. Currently, our internal forecast is pointing to a return to
modest bookings growth in fiscal 2010 compared to fiscal 2009.
At the
same time, we must better align our operations and cost structure to the new
realities of the post-recession marketplace. Comverse’s Leadership
Team is currently undertaking several functional and cross-functional
initiatives to improve the agility and performance of our
business. We also are continuing an extensive product
rationalization, in which we are rebalancing our resources and investment levels
to better reflect each product’s lifecycle stage, profit contribution and market
opportunity.
With all
this in mind, we have made the difficult decision to reduce our cost structure,
including staffing, by approximately five percent over the next few
weeks. To ensure the future success of Comverse, it is imperative
that we restore our business’ ability to generate positive operating income and
cash on a consistent and sustainable basis, and at a level sufficient to afford
us the ability to re-invest in our most desirable opportunities.
* * *
We
continue to make progress with our accounting restatement and SEC compliance
process, although we will not complete this work by the date CTI agreed in its
SEC settlement, which was February 8th. We
now believe CTI will file in late April 2010 a comprehensive 10-K covering
fiscal years 2005 through 2008, and provide at that time selected information
about fiscal 2009. At that point, we will be working to complete the
10-K and 10-Q filings for fiscal 2009 by the end of June and, following that,
our 10-Q for the first quarter of fiscal 2010. CTI’s ability to meet
this timeline is dependent upon the achievement of certain important milestones
in our reporting and disclosure processes, including certain milestones in the
next several weeks and consequently, this timeline is subject to the risk of
further delay.
Importantly,
we now can point to tangible evidence of substantial progress in our accounting
and re-filing work: Comverse’s historical revenue recognition assessment, which
accounted for a substantial portion of our focus and efforts is nearing
completion; CTI’s majority-owned Ulticom subsidiary is compliant in its filings
and is now re-listed on NASDAQ; and CTI’s majority-owned subsidiary Verint today
announced preliminary unaudited financial information for fiscal 2005 through
fiscal 2009.
1
The
following table presents a preliminary, unaudited view of our Comverse segment’s
approximate revenue for the last five fiscal years and backlog as of each fiscal
year end, which are subject to adjustments. Backlog
represents projected revenue from signed orders, not including maintenance
agreements:
|
Fiscal
Year
|
2005
|
2006
|
2007
|
2008
|
2009
(est)
|
|||||||||||||||
|
Revenue
($M)
|
$ | 800 | $ | 980 | $ | 1090 | $ | 960 | $ | 750 - $ 800 | ||||||||||
|
Backlog
($M)
|
$ | 880 | $ | 1050 | $ | 1150 | $ | 1190 | $ | 1200 - $1250 | ||||||||||
The
revenue amounts set forth above are significantly lower than the revenue metrics
previously communicated and used internally to manage the business because our
internal metrics did not reflect the proper application of revenue recognition
accounting rules. To illustrate the magnitude of these changes, we
reduced revenue by approximately $340 million in fiscal 2005 to 2008 and reduced
revenue cumulatively for all periods through 2008 by approximately $800
million. Substantially all of the reductions in revenue are reflected
in backlog and are expected to be recognized in later periods at favorable gross
profit levels.
* * *
Our major
products in our core focus areas of Billing & Active Customer Management and
Value-Added Services continue to deliver outstanding value to our wireless and
fixed network communication service provider customers, and we continue to
compete successfully, winning a number of new deals in the second half of
2009. Over the past few months, we announced successes with Bell
Mobility Canada, Cosmote Romania, Entel Chile, Netcom Norway, Tigo Bolivia, UTS
Caribbean, and Vodafone Portugal, in addition to several customer engagements
that we are not yet able to disclose.
We also
announced enhancements to our Mobile Internet HUB product, and unveiled a joint
center of excellence with IBM, focused on BSS/OSS and value-added service
delivery, to help customers reduce costs and accelerate product
rollouts. And over the last few months, we continued to receive
positive recognition from leading industry analysts, including Gartner, which
gave our BSS solution its highest possible rating; Internet Telephony Magazine,
which presented us with its BSS/OSS Excellence Award; and ABI, which cited our
leadership in Messaging.
Our high
value products and market leadership place us in a key position at the core of
telecom network operators’ efforts to generate service usage and revenue, foster
subscriber satisfaction and loyalty, and monetize their
offerings. Every day, hundreds of the world’s largest communications
service providers, including most of the world’s 100 largest wireless network
operators, rely on Comverse to make their networks smarter.
We
continue to have many reasons to be encouraged about our long-term
prospects. Our team of talented people possesses a winning spirit and
the market’s leading innovation engine, and we have a strong position in our key
markets, with outstanding customers, an industry leading product portfolio, and
a good financial position.
Let’s all
continue to focus on serving our customers as we enter the new year with renewed
momentum.
Thank you
again for your ongoing effort and commitment.
Best
Regards,
Andre
Dahan
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This
letter, and preliminary, unaudited consolidated cash and debt information as of
January 31, 2010 are being disclosed in a current report on form 8-K to be
furnished today to the U.S. Securities and Exchange Commission.
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