Restructuring costs and a wait for payments on commercial contracts slammed Alcatel-Lucent's (NYSE:ALU) cash flow figure, as the company burned through $694 million in cash during 2013's first quarter, worsening the year-earlier free cash flow loss of nearly $211 million.
Paul Tufano, COO and CFO, attributed the higher cash flow burn partially to restructuring costs incurred as part of Alcatel-Lucent's plan to cut $1.6 billion from yearly expenses. The timing of commercial contracts for which Alcatel-Lucent has not yet been paid was also a factor in the plummeting free cash flow.
Analysts said the free cash flow issue should be a priority for new CEO Michel Combes as he seeks to rescue Alcatel-Lucent's balance sheet. He acknowledged as much, saying, "Free cash-flow remains a challenge. Strong focus will be placed on working capital management to reverse some of the negative impact incurred this quarter."
Combes, who has only been on the job since February, is expected to release a new strategic plan for Alcatel-Lucent in June. The former Vodafone Group executive replaced Ben Verwaayen, who exited after failing to garner positive results from his three-year turnaround plan. "We are actively reviewing the group's businesses and operating model to design the conditions for value creation in the future. I am looking forward to sharing the outcome in early summer," said Combes.
The network-equipment maker's first-quarter net loss was $459.1 million, compared with a profit of more than $336.8 million a year earlier, when earnings were boosted by the sale of Genesys, Alcatel-Lucent's former call-center business.
First-quarter 2013 revenues improved 0.6 percent to $4.2 billion, thanks to a 16 percent increase in North America. The region now represents a historical high of 48 percent of Alcatel-Lucent's overall revenue compared with 42 percent a year ago.
Gross margin came in at 29.4 percent of revenue for the quarter, down from 30.2 percent in the year ago quarter, which the company attributed to an unfavorable product mix.
Tufano said Alcatel-Lucent has reduced its headcount by 5,400 from a year ago, with 3,200 of the cuts coming from managed services due to renegotiation of contracts. The vendor has addressed 10 out of 15 contracts that it announced it would examine under a performance plan announced last summer. The company also counted five managed services wins during the quarter. Managed services brought in nearly $345 million in quarterly revenues. Profitability improved significantly, resulting in a quarterly loss to $6.5 million vs. a loss of $91.1 million in 2012's first quarter.
Alcatel-Lucent saw revenues for its wireless unit improve 4.9 percent year-over-year to $1.26 billion. North America is the driving force for the vendor's wireless business, which has benefited from LTE rollouts by AT&T (NYSE:T) and Verizon Wireless (NASDAQ:CLWR) as well as smaller carriers. During the quarter, Alcatel-Lucent announced an LTE contract with nTelos, which operates a CDMA network in the mid-Atlantic and southeast region.
"Wireless LTE revenue is at the highest level it has ever been," said Tufano.
The Franco-American vendor also expects to see significant upside as China begins launching TD-LTE networks. Alcatel-Lucent recently unveiled lightRadio Metro Radio with China Mobile.
Revenues for the services division were $381.2 million, up 33.2 percent from the year prior-year period. Network build and implementation as well as integration services both benefited from U.S. network rollouts.
Alcatel-Lucent is also enjoying positive results in its IP business, which saw revenues grow in both the Americas and APAC region. Earlier this month, the company launched Nuage Networks, a venture targeting software-defined networking (SDN) solutions.
Alcatel-Lucent has declined to provide any guidance for 2013.
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