Radisys Corp. (RSYS) is under pressure after pre-reporting Q2 revenue last night that came in below prior guidance. Since you're probably not familiar, a little background would help. Radisys makes hardware and software that helps its customers run their networks more efficiently.
Its customers tend to be cable and telco service providers. Its hardware/software routes video and audio traffic as efficiently as possible. Its FlowEngine platform rapidly classifies millions of data flows and then distributes them to thousands of Virtualized Network Functions making network architecture more efficient.
Of note, in 2016, RSYS launched its data center platform called DCEngine. RSYS sees it as a disruptive platform that displaces the existing offerings of traditional telecom equipment manufacturers by enabling service providers to virtualize their networks. DCEngine is strategically important as it positions RSYS with a more complete suite of offerings. DCEngine's competitive advantage is its open architecture which allows customers to mix and match their compute and storage building blocks. DCEngine is also creating revenue opportunities for FlowEngine.
Turning to the guidance, Radisys said it expects Q2 revenue of approximately $35 mln, which is well below prior guidance of $41-47 mln. The company says delayed buying decisions at two of its largest customers resulted in Q2 revenue coming in below guidance.
Despite these near-term challenges, RSYS remains encouraged by the incremental progress it's making in proof-of-concepts and trials with tier-one customers across its strategic product lines, including initial engagements for its now commercially available FlowEngine TDE-2000 product. "Our highly disruptive products and solutions are actively receiving increased attention from leading service providers, which reinforces my belief that we remain on track to secure new commercial wins in [2H17]."
In addition to the guidance, the company says it recently completed an amendment to its existing line of credit with Silicon Valley Bank and Square 1 Bank. The amended agreement provides the company with greater financial flexibility by revising its quarterly EBITDA covenants. The company will provide full quarterly results and additional commentary on recent progress as part of its Q2 conference call on August 1.
In sum, the lowered guidance is weighing on the stock price this morning. This new result would reflect a sequential decline from Q1 revenue of $37.6 mln. The company had been expecting some sequential improvement. While not providing full year guidance, this likely makes investors nervous about what to expect for 2H17. In its Q1 report in early May, RSYS had said its DCEngine product line had resumed deployments with its largest customer in Q1 and management said it expects a more significant ramp of shipments in 2H17 with this customer. But there may be some concerns in investors' minds after the lowered Q2 guidance.