In a research note distributed on Friday, analyst Kris Thompson noted the second-quarter results, released Thursday, were better than expected, but results in the fourth quarter may begin to downgrade.
Revenues increased 41 per cent to $22.7 million from $17.1 million – above guidance – but net earnings decreased to $3.2 million from $4.1 million between the second quarter of 2009 and Q2 2010.
"While the company added 17 new customers in the quarter, management seems to be bit more cautious about revenue momentum. How’s that? Guidance was not increased and visibility does not seem to have improved beyond Q3," Mr. Thompson wrote.
"While we continue to believe in Bridgewater’s long-term prospects, sales cycles may be taking longer than expected, which could push some Q4 orders into next year."
Bridgewater will retain an outperform rating on NBF's list. Thompson's notes Thursday stated that the new customers "should aid future revenue growth and customer diversification."
Following a conference call on Thursday that included comments from CEO Ed Ogonek, Bank of Montreal analyst Thanos Moschopoulos told OBJ that Verizon's move away from buying bundled systems from Bridgewater and focusing instead on just software could also hurt investor confidence.
"I don't think it will impact Bridgewater that much, but when your largest customer is looking to tweak the way business is doing with you it makes people nervous," he said.
Further research notes he released Friday acknowledged the concerns some investors would have with Verizon's slowdown and the pace of new customer wins.
However, BMO remains more optimistic than the street for a couple of reasons, Mr. Moschopoulos noted: they don't see revenue being pulled to 2010 from 2011, and any lost revenue from the Verizon deal would be offset by future product revenue on delivery rather than implementation.
"The question is whether Verizon opted to accelerate deployment on a large amount of excess capacity it won’t need for some time, or whether the accelerated deployment means that traffic on its network is growing more rapidly than had initially been expected," he stated.
"It may well be some of both, but we believe the latter may be likelier than the former; e.g. the accelerated WideSpan deployment is not necessarily creating a revenue hole for FY2011."
Bridgewater draws 59 per cent of its business from two customers.
During the conference call, chief financial officer Kim Butler said "one can assume" Verizon was one those partners, but would not separate the two into more exact numbers.
