Metaswitch Q2 Update

Today, Metaswitch had their Q2 update call, and I just wanted to share some highlights. Readers of my blog will know this is a company I've followed for a long time, and it's always good to see a continuing growth story.

Being private, Metaswitch is not obligated to conduct these quarterly calls, but when things are going well, why not? I've noted before that it's unusual for a private company to share performance metrics, and they certainly provide validation, both in current terms and to support recent upward trends.

That said, the call is conducted within a small circle, and I can't share those numbers here. Furthermore, there wasn't much hard news, so I don't really have much to say. However, I can tell you that the Q2 numbers are good - sales are up - both Q-to-Q and Y-over-Y - as are margins. They continue to acquire customers, and are doing so in a variety of ways. On the call they talked about both Tier 1 and below, as well as all types of operators - wireline, mobile and cable. Their footprint continues to expand regionally, and they cited recent wins in both the CALA and APAC markets.

An underlying theme was industry consolidation, with Genband's acquisition of Nortel cited as a recent example. The message here is that Metaswitch is a stable, strong and proven partner, and this is being proven out with their continued market success. I have no reason to doubt this trend will continue, and they mentioned that their upcoming Forum customer event will have record attendance. It really is a great showcase for their market traction, and I'm looking forward to experiencing it first-hand next month.

Metaswitch Makes a Smart Move

With the recent news around making Kevin DeNuccio their CEO, Metaswitch is starting to execute on their global marketing push. If any of this is news, my last post about Metaswitch will get you up to speed. Have a look at that, and then read the rest of this post.

Today they've announced their first acquisition since then, and it's exactly what you'd expect given their big picture plans. In short, Metaswitch has acquired Richardson, TX-based App Trigger, an established vendor in the service broker space. I wasn't familiar with this company before, but I followed this space fairly closely when there were more players.

As with other IP comms sectors, service brokers have gone through their share of consolidation, and companies I was close to for some time - such as Personeta and Leapstone - are long gone. However, App Trigger remains - until now - and this looks like a good exit for them, and a smart move for Metaswitch.

If you thought the SBC space was misunderstood, it's even more so for service brokers. This is complex network technology for telcos, and being so engineering-heavy, it's no surprise that market adoption has struggled and that these companies have remained small. Bad for them, but good for Metaswitch.

As I understand things, service broker platforms bring value by enabling carriers to bridge the worlds of legacy and IP for both service creation and service delivery. A lot of legacy apps are still widely used and profitable for carriers, but they also need to move into IP, and that's where service broker platforms come into play.

Being a small company, this was a manageable acquisition for Metaswitch, and adds another layer of value right away. As noted in my last post, they're in a great spot to make acquisitions, and this seems to be the right kind of move. There aren't that many service broker players left, and it makes Metaswitch a more complete solution. First, App Trigger has a global footprint, and several Tier 1 customers, giving Metaswitch a new base to sell into.

Even better, though, is the capability this gives them to better service the global market, which is a key part of their growth plan. One of the challenges for global carriers is the wide variance of protocols used to hand off traffic to each other. This applies equally across different types of protocols, as well as addressing varying flavors within one, especially SIP. Perhaps equally important is wireless, which is a key growth area for Metaswitch, and as carriers adopt IMS and migrate to 4G and LTE, wireless service broker capabilities could become a key differentiator.

That's as far as I can take the technical discussion, but I see enough here to conclude that it's a good deal for both parties. Terms were not disclosed, but I can't imagine the cost was all that much, and certainly within Metaswitch's means. So, it's another step forward for the company, and am sure this will put some pressure on the competition to keep pace.

Metaswitch Announces New CEO

Was just on a briefing call about some news from Metaswitch. I don't track news items as a matter of course, but this announcement came my way on short notice, and being a company I follow closely, it's worth noting.

Metaswitch is a great example of a company that goes about its business quietly, deliberately and effectively. These really aren't 2.0-style virtues, but I'll take their track record any day over the fast and furious.

The news item is pretty pedestrian - Kevin DeNuccio takes the CEO reins from John Lazar, who now moves into the Chairman spot, in turn from Ian Feguson, who remains on the board. You can read the details here on the press release that just ran this morning.

Kevin has big company experience from Redback Networks and Cisco, and it looked like a good move when he came on board as a director in 2008. I've seen this with other companies who are ramping up for growth and/or targeting bigger customers. This type of pedigree can be invaluable on a few levels, and it's not surprising to see Kevin now in the CEO spot.

You could argue the company wanted more of a U.S.-based/style of CEO, but I think that's the short answer. Their culture is too strong, and I don't see them becoming a rah-rah type of company trying to get really big by acquiring competitors and raising lots of money to fund it. That's not their style.

I see this more as another step along the way to deepen their management team, and position the company for continued, global growth. Metaswitch is definitely growing into new frontiers, namely wireless and developer-based applications, and of course moving further up the chain with bigger telco customers. I can see Kevin's presence helping with bigger telcos, but I'm not as sure about these other areas.

Regardless, I think this sends a positive message that Metaswitch is well positioned for 2010, and having gone through some corporate re-jigging/branding last year, they have a plan in place, and this news is just part of how they're executing on it.

I'm still not entirely sure why this move is happening and why now, and we'll just have to take it on the faith that it's all for the best. My only concern is their ability to assure core customers that nothing changes for them. They've done a great job acquiring - and keeping - Tier 2/3 carriers, and will need to be careful not to give them a reason to think they're moving away to chase bigger game. We got assurances on the call this won't happen, and I'm confident that's how things will unfold. They know their roots too well - just consider where their next customer forum takes place - Nashville. Great music aside, I can't think of a better spot to be among your people. I hope Kevin likes country and bluegrass....

Metaswitch - Rolling Along Nicely

Metaswitch is a company I've followed for a long time, and as private companies go, they're right up there in terms of being well run. Their offerings are solid, their customer base keeps growing, they're making money, the management team is stable, and they have a strong employee culture.

Doesn't get much better than that, and yesterday they had their quarterly update call. Aside from public companies with their obligatory earnings calls, I can't think of anyone else in this space who does this. As far as I know, they're not required to do this, and I think this kind of transparency is great, at least for those of us invited to the call.

I won't go much beyond the highlights shared in today's press release, other than to assure you this is a company with a plan and the ability to execute on it.

I'd say the most noteworthy news is the announcement of their 500th customer - Misamis Oriental Telephone System, based in the Phillipines. Not only is this a big milestone, but a good example of the global reach Metaswitch is starting to achieve. The company actually has two operating divisions - this is their Carriers Systems Division - CSD. They also have NPD - Network Protocols Division - which ended 2009 at the 250 customer mark, with Celtro, a Delaware-based wireless backhaul operator.

Another bright spot was the trickle-down effect of the Broadband Stimulus funding to their bottom line. They highlighted Slic Network Solutions as a recent recipient, and that money will enable them to buy a Metaswitch solution, from which they'll be able to provide lower cost VoIP services to their base of rural customers. That may not sound like much to most of you, but there are a lot of operators like Slic out there, and the combination of this funding and IOC-friendly vendors like Metaswitch is very good news, especially after such a difficult 2009.

Something else caught my eye that was briefly mentioned - their expanding relationship with Huawei. This is a company you can't ignore, and either admire or fear. They represent a lower cost alternative to all the U.S./E.U. telco vendors, and it's just a matter of time until they become a major player in their home markets. I don't have anything to add beyond the public news, but it's a partnership that I will follow with interest.

Finally, it was great to hear John Lazar talk about smart phones and the impact they're having everywhere, especially for new applications. As is the case with all platform vendors, Metaswitch has its own developer ecosystem - Innovators Community - and it's become a key element of their overall value proposition. This isn't the MetaSwitch we knew from earlier days, and now that it's Metaswitch, I see a company poised for a great run this decade. I can't think of too many companies of this size who had a stronger 2009, and the critical mass is there today to make them a top tier player in the not-too-distant future.

MetaSwitch and XConnect - Good News Items

MetaSwitch and XConnect are very different companies, and normally have no reason to be featured in the same place. However, I've followed both for a long time, and both have recently had some good news to report. Occasionally I'll do a post like this, where this is the only common thread. In this case, I wouldn't say it's a big trend, but the economy is still weak, and signs of life are noteworthy. The big deals - like Cisco/Tandberg or Avaya/Nortel - get all the headlines, and smaller companies like MetaSwtich and XC fly low on most people's radar - but that's my bread and butter - and I'm here to tell you these companies are doing alright.

Let's start with MetaSwitch. There's a lot going on here, and it's all good - and these things always seem to happen when I'm away and too busy to blog about! Well, better late than never. Aside from being one of the most stable, straight-up companies out there, I can't think of any other private company in our space that reports its financial results. Talk about transparency. Of course, it helps when you're growing and making money. As reported in their update, revenues have now broken the $100 million mark ($113.7), and operating margins remain north of 20%.

The closest thing to this would be Mitel, who just reported results, including a hefty loss. Although private, Mitel's base of shareholders exceeds the threshold required by U.S. securities regulations for reporting purposes. To be fair, the loss is mostly a one-time event reflecting the Inter-Tel acquisition, and revenues were slightly up. Hopefully, they'll be in the black soon.

The main difference between these two private companies is that Mitel has to report these results (which I'm sure they would have preferred not to do), whereas MetaSwitch does so by choice. Both are reasonably large companies, and I see MetaSwitch as a yardstick for smaller vendors to follow to show that you can be profitbale as you get larger, and that's worth waiting for, especially to make your investors happy. I can't really say whether smaller companies prefer to remain private or to go public once they get big, but my gut says private ownership is the way to go.

Aside from the good financials, the company has done some rebranding, incorporating the Data Connection name under the MetaSwitch Networks brand. This is part of a bigger process announced at last year's Forum, whereby the carrier systems and network equipment operations have now been consolidated into a single entity.

In terms of broadening their reach, I'd like to add they've done some interesting things this year, showing a willingness to try new things. Most recently, they were the lead sponsor of the Latin America Summit at the re-launched VON event in Miami; and earlier this year they were a sponsor of eComm in San Jose. They've also re-tooled their website, which includes blogs from some top executives, which is always good to see. And if you're going to Supercomm - John Lazar will be speaking, they'll have a new booth to showcase the new branding, and you can find me hanging out with them at their House of Blues party Wednesday night!

Onward to XConnect - another company with strong U.K. roots, by the way. Their most recent good news came in the form of a $10 million funding raise, which will enable them to fulfill their 2.0 roadmap, branded "Interconnect 2.0". Basically, it's a two-pronged plan, whereby 1.) they seek to build a global ENUM-based peering federation - the Global Alliance", and 2.) their service reach will go beyond voice to encompass multimedia communcations.

The latter is really the ultimate goal for peering, where all forms of IP traffic - voice/data/video - can connect directly between any two networks, and essentially dispense with the need to traverse legacy networks. It's an ambitious agenda, and XC is not alone in recognizing that peering has been slow to catch fire in the core market of wireline VoIP services.

The economic rationale has simply not been strong enough yet for mass adoption, but XC is trying hard to change that. As such, peering needs to move up the value chain, particularly to handle video, and as the mobile world moves to 4G, LTE, etc., to address wireless traffic. These are the real growth areas for communications, and as these types of traffic begin to seek end-to-end IP routes, the value proposition for peering becomes stronger.

XConnect has been moving towards wireless for some time, and last month announced a partnership with GSMA that positions them well in this market. It's basically an interop arrangement between XC's ENUM registry and GSMA's PathFinder ENUM registry, a centralized database for mobile operators to translate phone numbers into IP addresses. PathFinder is managed by NeuStar and extends to fixed networks too, but the main idea here is to broaden XC's reach to mobile operators.

To conclude, both companies are showing signs of growth in the IP comms market; with MetaSwitch posting profits and strong revenues, and XConnect raising new money. Both can be done by having the right vision and ability to execute to plan. These are easier said than done, and you don't have to look far to find good startups struggling to raise money or good companies getting acquired for all kinds of reasons. While Cisco, Google, Avaya et al will continue to get bigger at the top end, there are still good stories to be told at the mid or lower levels of the market, and I'll continue talking about them as they pass my way.