Bridgewater Systems exceeds expectations, increases guidance

BWC share should be positively impacted by news, and analysts should continue to raise forecasts.

BWC.TO reported Q2 2009 revenue of of $16.1 million, a 37% year over year increase in sales from $11.8 million. Gross margins were 74% for the quarter. Earnings reported for Q2 were $4.1 million or $0.17 EPS versus $1.3 million or $0.05 EPS for the previous year quarter, a 215% increase.

The Company now reports $57.6 million of cash on its balance sheet.

Management has increased full year guidance to between $58 million and $64 million with full year gross margin expected at 70%, which implies that gross margins may decline in the second half. Encapsulated within full-year guidance is $23 million in contracted backlog for H2, and approximately $7 million in upsell and new client revenue.

H1 revenue is reported at $30.2 million with $0.29 EPS. The mid-point of guidance infers that it expects to generate an identical back half with slightly lower potential EPS.

On the conference call management stated that RFP interest for all of its products is increasing during H2 2009, that it is on track to sign a Tier 1 GSM client.

Management confirmed that the explosion of smart phones, and the requisite application stores associated with them worldwide is providing exceptional opportunity for BWC as carriers/operators attempt to manage the scale and complexity of their growing data channels.

With only 5.4% smartphone penetration within the total world mobile subscriber base, there remains a lot of opportunity for BWC.

Analysts have been increasing forecasts and targets for the past few days, and after today's financial results and conference call, investors should expect analysts to continue to increase forecasts and targets.

As mentioned in earlier posts, BWC is among a handful of "connectivity" stocks that should perform ahead of the general market as mobile data networks expand.

Also included in that group are: RIM, CGI, BWC, DWI, RCM, WIN, RKN, SVC, PIX, and TUN

Disclosure: I own BWC stock, but do not own any of the other stock mentioned in this post.

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