Michael and Peter:
Thanks for the post. It's good to be back, although I had a blast in Madrid.
As for the DEFERRED REVENUE Account, I think the truth is somewhere in the middle. While much of the money comes from prepayments for software maintenance contracts, as the 10-K indicates, I can't help but believe this is only part of the story. As we have all seen, the amount continues to grow each quarter, from sizeable amounts to even more sizeable still.
In all my business dealings, I have never known companies to willingly part with cash upfront, in large amounts, and wait for their supliers to provide them with the goods. In many cases, it works the other way around, with suppliers extending credit to their customers, and allowing for defaults. Given the growth rate and magnitude of this liability account, I can't help but think that WIND management uses this account as a repository for excess income. Some of the money is of course prepayments against future services, but I think some of it is not. Of course, this is only my opinion. But it seems to be borne out by the following.
A while back, somebody pointed out the coincidence that every one of WIND's quarterly revenue numbers ended in an exact even 100,000 amount. I thought this was strange as well, and since then, have noticed the remarkable consistency between WIND's quarterly earnings announcements. Every one of WIND's quarters seem to generate approxiamately 45% revenue growth (give or take a few %), which translates into earnings growth between 80-100%.
While it is possible that WIND's revenue growth is so consistent as to show little deviation, I believe the following is the more likely explanation. Every quarter, WIND fills up the revenue account with the needed sales to generate 45%, rounded to the nearest 100,000, and calcuates the earnings on these sales. To the extent that they can push of sales to the next quarter, they do. But sometimes, sales have already occurred. Rather than show a big explosion in any one quarter, I believe they are effectively building up a reserve account, in the form of deferred liabilities. WIND management prefers to manage a nice consistent earnings and revenue stream, giving Wall Street what they want each quarter plus a little extra. At times, the money comes in too fast, and this is why WIND needs to shield their extra income. Wall Street loves to reward consistent earners, which ultimately produces higher multiples and higher stock valuations. I think it is a very smart strategy indeed.
Of course, these are just my thoughts. Any and all comments appreciated.
Ciao,
Jason Cogan |
