As expected, WIND continues it unending string of great quarters. I wrote this analysis before the conference call because, as soon as it is over, I have to rush to the airport for an lengthy trip to China. PLEASE DO A BETTER JOB OF GUARDING THE STOCK PRICE IN MY ABSENCE! <g>
WIND beat the analysts' estimates for both revenues and earnings with an awesome 46% increase in revenues to $18.4 million vs. H&Q's estimated $17.1. Gross margin of 81.8% and operating margin of 20.8% both beat estimated margins of 81.3% and 17.8%, resulting in an 11 cent EPS 22% higher than analysts' estimated. You might recall that I projected 13 cents, with Mitchell hit it on the money with his 11 cent estimate.
How did the company stack up to my estimates, and where did I go wrong? As you will see, the Company did very well indeed.
I overstated revenues by $605K, almost all of it in services. Since cost of services are over 60%, the after tax consequence of my exuberant estimate was worth only worth « cent to EPS, thus the difference can be ignored. So why was my EPS estimate off by 2 cents? Because management invested more than I expected in growing the company. I hit all cost categories almost perfectly, except for Marketing and Development. The Company expended $530K more in marketing than I projected, and $546K more in Development than I projected. Each of these decisions took about 1 cent from EPS - pennies well spent.
It bears repeating that all cost categories were precisely in line except for Marketing and R&D. Unlike other costs, these two categories are set at whatever management decides, and WIND definitely is deciding to grow a great company. This bodes very well for future revenues, and suggests that WIND should have no trouble whatsoever beating the $84 million mark for this fiscal year.
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After the Analyst Conference Call:
It came out that deferred revenue spiked up apparently because a surprise $1.8 million dollars came from Japan - which was technically deferred on the basis of shipment dates. Had this revenue contributed to the first quarter, it would have added 4 cents to the bottom line.
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Re the NCI/Navio merger and its effect on WIND. Last winter one analyst reported a rumor that WIND had a sizable ($2 million) deal going with Navio. Since we know VxWorks is the OS underlying the 2nd generation NC from NCI, it would appear that the merger will just cement business for WIND already in the works (i.e. VxWorks).
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By the way, in my previous "Valuing Stocks" post, I erred when I stated the number of years in each phase of life-cycle growth model. The 25% growth period was ten years, not five; and the 12% growth period was six years, not five. This is consistent with a later statement "If WIND can continue growing at 25% for another 10 years". Sorry if this was a stumbling block for any of you trying to verify my figures.
Be back in a few weeks
Allen |
