From GS report:
Vitesse (VTSS; MP) preannounced Sept quarter (Q4 F02) revenues of
$38M, which is inline with the low-end of its $38M to $45M guidance, but
modestly below our projection of $39M. The company also commented
about its liquidity situation and suggested that it was net-cash positive for
all of FY02 (i.e. including Sept quarter). Given the anticipated cash burn
from its restructuring and operating losses this is a positive and we believe
it is to some degree as a result of the company repurchasing a portion of
its outstanding debt during the qtr. With its end markets remaining weak,
however, we believe it is going to be difficult to achieve profitability through
accelerating top-line growth and thus we still believe further cost cutting
measures are necessary to return to profitability in the 2003 time frame.
Maintain MP rating.
MAINTAINING POSITIVE NET CASH Vitesse highlighted that it
maintained positive net cash for all of fiscal 2002 (Sep) and expects to be
net cash positive through fiscal 2003. Cash and equivalents at the end of
the June quarter totaled $472.2M, while debt at the end of the June
quarter was $456.1M (consisting of $452.7M convertible, $1.1M derivative
liability, $1.3M current portion of long-term debt, and $1.0M long-term
debt), which works out to approximately $0.08 net cash per share at the
end of June. The company had previously guided for cash burn of
$25M-$30M in the September quarter and $15M-$20M in the December
quarter. While we do not know what the company spent in the September
quarter nor if it improved its working capital management, we believe that
the company’s net cash position is likely to be helped by its repurchase of a
portion of its outstanding convertible note during the quarter. This would
help its net cash position given that the note trades below par value; the
note currently is trading at a spread of $71 to $74.
REVENUES TO COME IN AT LOW END OF GUIDANCE The company
preannounced revenues of $38M, the low end of guidance and down 12%
sequentially. Management did not provide any September quarter LPS
guidance though it noted that operating expenses for the December
quarter are expected to be $39M, which is inline with previous guidance
and our model. We are maintaining estimates given the relatively inline
preannouncement and lack of visibility regarding out quarters. The stock
trades at 0.8x EV/C’03 sales, which is now only a modest discount to
telecom-related peers. Interestingly, despite a healthier balance sheet,
AMCC (MP) its most direct comparable trades at negative enterprise value
and PMCS (MO) which is much closer to profitability trades at only 1x EV
/sales. |
