Dave, one more time - is there a replay number for the conference call?
Regarding sales info - This sounds OK, but once again the message is the same - "the technology is good, and we expect to get lots of orders." The only catch is that they are running out of time - they really need lots of orders in the next 3-4 months. After that it will be too late.
Regarding the bookings of $21.5 million this quarter, I am revising down my sales estimates for Q3 to $21.5m, and Q4 to $29m. This gives them a loss of $.34 in Q3 and $.13 in Q3. I estimate breakeven to be about $34m.
Regarding their financial situation - I tend to agree with Zeev that probably a portion of the AR is uncollectable, and that a portion of the inventory will also need to be written off. The inventory did drop by over $8million this quarter, and if it falls by another $8million this quarter the inventory will start looking much better, but overall I am disappointed by their cash management. They could obtain alot of cash for operations and improve their financial situation immensely by managing their assets better, and that means reducing inventory and collecting AR.
Incidently, I now believe that even if the orders come in, in order to finance expansion next year, even more stock will have to be issued, probably at prices below $10, and even more dilution will result. Accordingly I have revised my best case price for this stock to $20 by 2000.
Overall, I would quite frankly recommend that they hire Jay Swent from Cyrix as their new CFO. Now that he has merged CYRX into NSM, his job there is through, and he did a fantastic job there in two important areas. First, he managed the cash very well, and made millions of dollars of cash appear by collecting AR and reducing inventory. But secondly, he did an excellent job of dealing with Wall Street. He started out by making the books look as ugly as possible, writing off everything in sight. Then he painted a dismal but well defined picture for Wall Street. Then he consistantly beat his forecasts, and consistantly did more than he promised.
Compare that to TRKN and you can see why a company (CYRX) that consistantly lost money was over $20 while this company is no threat to exceed $10 anytime soon. Rather than getting all the ugliness out of the way, TRKN is content to keep questionable AR and inventory on the books, so that it can continue to bleed. Rather than dealing firmly with Wall Street, they deliver a wishy-washy message that doesn't give the analysts enough confidence to even issue earnings forecasts, and as a result it appears that there are no longer any analysts issuing earnings forecasts for TRKN.
What I wish they had just done was do a huge write-off and get any questionable AR and inventory off the books. Then go into the conference call and say: Next quarter we'll probably sell about $21.5m (but only if they really expect to sell $23m), our margins will be improved to 48% (but only if they really will be 50%), our SGA will be down by $200,000 (but only if it will be down $300,000), and it will be significantly better than this quarter (which without the writeoffs, it would be). Then talk about customer interest, and the fact that Q4 really looks good. Then the stock would move - up.
By being so wishy washy, and by leaving the garbage on the books, it makes it hard to tell where they really are, and therefore hard for analysts. If analysts can see where they are going, they can look past the big loss, but if they only see continued bleeding ahead, they will never recommend the stock.
Therefore, my conclusion is that the stock will probably move down, probably to the 5-6 range. I also conclude that it will not move up unless and until they issue press releases regarding large production orders. Even if large orders come in, the stock won't move up that much until the financial picture becomes more clear.
Good luck,
Carl |
