**** 1st Q 1998 Earnings estimates. *****
See my previous posts at:
exchange2000.com
exchange2000.com
The problem with the computations for 1st Q 1998 is the figure which gets put in for revenues. After that it is relatively easy. So the estimates will be computed based upon a given revenue base and subject to changes in the Be There! revenue estimates.
The fourth quarter of 1997 (ended June 30, 1997) was not
pretty, but it was not half as bad as one might have expected. The company sold $3.8M worth of product, including less than $100,000 of BT! revenue. The company has warned that the custom modem business contracts are expiring and that its expenditures on the Be There! product line are (and must be) out in front of the corresponding revenue. The 1998 fiscal year prospects for the company and its markets will be critical. Sales will be the key. Here are my new earnings estimates for the 1st Q.
This number crunching is based upon the companies press releases, recent 10Q and 10Ks. As always- I welcome critical analysis and discussion of my estimates. It is the only way to improve upon them. My most recent updated earnings estimates are based upon the following formula- checked against the 4th quarter earnings report:
Gross profit margin was 38% for the quarter ended June 30, 1997. This gross profit margin is up from 30% for the prior quarter ended March 31, 1997. See DR earnings releases of August 14, 1997 and April 30, 1997. Custom modem shipments were primarily responsible for this fluctuation. According to the conference call, the custom modems contracts ended in the 4th Q. Since these custom modem shipments are dropping off, we will assume a return to the historical 30% profit margins on approximately $1M in network multiplexers and traditional modem business.
On PRNewswire on June 12, 1997, DATA RACE announced that it had made a 40 percent price reduction on all servers in the Be There!(TM) Personal Multiplexer product line. This did not include all equipment associated with the system- only the servers. At this price, the servers are likely to have a markup comparable to existing margins. However, the equipment used by individuals accessing the Be There! system will probably have a profit margin comparable to other unique technology- ie approximately 70% gross margin. Hence, for Be There! system sales- it is likely that the overall gross profit margin will be about 50-55% rather than the 30-35% which they have been achieving recently.
The efforts to initiate BT! sales are likely to be successful enough to meet the $2M sales requirement imposed before Oct 15, 1997. Let us assume (subject to later adjustments) that these sales are $2,000,000 for the quarter. I would expect this level to accelerate quickly during the first few Qs of 1998's fiscal year. This is about a 50% margin business.
During the third and fourth quarter of fiscal 1997, operating expenses were about $3M. I would expect that item to remain in that range due to costs associated with the launch of the Company's new Be There!(TM) Personal Multiplexer product line. Although some of the sales costs have now been transferred to third party vendors of the product, it is likely that operating expenses will still come in at about $3,000,000 per quarter.
l.) $1,000,000 sales * .30 - the historical gross margin (before SG & A)
$2,000,000 sales * .50 - the Be There! estimated gross margin
(1st Q $3,000,000 sales...gross margin $1,300,000.)
2.) Subtract SG & A ($3M)
Estimated loss = $1.7M
3.)Tax rate 0%- see 10K for year ending June 30, 1996.
4.) Divide by 5.0M shares.
1st Q 1998 loss is estimated to be $.34 per share. This is just
what we lost in the last Q.
Bad earnings are not an impediment to the advance of a stock's price- as we all know. The company's prospects, the sales trends of the company's products and the quality of the company's management play a large part in the stock price of an emerging company.
RACE has reported its dismal 4th Q earnings for 1997. Now we are already half way through the only seriously bad Q that RACE is likely to have for a long time. The market will be cleared of the obvious "bad" 4th Q earnings report. By the time the 1st Q results are reported ($.34 loss est), the stock will already have started its advance. To reiterate: the SCREAMING BUY rating has been initiated IN ADVANCE of the actual price advance. |
