I just got off the conference call and then
found the press release on my fax machine.
I haven't found any on-line news reports yet.
The fax I have quotes Pino as saying:
"We expect to return to a profitable level of
operations in the fourth quarter of 1997 and
to historical levels of profitability in 1998.
We are continuing our strategy of diversification
of customers, markets, and geography and remain
excited about the future and look forward to the
continued addition of new customers as well as the
expansion of business with our existing customers."
The conference call basically echoed these sentiments.
Some notes (hopefully I got the info right):
+ The top five customers accounted for about 75%
of revenue in Q3. (Bay Networks, EMC, Cognix,
Cascade/Ascend, and Motorola)
+ The top customer, Bay Networks, accounted for
about 40% of Q3 revenue. EMC accounted for over
10% of Q3 revenue. No other customer individually
accounted for more than 10% of Q3 revenue.
+ Despite this concentration in terms of customers,
they have a broad product mix; this broad product
mix means they have a significant focus on
materials acquisition and partnerships with
many "distributors" (aka suppliers).
+ No customers were unhappy because of the delay
in shipping $10M worth of orders; the great
majority of those orders have now been shipped.
+ Part of the delay in shipment was due to differences
in forecasting the mix of products (a different mix
requiring different materials) and because the
orders came late in the quarter.
+ ACTM uses a significant "temp" workforce that grows
and shrinks with the ebb & flow of their orders. As
they finished shipping the recent $10M in orders,
and order processing has returned to more normal
levels, they reduced their workforce by about 120
full time temp workers... they anticipate adding
many temp workers again toward the end of Q4.
+ 1997 revenues are expected to be around $265-275M
with a growth rate of about 30% thereafter. Gross
margins are expected to return to the 12% level and
SG&A expense is expected to return to around 4% of sales.
+ One question noted that this means about $66M in
revenues is expected for Q4 and, with the $10M
in delayed orders, why isn't this $10M higher?
The response was essentially to say that its not
clear they could work off their order flow at
a significantly faster rate in Q4 (so they're
near full capacity?) and to imply that they'd
be more comfortable with a forecast that was too
low than one that was too high... they said the
$10M is "not necessarily additive" to Q4 revenues.
+ The "softness" in orders seems to be related to
Motorola and to Cascade/Ascend. Motorola has been
one of their biggest customers; they indicated
that there is no problem with their relationship
with Motorola and that they expect orders from
them to return to a higher level (commensurate
with Q2CY97) by Q1CY98. For Cascade they're building
new products related to ATM technology; they indicated
Cascade needed to burn off inventory they'd built up but
they expect orders to return to a higher level by Q1CY98.
+ They summarized by saying they're back on course, that
they will see growth from their existing customers, and
that they expect to see growth and diversification by
from new customers.
In general they painted a pretty decent picture of the future
and gave the impression that their current problems were
temporary... a brief, one-time, stumble and not a sustained
problem or downturn. The new Atlanta operations were said to
be moving along well toward the 30% growth range in the
high margin medical products area. The new Ireland operations
are coming along more slowly but are quite promising and
are expected to contribute about $20-25M to revenue in CY98.
The biggest items on the balance sheets were:
LIABILITIES
stockholders equity $59M (about $6.50/sh)
accounts payable $34M
long term debt $37M
ASSETS
accounts receivable $49M
inventory $61M
Most notable in the Q3 operations was:
+ flat sales revenue ($62.3M) vs year ago ($63.9M),
+ higher cost of goods ($58.9M) vs year ago ($55.8M),
+ higher SG&A ($3.9M) vs year ago ($2.7M),
+ for an operating loss ($0.5M) vs year ago gain ($5.4M).
Thus they were hit by lower margins of around 5% (vs year
ago margins of around 12.5%) along with higher SG&A of
around 6% of sales (vs 4% of sales a year ago). The reasons
were due to a temporary change in the product mix to lower
margin products and due to temporary softness in demand,
respectively.
Remarks:
Lets see. If CY97 revenue is $270M and we saw only 25% growth
then CY98 revenue would be about $340M; with a gross margin of
11% we'd see CY98 gross profit over $37M and with SG&A at 5%
(or $17M) we'd see a CY98 operating income of $20M and a net
income in the vicinity of $12M or $1.33/sh. Assuming ACTM is
worth at least a forward PE of 25 means we should be fairly
valued around $35/sh or about twice the current market price.
Rob |
