>>FDC Contract<<
I think you were doing a what-if, but my understanding of how the FDC deal will be accounted for is different. Piecing it together as best I can, the FDC revenue will be recognized over 5 years, resulting in about $2.2 million in revenue per quarter (including this one). The reason they only recognized $1 million in Q3 is that the start date was in August, so they only booked a partial quarter. This actually makes the picture you were painting on current multiples worse, of course.
On the expense side, they will be recognizing $460K per quarter booked as R&D expenses for the software they "bought" from FDC for the same 5-year period, and are also recognizing/amortizing another $135K per quarter in COGS for the warrants issued to FDC. So from an accounting standpoint, this generates a net $1.6 million/quarter in earnings for 5 years, and seems to me to add further opacity to the already murky financial reporting. This is being hailed as conservative accounting, and as putting the matter behind them, but it seems there is still exposure if they can't justify the continued viability of the code they licensed from FDC, in which case they would have to write the un-amortized portion off.
I agree with your comments on management-Tefler has a reputation as a strong-willed guy (words like "arogant" have been used), which has obviously served the company well in building the business, but not in handling these issues. The same traits haven't hurt Siebel, though, but Tom had more mainstream experience than Tefler so has avoided the obvious pitfalls (so far). The shame is that I continue to hear good things about the product and the base business-they seem to have done a good job on the hard stuff, but will be in the penalty box for falling down on the easy stuff. |
