To all:
I came across the following from Lehman Brothers, FYI. If any of you have other useful info, please share. Thanks.
-------- LEHMAN BROTHERS INC. -------------
Headline: Cybermedia Inc: Despite DSO controvery, Fundamentals Just Fine:
Rating: 1
Author: Michael E. Stanek 1(415)274-5336
Company: CYBR
Subject: COM,CUS
Industry: COMPUT
Text: Ticker : CYBR Rank(Prev): 1-Buy Rank(Curr): 1-Buy
Price : $20 52wk Range: $33-7.88 Price Target: $38
Today's Date : 12/08/97
Fiscal Year : DEC
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EPS 1996 1997 1998 1999
QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr.
1st: -0.10A 0.10A 0.10A 0.19E 0.19E - -E - -E
2nd: -0.12A 0.14A 0.14A 0.20E 0.20E - -E - -E
3rd: -0.17A 0.18A 0.18A 0.22E 0.22E - -E - -E
4th: 0.01A 0.19E 0.19E 0.24E 0.24E - -E - -E
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Year:$ -0.38A $ 0.61E $ 0.61E $ 0.85E $ 0.85E $ - -E $ - -E
Street Est.: $ 0.56E $ 0.57E $ 0.80E $ 0.83E $ - -E $ - -E
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Price (As of 12/5): $20 Revenue (1997): 83.4 Mil.
Return On Equity (97): N/A Proj. 5yr EPS Grth: 35.0 %
Shares Outstanding: 13.8 Mil. Dividend Yield: N/A
Mkt Capitalization: 276 Mil. P/E 1997; 1998 : 32.8 X; 23.5 X
Current Book Value: $3.01 /sh Convertible: - -
Debt-to-Capital: 0.0 % Disclosure(s): C, A
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CyberMedia held a conference call Friday to discuss issues raised in an
amended 10Q filing, particularly with respect to factoring of receivables,
DSOs and the Ingram Micro relationship-the cause of all the controversy.
In the 10Q, CyberMedia disclosed that it factored $4.8 million of
receivables. The company has always factored, but this is the first time it
disclosed a dollar amount. The all-in cost of factoring to earnings is
inconsequential. Cash used to finance Luckman and ServiceWare transactions.
The disclosure to brought to light issue of DSOs, which is important, but only
to a point. CyberMedia's relatively high DSOs are a function of two easily
explainable issues: 1) a back-end loaded Q3, with 2 new products shipping late
in September and 2) Ingram Micro.
In this case, with revenue not recognized until the September product drops,
DSOs would have to go up, as they did. Also consider that excluding the
amount owed by Ingram Micro, the "800 pound gorilla" of distribution, DSOs
would stand at 60 days.
We view CyberMedia's share price drop on Friday as an over-reaction. In our
view, it is the company's fundamentals, and not DSOs, that should be
scrutinized. Business is strong, new significant products are on the way, and
the December remains on track with a high probability of earnings upside. Our
1-Buy rating is maintained.
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On Friday, CyberMedia disclosed that it had released an amended 10Q filing.
The filing was precipitated by new disclosure rules from the SEC. In the 10Q,
CyberMedia chose to discuss details of recent accounts receivable financing.
The amended 10Q was not a restatement of the September quarter, as some have
incorrectly suggested. The disclosure is simply a complete accounting of the
factoring of receivables, as required by GAAP.
The factoring of receivables: CyberMedia factored $4.8 million in Ingram Micro
receivables without recourse during the quarter. The all-in cost to
CyberMedia was less than one point, which represented an inconsequential
amount against revenue (<$48,000) and earnings. CyberMedia chose to factor
the amount because it represented an inexpensive and relatively simple
alternative for financing two transactions during the quarter-the Luckman
Acquisition, and the extension of a technology licensing agreement with
ServiceWare. In our view, the factoring of receivables is not an uncommon
form of financing for a company like CyberMedia and does not represent an
indication of a short-term liquidity problem. CyberMedia's cash position
remains strong with reserves in the mid $20 million range.
The relationship with Ingram Micro: Through the first nine months of FY97,
Ingram represented 37% of CyberMedia sales. Ingram is one of the largest
software distributors, with over $12 billion in revenue in 1996. Ingram
wields tremendous market power, particularly over smaller software developers
such as CyberMedia. As a result, they generally dictate terms of sales,
including payment policies. This practice is frustrating to small companies
who depend on timely payments to finance their operations..
We do not view Ingram Micro as a significant credit risk. It is the most
financially stable of all distributors and while Ingram is known for paying
small developers late, it has always paid CyberMedia. As CyberMedia matures
into a much larger company, we expect CyberMedia to improve its bargaining
position. However, it will take time. CyberMedia has recently opened CEO
level discussions with Ingram to an effort to improve the current situation.
DSOs: Including the $4.8 million factored in the Q3, DSOs would have been 120
days. However, if we remove the amount owed by Ingram, DSOs would have been a
60 days. While DSOs will continue to remain in excess of 100 days until the
Ingram matter is resolved, we expect CyberMedia to make sequential progress
towards lowering the number. With the exception of Ingram, all of its
customers are current, including Navarre and Merisel.
Business Outlook: CyberMedia's business prospects look as promising as ever.
It continues to receive reorders for all its products, and is on schedule to
release several international versions of First Aid 98 in Australia, the UK,
Japan and Germany. Guard Dog will be introduced in Germany while Oil Change
is scheduled to be rolled out in Japan, Germany, and Italy. As we can see,
international will continue to evolve into a significant source of growth.
Additionaly, the company recently forged a relationship with Hewlett Packard
for Oil Change, and a pending contract with a top five PC vendor is expected
to be announced shortly.
We are most excited by a corporate product which will be announced within the
next week. This support server product is being piloted by several companies
including US Steel, CBS, National Institute of Health and several VARs and
Si's who will play important roles in rolling out the product. This product
could represent 20-30% of revenue in FY98.
Fundamentals: Q4 remains on track with management signaling the likelihood of
earnings upside. We expect CyberMedia to earn $0.19 on revenue of $24
million. Reorders continue and sell-through is meeting all expectations.
Current inventory in the channel of 6-8 weeks sales, is consistent with
company goals. Pricing appears to be stable if not strengthening, with
CyberMedia raising the price of First Aid 98 during its recent launch.
Bottom Line: Despite short-term controversies that have in our opinion, been
completely overblown, we believe, over the long-term, CyberMedia's leadership
position will continue to drive impressive revenue and earnings growth. We
reiterate our 1-Buy and $38 price target.
BUSINESS DESCRIPTION: Cybermedia is the leading provider of automated
technical support software for the Windows PC platform.
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Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the
past three years a public offering of securities for this company. B-An
employee of Lehman Brothers Inc. is a director of this company. C-Lehman
Brothers Inc. makes a market in the securities of this company. G-The Lehman
Brothers analyst who covers this company also has position in its securities. |
