Here is why the stock is down - I replayed the conference call, jotted down all the numbers that were mentioned and did the following. CMND is actually LOOSING money in their US operations. Calculations are straight forward, using the numbers provided. Here it goes-
Q198 ($$ in 000s)
India US Total
Revenue (List) 2,380 5,554 7,934 Note 1
Gross Margin 1,309 1,515 2,824 Note 2
SG&A 690 1,467 2,157 Note 3
Goodwill (Allocated) 34 80 114 Note 4
Earnings 585 (32) 553
Note 1- Revenue from Indian Operations was 30% of total per Conf call
Note 2- Gr Mrgn for Indian Ops was 55% (per call), total was 35.6%, so back into US gross Margin
Note 3- SG&A was about 28%
Note 4- Goodwill is allocated. If you put all of it in US, then US loses more money
Here are my conclusions/thoughts-
1. US operations will continue to be tough for CMND and they will be lucky to breakeven.
2. Indian Operations has 180 people (165 billable) and a capacity of 225. That is, they are getting about $16k of revenue per Qtr from a billable Indian programmer.
3. In the conf call, the CFO mentioned that they will hit the capacity in India in Fall (i.e. Q398). Therefore, more investment in space in India in the near future.
4. If they hit the capacity in India in Q398, they will have 45 more people than they have now (180 moving to 225).
5. Assuming 90% of these additional 45 are billable at $16k each, we can expect another $500k in pretax earnings from India in the next SIX months. Since US is breakeven, at 25% overall tax rate (per conf call), and 7.7 Mil shares outstanding, this amounts to only 5 additional cents over the next six months.
.... Now we know why the market is reacting this way... |
