One note: Write-offs can be aggressive. But you can make an argument that the company is being conservative by taking all the pain
now.
The problem is: Without the benefit of being an insider,
outsiders like us have only the accounting statements to
conclude what is going on inside the box. And from the
accounting statements of MRVC, you can make the case that
they could be aggressive. Same goes for the other conclusion -
that they are being conservative and taking all the pain now.
The fact that you can come up with two opposing conclusions
scare the investors away, not the writeoffs per se.
One thing is, more than you and me, the management are hurting
the most from the stock price. They own at least 20 percent
of the stock, and they pay themselves shit. The motivation, and
incentives are aligned with the expected outcome of the company
you and i would like.
Now, if I were a crook running a company, the first thing i'd
do legally is to give myself a very high salary. That's the
best, and legal way of screwing your shareholders.
Enough said about the incentives and motivation. The other part
of the equation is: Now that they have the motivation, do they
have the ability to deliver and execute? That's a question we
must answer ourselves. I can't help you with that, but I'd share
my thoughts on the "aggressive accounting" and "salespeople leaving"
issue.
When Pink started writing about the aggressive accounting practices
and salespeople leaving the firm. I was concerned enough that
I actually went over the 8-K,10-K, etcetera. I spoke to some
regional salespeople to find out if they were really leaving or
not. BTW, Danny Yellum of the investor relations also abruptly
left. Anyone know why?
My conclusion was: The 8-K did not look that bad. It showed the
pro-forma combination of balance sheet, income statements of
Xyplex and MRV. In fact, I can make an argument that MRV was
being conservative. As an example, Xyplex had an asset item called
Client Relationships, which they valued at 12 Million. MRV took
the conservative route of writing this off, and basically this is
offset by an expense. I am not 100 percent sure, but I thought this was being conservative. Any CPA's here can contribute?
About the write-offs. The fact of the matter is Xyplex was bleeding
red ink. I think they did 70-80 million last year, and after
subtracting, around 60 million for impairment of good will, had
cost and expenses of around 100 million. Now, this year, Xyplex
is only going to do 30 million (without adding the new products
EdgeGuardian, etc.). Now, don't you think there must be some
kind of restructuring charges? 23 million in this case. It seems
high, but it is not as high as it looks.
As for the 30 million purchased technology in progress. Well,
even Cisco takes a charge on purchased technology. Now, if
EdgeGuardian and EdgeBlaster can reach 30 million revs in two
years. That ain't bad to pay 30 million for this technology.
As for the salespeople leaving the firm. Well, I found out that there were indeed at least one sales person leaving the company. But upon further investigation, this guy was fired for not working hard enough to sell to other customers. He was happy with his commissons on
two large accounts.
Note also, that in any merger, you can't please everyone. MRV
pays flat commission only. I dont know what Xyplex did, but obviously, when you instantly double your sales force, the commissions
per salesperson will be affected during the first few months.
This is going to turn some away. But the fact is , that if MRV can
pay flat commissions and retain good salespeople, then they obviously
have a good cost structure.
When I heard some publications are shorting the stock, I felt somewhat
relieved. What I hate is a stock price dropping for no reason,
because that is usually shit. I would have been more relieved if
the publication was a consumer one like BusinessWeek,WSJ,or Forbes
because that would mean that the word is out that it is a
contrarian indicator. Too bad, it is INFRASTRACTURE, which, while
I have never seen, many people liked and seems to be high-end enough
that it may actually be a predicting indicator, as opposed to contrarian. And along with it, a few other publications that Mr. Pink mentioned. (btw, I dont harbor any ill will against Mr. Pink. He strikes to me as knowledgable, and I am grateful to him for alerting me to the negative cash flow statement w/c i personally overlooked and am pissed at myself for. In fact, I did have a small put position that
I have closed and profited. But this pales with my holding in MRV.
I regret I did not short more.)
I personally think that there is a lot of theft on the journalism
front, so that, the source of Infrastructure, may not be far different
from the so-called H.D. Brous or "Off Wall Street", that Pink suggests. Anyway, just the fact that there is a publication out
there badmouthing MRVC makes me more relieved than if there were
no publications at all ('coz that would mean insiders selling!)
You still have to draw your own conclusions, whether now is an
opportunity to buy MRVC or not.
Now, just when I thought I have cleared out these issues, along
came the timing of the debt offering. At this point, I am still
puzzled. I am inclined to think that earnings will be so-so if not
bad. If it were a blowout, they would have waited ... I think.
Suffice it to say that this stock has caused me enough stress
that I am really pissed I did forego McDonald's in favor of
MRV. I mean, who's going to argue that McDonald's will
be going away five years from now? Not only that, McDonald's
has gone up almot 70 percent since I bought MRV. And MRV has
dropped more than 20 percent. It was my greed and weakness for
seduction, that seduced me to this sexy but unsatisfying trap!
At least it has not yet given me the "satisfaction"! I had my
hand around a steady and nice McDonald's and I dumped her for
this MRC dressed in a low cut and strapless miniskirt, that turns
out to be Glenn Close in "Fatal Attraction" (hopefully MRV is
better looking than Glen Close, j/k)
Furthermore, the candidness of Dr Ravnoy and Noam (I spoke to
him only twice) who shared with me how he fired that salesperson,
and he also volunteered that he fired another in Seattle, lead
me to think that these guys are not crooked. Noam's detailed acounts of the offerings, public and private placement, going back to the
beginning of MRV impressed me as someone who is focused (in Buffet's
words) or obsessed (in the words of the ordinary people) about the
success of the company. They have to have the "serial-killer psychopathic mentality" for them to behave like
they did with me on the phone, and end up being crooked. Which
is still possible, but I hope not!
I personally dont think they should spend this much time with shareholders, but I am grateful they did so. Although I am not
really a small shareholder, but then again, size is relative anyways. |
