Luc, I think the results were encouraging. The company has resumed its revenue growth trajectory. Sales growth might have been even higher had they had product in the stores for the whole quarter. I've only started seeing PhotoSuite II on the shelves in the last month. With three full months of sales, sales should be substantially higher in the current quarter, especially with the run up to Christmas. I am positive enough about the company's prospects to have added to my position yesterday.
Nevertheless, it is important to keep in mind that the company is still in the red, though bleeding less profusely. It is burning through a lot cash and will probably need a new infusion within two quarters if the sales don't come through (which means more potential dilution).
I am also a little worried about the high level of trade receivables, which continue to run above total revenues. I don't know about other software companies, but this doesn't seem to make much sense. It suggests that in their haste to get product into the stores, they are offering very favourable payment terms, and not collecting on many accounts (e.g. Aventure).
In its earnings releases, the company makes a big deal about their conservative treatment of R&D expenses, i.e., they are expensed and not capitalized. Let's hope they are also reporting their revenues on a conservative basis.
You may recall that Corel got into a big mess with their aggressive reporting methods, and subsequently had to write down previously reported revenues. The high level of trade receivables, and the company's apparent inability to collect in a reasonable time frame suggests there may be a similar problem here. If the revenue growth is real, it's great news. Obviously, the news is not as good if revenues have been exaggerated by a significant proportion of product that is shipped effectively on consignment.
Did you participate in the post-earnings conference call? I'd be interest in knowing if the analysts who participated raised the issue. It would be a good idea for someone to grill the company on the subject.
Steve |
