*Extra* Lernahooligan Alert: A Revealing Look at Lernout's Financials.
By Herb Greenberg
Senior Columnist
7/5/00 8:55 AM ET
thestreet.com
The plot continues to thicken (more Lernout all day, all night): When Lernout & Hauspie (LHSP:Nasdaq - news - boards) released earnings May 9, its press release touted a 57% gain in revenue. It attributed the rise to "continued growth in telephony, enterprise solutions and embedded market strengths. Approximately 74% of the revenue increase was attributed to organic growth."
Sounds pretty impressive, until you get a look at the details, which were disclosed late last Friday (yep, just before what, for most folks, was a four-day vacation) in the company's first-ever 10-Q's and 10-K. The Belgium-based Lernout previously released less-detailed, less-timely statements of the type required for non-U.S. companies. The new filings, Lernout CEO Gaston Bastiaens has said, are required because of additional U.S.-generated revenues from Lernout's recent acquisitions of Dragon Systems and Dictaphone.
Among the newly disclosed details, which I first pointed out early Monday on RealMoney.com's Columnist Conversation is a revealing geographic breakdown of Lernout's sales.
The breakdown shows that while Lernout's revenues may have been booming, and while some of the gain may have been "organic," sales were tumbling in every country but one. Even a string of acquisitions didn't help! They were tumbling in the U.S. and Europe, arguably the two largest markets for speech recognition technology or any type of technology. They were tumbling in the company's home country, Belgium, which accounts for a large chunk of Lernout's assets. (That alone was down 38%.) And they were plunging (this is where things start to get intriguing) in Singapore, which the company never made a big deal about as a big market. Yet last year, sales from Singapore topped $80 million, which is more than the company's sales during the year in either Europe or the U.S. By the first quarter of this year, sales from Singapore had fallen to $500,000, down from $10 million in the same quarter a year earlier and down from $17 million in the fourth quarter.
Where, then, did the big gain come from? None other than Korea. (Korea? Yes, Korea! The same Korea where tech sales, in general, are slowing!) Lernout's sales in Korea went from virtually zero ($97,000) a year ago to $58.9 million in the first quarter. That's almost triple the sales, during the same period, from either the U.S. or Europe. That's also more than half of Lernout's total sales in the quarter!
So, here's Lernout, which had been boasting of explosive growth, yet none of that growth was coming from the biggest markets in the world. Of course, the company's U.S. sales, going forward, will show a boost thanks to the acquisitions of Dictaphone and Dragon. But with Dictaphone, the company also inherited $430 million in debt. And as this column has previously pointed out, Dragon's sales appear to be in free fall.
That, in itself, is a great side story: Dragon's rev last year was $60 million. According to reports from Ladenburg Thalmann analyst Donald Newman, an unabashed Lernout fan, that was down from $69 million a year earlier. Newman attributed the decline to Dragon's move away from retail into "vertical markets." But still, according to the March report, he said he was under the impression that Dragon's sales were tracking at $75 million for this year. Again, that was in March. Less than three months later, in early June, Newman issued another report suggesting that Dragon's revenue this year will be more like $38 million -- well below the $75 million he had touted three months earlier, and a far cry from last year's $60 million. More impact from the move away from retail? Nope. This time, as this column has previously reported, the company blamed the slumping sales on its decision to switch Dragon to Lernout's more "conservative" method of revenue recognition.
So, let's get this straight: First Lernout said Dragon's revenue was down because it was veering away from retail; now it's saying that revenue will fall even further because Dragon was too aggressive in revenue recognition. What's more, Lernout's biz is falling everywhere but Korea. And Singapore, which wasn't previously known as a big market for Lernout, has gone from $80 mil in rev last year and $47 mil in the fourth quarter, to virtually nothing in the first quarter? Well, that's what the numbers say.
Newman couldn't be reached. Neither could Lernout officials. Lernout's chief spokeswoman, Ellen Spooren, was said to be on a video conference call when I called early Monday. I left the purpose of my call with her and sent Spooren an email with my questions. So far, no response. But, then again, she still hasn't responded to my previous verbal and written inquiries.
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Comment: LHSP is still, on a number of levels, an "immature" company. I don't own it on the basis of quarterly earnings, nor are the benefits of the Dragon and Dictaphone acquisitions in the form of immediate accretions to eps. That said, we need to watch product and distribution roadmaps carefully, as competition is certainly heating up in this sector. |
