After Strong Quarter, BriteSmile Continues to Be Undervalued

BriteSmile (BSML) just filed a NT-10Q with the SEC, informing them that it will be late in filing the 10Q for the 2nd quarter. This has been a pretty much normal routine for BriteSmile, since the restructuring earlier this year. As management states: "The Company had entered into an agreement to sell its remaining business - its Centers business -in January 2006, but the agreement was terminated on May 1, 2006. These unusual events have placed extraordinary and unanticipated demands on the Company’s management and finance staff." In any case, management plans to file the 10Q within 5 days.

Nevertheless, BriteSmile did say this in the SEC filing:

Revenue for continuing operations for the second quarter of 2006 increased by approximately 52% compared to the second quarter of 2005, and the net loss is estimated to be approximately $800,000 compared to a net loss of $6.8 million in the second quarter of 2005. The second quarter 2006 net loss reflects the results of our continuing operations, while the second quarter 2005 net loss includes the results of both continuing and discontinued operations, since the discontinued operations were not sold until March 2006.

The above implies that BriteSmile's revenue will come in at about $8.4 million for Q2 , above management's initial expectations of $7.8 million (Note: This is revenue from continuing operations. Figures from 2005 need to be adjusted to arrive at the comparable revenues). The loss for the quarter probably reflects one-time charges (i.e. severance payments) associated with the restructurings, as noted above, and we'll have to wait for the 10Q for the more important EBITDA-Ex-One-Time charges figure. We imagine that EBITDA was also above management's expectations.

All in all, these sales figures are very impressive and imply potentially very strong results over the next few quarters. With $32 million+ in annualized revenue ($3.00+ share), greater than 50% Year-Over-Year growth, and $150 million in tax-loss carryforwards to shield future cash-flow, BSML, at current prices, remains very undervalued in our opinion.

Disclosure: The author is long BSML

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