There is no question that Monday night’s earnings report from Comverse (NASDAQ:CMVT) was lousy. In fact, as someone who has been trumpeting the stock, especially as an M&A target, to say I was shocked at how soft the numbers were, is an understatement. Due to the ongoing, option-backdating scandal, the company released unaudited numbers. It actually reported a first quarter 2007 loss from operations on a GAAP basis of $60.4 million, compared with GAAP income from operations of $8.6 million, for the first quarter of 2006. Comverse certainly wasn’t helped by the sector-wide slowdown in telecom spending. It did manage to post a YOY 10% increase in revenue.
Andre Dahan, President and Chief Executive Officer of Comverse Technology, Inc. said,
Our 10% revenue growth this quarter was achieved despite two factors: (1) a slowdown in spending across the telecom industry and (2) slower bookings momentum in products and services over the past few quarters at both Comverse, Inc., and Ulticom (OTC:ULCM), Inc. This was partially offset by continued strength at our Verint Systems (NASDAQ:VRNT) Inc. subsidiary.
It certainly seems to me that Verint is the star performer here, and it is in a strong growth market.
Mr. Dahan confirmed rumors that it plans on letting go 6% of the workforce as part of a streamlining, and overall reorganization of the company. The big question for investors is whether this is the last bit of bad news that will come out, or are we still somewhere in a dark tunnel? Certainly Tuesday's drop of around 5% is an indication that the market has given up.
I, on the other hand, still stick to what I have mentioned in previous posts that this still makes for a very attractive private equity or M&A play. With over $1.8 billion in cash, a private equity firm could take the company and its subsidiaries private, use the cash to help with the restructuring, and then after things turnaround, re-IPO them.
With an eye towards the long-term, I would use Tuesday's drop as an opportunity to add to, or start a new position in the stock. I think that we could see the re-organization succeed, the company work things out with the SEC, and then we could start seeing the real value of the company.
Disclosure: The author’s fund is long CMVT.PK and VRNT.PK as of June 12, 2007. He does not hold positions in the other companies listed.
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