Tollgrade's Big Sleep (TLGD)

Unless the CEO at Tollgrade Communications (NASDAQ:TLGD) has a beard, nothing much at the company is growing. Tollgrade's description of its business is that it provides "solutions which currently manage the test process for over 200 million access lines and are the foundation for broadband service assurance within RBOCs, MSOs and numerous ILEC/CLECs". Tollgrade products provide over 20 million automated transactions a month, according to the company. And one of its most important platforms is used on over 250 telco and cable systems worldwide.

All of this sounds like big business, but it isn't going anywhere.

Tollgrade's revenues have hardly moved for three years. In 2003, the top line was a little over $65 million. In 2005, it was $66.3 million. Last year, the company had a modest operating profit of $3.5 million. After a weak Q1 05, revenue rose to about $17 million in Q2 and Q3, and made a slight advance to $18.2 million in Q4. In that final quarter of the year, operating income was $2.3 million.

So, with that a prologue, the company announced Q1 06 with revenue of $17.6 million and a loss from operations of $719,000. Revenue down from the immediately previous quarter, and operating income gone.

Tollgrade guided for the second quarter of 2006 to be between $14 and $17 million. That's a pretty wide range that looks bad at both ends. Referring to Q2, the company CEO said "we continue to have several distinct projects included in our forecast which are subject to competitive elements, customer budget availability and product acceptances". In other words, our sales staff is not sure if customers will buy the products they are testing or have budgets to make purchases even if they like the results. Plain English, please.

Tollgrade has about $58 million in cash and cash-equivalents, so their balance sheet is fine. The stock has dropped from $16.24 in March to $11.70 now. The 52-week low is $7.03, and, if the company does not come out with some better news, that may be where it is headed again.

TLGD 1-yr chart:

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

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