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Tuesday, September 9, 1997
TriTeal Corp.
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Phone: 760-930-2077
Website: http://www.triteal.com
Price (9/8/97): $7 5/8
HOW DID IT FIND TROUBLE?
Don't it make your teal eyes blue? TriTeal investors can certainly use a good cry. Rough financial sledding now finds the stock trading at a third of where it was earlier this year. Sadder still is the fact that the company completed a secondary offering just before the drop. Did the company know it was peaking, or is it just another case of misery loving company?
BUSINESS DESCRIPTION
California's TriTeal is a leading provider of mission-critical operating environment software solutions. The four-year-old company's software enables end-users, systems administrators and developers to access applications, data and network resources across multiple platforms from a common, intuitive desktop environment.
TriTeal's software is used in a variety of markets, including financial services, government, telecommunications, and oil and gas.
FINANCIAL FACTS
Income Statement
12-month sales: $18.5 million
12-month income: ($0.7 million)
12-month EPS: ($0.06)
Profit Margin: N/A
Market Cap: $90.4 million
Balance Sheet
Cash: $9.1 million
Current Assets: $52.3 million
Current Liabilities: $8.3 million
Long-term Debt: N/A
Ratios
Price-to-earnings: N/A
Price-to-sales: 4.9
HOW COULD YOU HAVE SEEN IT COMING?
As shareholders were celebrating the stock's new highs in January, the company was working to cash in on some party favors. By the end of the month, TriTeal announced plans to sell 2.2 million shares in a secondary offering.
A company seeking capital is not necessarily a bad thing. It is why companies go public in the first place. Yet, of those 2.2 million shares that were ultimately sold for $19.25 each a month later, 835,000 shares were being sold by insiders.
Insider selling is often lumped into a secondary offering to avoid flooding the market with sell orders. The underwriters of the offering promote the stock in the process and everyone eventually comes out ahead -- except sometimes the buying party. The huge amount of executive share defection should have at least raised a warning flag to investors. Was it simply insiders cashing out on part of their ample holdings or was there something wrong with the TriTeal itself?
Forty days later the company announced that its March quarter results would come in below analyst expectations, primarily because the company was unable to close a $2 million sale with a government reseller. The quarter ultimately resulted in revenues of just $4.7 million and an earnings loss.
"As we have stated in the past, because our revenue typically consists of large orders, the loss of any individual order could have significant impact on quarterly results," said Chairman and CEO Jeff Witous.
WHERE TO FROM HERE?
In July the company named David Y. Chen as President and COO. It was a sound move. Chen had previously founded a company that did strategic consulting for heavies like Fujitsu, Bell Atlantic, and Sun Microsystems. You can never have too many friends in high places, and Chen is certainly connected and has a solid resume to boot.
Also in July, the company reported positive earnings for its fiscal first quarter despite a loss from operations. The scant profit came from interest income, ironically enough, earned from the cash it had accumulated in the secondary offering back in February.
So there was a bright side to the offering -- at least to the shares sold by the company, not the insiders, in that it helped fortify a balance sheet and helped turn red ink into black. It has also helped polish the company's future, as research & development costs more than doubled in the last quarter.
While spending money may not necessarily be a great thing -- given that the other expenses have remained reasonable, growing at a slower clip than revenues-- it is a good sign that TriTeal is putting the new money to use for the company's betterment rather than bloating its corporate payroll.
So, who's crying now? After the profitable first quarter, the company seems to have built some momentum as analysts expect the company to earn $0.33 per share this year and $0.60 per share next year. With a solid executive joining Witous at the helm, it may very well be the tonic to turn that lingering sadness into tears of joy.
- Rick Aristotle Munarriz, [email protected]
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