Based on a less than thorough analysis of recent performance, I personally think your estimates are too high. And here's why:
- Your methodology, while logically sound, has a very high margin of error. - The "best" predictor of Q4 performance is actually to be found in the Q3 10Q, as management would have a very strong handle on Q4 performance by that time in the quarter. I quote: "However, net sales are expected to strengthen in the fourth quarter and we expect net sales for the second half of 2006 to be comparable to those reported for the first half of the year". If you do Q1+Q2-Q3, you get Q4 net sales of ~$28.1M Note that record bookings in December don't really impact Q4 revenues. The analyst took that $28.1 number and added $0.5M to correct for the fact that this kind of forward-looking statement should tend to be slightly on the conservative side. That said, "comparable" can mean slightly higher or lower, so if anything it could be argued that the analyst is being a bit aggressive.
Net net, I actually agree with the analyst's methodology, because I do think companies try to set expectations marginally below where they think they're going to end up. So I'm going to go with $28.6M in net sales (and a backlog of $67-68M).
That said, of course I hope that I'm wrong and you're right.
Thanks for the feedback. As we are merely making estimates of what might be, there is no wrong or right. As such, I will just add a few comments.
I agree that there is a high margin of error in the methodology I applied in deriving my top line estimate. While not discussed in my original post, I considered a number of other factors to test the logic of my results. These factors (backlog, estimated capacity, inventory, contract size, recent management comments, etc.) all seemingly supported my estimate. Nonetheless, an estimate is an estimate.
While management provided guidance relating the second half of the year to the first half of the year, my sense from conference call is that this guidance was not meant to be taken literally. After reading the earnings release, I went through the math that you discussed. Subsequent to the call, I decided that the end result of the math was more of a starting point or low side estimate.
Assuming no cancelled contracts, your revenue and backlog estimate would indicate that only $8.1 million was booked in October and November.
Bookings = Revenue Est. - Q3 Backlog + Est. Q4 Backlog
Bookings = 28.6M - 68.5M + 68M = 28.1M
As we know $20M was booked in December, that leaves a toal of 8.1M for October and November. As and average of $4 million/month in bookings for October and November, seems extraordinarily low for bookings, I think you might be low on either your estimate of backlog or revenue.
In conclusion, I will agree that my top line estimate is aggressive. At the same time, my sense is that there is reasonable evidence to support my aggressive estimate. Only time will tell. I could be completely out of whack.
Again, thanks for your input and best of luck to all BOOM longs.