CoSine Investors Lash Out
For the first quarter of 2003, the company reported a 58 percent decline in revenue from the previous quarter. Revenue came in at about $2.2 million, with a GAAP net loss of $8.9 million. Compare this to the previous quarter, in which it reported $5.2 million in revenue and a GAAP loss of $17.2 million.
Steve Goggiano, president and CEO of the company, opened his comments by telling investors that he and the management team were very disappointed with the quarterly results. He blamed the short-fall on the difficult telecom environment and wouldn’t give guidance for the coming quarter.
A representative from Mellon HBV Alternative Strategies LLC, CoSine’s largest institutional investor, blasted the company’s management team for not taking action on its request that the company look for someone to buy it (see Mellon Pushes for CoSine Sale). Specifically, he asked Goggiano why he had not responded to a letter it had sent CoSine on April 1st.
“Our concern is that before the company gets bled to the ground, we think you should hire a banker and sell the company,” said the Mellon representative. “Until you hire a banker and open your doors to potential buyers, nothing will get done.”
“We appreciate the feedback,” said Goggiano. “We are a public company and as I’ve said we are pursuing options. We are interacting with investment bankers and we share those views with the board. That’s what we’ve been doing and we will continue to do.”
Other shareholders were singing a similar tune. An investor with Early Bird Capital said he believed the best option would be for the company to liquidate its assets and return cash to shareholders.
“I expected to see revenues at around $5 million this quarter, and I am extremely disappointed,” he told executives on the call.
Goggiano said that liquidation was out of the question, stating that it was not a business strategy that would return value to shareholders.
Despite the shareholder backlash, Goggiano insisted that the company is positioned for a turnaround. He said CoSine is still generating business from existing customers, including Sprint Corp. (NYSE: FON), NTT Communications Corp., and Equant (NYSE: ENT; Paris: EQU). He also said he expects the company to win a major RBOC or European PTT deal by the end of the year.
While Goggiano seemed to dismiss the idea of selling the company or liquidating its assets, he mentioned repeatedly that the company is looking for strategic partners. It has already found some success with its arrangement with NEC Corp. (Nasdaq: NIPNY).
But investors remain leery about the company’s prospects. Since it went public in 2000, CoSine has never been profitable, and it has consistently been burning about $9 million of cash per quarter (see CoSine Soars On Debut). At its current operating rate, the company would need to generate roughly $20 million per quarter to break even.
“I really can’t say which way I think it will go,” said one equities analyst who didn’t want to be named. “Sometimes I think the company may pull through. They have enough cash to last them two more years. But then other times, I think they should just sell it for whatever they can get.”
— Marguerite Reardon, Senior Editor, Light Reading