Riverstone Branded 'E' by Nasdaq
The E will remain tacked onto the end of Riverstone’s ticker symbol until the matter is resolved, indicating to shareholders that the company is in violation of one of the Nasdaq’s rules and faces a possible delisting. On Friday, the company announced in its first-quarter 2004 earnings press release that the Nasdaq had warned it of the delisting (see Riverstone Posts Loss, Faces Delisting).
The SEC has been informally reviewing Riverstone for the past several months (see Accounting for Riverstone's Problems). But earlier this month it upped the ante and launched a formal inquiry into the company’s accounting practices. Back in May, Riverstone issued a press release stating that it would be late filing the 10-K, while it conducted its own internal investigation (see Riverstone Delays 10-K).
Riverstone now has until July 1st to request a hearing before Nasdaq officials regarding its listing status, says Peter Ruzicka, a spokesman for the company. Then Nasdaq has up to 45 days to grant Riverstone a hearing.
It’s difficult to predict the eventual outcome, but if Riverstone ends up being delisted it will only intensify its problems.
“The company already has limited access to capital,” says Reginal King, an analyst with W.R. Hambrecht & Co. “This will make it even harder for them.
King dropped coverage of Riverstone on June 6th after the company pre-announced disappointing earnings for its first fiscal quarter of 2004 (see Riverstone Ailing in Asia). He says he dropped coverage because he was concerned about Riverstone’s lack of North American and European service provider wins.
Alex Henderson, an analyst with Salomon Smith Barney, is recommending “investors stay on the sidelines” for now. In a note published on Friday after the company’s earnings call, he reiterated his Underweight rating on the stock and left his $0.50 price target intact.
Using the SEC investigation of Enterasys Networks Inc. (NYSE: ETS) as a reference, Henderson says he is not surprised by the SEC’s formal inquiry or Nasdaq’s recent actions. The LAN switching company, which, like Riverstone, was spun out of Cabletron Communications, was dragged through the mud during a nine-month investigation by the SEC. Eventually, the company settled with the SEC without admitting any wrongdoing, but not before its stock plunged, most of its upper management left, and it restated financial filings to show losses that were much larger than it first reported.
Even though analysts are not keen on Riverstone’s stock, they are not convinced the company will be going away anytime soon. It still has $196 million in cash, or about $1.50 per share. But it’s been burning through that cash. In its first quarter its total cash dwindled more than $25.6 million, some $10 million of which was consumed by repurchasing outstanding debt.
Erik Suppiger, an analyst with Pacific Growth Equities Inc., said in his research note that the company needs to earn between $40 million and $50 million in revenue each quarter to reach breakeven. Currently, the company is generating revenue in the $12 million to $15 million range, and Suppiger says he doesn’t believe it will achieve more than $40 million in revenues for the whole year. He reiterated his Underweight rating.
Yesterday, Riverstone’s stock fell $0.10 (7.6%) to $1.21. Today, it inched up slightly, gaining $0.03 (2.48%) to $1.24.
— Marguerite Reardon, Senior Editor, Light Reading