Redback Gets a Boost
Stocks were up in general yesterday, but Redback stood out, climbing $2.22 (13.6%) to $18.60. In early after-hours trading, it gave back some profits, falling 5 cents (0.3%) to $18.55.
On June 30, Redback announced it had been subpoenaed by the Securities and Exchange Commission (SEC) and Department of Justice regarding stock options grants. Dozens of companies in multiple industries are being investigated for allegedly backdating stock options. (See Redback in Options Probe.)
An internal investigation, now completed, "did not find any evidence of intentional backdating of stock option grants or manipulation of stock option grant dates," Redback states in a 10-Q form filed with the SEC yesterday.
Of course, when it comes to the stock options issue, the company still has to face the SEC and Department of Justice. "We can provide no assurance that the SEC and DOJ would agree with our conclusions," the 10-Q states.
Some options grants had the documentation completed after the grant date, but that was "a result of administrative or processing delays," the 10-Q states. Some grant dates were changed due to these delays, and in some cases, Redback has to take extra compensation charges as a result.
Changes to Redback's reported earnings are minor and only affect this fiscal year. Its losses for the second quarter of 2006, ending June 30, are $1.9 million as opposed to the reported $1.8 million. That's still 3 cents per share.
Losses for the six months ending June 30 are $4.5 million, 8 cents per share, as opposed to the reported $4.3 million, 7 cents per share.
The options news might have comforted investors, but an analyst upgrade might have had more to do with the elevated stock price.
Analyst Mark Sue of RBC Capital Markets upgraded Redback partly because of the options factor, but also because he likes the company's prospects in IPTV, including what he calls "heightened commitments" by BellSouth Corp. (NYSE: BLS). The carrier represents more than 10 percent of Redback's revenues -- as does AT&T Inc. (NYSE: T), which uses Redback's older SMS routers.
"We now believe BellSouth and AT&T both remain committed to the original Redback architecture," Sue writes. During the next 12 months, he expects BellSouth to purchase 550 of Redback's newer SmartEdge routers, spelling sales of about $50 million for the vendor.
Analysts recently voiced concern that BellSouth's SmartEdge deployment is ending a major phase, which could lead to choppiness in the company's sales. Separately, there's a concern about whether AT&T will continue working with BellSouth's vendors after the companies merge. (See Redback Shares Stumble and Will AT&T Value BellSouth's Vendors?.)
— Craig Matsumoto, Senior Editor, Light Reading