Update: Brooktrout, analysts wrestle over earnings

Brooktrout Inc. (Nasdaq: BRKT) made things really interesting for shareholders Friday morning as analysts debated whether the company beat, met, or missed First Call consensus estimates. Wall Street is tentatively concluding Brooktrout beat consensus by two cents a share.

Shares were up 1/2 to 12 11/16 in early trading Friday.

The company after the bell Thursday reported a profit of $10.6 million, or 91 cents a share, on revenue of $34.4 million. But that included a one-time gain of $9 million, or 77 cents a share, related to the IPO spin-off of Interspeed (Nasdaq: ISPD).

After a few accounting gymnastics, analysts are going with chief financial officer Robert C. Leahy's contention the company earned 17 cents a share, a figure that wasn't noted in its earnings release.

That figure took a while to get to, however. If you back out that one-time gain, Brooktrout reported a profit of 14 cents a share and missed by a penny. That figure, which was reported in a ZDII story, was off.

The confusion was magnified by this quote in Brooktrout's press release. "When we remove the effect of Interspeed, our pro-forma (excluding one-time gains and charges and non-cash compensation charges) net income from core operations rose from $0.21 per share in last year's third quarter to $0.32 per share in the third quarter of this year,'' said CEO Eric R. Giler in a statement.

If that math was accurate Brooktrout would have more than doubled First Call consensus of 15 cents a share.

When a company has Brooktrout's market capitalization of $133.5 million, missing estimates by a penny or doubling estimates is a big deal.

Leahy told ZDII that the earnings release was indeed confusing due to the Interspeed IPO. "The message we are trying to convey is that Brooktrout's core business is wildly profitable," said Leahy. "If we took our Interspeed shares and threw them away, we would have earned 32 cents a share.

However, Brooktrout can't throw Interspeed shares away because it still holds a 61 percent stake in the company and has to carry its losses on the books. If you subtract out Interspeed's losses, non-cash compensation and Brooktrout's interest as a minority shareholder, Leahy said the official earnings are 17 cents a share. Analysts are still debating.

ZDII talked to three analysts and none of the three wanted to be identified because they were still sorting things out. Two of the three analysts were tentatively going with Leahy's 17 cents a share figure.

"That's where we are right now, but it's very preliminary," said one analyst. "There are a lot of accounting issues to be worked out."

Another analyst said revenue for Brooktrout was on target and he was also tentatively going with the 17 cents a share figure. He didn't want to be quoted until he talked to Leahy and added he would comment on next week.

A third analyst said he's leaning to the 15 cents a share figure, which indicates Brooktrout met expectations.

That analyst recommended scrapping Brooktrout's pro forma numbers in its earning statement. He's going with his 15 cents a share figure because on a discrepancy over the tax assumptions for Brooktrout.

When asked why the Brooktrout didn't put in the 17 cents a share figure into the press release, Leahy said hindsight is 20-20. "The objective was to get Wall Street to focus on the core results," he said. "The company is undervalued and we're putting our money where our mouth is."

The company is buying back up to 1 million shares.