Syntax-Brillian Can’t Be Trusted

Syntax-Brillian Corporation (BRLC-NASDAQ) reported revenue of $162.9 million, up 257% from revenue of $45.7 million in the year-ago quarter.  GAAP diluted net income per share was $0.09 for the third quarter of fiscal 2007 compared with a diluted net loss per share of $0.26 for the third quarter of fiscal 2006.  First Call estimates were $0.12 non-GAAP and $167 million revenues, so this is being viewed as a shortfall.  Adjusted EBITDA was $15.5 million compared with negative $2.9 million for the third quarter of fiscal 2006. Adjusted EBITDA for the nine months ended March 31, 2007 was $49.2 million compared with $403,000 for the comparable period of the prior year. Consolidated gross margins of 18.1% for the quarter ended March 31, 2007

Here is the second problem, a Securities Offering; AGAIN!: Syntax-Brillian announced that it plans to offer approximately $150 million and certain of its stockholders plan to offer approximately $22 million of shares of Syntax-Brillian common stock in an underwritten public offering. Merrill Lynch is the book-running manager; UBS will be co-lead manager; Robert W. Baird, Canaccord Adams, and Brean Murray, Carret & Co. will serve as co-managers.  Net proceeds to Syntax-Brillian are intended to be used for general corporate purposes, including the payment of a portion of outstanding indebtedness. Syntax-Brillian anticipates completing the public offering prior to its June 30, 2007 fiscal year end.

Long DSO’s: At March 31, 2007, accounts receivable and due from factor totaled $221.0 million for total days sales outstanding ("DSOs") of 122.1 days. This compares with 73.9 DSOs at March 31, 2006 and 78.6 DSOs at December 31, 2006. Included in accounts receivable at March 31, 2007 was $170.8 million of accounts receivable from Asia, where standard industry terms are 120 days.  Accounts receivable and due from factor, excluding the Asian receivables, totaled $50.1, million which represents approximately 45.7 DSOs at March 31, 2007 compared with 73.9 DSOs at March 31, 2006 and 66.8 DSOs at December 31, 2006.

GUIDANCE: For the quarter ending June 30, 2007, Syntax-Brillian anticipates revenue in the range of $190 million to $210 million, predominately from sales of LCD TVs on shipments of approximately 240,000 to 270,000 units. Gross margins for the quarter are anticipated to be in the range of 15% to 17%.  For the fiscal year ending June 30, 2007, Syntax-Brillian anticipates revenue in the range of $682 million to $702 million, predominately from sales of LCD TVs on shipments of approximately 970,000 to 1.0 million units. Gross margins for the full fiscal year are anticipated to be in the range of 16% to 18%.  For the calendar year ending December 31, 2007, Syntax-Brillian anticipates revenue in the range of $950 million to $1.1 billion, and gross margins in the range of 16% to 18%.

Jim Cramer probably is thinking that since the CEO has done two offerings now that this guy may not be that trusted.  Unless this CEO has some real rabbits in his hat, he sure looks hard to trust and this may now be relegated to a "story stock." Shares closed down 2% at $8.41 in normal trading and they are down another 15% at $7.09 in after-hours.  This will represent roughly 3-month lows if this level holds.

Jon C. Ogg
May 10, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.