The Week That Was: January 30, 2015

In new issuance this week, we saw two small deals announced.  XenoPort (XNPT) announced a $100 million senior convertible deal on Wednesday.  XenoPort is a small biopharmaceutical company working on commercializing its first marketed product - Horizant, a treatment for restless legs syndrome (RLS) and the management of postherpetic neuralgia (PHN).  Glaxo pulled out of a commercialization deal in 2013 and all rights were returned to XNPT, so now the company is going it alone.  Proceeds from the deal will be used to fund Horizant commercialization efforts and to fund the development pipeline.  The HOCS slash line for the deal was 67 Overall / 88 Growth / 25 Safety.  The score clearly illustrates the trade off between possible future growth and the inherent risks of a small biopharmaceutical company.    

The second new issue of the week was—almost-- Performant Financial Corp (PFMT), which announced an $80 million convertible bond offering on Wednesday together with a $50 million stock offering.  The proceeds from the deals were to be used to partially fund the recently announced acquisition of Premier Healthcare Exchange.  The HOCS slash line for the deal was 65 Overall / 84 Growth / 29 Safety.  The low safety score was attributed to the company's very small market cap and more importantly the on-going structural challenges associated with the company's federal government and governmental agency dependent business model.  Our advice was to proceed with caution.  Investors appear to have heeded that advice as the company announced it was pulling the deals early today.    

The earnings flood gate opened up this week and we saw announcements from many convertible issuers.  On Monday Rambus (RMBS) announced results that beat EPS consensus estimates but fell short of revenue estimates.  On Tuesday EZCORP (EZPW) announced earnings, missing both EPS and revenue consensus estimates.  Jeff Alton wrote about EZCORP in this week's Hybrid Vigor.  He provided his take on the earnings news in an update on Wednesday.  In spite of the miss, he feels the company is headed in the right direction. 

Accuray (ARAY) missed both EPS and revenue consensus estimates.  Illumina (ILMN) beat both EPS and revenue consensus estimates.  Electronic Arts (EA) easily beat both EPS and revenue estimates.  Yahoo (YHOO) beat the EPS consensus estimates, but fell short on revenue.  The company also announced its plan to spin-off its stake in Chinese e-commerce provider Alibaba Group.           

On Wednesday Meritor (MTOR) announced results that beat the EPS consensus estimate, but missed the revenue estimate.  Service Now (NOW) beat both EPS and revenue consensus estimates.  Lam Research (LRCX) beat the EPS consensus estimate while revenue was in-line.  Citrix Systems (CTXS) beat the EPS and revenue consensus estimates.  Hologic  (HOLX) beat both EPS and revenue estimates.

On Thursday Ryland Group (RYL) announced results that beat EPS and revenue consensus estimates.  Bottomline Technologies (EPAY) beat EPS and revenue estimates.  Royal Gold (RGLD) missed both EPS and revenue consensus estimates, as did Proofpoint (PFPT).  Quantum Corp (QTM) met the EPS consensus estimate, but missed on revenue.  Emulex (ELX) beat both EPS and revenue estimates, as did InvenSense (INVN).  JDS Uniphase (JDSU) missed the EPS and revenue consensus estimates.  NetSuite (N) met the EPS consensus estimate and exceeded the revenue consensus estimate.  Meritage Homes (MTH) beat on EPS but missed on revenue.  Electronics for Imaging (EFII) met EPS estimates and exceeded revenue estimates.  Callaway Golf (ELY) beat the EPS estimate but missed on revenue.  Cepheid (CPHD) beat both EPS and revenue consensus estimates. 

 In other news this week, Cliffs Natural Resources (CLF), to no one’s surprise, announced it would eliminate the $0.15 per share quarterly dividend effective first quarter 2015.  The company also announced it has begun restructuring proceedings for its Canadian subsidiary (Bloom Lake).........  Brookdale Senior Living (BKD) announced preliminary fourth quarter results.  Management expects cash from facility operations (CFFO) of $0.53 per share.  As a result, CFFO per share guidance for full year 2015 was revised down to a range of $2.60 to $2.75 from a range of $2.95 to $3.10.  The numbers were impacted by lower than expected occupancy and higher-than-anticipated insurance reserve adjustments.  Full financial results will be released February 4th.........  HSN Inc (HSNI) entered into a new $1.25 billion 5-year credit facility, replacing its existing $600 million facility.  The company also declared a special cash dividend of $10 per share which will total ~$525 million and authorized a share repurchase program covering four million shares.........  Micron Technology (MU) priced $1 billion of 5.25% senior notes due 2023.  The proceeds will be used to retire or repurchase convertible notes and other debt.          

Companies announcing earnings for the upcoming week include: Owens-Illinois, Take-Two Interactive, and Array Biopharma for Tuesday; Wabash National, Brookdale Senior Living, CSG Systems, and TTM Technologies for Wednesday; and Bristow Group, Synchronoss Technologies, Nuance, Fluidigm, LinkedIn, ON Semiconductor, Sprint, Standard Pacific Corp, and Twitter for Thursday.