Ascend Reports Soft Earnings, but Conference Call Soothes Nervous Nellies

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By Kevin Petrie
Staff Reporter

On Tuesday evening

Ascend

(ASND) - Get Report

finally dealt the longs a body blow.

Anticipating an upside surprise, bullish investors had short-sellers on the run. Forced to cover, the shorts helped drive Ascend to a gain of nearly 37% from a June trough of 39 3/8. Late Tuesday, after regular market trading ended, Ascend announced second-quarter profits of 31 cents per share, excluding the costs of acquiring

Cascade

and the smaller outfit

Whitetree

-- well short of the 35-cent performance forecast by a

First Call

survey. On a pro-forma basis Ascend earned 23 cents a share in the year-ago period.

The stock dipped after hours, according to

Reuters Instinet

, trading 1 3/8 lower at 52 1/2 at 5:08 p.m. EDT and then rebounding to 53 3/4, just shy of its official closing price, by 5:47 p.m. According to an

Instinet

official, as of 6:20 p.m. no further trades had taken place.

So after the initial shock investors may have found the finer points of the conference call heartening. To be sure, given the financial and strategic confusion surrounding the Ascend-Cascade combination, the earnings number may not flash a clear signal to investors. Revenue grew robustly to $311.7 million, a 51.6% bump from one year earlier. That sales performance topped the revenue whisper number, both on the part of the former Ascend and the Cascade unit, according to one money manager.

"If you take them at their word, things are at their bottom," commented one analyst who participated in the conference call with the company, but declined to be named. He added: "The balance sheet was not pretty."

According to the analyst, swelling day-sales outstanding and rising inventory levels were alarming at first blush. But the analyst believes Wall Street listeners developed a positive sense of Ascend's longer-term competitive position as the conference call progressed.

Ascend seemed to be cramming its sales into the final days of the quarter, due to product transitions in both companies. The day-sales outstanding figure, which measures the average length of time it takes for a product to be paid for, bumped up from 60.4 one year earlier to 69.4 in the second quarter. (All year-ago comparisons are on a pro-forma basis, including the recent mergers.)

A

story in

TheStreet.com

earlier Tuesday spelled out the concerns of analysts -- bulls included -- that key products, such as the MAX and MAX TNT line, would not sell as robustly or as smoothly as eager bulls had hoped.

Ascend execs also announced that Bob Dahl will exit the post of chief financial officer to become executive vice president of planning, though he will continue to manage finances until a successor is found. In addition, the company intends to cut more than 250 employees as it merges operations. The merger, execs say, will be nondilutive going forward.