Force Protection Hums a Familiar Tune

I'm Henery the Eighth, I am!
Henery the Eighth, I am! I am!

I got married to the widow next door,
She's been married seven times before.
Every one was an Henery.
She wouldn't have a Willie or a Sam.
NO SAM!
I'm her eighth old man named Henery.
Henery the Eighth I am.

Just as with the old Herman's Hermits song, it was "Second verse, same as the first!" at armored-truck maker Force Protection (Nasdaq: FRPT  ) last week. Or more precisely, "Third quarter, similar to the second." Just as we saw in August, Force reported:

  • Stellar quarterly sales growth: 140% in Q2, 389% this time around.
  • Strong margins improvement: Operating margins increased more than fivefold to 8.8%, putting the firm within spitting distance of such defense-contracting powerhouses as Lockheed (NYSE: LMT  ) , Northrop (NYSE: NOC  ) , and Boeing (NYSE: BA  ) , and only a little farther behind Raytheon (NYSE: RTN  ) and General Dynamics (NYSE: GD  ) .
  • Strong profits: $0.14 per share in Q2, followed by $0.16 per share in Q3.

But not all the familiar news was as pleasant.

Might I offer some advice?
I know Force is a relative newcomer to the Nasdaq, having just moved to the exchange in January. Still, 10 months after leaving the wilderness of the over-the-counter market, it's time for Force to get civilized and begin treating its shareholders with some respect. Shareholder-friendly companies make financial statements easily available in their press releases, guys. They don't force their owners to hunt through the SEC's website to find the numbers they need.

Another thing shareholder-friendly companies do: Provide transparent details of bad news. Force is undergoing a cash crunch -- but you may not know it from the press release. Rather, Force buried on page 38 of its 10-Q the detailed explanation of why it may soon require a cash infusion to make needed improvements in manufacturing capacity. Cash flow will cover anticipated expenses only through "the remainder of 2007" (i.e., the next six weeks). At that point, Force will "be required to obtain additional sources of capital, which may include borrowings or the issuance of debt or equity securities, including common stock."  

The news has helped siphon 15% away from Force's market cap, but for those who've been listening carefully, the firm's lack of free cash flow really shouldn't have come as a surprise. Force sang the exact same song last quarter.

Will Force Protection's need to feed at the debt and equity markets starve investors of their hoped-for profits? Or will the firm's cash flow soon begin to sing the same tune recorded in its GAAP numbers, removing the need for debt and dilution in the future?


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