Next on the docket of companies that I cover set to report earnings is SoundBite Communications (NASDAQ: SDBT), which reports Wednesday August 6th after the market closes.

Last quarter SoundBite severely disappointed not only me, but judging from the precipitous stock price decline, a bunch of other folks on Wall Street as well.

It’s put up or shut up time for SoundBite.

What’s it gonna be this time around?

Improvement in the business trends and fundamentals, or continued disappointment and a diminished outlook?

Either way, it’s decision time on Soundbite.

In this post I’ll go over the important aspects that we need to be aware of before SoundBite announces earnings and then break them down into the following parameters:

• What went right in the quarter: What were some of the positive developments that occurred within the company in the last 3 months.
• What went wrong in the quarter: What were some of the negative developments that occurred within the company in the last 3 months.
• What I want to see: All things considered, what I realistically want to see from the company as it relates to their business.
• What we need to see: At the minimum, what we need to see for our investing thesis to still hold and an investment in this company to be prudent.
• What we’ll probably see: After weighing what’s been going on for the last 3 months, what we can realistically expect when they do announce their earnings.
• Bottom Line: What it all means, and what you should do.

New to the SoundBite story?

• Click here to read my complete SoundBite research report and buy recommendation

SoundBite Communications

My Patience is Wearing Thin

SoundBite Communications (NASDAQ: SDBT) is a leading provider of on-demand customer contact solutions that include Automated Voice Messaging, and other customer contact solutions used by 1st parties and 3rd parties such as debt collection agencies, to stay in touch with customers and save costs on agent-driven interaction.

There wasn’t much good news that came out of SoundBite’s last earnings release and conference call as they slashed their forward guidance for the remainder of 2008 in the form of lower top and bottom-line growth, and didn’t leave investors with a warm and fuzzy feeling on the conference call that followed either.

I tried to clarify some of the issues with management when I conducted a broad ranging discussion with them on the state of the economy, the trends within their business and specific clarification on certain issues, but needless to say we were supremely caught off guard by the wide revenue and profit miss as well as the dramatic downward revision.

You can read my discussion with management and their responses here.

When SoundBite reports their second quarter earnings after the bell on Wednesday August 6th, 2008, the question now becomes, did SoundBite effectively manage expectations so that they never have to revise downward again, and more importantly, are they doing the things necessary to fix their business for the long term?

• What went right in the quarter: Let’s start with just about the only good news that occurred in the quarter for SoundBite: Universal Recovery Systems (URS) settled their lawsuits and all pending litigation with SoundBite which in turn netted SoundBite $4.6 million in the process.

You can read the full details here.

It’s good to see this issue resolved satisfactorily in SoundBite’s favor and they even got a little cash out of the deal, net their legal fees, that will help them as they try and make it through their current turmoil.

• What went wrong in the quarter: Umm…I’m not sure really.

I tried to contact management to get an “update” on the quarter and see how things were going, especially in light of the bombshell they delivered last quarter, but all I got was static interference, and no straight answers.

My interpretation of the conversation was decisively negative in nature.

Although there have been no preannouncements or anything related, I suspect that we’ll be looking at more of the same troubles this time around when SoundBite announces earnings.

My guess is that the continued credit environment and economic times are still hammering collections agencies, which are the bulk of SoundBite’s business, and are still forcing them to sit on the sidelines and wait the whole mess out until things improve.

Either way, we’ll soon find out.

• What I want to see: All things considered, what I realistically want to see from the company is a continued salve to stop the bleeding.

I’m not particularly looking for miracles, but a slight uptick from their previous guidance and improved underlying fundamentals and business prospects would most likely be the highest expectations that I could foresee.

Anything above that would be stunning to me.

• What we need to see: At the minimum, what we need to see for our investing thesis to still hold and an investment in this company to be prudent is pretty much what I outlined above.

Expectations are low, so it will not be hard for SoundBite to tip-toe around them and even surpass them slightly.

Anything less than that, and it’s time to seriously reconsider our investment.

• What we’ll probably see: After weighing all of the variables and factors, we’ll probably get something in the middle.

SoundBite will most likely either slightly miss/meet/beat expectations, BUT keep their guidance super low and conservative, which would be the prudent thing to do.

• Bottom Line: An investment in shares of SoundBite is for the super risk-tolerant, and those that are willing to buy a company at or near its cash on hand, and book value, and hope that any uptick in business trends, guidance, etc., will lead to a nice return from these levels.

At current valuation, there is a certain cushion and bottom on the stock price, which is why I haven’t sold off our position yet, aside from also wanting to see another quarter of execution, or lack thereof.

If you are the gambling sort, a position before earnings could give you a quick pop on any good news at all.

On the other hand if Soundbite disappoints again, lowers guidance further, or otherwise tarnishes further their image in the minds of Wall Street, it is quite possible that the stock could fall below their cash and book value, which as of today stand at about $2.50 per share cash, and about $3.00 per share book value.

Buyer beware.

New to the SoundBite story?

• Click here to read my complete SoundBite research report and buy recommendation

• Caution: SoundBite trades with very high bid/ask spreads. Learn how to protect yourself from getting screwed by the market makers.

*Variables You Should Know About SoundBite Communications (Nasdaq: SDBT)

BUY

• Downside Protection ($2.50 in cash per share, $3.00 book value per share)
• Fully Resolved Patent Litigation Suits
• Established Large Player/Customer Base
• Fantastic, Highly Scalable Technology
• Huge Growth In an Expanding and Rapidly Developing Market
• Turnaround Play That May Have Already Seen the Worst
• Largely Underfollowed Stock
• High Margin Business
• Multiple Revenue Streams
• Large Insider Ownership (60+%)

*As of 8-1-08. Except share price, all values in millions.