Nstein Reports a Good 4th Quarter.

I suppose this is an adjunct to the post that I completed last night and thank you Nstein management for making me look prescient. Nstein (EIN.V) reported its 4th quarter and full-year results. In particular, the 4th quarter results were substantially higher than expectations, probably a full $2 million ahead of my forecast. Net Income was strongly positive for the quarter at $1.35 million or $0.03 per share.

More importantly, the Company was able to generate $0.03 per share in free cash flow. The Company now has $7.4 million in cash along with $6.8 million in receivables and very little long-term debt exposure at $0.5 million. The NAV of the Company could be inferred at $21.9 million or $0.41 per fully diluted share based on the balance sheet ending Dec 31, 2008.

Earlier in the year, performance was a little dicey due to market uncertainty. There was some concern that Nstein's newspaper clients would delay investment decisions as balance sheets were eroded. It appears as though many decisions were delayed until the 4th quarter when a lot of publishers were probably reacting to the freefall in print advertising dollars. Nstein appears to have benefitted directly from "Yikes...do something now!" reactions throughout the industry.

Last year, Q4 performance was also a positive surprise to the market. Big 4th quarters should be better modeled into future forecasts because there appears to be bias towards 4th quarter buying decisions, probably correlated to budget cycles. Notwithstanding, it was a great quarter for the market conditions. Based on reported A/R, Q1 2009 should show some strength as well.

Market conditions should remain very positive for EIN.V for another 4 quarters as its clients scramble online (see previous post). The Nstein semantic content management suite is also well aligned to the next stage of the Internet, which some are calling web 3.0, or the contextual web. So, the longer-term outlook may be considered positive as well, especially as the Company leverages favourable R&D tax credits offered by the Province of Quebec. With a pretty outstanding world-wide client base, a well positioned and patent protected solution, and a proven growth profile, EIN.V may be an interesting target to a larger middleware, content management, or infrastructure player.

With over $7.0 million in the bank, there is a chance that EIN.V itself could begin to roll-up some complimentary solutions providers that can extend its own solutions.

Although Nstein is clearly well positioned, there should be some investor caution. Nstein's client base still prefers to acquire perpetual license software. Although the Company's revenue streams are becoming more recurring in nature, the Nstein still suffers from lumpy quarterly performance, and the quarterly live/die sales cycle due to the perpetual licensing model.

Notwithstanding, investors may still view EIN stock as being currently undervalued and we may see a continued run up in the share price for the next few days. The stock has performed well since the beginning of the year with a 116% increase in the stock price since January 6th.

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