Yesterday, Points International reported Q2, 2009 results. Sales came in at $21.3 million, a 23% increase over the previous quarter sales results reported at $17.3 million.
The Company reported an EBITDA loss of $0.4 million or (0.00) loss per share, versus positive EBITDA of $0.5 million or $0.01 EPS, in the previous year quarter. Sequentially, there was a slight EBITDA performance improvement from a $0.6 million loss reported for Q1, 2009.
The real news is that the Company disclosed that Delta Airlines (DAL) is "recasting" its relationship with PTS. During the conference call, this disclosure was better clarified. Delta is leveraging the Northwest merger to "insource" key point management services on Delta.com that PTS currently offers. Management admitted that this could represent up to 60% of current revenue, and that this would take effect as of October 1, 2009. As a result, the Company has reduced full year revenue guidance by $15 million to between $70 million and $80 million.
Not only did PTS lose Delta Airlines, but also through the merger, Northwest Airlines. This bad news offset the good news during the quarter, which was the signing of KLM-Air France.
Right now, Point International appears to be struggling. It is reducing its headcount by 20%, it is redeploying a new platform, redesigning its consumer websites (yet again), and it is grasping at social networking product development, among a myriad of activities announced during the conference call. Notwithstanding all of this activity, and even prior to the Delta bombshell, the company has been going backwards on profitability for the past 4 quarters, despite the promises made at the end of 2007 regarding improved margins and earnings leverage from the principle model. It never materialized.
Although losing most of the Delta revenue should improve gross margins, there is a lot of work to do to rescale the company and get to profitability. Analysts are likely to be concerned and may be losing patience, this sentiment should result in target reductions and changes in recommendations, which are likely to have a negative impact on the share price.
Disclosure: I do not own PTS or DAL shares.
8/6/09
CX Q2 results: Did it beat consensus?
Well, kinda mostly.
Cyberplex reported $26.0 in revenue for the quarter, a 172% improvement over Q2, 2009, and a 18.8% sequential decline from the $32 million reported for Q1, 2009. Due to historical seasonality in performance, the consensus forecast implied a 29.3% sequential decline, or $22.6 million. So, CX beat this estimate.(and the Google correlation seems to hold)
EBITDA was reported at $2.5 million or $0.03 per fully diluted share, ahead of $2.2 million consensus forecast, implying a 10% margin on revenue. CX beat this estimate.
Management stated during the investor conference call that margins were inline with expectations, and that EBITDA margins going forward should be maintained at around the 10% level for the next few quarters.
Net Income was reported at $1.0 million or $0.01 EPS, versus $0.02 EPS consensus estimate. This was a miss.
Foreign currency translation losses were high for the quarter at $1.3 million or $0.02 per share due to the surging loonie versus the U.S. dollar. During the conference call, management admitted that currency hedging strategies for the quarter did not work. For Q3, the company has hedged currency translation for the month of July and plans to continue to implement more aggressive "layered" hedging strategies for currency going forward, which should benefit earnings for Q3 and Q4.
Notwithstanding the FX-driven EPS miss, according to management, the company generated $3.4 million in free cashflow, or $0.05 per fully diluted share for the second quarter.
Gross Margins were reported at 30% for the quarter, a 13% decline from 34% reported during Q2, 2008, and a small sequential decline from 31% reported for Q1, 2009. Management is targeting 30% GM +/- 2% going forward and Q2 GM was in range. Gross Margins were inline with expectations. However, Gross Margin is a measurement that analysts need to monitor for further erosion going forward. Increasing competition could result in price erosion. Executionally, the company could offset pricing pressure through new categories (eg. social networking platforms), and both leveraging and building out its analytical capabilities to provide advertisers and publishers more value-added services. As well, management hinted at the possibility of increasing the scale of its own ad inventory, thus reducing its reliance on affiliates and third-party publishers.
As for H2 outlook, to reflect historical patterns, revenue should be forecast by analysts to decline sequentially again in Q3 from Q2, with a surge in Q4. Upside performance surprises could come in the form of deals with top 50 publishers, or more likely, significant national and multi-national advertisers. As well, the Company continues to expand its sales force with digital ad sales specialists (there is probably quite a bit of talent hanging around after all of the recent media cuts). More sales horsepower should increase revenue momentum for Q4 and Q1 2010, although analysts should be watching operating margins closely over the next few quarters to measure sales effectiveness.
Fundamentally, this story remains intact for H2 2009 as one of the more intriguing success stories during this recession. It is unlikely that we will see another major "gap up" in H2 performance this year like we did for Q4 2008. However, with a solid balance sheet, an improving world economy, a bullish outlook by management, and increasing interest in CPA advertising, H2 looks to be very solid. Analysts are likely to overlook the FX issues for now, and they should be pleased that the company beat forecasts for sales and EBITDA. Analysts are likely to scrutinize margin risk in future quarters.
With respect to potential acquisitions, the Burst Media opportunity is probably over for now. However, there are a lot of potentially accretive substitute opportunities around.
Disclosure: I own CX.
Cyberplex reported $26.0 in revenue for the quarter, a 172% improvement over Q2, 2009, and a 18.8% sequential decline from the $32 million reported for Q1, 2009. Due to historical seasonality in performance, the consensus forecast implied a 29.3% sequential decline, or $22.6 million. So, CX beat this estimate.(and the Google correlation seems to hold)
EBITDA was reported at $2.5 million or $0.03 per fully diluted share, ahead of $2.2 million consensus forecast, implying a 10% margin on revenue. CX beat this estimate.
Management stated during the investor conference call that margins were inline with expectations, and that EBITDA margins going forward should be maintained at around the 10% level for the next few quarters.
Net Income was reported at $1.0 million or $0.01 EPS, versus $0.02 EPS consensus estimate. This was a miss.
Foreign currency translation losses were high for the quarter at $1.3 million or $0.02 per share due to the surging loonie versus the U.S. dollar. During the conference call, management admitted that currency hedging strategies for the quarter did not work. For Q3, the company has hedged currency translation for the month of July and plans to continue to implement more aggressive "layered" hedging strategies for currency going forward, which should benefit earnings for Q3 and Q4.
Notwithstanding the FX-driven EPS miss, according to management, the company generated $3.4 million in free cashflow, or $0.05 per fully diluted share for the second quarter.
Gross Margins were reported at 30% for the quarter, a 13% decline from 34% reported during Q2, 2008, and a small sequential decline from 31% reported for Q1, 2009. Management is targeting 30% GM +/- 2% going forward and Q2 GM was in range. Gross Margins were inline with expectations. However, Gross Margin is a measurement that analysts need to monitor for further erosion going forward. Increasing competition could result in price erosion. Executionally, the company could offset pricing pressure through new categories (eg. social networking platforms), and both leveraging and building out its analytical capabilities to provide advertisers and publishers more value-added services. As well, management hinted at the possibility of increasing the scale of its own ad inventory, thus reducing its reliance on affiliates and third-party publishers.
As for H2 outlook, to reflect historical patterns, revenue should be forecast by analysts to decline sequentially again in Q3 from Q2, with a surge in Q4. Upside performance surprises could come in the form of deals with top 50 publishers, or more likely, significant national and multi-national advertisers. As well, the Company continues to expand its sales force with digital ad sales specialists (there is probably quite a bit of talent hanging around after all of the recent media cuts). More sales horsepower should increase revenue momentum for Q4 and Q1 2010, although analysts should be watching operating margins closely over the next few quarters to measure sales effectiveness.
Fundamentally, this story remains intact for H2 2009 as one of the more intriguing success stories during this recession. It is unlikely that we will see another major "gap up" in H2 performance this year like we did for Q4 2008. However, with a solid balance sheet, an improving world economy, a bullish outlook by management, and increasing interest in CPA advertising, H2 looks to be very solid. Analysts are likely to overlook the FX issues for now, and they should be pleased that the company beat forecasts for sales and EBITDA. Analysts are likely to scrutinize margin risk in future quarters.
With respect to potential acquisitions, the Burst Media opportunity is probably over for now. However, there are a lot of potentially accretive substitute opportunities around.
Disclosure: I own CX.
Redknee (RKN.TO) Strong Q3 - Outlook Encouraging
Tweet Last Night: As expected $TSE:RKN reported a strong quarter - 21% growth, 23% GM growth, 17.2% EBITDA margin, $0.01 EPS
Redknee reported
Management has hinted at future tuckunder acquisitions both in important local international markets, and in triple play OSS. It has stated that it would like to normalize cash on hand at between $17 and $20 million. Currently, the Company has $22.4 million, so there is budget for tuckunder acquisitions available.
The company continues to predict continued profitable growth into 2010 and 2011 despite continued currency risk related to the value of the Canadian dollar. Currency volatility continues to be Redknee's largest risk, and it may result in slower deployments as international clients attempt to manage costs related to currency fluctuations.
Earning for the first 9 months of 2009 are reported at $0.06 EPS
Fundamentally, the stock is trading in the 10x EV/EBITDA range on a conservative FYE estimate. There is probably room for this stock to continue to ascend on a comparative basis. Notwithstanding the general over valuation of the current equity market, RKN and its peers such as BWC are profitable with international presence in high growth market sectors and strong balance sheets. A good spot to be for stock pickers.
Disclosure: own BWC, do not own RKN.
Redknee reported
- $14.5 million in sales for the quarter, up 21% from $11.9 million in previous quarter
- Gross Margins of 79%, up 23% from 64% in previous quarter.
- EBITDA of $2.5 million versus an EBITDA loss of $2.5 million in previous quarter
- Earnings of $0.8 million or $0.01 EPS versus a loss of $3.5 million or a $0.06 loss per share.
- Income from operations impacted by $1.1 million in FX loss for this quarter due to CAD$ strength.
- Current backlog is $28.3 million with 30% or approximately $8.5 million to be recognized in Q4, 2009.
- It expects Gross Margins to normalize to between 73% and 75%
- Recurring revenue as a percentage of total has increased from 33% to 38% due mostly to more maintenance renewals.
- Breakeven revenue benchmark has declines from $58 m annualized to $51 m annualized over the past 6 quarters.
- DSO has declined from 81 days to 75 days.
- SG&A expenses as a percentage of revenue should decline as management leverages headcount. Expect EBITDA margins to increase from 17.2% over the next few quarters.
- It plans to continue international expansion with Tier 1 market.
- Begin focusing on Tier 2 and Tier 3 players in North America and Europe.
- Expand into broadband triple play OSS.
Management has hinted at future tuckunder acquisitions both in important local international markets, and in triple play OSS. It has stated that it would like to normalize cash on hand at between $17 and $20 million. Currently, the Company has $22.4 million, so there is budget for tuckunder acquisitions available.
The company continues to predict continued profitable growth into 2010 and 2011 despite continued currency risk related to the value of the Canadian dollar. Currency volatility continues to be Redknee's largest risk, and it may result in slower deployments as international clients attempt to manage costs related to currency fluctuations.
Earning for the first 9 months of 2009 are reported at $0.06 EPS
Fundamentally, the stock is trading in the 10x EV/EBITDA range on a conservative FYE estimate. There is probably room for this stock to continue to ascend on a comparative basis. Notwithstanding the general over valuation of the current equity market, RKN and its peers such as BWC are profitable with international presence in high growth market sectors and strong balance sheets. A good spot to be for stock pickers.
Disclosure: own BWC, do not own RKN.
8/4/09
CX Performance Preview: Could it beat consensus?
Cyberplex (CX.TO) reports Q2 earnings on August 6, 2009 after close of the market. In conjunction with the release, Cyberplex will host a conference call on Thursday, August 6, 2009 at 4:30 p.m. EST to discuss the financial results.
Call details:
During the Q1 conference call, management confirmed that there is inherent seasonality in performance. Typically, both Q2 and Q3 results decline sequentially from Q1, and then improve again for Q4. Most analysts are likely to reflect this seasonality in their forecasts for this reporting period, especially after Q1 results came in much stronger than consensus.
However, there is better than 50% probability that CX could exceed consensus analyst forecasts for the following reasons:
Are there downside risks? Yes.
Notwithstanding the identified risks, the generally positive market conditions for performanced-based online advertising (as reflected through Google results), and the recent injection of capital could point to better than forecasted performance by Cyberplex for the reporting period. With an improving economy and new capital, the outlook for Cyberplex is likely to also improve.
Disclosure: I own shares of CX, I do not own shares of GOOG
Call details:
Participant Dial-in Numbers:There is greater likelihood than not that Cyberplex could beat consensus forecasts.
U.S. Toll Free: 1-877-737-1669
Canadian Toll Free: 1-800-501-6064
International Toll: 302-709-8008
Verbal Passcode (to be given to the operator): VR63282
During the Q1 conference call, management confirmed that there is inherent seasonality in performance. Typically, both Q2 and Q3 results decline sequentially from Q1, and then improve again for Q4. Most analysts are likely to reflect this seasonality in their forecasts for this reporting period, especially after Q1 results came in much stronger than consensus.
However, there is better than 50% probability that CX could exceed consensus analyst forecasts for the following reasons:
- Google foreshadows Cyberplex. Google results beat published analyst forecasts for Q2, showing some sequential growth in revenue and earnings. During the depths of the recession, marketing managers were increasingly seeking performance-based advertising in the form of Cost-per-Click programs (Google's primary revenue engine). Cost-per-action (CPA) based advertising is even more performance based than CPC, which could bode well for Cyberplex performance, especially as some mainstream accounts begin to take notice and sign on.
- Cash acceleration. At the two-third point of the quarter, the Company closed approximately $16 million in financing by way of a bought deal equity issue, increasing total working capital from $8.9 million ($4.7 million cash) to approximately $25 million ($21 million cash). This extra capital could have been deployed towards more aggressive affiliate marketing during the last weeks of the quarter, implying a late quarter bump in revenue performance.
Are there downside risks? Yes.
- As earnings have surged for this company over the past three quarters, it has a clearly identified risk in category concentration. Essentially, its Health & Beauty line of business has represented over 50% of total performance. Without further diversification, a small decline in sales for this category would have a relatively larger negative impact on performance.
- The new capital could be a distraction to management. With a significant injection of cash comes more intense pressure on management to do something with it - such as making an acquisition. More time on acquisition strategies may imply less time spent on core business activities, which could negatively impact performance in the short-term.
Notwithstanding the identified risks, the generally positive market conditions for performanced-based online advertising (as reflected through Google results), and the recent injection of capital could point to better than forecasted performance by Cyberplex for the reporting period. With an improving economy and new capital, the outlook for Cyberplex is likely to also improve.
Disclosure: I own shares of CX, I do not own shares of GOOG
7/31/09
RDM Corp results offer a glimmer of what could be
In early 2008, I slapped a sell rating on RDM Corp (RC.TO) with a $0.60 target. The company was being rocked by a stressed out and capital constrained client base (banks), a stuffed channel, and really poor visibility. Revenues were declining drastically as the client base stopped buying its various digital check scanners. The only thing that it had going for it at the time was about $17 million in cash, no debt, and a relatively minor payment processing business.
Last November and then again this previous March, the stock bounced against the $0.60 range as expected. Since then, there has been a fairly remarkable recovery for the share price where it has recently traded in the $1.20 range. There may be a legitimate reason for the move in share price.
RC reported $5.9 million in revenue for Q3 2009, a 13.4% improvement over previous year sales - although nice, this is not the story. Gross Margins for Q3 2009 increased to 42% from 34% the previous year, a 23% improvement, which should be considered very positive. The root cause of this substantial increase in GM is directly related to the success RDM Corp is experiencing as a payment processor. For q3 2009, payment processing revenue represented 42% of total revenue for the quarter versus the previous year where it represented only 33% of total sales. Why is this good? Payment processing generates close to 70% GM, whereas the device business delivers between 30% and 35% GM. In addition, payment processing is essentially 100% recurring revenue, which has helped to improve management's visibility on a growing percentage of its total revenue. Improving margins have helped the company to eek out a modest net income for the quarter of $0.175 million or $0.01 EPS. Right now the company executes 3.8 million transactions per day on its payment network, a 35% increase over the previous year. Revenue for the segment increased to $2.5 million or 48% over Q3 2009. Organic growth is expected to continue to be strong, so there may be a trend towards more profitable quarters coming.
Management must find away to better use its capital in order to accelerate a move towards payment processing, and to get out of the declining device gig. More payment processing begets more visibility, more earnings leverage, and more cash flow for shareholders.
Disclosure: I do not own shares of RC.
Last November and then again this previous March, the stock bounced against the $0.60 range as expected. Since then, there has been a fairly remarkable recovery for the share price where it has recently traded in the $1.20 range. There may be a legitimate reason for the move in share price.
RC reported $5.9 million in revenue for Q3 2009, a 13.4% improvement over previous year sales - although nice, this is not the story. Gross Margins for Q3 2009 increased to 42% from 34% the previous year, a 23% improvement, which should be considered very positive. The root cause of this substantial increase in GM is directly related to the success RDM Corp is experiencing as a payment processor. For q3 2009, payment processing revenue represented 42% of total revenue for the quarter versus the previous year where it represented only 33% of total sales. Why is this good? Payment processing generates close to 70% GM, whereas the device business delivers between 30% and 35% GM. In addition, payment processing is essentially 100% recurring revenue, which has helped to improve management's visibility on a growing percentage of its total revenue. Improving margins have helped the company to eek out a modest net income for the quarter of $0.175 million or $0.01 EPS. Right now the company executes 3.8 million transactions per day on its payment network, a 35% increase over the previous year. Revenue for the segment increased to $2.5 million or 48% over Q3 2009. Organic growth is expected to continue to be strong, so there may be a trend towards more profitable quarters coming.
Management must find away to better use its capital in order to accelerate a move towards payment processing, and to get out of the declining device gig. More payment processing begets more visibility, more earnings leverage, and more cash flow for shareholders.
Disclosure: I do not own shares of RC.
7/30/09
Bridgewater Systems exceeds expectations, increases guidance
BWC share should be positively impacted by news, and analysts should continue to raise forecasts.
BWC.TO reported Q2 2009 revenue of of $16.1 million, a 37% year over year increase in sales from $11.8 million. Gross margins were 74% for the quarter. Earnings reported for Q2 were $4.1 million or $0.17 EPS versus $1.3 million or $0.05 EPS for the previous year quarter, a 215% increase.
The Company now reports $57.6 million of cash on its balance sheet.
Management has increased full year guidance to between $58 million and $64 million with full year gross margin expected at 70%, which implies that gross margins may decline in the second half. Encapsulated within full-year guidance is $23 million in contracted backlog for H2, and approximately $7 million in upsell and new client revenue.
H1 revenue is reported at $30.2 million with $0.29 EPS. The mid-point of guidance infers that it expects to generate an identical back half with slightly lower potential EPS.
On the conference call management stated that RFP interest for all of its products is increasing during H2 2009, that it is on track to sign a Tier 1 GSM client.
Management confirmed that the explosion of smart phones, and the requisite application stores associated with them worldwide is providing exceptional opportunity for BWC as carriers/operators attempt to manage the scale and complexity of their growing data channels.
With only 5.4% smartphone penetration within the total world mobile subscriber base, there remains a lot of opportunity for BWC.
Analysts have been increasing forecasts and targets for the past few days, and after today's financial results and conference call, investors should expect analysts to continue to increase forecasts and targets.
As mentioned in earlier posts, BWC is among a handful of "connectivity" stocks that should perform ahead of the general market as mobile data networks expand.
Also included in that group are: RIM, CGI, BWC, DWI, RCM, WIN, RKN, SVC, PIX, and TUN
Disclosure: I own BWC stock, but do not own any of the other stock mentioned in this post.
BWC.TO reported Q2 2009 revenue of of $16.1 million, a 37% year over year increase in sales from $11.8 million. Gross margins were 74% for the quarter. Earnings reported for Q2 were $4.1 million or $0.17 EPS versus $1.3 million or $0.05 EPS for the previous year quarter, a 215% increase.
The Company now reports $57.6 million of cash on its balance sheet.
Management has increased full year guidance to between $58 million and $64 million with full year gross margin expected at 70%, which implies that gross margins may decline in the second half. Encapsulated within full-year guidance is $23 million in contracted backlog for H2, and approximately $7 million in upsell and new client revenue.
H1 revenue is reported at $30.2 million with $0.29 EPS. The mid-point of guidance infers that it expects to generate an identical back half with slightly lower potential EPS.
On the conference call management stated that RFP interest for all of its products is increasing during H2 2009, that it is on track to sign a Tier 1 GSM client.
Management confirmed that the explosion of smart phones, and the requisite application stores associated with them worldwide is providing exceptional opportunity for BWC as carriers/operators attempt to manage the scale and complexity of their growing data channels.
With only 5.4% smartphone penetration within the total world mobile subscriber base, there remains a lot of opportunity for BWC.
Analysts have been increasing forecasts and targets for the past few days, and after today's financial results and conference call, investors should expect analysts to continue to increase forecasts and targets.
As mentioned in earlier posts, BWC is among a handful of "connectivity" stocks that should perform ahead of the general market as mobile data networks expand.
Also included in that group are: RIM, CGI, BWC, DWI, RCM, WIN, RKN, SVC, PIX, and TUN
Disclosure: I own BWC stock, but do not own any of the other stock mentioned in this post.
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