Despite double digit gains in TSYS and DXM, we still we down 2.1% last week, cutting our YTD gain to 2.8%. Small caps got hit last week.. The DOW was up .4% and NASDAQ was down 1.3%. For the year, the DOW is even and NASDAQ is down 2.8%
DEX, MRVC and XRSC earnings last week.
Some of our stocks are just stupid cheap—compared to their net cash on hand per share divided by their stock price.
Check this list:
BLIN, DAEG, EXTR and UNTD can still be bought.
Last week we went 2 stocks up and 11 down. Since inception we are now 67stocks up and 18 down for a 78.8% winning percentage (80% is our target win %). Of our closed-out positions 59 have been winners and 13 have been losers for an 82% win percentage and a 34% average net gain per position.
Since our beginning, we have closed out the following positions:
2006-ONXS +11% (Buyout offer)
2006-CAW +21% (Buyout offer)
2007-IYXI.ob +44% (Buyout offer)
2007-MOBI +47% (Buyout offer)
2007-INFT +11% (Buyout offer)
2007-DTLK +25% (2 weeks)
2007-PDLI + 3%
2007-LINN.ob -57% (mortgage business bust didn’t help here)
2007-TISA -39% (take some tax loss for 2007 due to disappointing results.
2008-OPTO.ob +40% (Buy-out offer)
2008-PDLI +9% (company split, and special dividend)
2008-BDAY -39% (long overdue takeover offer-or “take-under”)
2008-DTLK +40% (third trip on this one)
2008-ILOG +26% (Buy-out offer from IBM)
2009-DTLK +33% (fourth trip on this)
2009-HSTM +67% (continued good earnings)
2009-CLZR -32% (a loser even on a buy-out)
2009-DTLK +28% (our 5th profitable trip on this one)
2010-CHRD +37% Buyout (2 weeks after we recommended it)
2010-HPOL +27% (third trip)
2010-CAW EVEN (excluding 2.5 years of dividends)
2011-PRM +56% Buyout (1 week after we recommended it)
2012-LTUS -98% No more Chinese stocks for us
2012-AEZS -63% a bad speculation.
2012-RIMG -46% (including dividends)
2012-HPOL +34% (4th trip)-bought out in 2013
2012-MEDW +133% (Buyout 1 week AFTER we sold this)
2012-MOTR -29% (lost biggest customer contract)
2013-INUV -83% Held this since 2007. Failed business model.
2014-CBEY +37% (Buyout)
The model portfolio assumes $10,000 invested in each stock (unless we double-up–then it is $20,000), less $10 commission each way (TD Ameritrade rate).
Extreme Networks, Inc. Inc. (NASDAQ-UNTD)-Recommended 3/12/2014)
Buy Price $3.95
Closed down $.27 at $3.68
We are back with EXTR-(albeit a bit too early)
We sold EXTR in 2013 for a 63% gain. Then they decided to buy Enterasys and spend all their cash, but double the size of the company. So we sat on the sidelines. Now the price has fallen based on yesterday’s earnings report to less than 50% of our valuation and we are buying.
EXTR announced Q3 (March 31,2014) earnings on May 6th. We will use all Non-GAAP numbers here, as all the accounting adjustments related to their merger, just don’t mean a thing to their business (pardon us SEC). Revenues came in at $143.7 million compared to the pre-merger $68.2 million last year. Earnings per share were $.02 compared to $.04 last year. Gross margins were 55% versus 56% last year. Net cash was negative $.16 per share. So in our view, a decent quarter.
The company is still going through the merger integration and expects to achieve significant cost reductions ($30-$40 million a year). For the upcoming quarter they expect to be at a $20 million saving run rate, versus $8 million in the March quarter.
Down 7% BUY
United Online Inc. (NASDAQ-UNTD)-Recommended 3/12/2014)
Buy Price $10.28
Valuation $32.35 (Was $27.86)
Closed down $.50 at $10.54
UNTD announced Q1 2014 earnings after the close on April 30, 2014. Revenues were $55.4 million down 3% from $57.2 million last year. GAAP net loss was $.75 a share, compared to income of $.03 per share last year. OIBDA (operating income before depreciation and amortization-the term United uses, which is essentially EBITDA) was $3.2 million compared to $5.2 million last year. Overall an OK quarter. Our valuation rose to $32.35 from $27.86 last quarter. UNTD is trading at about 40%% of our valuation and cash is 40% of the market cap ($4.79 a share versus $4.29 a share last quarter.
UP 3% BUY
Synacor Inc. (NASDAQ-SYNC)-Recommended 12/17/2013)
Buy Price $2.56
Valuation $6.67 (Was $6.39)
Closed down $.17 at $2.24
Earnings announced on March 5, 2014. They did what they said they were going to do-revenue of $29.4 million, which was still down from $32.2 million last year. They made $.01 per share versus $.03 last year (GAAP basis). Gross margin held steady at 46% and cash per share was $1.32—50% of the current market price. Our valuation rose to $6.67. All in all, a good quarter. But—their guidance for next quarter and year was not so great. Next quarter they are projecting revenue of $24-$25 million and an adjusted EBITDA loss of $.7 to $1.2 million and for 2014, revenue of $100-$105 million and positive adjusted EBITDA of $2 to $5 million. Based on their 2014 year guidance, our valuation would fall to about $5.94 a share—still more than double the current price. Offsetting this, is that they are booting our their CEO and looking for a new one, and they instituted a $5 million share repurchase plan. We will change this one to a HOLD for now. No panic, just a wait and see attitude for a while.
Down 13%. HOLD
Dex Media Inc. (NASDAQ-DXM)-Recommended 5/10/2013)
Buy Price $15.14
NEW Valuation $37.98 ( Was $34.36, $31.50, $24.25)
Closed up $2.59 at $10.34
DXM announced Q1 2014 earnings on May 6th. Revenues were $456 million down from $581 million last year (adjusting for the SuperMedia acquisition). GAAP net loss was $4.74 a share, compared to a loss of $.5.84 per share last year. Adjusted EBITDA was $194 million compared to $230 million last year. Not a bad quarter as YOY declines have been anticipated, but a bit below our expectations. DXM generated $97 million in free cash flow and paid down its debt by $74 million in the quarter. Net debt stands at $2.447 billion. Our valuation rose to $37.98 up from $34.36 last quarter. DXM is trading at about 20%% of our valuation, but due to the high debt level and small number of shares outstanding, relatively small changes in DXM’s results can cause large swings in our valuation..
Down 32% HOLD
XRS Inc. (NASDAQ-XRSC)-Recommended 2/26/2013)
Buy Price $1.50
NEW Valuation $5.60 (Was $5.57, $6.71, $6.16, $6.79, $6.50)
Closed down $.19 at $2.81
XRSC announced Q2 2014 earnings (quarter ended March 31, 2014) on May 8th. Revenues were $12.8 million down from $14.5 million last year. XRSC is a bit similar to BLIN as they are transitioning their legacy software business to a subscription based service and revenues take a hit as they don’t book a big software sale upfront, but rather record it monthly in smaller pieces. But subscription based revenues are generally worth more to a buyer than one-time sales. GAAP net loss was $.07 a share, compared to a gain of $.01 per share last year. Non-GAAP earnings were $1.2 million or $.04 per share compared to $2.2 million or $.08 a share last year. Our valuation rose to $5.60 up from $5.57 last quarter. XRSC is trading at about 50%% of our valuation. We will continue to HOLD as results were not that exciting, but the valuation is still compelling.
UP 87%, HOLD
Daegis Inc. (NASDAQ-DAEG)-Recommended 11/30/2012)
Buy Price $1.09 (Was $1.20 before we doubled up)
Valuation $3.25 (Was $3.25, $3.42, $4.64, $4.86, $4.00)
Closed down $.06 at $1.19
Earnings were reported on 2/25/2014. YOY comparisons were not good. Sales fell to $7.9 million from $10.4 million and adjusted EBITDA fell to $1 million from $1.8 million last year. Net debt decreased a bit to $11.3 million from $11.6 million last quarter, and is down about $2.4 million from last year. This is the first quarter in a while where sales did not decline from the previous quarter.. Our valuation stabilized and rose a bit to $3.25 per share-still a lot higher than the current trading price.
Norm Pessin filed a 13D on November 27, 2013 disclosing a 6.2% stake and upped it to 12.2% in December 2013. Good news that someone else sees the value here.
Kurt Jensen a 10% owner continues to sell stock at almost any price, putting a lid on DAEG. He still has 1.6 million shares, so this could take a while. .
Up 10%, BUY
Bridgeline Digital Inc. (NASDAQ-BLIN)-Recommended 8/24/2012)
Buy Price $1.17 ($1.24 before 2/14/2014 $10,000 adder)
Valuation $1.83 (Was $1.61, $2.19, $2.35, $2.56, $2.24)
Closed down $.06 at $.86
BLIN announced a private placement of 3.2 million shares priced at $.95 a share in April. A little more dilution, but gives them some running room to grow.
BLIN reported the long awaited “big sale” on March 4th, which was a $7 million contract. The stock soared from about $.90 to $1.30, only to give it almost all back by the end of the day on 3.9 million shares. We think this was day traders playing with the stock and still like BLIN long term.
Earnings announced February 14, 2014. Revenues were $6.5 million up from $6.2 million last year. This is the first time in a long time that the YOY comparison was positive. Revenue from their legacy business was only $387,000. Recurring revenue doubled from last year to $1.6 million. They reported a $777,000 loss for the quarter. Adjusted EBITDA was $20,000.
For FY 2014 they are projecting revenue of $28 million and positive adjusted EBITDA (compared to a loss of $700,000 in 2013). Our valuation fell a tad to $1.74 a share.
We really like BLIN and think that just their recurring revenue stream of $6.4 million is worth the current $20 million market cap.
Down 31%, BUY
Telecommunications Systems Inc. (NASDAQ-TSYS)-Recommended 6/14/2012)
Buy Price- $1.37
Valuation $5.99 (Was $5.32, $6.81, $6.28, $4.89, $6.02, $6.72, $5.49)
Closed up $.48 at $3.13
TSYS announced Q1 2014 earnings after the close on May 1. Revenues were $85.1 million down 10% from $94.8 million last year and up 8% from last quarter. GAAP net loss was $.01 the same last year. Non-GAAP net income was $.04, also the same as last year. Overall a decent quarter. Our valuation rose to $5.99 from $5.32 last quarter. TSYS is trading at about 42%% of our valuation. .
UP 129%, HOLD
MRV Communications (Pink Sheets-MRVC.pk)-Recommended 10//10/2011
NEW Valuation $25.50 (Was $28.98, $24.01 $23.06, $27.15, $31.80, $34.60, $28.60, $41.20, $43.20 (after $9.50, $6.00 and $1.40 special dividends), $52.40, $55.80)
Buy Price October 7, 2011- $8.50 ($25.40 before special dividends)
Closed at $12.06 down $.08
MRVC announced Q1 results on May 8th. Revenues were $42.3 million up 9% from $38.9 million last year. GAAP net loss was $.58 a share, compared to a loss of $.59 per share last year. Non-GAAP loss was about $3.0 million compared to $4.4 million last year. Our valuation fell to $23.19 from $25.49 last quarter but up slightly from $23.19 last year. MRVC is trading at about 50%% of our valuation. ,
Lloyd Miller disclosed a 6.9% stake in February 2012.
Raging Capital bought another 1.6 million shares in the first week of December 2012 at $10.80 bringing their holdings to 20.1% of the company.
UP 40% HOLD
Sigma Designs Inc. (NASDAQ-SIGM)-Recommended 7/11/2011)
Valuation $9.16 (Was $12.30, $11.86, $8.24, $13.05, $10.67, $8.41 $12.10, $13.40, $16.02)
Closed down $.11 at $3.55
4th quarter earnings announced 4/9/2014. Another dismal quarter. Revenues were $38.5 million down from $44.2 million last year. They reported a $4.5 million Non-GAAP loss for Q4 compared to income of $3.3 million last year. Margins were good at 57% and net cash rose to $2.59 a share from $2.55 last quarter, but this was largely due to delayed payments at the end of the quarter. Their guidance for Q1 2015 was dismal also. Revenues expected to be $35-$38 million and an operating loss of around $4-$8 million. The only positive thing we could see was that they basically agreed that they could be at a $60 million run rate and the end of Q4 2014. At that level, assuming margins and expenses stay about the same, they would be very profitable. It is a long time to wait for some decent performance. Our valuation fell to $9.16 per share, but up from the $8.24 last year.
Ariel Investments filed a 13G on January 10, 2014 disclosing a 10.1% stake in Sigma.
The CEO bought 343,000 shares back from Potomac Capital in December 2013 leaving Potomac with only 465,000 shares of SIGM. The interesting part was that the CEO paid $5.50 a share or about $1 over its trading price. Either a great expression of confidence in SIGM or a small price to pay to get rid of an activist investor. Since we don’t know which it is, or both we will stay a hold on this for now.
Down 58%, HOLD
Concurrent Computer (NASDAQ-CCUR)-Recommended 2/4/2011)
Buy Price-$4.58 (Was $5.08 before $.50 special dividend)
NEW Valuation $15.10 (was $15.01, $14.55, $14.77, $16.26, $16.20, $15.37, $13.53, $15.85, $14.13, $11.38, $14.04, $18.54, $15.99)
Closed down $.08 at $8.84 (including dividends)
Pays $.48 annual dividend.
CCUR announced Q3 2014 earnings on April 29, 2014. Revenues were $18.3 million, up 8% from last year and EPS was $.12 up 9% from last year. Net cash was $2.47 per share. Overall a nice quarter. Our valuation fell slightly to $15.01 from $15.10 last quarter. CCUR is trading at 56% of our valuation and cash is 30% of the market cap. We have collected $.60 in dividends so far (excluding the $.50 special dividend which reduced our basis).
UP 93%, HOLD
ARI Networks (ARIS.ob-Recommended 8/19/2006)
Buy price $1.61 (Was $1.78 before another $10,000 added, was $2.06 before double up),
Valuation $5.57 (was $5.70, $6.71, $6.41, $6.14, $5.97, $6.21, $6.13, $5.82, $5.81, $5.72, $5.65, $5.39, $4.86, $5.60, $5.73, $5.54, $5.74, $5.96, $4.72, $5.19, $5.66, $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $2.95, down $.19.
Q2 earnings announced 3/6/2013. Revenues were up 9% to $8.1 million from $7.5 million last year, gross margin was 79% and they lost $461,000 compared to income of $4,000 last year. This quarter included a $234,000 restructuring charge that should cut annual costs by $2.5 million Recurring revenues were 95% of total revenues. They say in the press release that they are investing more in sales and marketing this year, but still expect to achieve higher EBITDA than last year. Q2 revenues were essentially flat with Q1. If they don’t get some revenue traction soon, we don’t expect to see much share price appreciation. Our valuation fell however to $5.57. Still trading at only 59% of our valuation.
ARI announced another acquisition in November 2013. No details, but a good sign that they are really trying to accelerate their growth.
Wynnefield partners bought another 100,000 shares at $2.90 in the first week of July 2013 raising their stake to over 10%..
UP 83%, HOLD, Still a Huge valuation gap here.
CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $1.02 (Was $1.05, $1.07, $1.14, $1.17, $1.34, $1.34, $1.37, $1.36, $1.23, $.91, $1.21, $.71, $.83, $.88 $.96, $.93, $.75, $.85, $1.57, $1.40, $1.29, $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price $.32 closed at $.30
Here is the longest running acquisition we have ever seen—and for the least amount of money for a public company.
CTIG settled a litigation with QWEST in February 2014 and got paid $1.3 million.
Some news—finally. Fairford/Birbeck upped their non-binding offer to $.40 a share. No indication as to whether the Board will accept it or any other details. Still a low-ball offer but one which we would take after holding this for almost 8 years.
10Q filed on 11/14/2013. Not even a press release. Still trying to steal this under the cover of darkness. Revenues were $3.6 million, down from $3.9 million last year. They lost $394,000 compared to net income of $34,000 last year. Our valuation fell to $1.02 a share still more than triple the management buyout price. Cash per share fell to a measly $.02.
Birbeck and Fairford Holdings made a non-binding offer to buy CTIG in March 2013 for $.29 a share. The company formed a special committee to evaluate the offer. Hopefully they will find somebody else who will pay fair value—or at least close to it.
UP 19%. HOLD