2014 was not our best year. Even though we ended up 11.5% for the year, our two takeover stocks—XRSC (100% gain) and CBEY (43% gain) were not enough to overcome the paper losses in PRSS, BLIN and DAEG. We beat the performance of the DOW by 4% points (or 52%) but trailed NASDAQ by 1.9% points (or 14%).
We were up 1.7% last week. The DOW was down 1.3% and ended up 7.5% on the year and NASDAQ was down 1.5% and ended at up 13.4% for the year.
BLIN earnings last week.
Some of our stocks are just stupid cheap—compared to their net cash on hand divided by their stock price.
Check this list:
UNTD
37%
CCUR
36%
SIGM
37%
MRVC
26%
SYNC
40%
CTIG
50%
ATEC, PRSS, CAFE, MRVC, DAEG, SYNC, CCUR, BLIN, EXTR, DXM and UNTD can still be bought.
Last week we went 6 stocks up, 7 down and 1 even. Since inception we are now 67 stocks up and 20 down for a 77% winning percentage (80% is our target win %). Of our closed-out positions 60 have been winners and 13 have been losers for an 82% win percentage and a 35% average net gain per position.
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).
Alphatec Holdings, Inc. (NASDAQ-ATEC)-Recommended 9/2/2014)
Buy Price $1.56
Valuation $2.95 (Was, $3.00)
Closed up $.11 at $1.41
ATEC announced Q3 2014 (September 30, 2014) earnings on October 30, 2014. Revenues were $51 million compared to $50.2 million last year. Non-GAAP, EPS was a loss of $.01 compared to a profit of $.01 last year. More significantly, EBITDA was up 22% from $6.7 to $8.2 million. Our valuation came in at $2.95 compared to the previous $3.00.
Down 10% BUY
CafePress, Inc. Inc. (NASDAQ-PRSS)-Recommended 5/19/2014)
Buy Price $5.40
Valuation $11.17 (Was $12.51, $11.27)
Closed up $.06 at $2.35
PRSS announced Q3 2014 (September 30, 2014) earnings on November 13th, 2014. Revenues were $48.6 million, down slightly from $50.4 million last year. They lost $2.8 million versus a $1.0 million loss last year. Our new valuation was $11.17 down from $12.51 last quarter. PRSS is trading at 21% of our valuation. This is obviously a work-in-progress for a while. We are betting that the new (old) management can right the ship and get revenues and earnings growing again. Only mention of “strategic alternatives” was that they apparently inked a deal to sell “InvitationBox” but with no other details.
This is still a BUY.
Lloyd Miller filed a Form 13G on October 24, 2014 disclosing a 5.1% (887,000 shares) stake in PRSS..
Down 57% BUY
Extreme Networks, Inc. Inc. (NASDAQ-UNTD)-Recommended 3/12/2014)
Buy Price $3.43 (was $3.95 before we added another $10,000)
Valuation $8.24, (Was $9.68, $8.52)
Closed down $.09 at $3.53
EXTR announced Q1 2015 (September 30, 2014) earnings on October 29, 2014. Revenues were $137.1 million, Non-GAAP EPS was a loss of $.01. Overall an OK quarter. Our valuation came in a little better than expected after their preannounced revenue miss for the quarter, at $8.24. Guidance for next quarter is revenue of about $140 to $150 million and Non-GAAP EPS of $.03 to $.07 a share.
The CEO bought 10,000 shares on 8/29/2014 at $5.33 a share.
UP 3% BUY
United Online Inc. (NASDAQ-UNTD)-Recommended 3/12/2014)
Buy Price $10.28
Valuation $33.50 (Was $35.84, $32.35, $27.86)
Closed down $.25 at $14.55
UNTD announced Q3 2014 (September 30, 2014) earnings on 11/4/2014. Revenues were $52.9 million compared to $56.2 million last year. Adjusted OIBDA (the term they use-Operating income before depreciation and amortization) was $10.2 million compared to $10 million last year. Cash rose to $5.38 a share. Our valuation fell a bit to $33.50—still well above the current trading price. They are projecting $215-218 million in revenue for the year and $32-$35 million in OIBDA for the year.
UNTD is trading at about 43% of our valuation and cash is 37% of the market cap ($5.38 a share versus $4.98 a share last quarter.
Up 42% BUY
Synacor Inc. (NASDAQ-SYNC)-Recommended 12/17/2013)
Buy Price $2.56
Valuation $5.58 (Was $5.21, $5.44, $6.67, $6.39)’
Closed down $.06 at $2.00
SYNC announced Q3 2014 (September 30, 2014) earnings on October 30, 2014. Revenues were $26.2 million down slightly from $26.5 million the prior year. They had a Non-GAAP loss of about $1.4 million compared to a loss of $.4 million last year. SYNC’s valuation rose from last quarter to $5.58, but was still lower than last years $6.01.
JEC and Ratio Capital seem to have been quiet lately.
Down 22%. BUY
Dex Media Inc. (NASDAQ-DXM)-Recommended 5/10/2013)
Buy Price $15.14
Valuation $31.00 (Was $34.00, $37.98, $34.36, $31.50, $24.25)
Closed down $.21 at $8.97
DEX announced a major restructuring on December 11, 2014. They expect to incur
$70-$100 million of expenses to achieve $150 million of ongoing expense savings with $110 million of that coming in 2015. They expect to begin deleveraging their balance sheet (meaning Net Debt to adjusted EBITDA ratio) in 2016. No question that’s what they need to do.
DXM announced Q3 2014 (September 30, 2014) earnings on 11/4/2014. Revenues were $452 million, down from $474 million last quarter and adjusted EBITDA was $167 million down from 174 million last quarter. Overall an OK quarter. Our valuation fell a bit to $31 down from $34 last quarter. They have paid off $319 million of net debt over the last twelve months and total net debt stands at $2.3 billion.
Looking back to 2012 at their projections before the merger it looks like they will miss their 2014 projections for revenue and adjusted EBITDA by 10-15%, but will beat their projected debt reduction target by over $100 million. The faster they get rid of the huge debt, the better, as it is the primary risk factor affecting the stock price in our opinion.
DXM is trading at about 30% 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 41% BUY
Daegis Inc. (NASDAQ-DAEG)-Recommended 11/30/2012)
Buy Price $1.09 (Was $1.20 before we doubled up)
Valuation $2.83 (Was $2.85,s $3.39, $3.25, $3.42, $4.64, $4.86, $4.00)
Closed unchanged at $.73
Second quarter (10/31/2014) earnings announced on November 20th.
Revenues were $6.7 million down from $7.7 million last year and flat with $6.7 million last quarter. They broke-even on a GAAP basis compared to a $.01 loss last year. On a Non-GAAP basis they made $.03 a share versus $.01 last year. Our valuation slipped to $2.83 from $2.85 last quarter. Net debt came went up a bit to $8.7 million from $7.6 million last quarter and declined from $11.6 million a year ago. It will be a longer wait to see some action here.
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. DAEG is trading at about 26% of our valuation.
Down 33%, BUY
Bridgeline Digital Inc. (NASDAQ-BLIN)-Recommended 8/24/2012)
Buy Price $.79 ($ 1.17, $1.24 before 12/15/2014 and 2/14/2014 $10,000 adders)
NEW Valuation $1.51 (Was $1.75, $1.76, $1.83, $1.61, $2.19, $2.35, $2.56, $2.24)
Closed down $.04 at $.46
Q4 2014 (September 30,2014) were announced on December 29, 2014.
Blah. Revenues were $5.8 million down from $6.7 million last year and they lost $1.8 million versus $705,000 last year. They good news in the earnings report was that they are cutting costs by $800,000 a quarter going forward and had record bookings of $32 million in 2014 versus $26 million in 2013. Recurring revenues for the year were $6.9 million versus $5.2 million in 2013 and “core business revenues increased 6% to $20.3 million from $19.1 million. Revenue comparisons are still being affected by the 40% YOYdecline in their legacy business (31% QOQ). They never say exactly what this legacy business amounts to by quarter, but it was $3.4 million for the year.
Our valuation fell to $1.51 a share, but BLIN is still trading at only 29% of our valuation.
BLIN announced a customer win on December 4, 2014, which initially propelled the stock up to $.79, but then it all went away. This was tax loss selling season, so maybe we are seeing some of that as BLIN is down 50% this year.
Down 42%, BUY
Telecommunications Systems Inc. (NASDAQ-TSYS)-Recommended 6/14/2012)
Buy Price- $1.37
Valuation $6.88 (Was $6.12, $5.99, $5.32, $6.81, $6.28, $4.89, $6.02, $6.72, $5.49)
Closed down $.06 at $3.12
Becker Drapkin filed a 13D on November 24, 2014 disclosing a 6.7% stake. They had the standard 13D language about their intentions to discuss various options with management. Good news that someone is paying attention to this undervalued company.
TSYS announced Q3 2014 (September 30, 2014) earnings on October 30, 2014. Revenues were $95.3 million down a tad from $96 million last year and adjusted EPS was $.05 the same as last year. Overall, a decent quarter. Our valuation came in at $6.88 up from $6.81 last year and $6.12 last quarter.
We will continue to hold TSYS despite our over 100% gain. Maybe this will turn into another MITL and be trading at $10+ in the next year.
TSYS is trading at about 46% of our valuation. .
UP 128%, HOLD
MRV Communications (Pink Sheets-MRVC.pk)-Recommended 10//10/2011
Valuation $25.52 (Was $24.58, $23.19, $25.50, $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 $9.93 up $.04
On December 16, 2014 MRV announced an eight million dollar share buyback. Not our favorite method of enhancing shareholder value, but a nice expression of confidence in the business prospects.
MRVC announced Q3 2014 (September 30, 2014) earnings on 11/5/2014. Revenues were $43.2 million, up 12% from $38.4 million last year. They lost $1.04 million versus a $.146 million loss last year. Cash per share rose to $2.63 from $2.20 last quarter. Our valuation was $25.52 up from $24.58 last quarter. MRVC is trading at 39% of our valuation.
Karen Singer filed a 13G in May 2014 disclosing a 5.3% stake. Singer was a 13D filer before and helped instigate all the special dividends. Good to see them with a healthy stake again.
Lloyd Miller disclosed a 6.9% stake in February 2012.
UP 16% BUY
Sigma Designs Inc. (NASDAQ-SIGM)-Recommended 7/11/2011)
Buy Price-$8.49
Valuation $12.17 (Was $9.60, $8.24, $9.16, $12.30, $11.86, $8.24, $13.05, $10.67, $8.41 $12.10, $13.40, $16.02)
Closed up $1.85 at $7.40
Q3 2015 earnings were announced on December 10,2014. Revenues were up 26% and they made $.04 a share on a Non-GAAP basis. Cash rose to $2.75 a share and our valuation jumped to $12.17 a share. Nice quarter-finally. CCUR is trading at 44% of our valuation.
Ariel Investments filed a 13G on January 10, 2014 disclosing a 10.1% stake in Sigma.
Down 13%, HOLD
Concurrent Computer (NASDAQ-CCUR)-Recommended 2/4/2011)
Buy Price-$4.58 (Was $5.08 before $.50 special dividend)
Valuation $14.80 (was $17.72, $15.01, $15.10, $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 $.01 at $8.17 (including $1.08 of dividends)
Pays $.48 annual dividend.
CCUR announced Q1 2015 (September 30, 2014) earnings on October 29, 2014. Revenues were $17.5 million, up from $17.2 million last year and EPS was $.04 down from $.08 last year. Net cash was $2.92 per share. Our valuation was $14.80 up from $14.55 last year (down from last quarter) after we have collected $.48 worth of dividend payments.
CCUR is trading at about 48% of our valuation and cash is about 43% of the market cap. We have collected $1.08 in dividends so far (excluding the $.50 special dividend which reduced our basis).
UP 78%, BUY
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 $5.96 (was $6.02, $5.67, $5.57, $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 $3.78, up $.21
Q1 2015 earnings announced December, 11,2014. ARI continues to make good progress. Revenues were up 12% to $9.1 million and they made $.01 a share after about $.02 a share of charges related to their acquisition of Tire Company Solutions. Only 1 month of TCS revenue was included in the quarter. Our valuation fell a bit, burdened by the full cost of buying TCS, with only 1/3 a quarter of revenue to $5.95 a share. We think it will go up to about $6.65 with a full quarter of TCS revenues.
Additionally, it looks like Park City Capital has been buying up Wynnefiled Capitals shares and provides an activist investor to the mix. Below is a letter sent by Park City to ARIs CEO on Decembers 9th and attached to their Form 13D filed on December 10th, 2014.
Dear Roy,
Park City Capital, LLC is a private investment firm based in Dallas, TX. As you know from prior conversations, investment funds that we manage have acquired a 7.0%1 interest in ARI Network Services, Inc. (“ARI” or “ARIS” or the “Company”) bringing our position to 1,000,000 shares of common stock. Based on publicly available data, it is our understanding that we are ARI’s fourth largest shareholder. We have acquired this stake in the open market over the past couple months, as we think the shares are significantly undervalued.
We would like to congratulate you on your accomplishments since joining the Company in 2006 and becoming CEO in 2008. Since our first meeting on September 18th, we have performed extensive due diligence on ARI and we believe management’s stated strategy to grow through a combination of organic growth and acquisitions will create significant shareholder value and we believe that ARIS will be worth approximately $8 per share over the next 24 months, which is very compelling.
In addition, as we articulated when we had lunch in Dallas on November 20th, we believe that if the Company could accelerate its acquisition strategy, we think ARIS could be worth $10 per share over the next 24 months and at that point, we believe a strategic buyer would pay a significant premium to acquire the Company. We were delighted at your openness to listen to our ideas and your general shareholder friendly demeanor. We are excited about the growth prospects for the Company and believe ARI is positioned very well to maximize shareholder value.
In addition to our willingness to help facilitate our proposal, we would gladly accept a seat on the Company’s Board of Directors. We believe we could add the perspective of the institutional investment community and help raise the Company’s profile within the investment community. In addition, we have relationships within the investment banking community that could accelerate the Company’s ability to maximize shareholder value and ultimately facilitate a sale of the Company.
We have written an extensive research report on ARIS and plan to publish the report on our website
Wynnefield Capital has been selling ARI for a couple of weeks, about 450,000 shares. They still hold just under 1.3 million shares or 9% of the company. The stock has absorbed this stock with grace. Wynnefield easily has more than a double in their position.
ARI announced another acquisition in October. This one provides software, websites and digital marketing services designed exclusively for dealers, wholesalers, retreaders and manufacturers within the automotive tire and wheel vertical. They have about 600 customers. This deal will add approximately $6 million a year in revenue and positive EBITDA to ARI results. The purchase cost $9.1 million of which $4.2 million was in cash, a $3 million seller note and $1.9 million in stock and a potential earn-out. At 1.5 times sales, this was a reasonable price in our opinion. This should give them about a 15% boost in sales for FY 2015 (started August 1, 2014). They are doing a good job positioning the company to be acquired. Hopefully this will soon happen with a $5+ price like we got for XRS in September 2014.
UP 135%, HOLD, Still a large valuation gap here.
CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $1.34 (Was $1.22, $.99, $1.02, $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 $.38 closed at $.30
CTI announced last week that they had named their CFO as the Interim President and CEO. Having the CFO as CEO sometimes means they are ready to sell the company?
Q3 earnings announced after the close on November 14th when no one was looking. Results were actually good, so why are they hiding it? Another insider take-over bid coming? Revenues were up 14% to $4.1 million from $3.6 million last year and they lost $154,000 versus a loss of $384,000 last year. Adding back non-cash charges for amortization they made $273,000 pre-tax versus $129,000 last year. Cash increased from last quarter to $5.5 million from $5.3 million. They now have $.19 per share in cash. Our valuation rose to $1.34 per share, the highest in 2 years, CTIG is trading at 28% of our valuation.
John Birbeck announced his departure in October 2014. He was one of the group trying to take CTIG private for $.40 a share. Birbeck will remain a Director of the company. He owns about 7% of CTIG (about 2.3 million shares).
They need to get an investment banker and sell the company. Probably get at least $.75 a share for it from someone.
UP 41%. HOLD
