Trader H.,
agreed. There was little sparkle in this quarter's earnings. Overall tone of the conference call was good, but focused a lot on micro model issues.
Actually, I have a hard time adding the revenue numbers up myself. Analysts (and presumably management) were expecting about $1mm revenue per quarter from AKBS acquisition. AKBS was short of plan as a result of delays on some contracts.
The commercial side of the business experienced better than sector-average organic revenue growth (let's say around 30%), so that implies (with comcl. 65% and govt 35% of revs) that the government revenues must have declined by >$1mm to make the numbers add up. That is not good news. At least there are the big umbrella government contracts floating out there for CGIX to get their share of the crumbs when the work finally happens (award of part of one of those big contracts has been delayed by a month or so).
All in all, however, their revenue came in at expectations, gross margins met expectations, and SG&A actually came in lower than expectations (and included a $55k goodwill amortization charge for AKBS). Some of the reduction in the "A" line was attributable to some low level admin staff working on billable projects (in COGS). R&D appears to have come in above analysts' estimates and was explained by management as being driven by ongoing R&D requirements at AKBS (which are here to stay). The numbers look better without the impact of the amortization.
As for the overall health of the business, the utilization rate was north of 90% (vs. 88% target), which is good. Headcount is up, reflecting AKBS and a few new hires. Turnover remained high at about 20%. Management is focusing on retention programs and recruiting. Diversification continues to improve with no project accounting for more than 15% of revenues. The new client picture looks good, they got two new projects as a result of AKBS expertise, and got one brand new client from their Alliance program (finally posting some results). In short, the fundamentals of the business seem to be in good shape. Pipeline stands at about $80mm, with bookings at about $10mm.
The buyback program has been completed, with the company having bought back about 15,000 shares during the quarter, bringing the total share buy-back number to 52,000 shares for the year.
The company still trades cheap. If they continue delivering on a level with expectations, the stock has to rebound a little bit. They have good technical skills and specialties that have worthwhile niches, so I have a hard time seeing the company trade for less than 1x revenues and 25x this years earnings and 12x next year.
Trader H, you must know Dennis from way back. He seems to be a middle of the road manager who has delivered less than stellar performance in a great industry with strong market conditions. There was little that was worth trumpeting in the press release this quarter, however, so I would not fault him on that (other than not beating expectations managing the business).
How well do you know their business? Do you just follow the company to keep up with the people?
Good luck to all,
Cheers,
Thomas |
