1. Revenue dropped last quarter to $44.5m from $47. The reason is, they lost a low margin client to a Japanese carrier. I was sceptical, but their margins did go up.
2. Not many wallstreet firms cover it, much like Magic Software ($MGIC)
3. The business model doesn't have a lot of barriers to hold off competition.
4. Overhang of a patent suit from J2 Global.
So, what is to like:
1. The CEO Stallings, has made statements which have all come true. I really really like this. I have listened to at least half a dozen conference calls. So far this has been true.
2. Not many wallstreet firms cover it.
3. Operation income per share has doubled in 1yr.
4. Using Free Cash Flow to pay off the purchase of Xpedite. 1yr ago total liabilities for the company were at $145m today they are at $117m and likely to fall to 107m by next report.
5. Having some success in the Patent suit as some patents were upheld. The litigation is expected to end very soon.
6. Mostly all the management team is old IBM guys.
More on earnings:
This is a chart of revenue, cogs, gross profit, operating expenses, and operating income per share.
I like to use operating income per share because it eliminates a lot of noise you get quarter to quarter so you can focus just on execution. And you can see operating income has doubled in last 8 quarters.
| rev | cogs | GP | Opex | Op inc | Op inc/share | |
| 10-1 | 20.5 | 5.50 | 15 | 11.7 | 3.3 | $0.11 |
| 10-2 | 20.5 | 5.50 | 15 | 11.7 | 3.3 | $0.11 |
| 10-3 | 23 | 6.50 | 16.5 | 14 | 2.5 | $0.09 |
| 10-4 | 47 | 17.50 | 29.5 | 23 | 6.5 | $0.22 |
| 11-1 | 47.7 | 16.40 | 31.3 | 23 | 8.3 | $0.28 |
| 11-2 | 46.8 | 16.40 | 30.4 | 24.9 | 5.5 | $0.18 |
| 11-3 | 47 | 15.70 | 31.3 | 24.2 | 7.1 | $0.24 |
| 11-4 | 44.5 | 14.57 | 29.9 | 22.05 | 7.89 | $0.24 |
On a Operating income per share basis with a 10 pe, you could value the company at $10. If you wanted to, you could reduce it down by the difference between current asset and total liabilities by another $1.60 and arrive at $8.40 as a price target in a few months or quarters. I think we will see this price in the coming months if, revenue doesn't decline and margins are solid, they continue reducing the note used to buy xpedite, and gets some color on the patent case.
Stock Price:
It recently broke through a resistance of $5.25 which is where it traded the day before the last earnings report. It will likely trade down after they report and you might be able to pick some up. They have recently been added to some tech suppliers in Europe. Most people think this would be bad with what is going on. My thought process since the financial crisis is that tech is the place to be as companies will reduce costs by adopting technologies to replace workers. So far, I have been right.
impressive customer list:
http://files.shareholder.com/downloads/ESIC/1383094715x0x359789/36ffa360-51b3-4cfb-8bb9-4f6bc8a88908/EasyLink%20Roth%20Conference%20Presentation.pdf
jWells
The barriers to entry are much larger than they appear. Fax is getting harder and harder to do reliably as all the carriers move to VoIP. Then there is the fact that enterprise customers simply don't change their fax provider unless there is a hugely compelling reason and cost alone typically isn't enough to take a risk on change in quality.
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