Revenues and earnings were better than expected due to the Telguard segment. The number of Telguard units increased to 38,000 topping their previous estimates of 30,000-35,000. Going forward they have adjusted the range to 30,000-40,000 per quarter for FY2010. Unit prices remained in line with the previous quarter. Service revenues are growing in the 20%+ range year over year which is important since margins for these revenues are approaching 60%. Hopefully they can continue to add scale without needing major investments to expand the facilities, etc.
TankLink has been a disappointment to date. Remember when they made the acquisition their thinking was based on revenues of 6 million for FY2009. They missed by about half and it appears FY2010 will not be much better. The PR combined the FWT and Tanklink products so some guesswork is required to separate them, hopefully the 10-q will be more transparent. Not sure why the lack of transparency except maybe to mask the disappointing results when compared to the original expectations.
FWT sales are what they are and will probably be a no growth unit going forward.
Cash is now about 21 million which has me a little worried. Why? Buffet once said that managers can be excellent at running a business but in many cases excellent managers are horrible allocators of capital and so far Telular has been no exception. CSI was, in short, a disaster but to be fair this management team was not a part of that, however the jury is still out on TankLink. As with CSI the original analysis of TankLink was way off the mark. Hopefully they used a different investment firm, doesn’t look like it. Then again if you ask an investment firm what’s better, an acquisition, a stock buyback or a dividend is akin to asking an interior decorator if you need to buy a new rug or save the money. At the time of purchase they could have bought back an additional 1.4 million shares (+-) of company stock. The question is which creates more value in the long run, so far its not looking good for TankLink unless Mexico turns into something meaningful, but to date they are not close to the expected revenue numbers they paid for. So they have 21 million in the bank and growing. I’m worried they might feel compelled to attempt an expansion of the empire at shareholder value expense vs other means that may better increase value. That said I don’t know what their thinking is and I doubt they would tell so we’ll just have to wait and see what happens.
Speaking of cash lets not forget those warrants that expire September 2, 2010. A closing price above 4.5 will generate about 6 million in cash and a close above 5+ will generate another 6 million adding about 2.6 million shares (combined). The stock will almost certainly be above 5 IMO by then (based on the current Telguard trend) so my guess is it pays for the company to continue buying stock below these levels.
On another note the company issued options and restricted stock totaling about 200,000 shares in the last few days to senior management and directors. No additional comment.
Overall I’d give high marks for a solid quarter, both top and bottom lines along with controlling costs, but we’ll need a few more good quarters before I’d call it a sustainable trend. The big question is what to do with a growing pile of cash.
For a valuation see the preliminary (need the SEC filing) stock model on the website.