NEXJ SYSTEMS INC(TSE:NXJ)

Website
Google Finance
Filing

Nov. 14, 2017
Q3 2017 Data
Price: $2.30, Share outstanding 21m. Cap: $48.5m
1.Basic Information
(1) History .
This company was found by William Tatham at around 2003. NexJ is short for Next Janna. Janna Systems was his previous company, a CRM software company he founded at 1990 and was sold to competitor Siebel at 2000 for $1.76B. Siebel later was acquired by Oracle. Right after the 3 years non-competing agreement expires, Tatham founded NexJ which enters the same business again. The company spend several years in development and be able to sell to Wells Fargo at 2007 as its first big customer. It grew quickly to $30m in revenue at 2011 and went public at that year. However, since then, it kind of slow down and only be able to achieve $33m in revenue at 2016.

Previous to 2016, it also has a health care segment which try to improve health care systems efficiency. It incurred quite a lot dev expense and was split off at end of 2015 as a private company.

Although the company didn't grow much since IPO. Its financial had been improved consistently. It achieved close to cash positive at 2015 and over $3.5m in cash at 2016. However, for first 3Q of 2017, the company generated small losses and revenue were down compare to last year.

(2) Business-related:
Its CRM system is focused on financial and insurance sector. And is On-promise model compare to cloud based model. Also it doesn't use the SaaS model. It sell its CRM licenses to its customers and do follow-up customization as service revenue. Also it generates maintenance revenue after it delivered its software system.

Its sales is contract based which means when a big win happens. It usually see a big jump in license revenues and service revenue for the following one year. Maintenance revenue is quite stable once a customer is on-board.


Major Customers:
Wells Fargo: Since 2007, 35,000 licenses.
Investors Group: Since 2008,  6,800 licenses.
London Life: Since 2010, 1,680 licenses.
American Family Insurance: Since 2010, 17,000 licenses.
RBC: Since 2011, 9,210 licenses.
ANZ: Since 2014, 4,400 licenses.
HSBC: Since 2015, 1,800 licenses.
UBS: Since 2016, 11,000 licenses.

(3) Management.


(4) Debt and Credit Facility.
As Q3 2017, it has $16m in cash and no debt.

(5) Insider holding, options, Insider trading info, share buyback.

Tatham holds 5.5m shares around 26%.
William Holland: a director, 2.3m shares (10%) through Eastwood Capital. He is the key person of CI financial.

(6) Employee numbers
161 employees at 2016. 68 in R&D. 72 in service.


(7) Industry comparison.
Pegasystems CRM: Focus on financial industry as well.
Salesforce: Higher price, invest more in vertical market.
Oracle CX cloud: SaaS model.
Oracle Siebel: An old system which NexJ aims to replace.
Microsoft Dynamics: SaaS model.
SAP CRM: Sale as part of SAP system.

Overall I think Salesforce and Pegasystems might be its direct competitor.

(8) Major events

2. Financial data.
*The 2012-2015 revenue contains Health care segment. The 2012-2013 separate revenue contains Health care segment.
3. Valuation
(1) The company was in loss for many years until 2015 it generated small profits and at 2016, it generated around $3m in real income. Previous to 2016, the health segment also incurred a lots of loss which is also added the losses. In 2017, its profit is down but still be able to maintain profitable.

(2) Currently its market cap is below $50m. If it trades at 2x of revenue, it might be $65m to $70m range. That suggest a $3 to $3.5 share price.

4. Risk
(1) The company seems face tough competition on those places. It is hard to tell what is their competition advantage. It hadn't won and major contract in 2012-2013 which had dragged down its performance from 2012 to 2014. On the positive side, although no major contract, existing customer seems keep adding service to its existing systems.

(2) It can maintain some of its license and services revenue from existing customers. But it is hard to know what is the number. Only the maintenance part seems predictable.

(3) Although currently it is profitable, it might loss money again.

5. Conclusion
I think the company is actually been managed well. However, its product depends on big contract which is very unpredictable. If it can grow or even maintain current revenue level and improve profitability, it can be a good investment.

6.Links

Carmanah Technologies Corp(TSE:CMH)

Website
Google Finance
Filing

Nov. 1, 2017
Q2 2017 Data
Price: $4.13, Share outstanding 18.7m. Cap: $78m

Report is in USD$, share is in CAD$.
1.Basic Information
(1) History:
The company was founded by David Green, an oceanographer,  at 1995 who is trying to solve the battery issue on off-shore signaling device by adding a solar panel on the device. The company was up and down for many years without actually making a profit. Until 2013, Michael Sonnenfeldt,  the major owner of Sol Inc, a solar-powered LED light company, came in as a major shareholder.  David left the company in early 2013 and the management changed. Also,  John Simmons, another entrepreneur, stepped in as CEO of the company.

The company merged with Michael company Sol at 2014 and did 10 for 1 stock split. Under Michael and John,  the business was getting much better since 2014 to now with consistent improvement of profitability. However, lately at Aug. In 2017, Michael resigned from the board and Jim Meekison success-ed him. Michael sold over 4m shares to Jim at $5. Later, the company bought back 6m shares after that which reduced shares from 25m to around 19m. After that, Michael owns less than 10% while Jim owns around 22%.


(2) Business-related:
The company's main business is Solar powered LED signaling devices used by marine, airfield, off-shore wind farm etc. It generates around $40m/years revenue lately. The company is pretty strong is this segment I think. The margin is around 40% to 45%, the revenue is pretty stable. It acquired several small companies in this area over the years.

The second business is the solar light which mainly from the Sol Inc it merged with. This segment generates just around $8m/year revenues and seems unstable. Pretty the Sol company is solely on this and never made any money as well. I feel the competition in this segment must be tough since there is little barrier to entry. On the positive side, the cost of solar penal is much cheaper than 10 years ago and LED is more efficient than before, so it is much more competitive when competing with regular
street lights using wired electricity.

It used to have other businesses like Solar Panel ( on-grid and off-grid) but were divested lately.

(3) Management.
Michael Sonnenfeldt: He is the longtime owner of Sol Inc. an entrepreneur, but is no more with the company.

John Simmons: Previously founded Integrated Paving Concepts Inc. at 1990, but he was forced out from the company at beginning of 1999. The company has $10m sales and $1m income at 1998. The company has around 8.1m shares. By 2005, It revenue had increased to $14m but profit was all the way down. At 2006, the company went private at price of $1.2/share.  Later at 2008, John went back to the company to turn it around until it was sold at 2013. He did it very successfully.


(4) Debt and Credit Facility.
At Q2, it has $23m in cash. After Q2, it sold its off-grid business for $19m, it paid down $6m debt,  it bought back 6m shares for 25m, it acquired Vega Industries for $9m. So by Q3, it should just have around $3 to $5m in cash with no debt.

(5) Insider holding, options, Insider trading info, share buyback.

Jim: 4.2m shares, 22%.
Michael:  8% after the buyback?
John: 600k at 2016, don't know how much after the buyback.

(6) Employee numbers
153 employees at end of 2016.


(7) Industry comparison.
 Sealite Pty Ltd: An Australia private company employed over 100 people. They compete in the Offshore wind, Marine.

Avlite systems: Seems part of Sealite, competes in Airfield and Obstruction. Seems located at Canada.

Tideland Signal: A US company. Compete in Marine.

Metalite Aviation Lighting: Part of AGI Holdings LLC, A UK company.

Solar Electric Power Company (SEPCO) : Solar LED light, US company. Seems small.

Stop Experts, Inc.

(8) Major events

July 2015, acquired Sabik for $19m cash + 1.2m shares. Sabik was its major competitor and it still kept the brand till now. Sabik's revenue was around $23m/year at that time.

Aug. 2017, acquired Vega Industries for $9m. Seems a competitor.  Will added around $6m in revenue.



2. Financial data.
3. Valuation
(1) The company achieved around $7m adjusted EBITDA at 2016. That gives an EV/EBITDA around  9 times($78/1.28/$7=8.7). It is not really cheap in that way.

(2) The company is pretty capital light with very little assets. Currently, the CapX on hardware is around $400k/year, software is around $200k/year. While depreciation is around $1.6m. That is a saving of cash around $1m.

(3) Assuming $55m revenue, 43% gross margin, 30% SG&A. That indicates $7.1m EBITDA, Using $600k CapX, 25% tax, it generates around $5m real income. That gives a P/E of 12 times ( 78/1.28/5). On a cash basis, the company didn't need to pay that much tax it reported. It should generate close to $6m in real cash.

(4)The signaling segment seems still have potentials for consolidation. If the company can continue to generate cash and use that to acquire small players, it will be good.

(5) The lighting segment is tough and I would rather they divest it as well unless the price of solar can compete with electricity cost.

4. Risk
(1) The new chair and the CEO might not get along.

(2) The company might not be able to keep its current revenue and profit.

(3) The company might not be able to continue acquiring others.

5. Conclusion
On a no-growth basis, the company is not that cheap. The management did a great job turning the company. I have some confidence that it will continue to generate cash and consolidate other companies.

6.Links

Nov.14, 2017
Q3 Data, Current Price 4.23, Market Cap $80m

(1) The company finished Q3 with $32m in Cash + $3m in receivables related to the off-grid solar sales. Debt $7m, Removing $24m for share buyback after Q3. It should have around $4m in net cash. It also has around $5.3m from Hydro Ottawa and some other parts which might it at least should get some back I think since the maximum claim from Hydro Ottawa is $2.6m.

(2)The first 3 quarters EBITDA is around $4.5m. However, Q3 EBITDA is $1.8 including $800k for inventory write down.  It is roughly close to my estimation. Revenue of signal segment is $35m for first 3Q and $14m for Q3.

(3)Cash-wise, it generated around $4.3m in real cash before CapX but including the $800 inventory wrote-down in 3Q. While the first 2Q generated $2.7m in real cash before CapX. Using around $600k annual CapX. It should be able to achieve over $5m/year real income.

(4) There are close to $1.1m included in adjusted EBITDA for 3Q of 2017 which is only $100k in 3Q of 2016. So for 3Q 2017, adjusted EBITDA is $5.8m compared to $5.7m in 3Q of 2016.

(5) The signal segment is doing well while the light segment is pretty bad. Overall as expected and need to wait for several quarters for things to settle down.

Nov. 14, 2018
Q3 2018 data, Current Price: $3.86. Shares: 19m. Cap: $73m.
(1) For the past one year, the company wasn't doing very well.  Over financial was actually worse than last year with 3Q EBITDA was down $800k from last year.

(2) The company has $12m in cash with no debt. It settled with Hydro Ottawa so the receivable related to this was collected to reduce the debt.

(3) Book value US$3.15/share which is close to the current market price.

(4) The signal segment is now facing some delay and challenge. The light segment is stable and actually picked up sales a little bit.

(5) Currently, the company is still profitable with a good balance sheet. It is slow but it seems OK to continue holding it. It might need several more quarters for things to turn better.