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Rimage - 10 Years of Profitability and Positive Cash Generation, Trading at 1.5x Free Cash Flow

January 30, 2012 | About:
Interested in a company which has consistently produced profitability, operating cash flow as well as free cash flow for the last 10 years and has more than 70% of its total assets in cash? It is not any new idea; it is the stock which I wrote about as the first article for GuruFocus: Rimage Corporation (RIMG).

Since that time, the stocks moved nearly nowhere (actually just a little bit lower), at the total capitalization of around $132 million with around $12.8-$13 per share. However, it has a cash position of $115 million, debt-free, so the enterprise value stays around $17 million. So basically, the valuation and its balance sheet position, particularly debt and cash position, haven’t changed much for the last six months.

Let’s have a look again at its 10-year operating performance:

USD million 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Revenue 38.89 46.58 53.79 70.84 95.41 103.25 108.87 91.39 83.22 88.73
Operating Income 6.46 9.41 11.55 13.43 16.62 17.77 20.88 11.74 11.24 11.57
Net Income 4.8 6.46 7.66 9.07 11.36 13.08 15.76 9.43 8.49 7.7
CFO 9.17 8.24 11.93 4.96 11.73 12.01 26.13 12.19 14.16 11.64
FCF 7.62 7.75 11.15 2.76 10.41 9.31 24.86 7.83 13.74 7.47


For the last 10 years, its operating performance has looked quite decent, with the positive trends of operating income, net income and cash flow generation ability. Even though it fluctuated around, it generated an average five-year return of 10% on equity and 8.6% on assets.

In October last year, the company purchased Qumu for $52 million in cash and stock, as the move to enterprise video communications. When having Qumu on hand, RIMG will pick up more than 100 companies as clients in the ranks of Global 1,000. Sherman Black, the chief of RIMG, considered this deal to be the cornerstone for the strategy of the company. Qumu is a fast grower, with 45% growth per year for the last three years for its revenue. In 2010, Qumu’s revenue topped $10.3 million, is expected to hit $15 million in 2011 and targeted for $21 million in 2012. In the fourth quarter, the company has raised the dividend 70%, to 17 cents share, with high expectations of revenue growth — double digits in 2012. For the last quarter of 2011, RIMG provided the guidance of $24-$26 million revenue, including $4-$5 million contribution from Qumu, non-GAAP profitability is in the range of $-0.02 to $0.01. Personally, I do not think with the purchase of the company of $10-$15 million in revenue for $52 million, somehow it overpaid for Qumu.

Then a week ago, RIMG revised the guidance for the fourth quarter of 2011, so the company would expect the revenue for the quarter to be only around $22 million, with the net loss on GAAP basis, including the amortization of intangibles created by the purchase accounting adjustments related to its October acquisition of Qumu. The company expected non GAAP net loss is between $0.12 and $0.14. Right after that, its share price dropped 10.2% from $13.18 to $11.83, and advanced to $12.8 in a week.

At the current price, it is trading at its full book value, 17.9x earnings, and 9x the annual operating cash flow, at equivalent to its five-year average valuation, at 17x earnings, 1.4x book and 10.6 cash flow.

Disclosure: the author owns RIMG at the time of writing

About the author:

Anh Hoang
Money manager into global equities, especially with US and Vietnam markets. CFA level 3 candidate. Lecturer for Stalla - CFA course in Vietnam

Visit Anh Hoang's Website


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