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Edgewater Technology Update: Cash Continues to Build

July 10, 2012 | About:
A quick update on Edgewater Technology (EDGW) from the author of the original analysis found here. Note that EDGW is up 26.11% since that was published (exactly six months ago today).

Leave your thoughts on EDGW below.

Frank’s Disclosure: No position.

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Last week EDGW announced the sale of one of its “modules” to Microsoft. This module will now be built into to MSFT’s offering instead of EDGW having to sell it itself as an add-on offering. Unfortunately, the news was announced during a holiday week so many investors may not have appreciated the significance of the transaction. As part of the deal, EDGW receives (i) $3.25 million in cash (which will be largely untaxed due to the big NOL) and (ii) additional cash compensation to provide MSFT with services during the integration of the module in MSFT’s Dynamics AX (its ERP solution for enterprises).

The benefits of this transaction are significant:

1) EDGW receives cash of $3.25 million (mostly today and largely untaxed), which represents ~ 7% of its equity market cap.

2) Increased opportunities for high margin consulting business as EDGW’s technology will now be built into MSFT’s offering. This means there should be a higher installed user base for this product and thus more demand by end users for services…and who better to advise an end user than the company that designed the module in the first place.

3) Increased credibility for EDGW’s other products and services.

Pro forma for this transaction, cash will equate to over 25% of EDGW’s equity market cap.

About the author:

Frank Voisin
Frank is an entrepreneur who owned four restaurants by the time he was twenty. He sold his businesses and returned to school, completing a concurrent Law / MBA degree. At the same time, he successfully completed all three levels of the CFA exams. He now invests full time with a focus on value investing. Frank Voisin writes about value investing topics at http://www.frankvoisin.com.

Visit Frank Voisin's Website


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