Learning Tree International Inc. (LTRE, Financial) released its quarterly earnings yesterday and the results were horrible. The stock is a buy on a buyout. Five entities own 90% of the stock, so there is not a lot of free float. For only a $30 million market cap, the stock is worth much more than $2.
Second-quarter revenues of $16.1 million were 14% lower than revenues of $18.7 million in second-quarter 2016. That is a huge drop. Foreign exchange rates accounted for 2.5%. One bright spot is cost of revenues were 59.9% versus 67.7% in the same quarter last year. Management has decreased the number of courses available from 369 to 304.
The loss from operations was $2.1 million in the quarter, down from $5.2 million in the same period last year. Cash and cash equivalents decreased from $8.5 million to $5.3 million.
CEO Richard Spires commented, “Our belief is that the start of the new presidential administration combined with the budget uncertainty for the government fiscal year 2017, which was finally resolved last week with a passage of a bill funding the U.S. federal government for 2017, accounted for the weakness in our U.S. federal government business in the second quarter.”
Spires worked for the Department of Homeland Security before coming to Learning Tree.
Management has been pushing cybersecurity as a growth industry. It may be. Learning Tree has also partnered with Microsoft (MSFT, Financial). I remember learning Excel when I was in college. Now, one year at Syracuse is about $50,000. I bet Learning Tree can teach the same course at a fraction of the cost. The company is also in partnership with Cisco (CSCO, Financial), Adobe (ADBE, Financial), IBM (IBM, Financial), Red Hat (RHT, Financial), Oracle (ORCL, Financial), F5 Networks (FFIV, Financial) and Palo Alto Networks (PANW, Financial).
So why buy shares? One reason. Osmium Capital has been buying and there is almost no free float. This is only for the individual investor. Just a few months ago, Osmium owned about 10%. Now, it is almost 12%. John Lewis of Osmium asked some questions on the conference call. He wanted to know about the company’s untapped $3 million line of credit. He also asked a question about pent-up demand from the government. Watch the next quarterly report or two and see if that demand comes to fruition. Maybe it does, maybe it does not. An analyst on the conference call asked what percentage came from government contracts and the answer was less than 50%.
Learning Tree needs to sell out. That is all there is to it. The company is in a tough spot. So what are the shares worth? It is difficult to say but more than $2, that is for sure. The name alone is worth something to another education company. Maybe a Pearson (PSO, Financial) or Graham (GHC, Financial).
The founder, David Collins,Ă‚ and his wife own 56.8% of the outstanding stock. He decides when to sell. Fair and square. There are no funky dual shareholdings where the founder gets a larger voting block like in Europe or Brazil. In addition to Osmium, Miller Road Capital and Wynnefield Capital own almost 11%. So 23% owned by three hedge funds and 57% by the founder. Someone named Lloyd I. Miller III owns 11.6%. Miller buys microcaps and has made a lot of money over the years. There is not a lot of free float. Five entities own over 90% of the company. Buy the stock now and sell on a buyout.
Disclosure: We own Learning Tree and Pearson.
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