Action!Posted: January 23, 2014
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First, the trading volume for MNDO, Mind CTI’s NASDAQ traded equity, increased dramatically, possibly reflecting very good news from the company and the expectation of another dividend in the 10% yield class.
Second, MER Telemanagement Solutions fell flat on its head again, announcing the cancellation of a three year contract that it had entered into in the third or fourth quarter of its 2013 fiscal year, causing a near-immediate drop in the per share price of its equity.
I have written extensively about Mind CTI, an Israeli company that I follow with a lot of interest – primarily because I think that MNDO, the company’s equity, yields a significant earnings opportunity for myself, but also because the trading patterns that were found around MNDO in relation to the annual dividend payouts by MIND CTI during the period from 2009 through 2012 (but, I hasten to say, are no longer be in effect) are intellectually interesting.
If you are new to Mind CTI go to my recent posting about Mind CTI’s third quarter (here) and work your way back through earlier postings to get a sense of why I think MNDO is a gem.
As I wrote in an earlier posting (here,) long time followers of Mind CTI and MNDO were watching for two inter-connected issues as the company closed out its third quarter:
First, there will be a focus on net income, with the expectation that third quarter earnings for fiscal year 2013 will dictate the disposition of the annual dividend (Mind CTI has what is perhaps the strongest dividend track-record of any technology stocks in the market today, and, accordingly, its investor base is extremely stable — read more about Mind CTI’s dividend here.) Second, there will be a focus on the progress made on the acquisition and the obvious question of whether or not Mind CTI, which has strong cash reserves and strong free cash flow, can achieve a meaningful acquisition while maintaining its dividend track-record.) Currently, however, the consensus appears to be that almost regardless of the quarterly results, the per share price of MNDO will begin an ascent after or around the day of the earnings release with the only question being how radical this ascent will be.
As I wrote about in the posting discussing the third quarter’s results (here,) the company addressed both these issues in its earnings release for the third quarter of its 2013 fiscal year, confirming its intent to issue a dividend and undertake an acquisition.
And that would have been enough to make anyone who were following the company sit up and pay attention. But, wait!, there is more!
One of the key challenges facing MIND CTI in 2013 was the loss of some key high margin contract, impacting five to ten percent of the company’s revenue and, of course, the company’s gross margin.
The company responded to this challenge in a most unusual way, increasing its staffing profile, gambling that if it increased its staffing it could attract more work and, therefore, generate more revenue, and, eventually, make up for the lost margin.
Increasing your burn while increasing profitability is a tall order and certainly not something that most companies could pull off. But Mind CTI is not most companies and on December 23rd, 2013, the company released a press release with the excellent news that the strategy appears to be succeeding and had lead to two “meaningful” wins:
“We are pleased to announce these two new important wins. For the last few years we have focused on preparing the company for such potential wins. We have maintained a global presence and have increased our workforce to enable support of these larger prospects in our pipeline as they turn into new projects. These latest wins show how MIND’s solutions are gaining market share”, said Monica Iancu, President and CEO of MIND CTI. “We continue to experience increased interest in our solutions and we expect to meet our goal of internal growth.”
If you had snoozed through the third quarter announcement, then now was the time to pay attention.
And today somebody did. In the 11:30 a.m. to 4 p.m. trading window, close to one million of the outstanding MNDO shares were traded, causing an 8% spike in the per share price. This volume should be contrasted to an average daily trading volume of less than 50 thousand shares and a float of slightly less than 19 million shares.
The effect was immediate and noticable. For my portfolio, for instance, it caused a near-immediate leap of more than $40 thousand, a tidy sum by any standard.
Much of the gain would disappear later in the day. An interesting fact in itself — for what does it signify when a buying frenzy does not create a sustainable increase in the per share price?
Something was definitely cooking with MNDO today, and I can’t wait to see what happens next.
MER Telemanagement Solutions
MER Telemanagement Solutions is another Israeli company that I follow with great interest and that I think could eventually, over time be an interesting investment object.
However, while Mind CTI is a paragon of virtue when it comes to communicating in an open and straightforward manner with its investors and, so to speak, talking-the-talk-and-walking-the-walk, MER Telemanagement Solutions is an investor’s worst nightmare, a company that is oblique in its communications.
As I have written about in the past (here,) I believe, in fact, that the company’s communication style has the potential to seriously hurt the company in the long run, exposing it, among other things, to litigation and market speculation risks.
And that is really a shame since the company, in my view, has potential for carving out a nice little niche in the OSS/BSS marketspace addressing MVNOs and MVNEs.
The communications issues range in scope, but regardless of how small or large they are, they are consistently adding unacceptable risk to any investment thesis that could be applied to MTSL, the company’s equity.
Today marked another milestone in MER Telemanagement Solutions seemingly endless history of communications issues. Having announced the signing up of SBC Communications, LLC, a somewhat mysterious communications outfit out of South Carolina, for a multi-year contract on October 15th, 2013, the company today announced the termination of the same contract, noting that the agreement was being terminated because of SBC Communications, LLC’s failure to fulfill its obligations.
The original announcement had been a bit awkward, because of SBC Communications, LLC’s similarity in name to SBC Communications, Inc. (now AT&T) and the press release’s reference to SBC Communications, LLC as a “… large U. S. based service provider of internet, cable TV, home phone and wireless services,” probably stretching the definition of large quite a bit, since, in my book, Verizon is large, but SBC Communications, LLC is not and may, in fact, be very small (for a quite similar issue with DataXoom, another MER Telemanagement Solutions’ customer, read my earlier posting here.)
This awkwardness, however, pales when compared to this new announcement, telling us that the deal, which had propelled the per share price of MTSL from $1.85, or so, to approximately $2.75, was, in fact, dead as a door nail.
Naturally, today’s announcement caused a significant drop — OK, more of a freefall — of the per share price of MTSL, erasing almost 15% of the capitalization of MER Telemanagement Solutions in a blink of an eye.
Now, granted, the deal was never with AT&T, and, as they say, caveat emptor, but, still, this is just plain embarrassing, not to say costly to a lot of traders and investors.
Moreover, with today’s announcement, the per share price is effectively back at where it was at in the third quarter of last year, which is hardly satisfactory.
But it gets worse. With this misstep (and possible accounting ramifications) and the expected terminal events for a contract with Simple Mobile contract (read more about this here,) the fourth quarter of the 2013 fiscal year and/or first quarter of the 2014 fiscal year may very well prove to be an unmitigated disaster, and, so, in a spectacular case of — in tennis parlance — unforced errors, the per share price of MTSL may be headed towards a the $1.50 mark, a 52 week low.
And, as bad as it is, it can quickly get much worse. Should, for instance, SBC Communications, LLC, sue MER Telemanagement Solutions for breach of contract (stranger things have happened in the world of OSS/BSS supply) or should the security class action lawyers smell blood (as they did with Unitek Global Services,) all bets would be off.
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