PSSR - Passur Aerospace

[Guest Schwab711]

PASSUR Aerospace, Inc. provides data consolidation, information, decision support, predictive analytics, and collaborative solutions for the aviation industry, primarily airlines, airports, and other aviation related companies. It offers PASSUR Integrated Traffic Management, a Web-based integrated business intelligence platform that targets key constraints through the lifecycle of the flight; and Airport Information Network, a site for real time airport conditions, diversion management, and delay mitigation. The company’s solutions include surface management, departure metering, and airspace optimization; diversion management and tarmac delay management; revenue management, cost management, and executive decision making; and gate to gate flight tracking and full flight knowledge, as well as arrival management, estimated time of arrival, and hub control center solutions. It also provides professional services. The company was founded in 1967 and is headquartered in Stamford, Connecticut.

 

They are the market leading software provider for inflight updates (1-4.2 second update periods) for the largest airlines and airports in the US. Reliability is the most important aspect of gaining contracts and costs are trivial so there is little reason to switch or build/test/maintain software in-house. PSSR has little pricing power (since they can never provide cost-advantage to build in-house or they lose the account forever) and decent growth prospects (other airlines/airports; picked up 2 new million-dollar contracts in 2014).

 

Revenue is extremely predictable and recurring.

 

$27m      MC

$11.2m  equity

 

2014 ($):

11.5m    rev

10.4m    total costs

1.1m      op income (9.6%)

0.25      interest

0.86      EBIT (7.5%)

0.51      taxes (59% - why/how is this so high?)

0.35      NI (3.0%)

 

0.04 eps

7,743,893 diluted shares outstanding

 

Shares are historically stable.

 

 

[Gamecock-YT]

The chairman of the board owns 53% of the shares. Has a few related party transactions and gave himself a raise last year from $120k to $275k. That's enough to give me pause.

[Jurgis]

OT?

 

First of all, I have to say I am not picking on you Schwab711. :) The following might be OT rant to be moved somewhere else, but I was looking at PSSR in particular and decided to post here.

 

The question for me is how to evaluate management/owner-operators of small companies that have gone nowhere for a long time. In case of PSSR, the Chairman has been around for almost 20 years, CEO has been CEO for over 10 years, and yet the company is at 27M market cap (11M sales, 350K income if we don't want to talk about market cap and would rather talk about sales/income). So basically management succeeded of going nowhere with size/sales/income for 10-20 years. Should I believe that now suddenly they are great and the company will grow gangbusters from here?

 

I understand that this might not be an issue for people who buy shares cheap to sell them soon at higher value. It is also not an issue for activist investors who would like to replace the management. It also might not be an issue for people who believe in growth story independent of management: they see an inflection point and go for it.

 

I just look at it from management evaluation point of view. And from that POV, I can't see how suddenly management goes from lousy to great.

 

Anyway, this came up because I was looking at PSSR and PM.v (same issue) and RSSS (somewhat same issue though shorter time period).

 

As a positive example of this situation, there's PFHO, which had huge insider ownership by CEO, went nowhere for ages and then went up 50x ( http://finance.yahoo.com/echarts?s=PFHO+Basic+Tech.+Analysis&t=my#{%22range%22:%22max%22,%22allowChartStacking%22:true} ). So perhaps sometimes the business becomes good by itself even though management does not get new brains or new Wizard of Oz...

 

How do you know / how do you decide though?

[Guest Schwab711]

Completely agree on the "why is now different" mentality. I'm only posted PSSR because I passed on it but thought the underlying biz was interesting. I can't imagine that gets you very excited to do more research :)

 

PSSR does have a chance to increase earnings from the recent contracts (especially if you believe small cap forum posters!), but I don't understand how they can have such strong network effects without pricing power. It almost makes the story seem unbelievable. The product/service also seems incredibly outdated, but supposedly reliability is extremely important. If it's so important and there are so few competitors, why aren't they raising prices?! I also know nothing about tracking airplanes.

 

Basically, it's rare to find an OTC stock with such an interesting biz. I think that is the deciding factor a lot of times. What type of businesses have the most tailwinds with the fewest obstacles to success (headwinds). If your tailwind/headwind ratio is extremely high or returns #DIV/0 then you probably have something.

[mrholty]

Thanks for the post on this as I had looked at them a while ago and passed for the reasons mentioned above.  I have worked in the airline industry for almost a decade and I can provide a little bit of what they do and what they should do.

 

First off they should be able to push price and not be a market taker.  They were the defacto name for airports both large and small.  For airport mgmt. it was invaluable for them to be able to track departures/arrivals, gate assignment, remote parking.  This is how they billed the airlines via passenger charges and landing fees.  They did a good job of this. 

 

I worked for an airline at a hub and we used their software to manage our fleet on the ground until we would turn them over the FAA.  At the time we had limited options.  At smaller airports an airline had no need for Passur. 

 

They absolutely should drive price improvements.  Airlines are capital constrained and therefore programming time will focus on revenue improvements and as an airline we would prefer to buy an off the shelf system that our competitors are using at their hubs so develeoplement costs are spread over 20-30 hubs vs our 3-5 hubs. 

 

If I was running them back then I would:

- Store customer data in the cloud

- raises prices 3-5% annually.

- Allow airlines to track delays by code.  (one of our main complaints - so we kept them in our own database)

-Charge fees based on users instead of a fixed fee per airport. 

 

At the time they were unresponsive.  When I left were were moving to other software that allowed to build models to estimate staffing.

They didn't understand variable levels of mgmt.  I don't need to give the same access to reporting to a frontline agent vs. the Hub VP.  Looking at their website they still don't. 

 

From what I understand much of their ground ops stuff which is their core could be in jeopardy when FAA rolls out their next gen.  My understanding is that this system links ground ops for the top 25 US airports with much of the functionality that Passur does.  If it works as the FAA says that could kill them with both their airline and airport customers. 

 

Thanks for the idea.  May be interesting wth a new mgmt. team.

[netnet]

Thanks for the post on this as I had looked at them a while ago and passed for the reasons mentioned above.  I have worked in the airline industry for almost a decade and I can provide a little bit of what they do and what they should do.

 

First off they should be able to push price and not be a market taker.  They were the defacto name for airports both large and small.  For airport mgmt. it was invaluable for them to be able to track departures/arrivals, gate assignment, remote parking.  This is how they billed the airlines via passenger charges and landing fees.  They did a good job of this. 

 

I worked for an airline at a hub and we used their software to manage our fleet on the ground until we would turn them over the FAA.  At the time we had limited options.  At smaller airports an airline had no need for Passur. 

 

They absolutely should drive price improvements.  Airlines are capital constrained and therefore programming time will focus on revenue improvements and as an airline we would prefer to buy an off the shelf system that our competitors are using at their hubs so develeoplement costs are spread over 20-30 hubs vs our 3-5 hubs. 

 

If I was running them back then I would:

- Store customer data in the cloud

- raises prices 3-5% annually.

- Allow airlines to track delays by code.  (one of our main complaints - so we kept them in our own database)

-Charge fees based on users instead of a fixed fee per airport. 

 

At the time they were unresponsive.  When I left were were moving to other software that allowed to build models to estimate staffing.

They didn't understand variable levels of mgmt.  I don't need to give the same access to reporting to a frontline agent vs. the Hub VP.  Looking at their website they still don't. 

 

From what I understand much of their ground ops stuff which is their core could be in jeopardy when FAA rolls out their next gen.  My understanding is that this system links ground ops for the top 25 US airports with much of the functionality that Passur does.  If it works as the FAA says that could kill them with both their airline and airport customers. 

 

Thanks for the idea.  May be interesting wth a new mgmt. team.

 

How to turn a great business into a mediocre business or why management matters!  Thanks for the perspective.