RSY - RSI International Systems

[flesh]

https://valueinvestorsclub.com/idea/RSI_INTERNATIONAL_SYSTEMS/137860

 

These guys are reporting any day now. Based on 2011 ebitda margin and extrapolating this into todays revenue numbers, things look good. Since then, there's been dilution, and there's been significant growth w some operating margin leverage. After emailing with mgmt, apparently this is a "crossover year" where the company will be reporting profits. There's up sales from partnership's who have a vested interest/own meaningful stock since 2011, potentially leading to expanding margins.

 

There's lots of insider ownership, this company is tiny. Proportionally, there's lots of cash on the balance sheet. Mgmt says they won't need any equity raises in the near future and will be able to grow from cash flow's moving forward.

 

There's more dilution coming at .25/share x 6m (20% dilution) warrants etc.

 

I'm a bit confused as it all seems so esoteric to me. As a result, I figure I'm missing something.

 

Any thoughts?

[netnet]

This is what I see- 

 

the issues are:

• Is their market really too small for competitors to bother?
  
• The churn rate is worrisome ~10% in the last report for 9 months, higher in the last quarter.
  
• Is the runoff of the old business really masking profitability. (Didn't really examine closely.)
  
• How long is the runway?
  

 

Provide the answers to the above are adequate, it certainly seems cheap.

[Saj]

I attended the annual meeting last year.

 

What I don't like is how much they are spending. I have been expecting their business model to scale for some time, and I don't know why it's not. As much as they grow revenue, they find a way to grow expenses even more. Without the USD tailwind for 2015, and adding back  development costs that they are now capitalizing in the most recent quarter, the income statement is starting to look a little fugly to me.