Astea International Inc.: Finally, This Could Be The Right Time To Buy Stock

Jun. 5.14 | About: Astea International, (ATEA)


In the last CC company management was unusually bullish stating that they could start reporting profitable quarters going forward.

Company officials said that they expect to sign several on-premise and cloud-based contracts in the near future.

This week the company was granted a NASDAQ extension to resolve the minimum equity requirement and released Astea Alliance 11.5 featuring several key enhancements.

Astea International Inc. (NASDAQ:ATEA) is a global software provider of Field Service Management (FSM) solutions (service life-cycle management and mobility solutions). The company's Alliance suite of service management software integrates and optimizes critical business. Over the years, Astea has licensed applications to over 400 companies in various sectors including information technology, telecommunications, instruments and controls, business systems, HVAC, gaming/leisure, imaging, industrial equipment, and medical devices.

I have to admit that I've "cried wolf" in my previous two articles on ATEA predicting profitability and better times ahead for the company. However, ATEA disappointed me as well as others who were hoping for a turnaround. The last two quarters were not terrible but were not profitable, but investors were rightfully disappointed because competitors ViryaNet (OTCQB:VRYAF) and ClickSoftware (NASDAQ:CKSW) were reporting record quarterly results both in revenues and net income. Obviously, the market punished ATEA and rewarded VRYAF and CKSW accordingly. In fact, ATEA has lost over 50% of its market cap since my first article. Only Sutor (SUTR) has been a worse experience than ATEA for me this year.

But it sounds like sector-laggard ATEA will indeed see better times short and long term. This is because of the bullish comments by CEO Zack Bergreen and CFO Fredric (RICK) Etskovitz in the company's 1Q 2014 conference call on may 15, 2014. The CC transcript was not published as in previous quarters, but these were some of the statements made in the CC:

  1. "With the numbers of deals we expect to sign, both on-premise and SaaS/cloud or subscription based, in the near future we might have two profitable quarters this year,"
  2. "We expect to become consistently profitable next year as recurrent revenues from cloud deals keep piling up,"
  3. On premise deals consist of large upfront payments that would turn any quarter into a profitable quarter because the company is operating very close to breakeven as a result of operating-cost optimizations that has been implemented in the last few quarters.
  4. "We have a healthy recurrent maintenance-related revenue stream coming from on-premise contracts we have implemented in recent years." - Note- maintenance revenues amounted to about 90% of the revenues reported in the last 2 quarters. Currently, the company is operating very close to break-even. For instance, the loss in the last quarter would have only been $600K excluding two one-time hits.

These types of comments did not occur in the last two CCs because of the conservative nature of ATEA's management.

Two other positive developments that occurred within the last week are:

NASDAQ granted an extension for the company to solve the minimum $2.5 million minimum Total Stockholder Equity requirement. In the CC, ATEA management sounded confident that they will be able to resolve this issue and maintain its NASAQ listing status.

The company released Astea Alliance 11.5, the latest version of its award-winning Field Service management software suite. The new release incorporates fresh features throughout the solution suite that deliver innovation to every user. Whether on-premise or in the cloud, and seamlessly integrating with existing ERP/CRM solutions, Astea Alliance 11.5 provides powerful features without adding layers of cost, ultimately enabling businesses to achieve superior customer service at a lower total cost of ownership.

Commenting on the release, a company executive stated:

"This release contains a significant number of innovative features that will deliver substantial operational and financial improvements for our customers. Additionally, we fully expect that this major release will have a greater impact on the market moving forward as well as a distinct competitive advantage that will be difficult for competitors to match. This release creates a paradigm shift away from the traditional service management solutions in the market today."

The last few years have been bumpy for the stock as seen in its 5-year chart. This is because its revenues have been highly dependent on the timing of large on-premise license wins. Sales cycles for large enterprise applications are long and therefore the chart reflects periods of feast and famine. It is almost a certainty now that the cyclic behavior of ATEA's stock price will change into one of steady move upwards by capitalizing on the explosive growth of cloud-based FSM solutions.

To capitalize on the increased cloud-based demand and turn profitable, Zack Bergreen, founder and CEO of Astea International stated recently, "We've optimized our business both strategically and operationally, to better adapt to the increasing customer adoption of the cloud SaaS business model, and as a result, these actions are already improving our business and we are now well positioned for growth and increased revenues. We are seeing an increase in the number of sizable companies, around the world, that are interested in our robust end-to-end service management solution."

As a reminder, to drive growth globally, the company has been actively and successfully expanding its partner ecosystem by establishing commercial relationships with global service providers Wipro Ltd. (NYSE:WIT), Capgemini, and other regional service providers for Europe, Asia, and other regions.

It now appears that ATEA has made enough progress that profitability is finally in front of them. With a market cap of $5 million at the current $1.45/share and a float of only 1.3 million shares, any positive news of a large on-premise win or a profitable quarter would cause a significant gain in the share price. Achieving consistent profitability and demonstrating growth would eventually cause the market to value it at a similar level to competitor CKSW. Currently, CKSW's price to sales value of 2.4 is 10 times higher than ATEA's 0.24. Could ATEA become a $15 to $20 stock in a year or two? It is certainly possible if ATEA management is able to take advantage of the huge opportunity in front of them.

Investors looking into buying ATEA stock should recognize that there are significant risks associated with investing in any micro-cap having a tiny float (ATEA's float is 1.4 million shares). Potential losses can be significant if the company fails to execute its plan, if market conditions change adversely, if the overall economy worsens, and many other unforeseen circumstances. For a complete discussion of all risks and uncertainties, I advise potential ATEA investors to carefully read the most recent company 10-Q and 10-K filed with the SEC.

Disclosure: I am long ATEA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.