After EDGAR Online, Inc. (EDGR) reported Q3 earnings this past Thursday, its stock got hammered, closing the week at $0.44 on Friday, down 45% in the last two days. 1.2 million shares changed hands on Thursday-Friday, dwarfing average daily trading volume of just 34,000 shares.
Impact from the Release of Third-Quarter Shareholder Report
It appears that this sharp drop in the share price of EDGR was triggered by the company's SEC-style "Safe-Harbor" "Cash and Liquidity" comments in the "Business Outlook" section of their main earnings release. Without proper context such statements can be misleading.
For the quarter, the company reported a 102% increase in sales for XBRL Filings year-over-year, and XBRL Filings now represent 52% of the company's total revenue.
Not only did the company prominently feature the same "Safe-Harbor" language as found in their Form 10-Q, it also, ironically, failed to provide the important detail that was included in their SEC report. Namely, in the SEC report they preceded their cash and liquidity discussion with the following sentence: "At September 30, 2011, we had cash and cash equivalents on hand of $6,682,000. We had no off-balance sheet arrangements at September 30, 2011", but no such statement preceded their cash discussion in their shareholder report. I note further that the company's Current Ratio is 2.2x and they have drawn down only $1.3 million of their $5.0 million bank facility.
Only Pure Play on XBRL
The market's instant reaction to the company's report has created what may be a short-lived opportunity to acquire shares in the only publicly-traded pure play on XBRL.
Not only does EDGAR Online have a unique 10-year+ XBRL-formatted deep database of all SEC-reporting companies, the company has developed advanced, high-end data analytics products for the financial information marketplace. For example, leading enterprise performance management companies like Oracle (ORCL) and SAP (SAP) have embedded the company's XBRL processing engine in their financial-close programs. And, the company has technology partnerships worldwide that provide XBRL data and solutions to leading financial companies and government organizations.
The company has three main areas of analytic products:
Unlike the last ten years---when EDGAR Online was promoting the XBRL standard worldwide with regulators---the company is now stepping up the delivery of its advanced data and financial analytic products. In Thursday's conference call management stated they will be introducing new XBRL-based software products, they have partnered with OTC Markets Group on development of a proprietary non-SEC-reporting company database, and has successfully expanded its sales force. Management also hinted that they are involved in developing XBRL in the life sciences area.
Important Intellectual Property related to XBRL Methods
EDGAR Online's patent application entitled "Method for Searching Data Elements on the Web Using a Conceptual Metadata and Contextual Metadata Search Engine" might well be a blockbuster (if granted) since data search could solve many of the elusive problems in current text and semantic search methods. The company is now expanding its proprietary search methods incorporated in its I-Metrix financial analytic tool, and Oracle has embedded the UBmatrix XBRL Engine to support the queryability of its XBRL data repository. See patent grants for a further discussion of EDGAR Online's intellectual property.
Notwithstanding the granted and applied-for U.S. Patents related to XBRL, EDGAR Online's most valuable asset is its proprietary know-how and search methods for using its deep XBRL database of SEC-reporting companies' financial data.
With any sign that EDGR's recent investments in new products and data architecture are starting to pay off, the stock could quickly rise to the $2-3 price range. XBRL data and analytic products and services carry high gross margins and serve the large and growing market demand for financial data and analytic software.
The company's large issues of convertible preferred shares have conversion prices over $1.00 (now anti-dilutive) and were issued at the time of Bain Capital's $12 million investment in early 2010 and when EDGR acquired UBmatrix in 2010.
Although the company incurred negative EBITDA of about ($1.0 million) in the third quarter, the new era of "Big Data" is here. EDGAR Online is poised to become a major vendor of advanced XBRL-based analytic tools and applications.
In a nutshell, EDGAR Online was early to realize that digitized, standards-based, and structured data of financial reports can create granular, transparent, as-reported, comparable, and machine-readable financial data. And now the company has the database, methods, products, and processes to serve this market.
Disclosure: I am long EDGR.