Eric Appell

MedQuist Trading Close to Cash

MEDQ.PK filed its 10-Q last night.

Revs were down y/y ($84M vs. $89M), but up nicely q/q--probably due to seasonality. At $83M, still a nice number. I was expecting a slightly worse Q, but the improvement in GMs led to a pretty good Q (they are using more speech recognition software to improve productivity).

While EBITDA was slightly negative, if we add back the soon-to-be-non-recurri... legal/investigation expense of $6.3M, then EBITDA was +$3.3M. Not bad for a company that for several years didn't file 10-Q and had to give back to customers $60M. I am amazed that this company could go through the wringer that hard and emerge from the other end with most customers/revenues intact.

Cash was $153M and WC was $131M. 37.5M shares outstanding.

Bottom line: The company is on the auction block; there are two 13D filers (they own their shares at $12; stock's at $7), and a rumor that CBAY (a public competitor in India) is acquiring Philips' stake (more likely the entire company, since it doesn't make sense for them not to). Moreover, earlier this year, the CEO was quoted as saying that several strategic and financial buyers were interested in buying the company. This seems to add up to a low-risk/high-reward situation.

This stock is a buy; I am long.