Synergetics USA, Inc. (SURG) supplies surgical devices used in ophthalmology and neurosurgery, including disposable and reusable devices, and surgical equipment.

On March 12, 2013, after market closing, the company reported $1.4 million in net losses for 2Q 2013. Revenues for the quarter declined 6.8% y-o-y. Gross profit margin was 36.8% due to a $2.0 million pre-tax inventory write-off vs. 59.5% in 2Q 2012.

Following the announcement, the stock dropped some 30%. Should investors expect a quick rebound in the price of the stock?

This article reviews the performance of the firm in terms of fundamental value metrics, such as ROIC, growth, and the cost of capital. It provides a diagnosis and discusses a possible avenue to unlock shareholder value.

Value Metrics Definition

• ROIC (Return on Invested Capital) = NOPAT / Operating Capital
• NOPAT (Net Operating Profit after Taxes) = EBIT (1- Tax Rate)
• OC (Operating Capital) = NOWC (Net

This article reviews the 2012 financial results of ClickSoftware (CKSW) and evaluates the company's expectations regarding future performance.

The title refers to a long-standing classic TV show of many years ago, "To Tell the Truth", where two imposter contestants try to convince a panel that they are the real person, the third contestant. All three present themselves as a real person to a panel that tries to resolve the puzzle by asking questions. At the end of the questioning session the host asks the contestants the long-awaited question: "Will the real (so and so) please stand up? After some jiggling by the three contestants to feed suspense, the "real" person stands up.

In this analysis we endeavor to find the real ClickSoftware. Our investigative tool is the conversion of R&D expenses into tax-advantaged capital expenditures. The impact of the conversion is major in the realm of enterprise value. It

On January 8, 2013 ClickSoftware (CKSW) announced a plan designed to accelerate revenue. This article evaluates the impact of the announcement on the growth of free cash flow, and on the intrinsic value of the stock previously discussed here.

Business Model

Let's consider the following three components in a business model:

• Value Proposition -The impact of the firm's products and solution on clients (and prospects); how helpful is the solution in improving the businesses of clients.
• Economic Returns -The risk-adjusted return of value created for the shareholders of the firm.
• Management Effectiveness -Strategy and allocation of resources to achieve both, the Value Proposition and Economic Returns.

Announcement

Let us organize the information in the announcement according to the components of the model.

• Value Proposition

- Expand client options to start with Mobility, as opposed to Optimization

- Deliver measurable and quantifiable value to customers, and expand their business

ClickSoftware's (CKSW) Q3 earnings report exhibited strong revenue growth, improved sequential earnings, and confidence in achieving 2012 revenue guidance.

This article examines Q3 results within a multi-year time span from the perspective of fundamental value, and the impact of R&D expenses as enabler of future growth. The conversion of R&D expenses under GAAP, into a tax advantaged capital expenditure is central in the analysis and assessment of prospective growth and shareholder value.

Value Metrics Definition

• ROIC (Return on Invested Capital) = NOPAT / Operating Capital
• NOPAT (Net Operating Profit after Taxes) = EBIT (1- Tax Rate)
• OC (Operating Capital) = NOWC (Net Operating Working Capital) + OLTA (Operating Long-Term Assets)
• WACC (Weighted Average Cost of Capital)
• EVA (Economic Value Added) = (ROIC - WACC) OC
• FCF (Free Cash Flow) = NOPAT - (Changes in OC). As an approximation FCF = CFO (Cash Flow from Operations) minus Depreciation and Amortization

This article discusses the turnaround of Top Image Systems (TISA), the intrinsic value of the stock, and the role of management in energizing the investment bet.

Background

Top Image Systems develops automated data capture solutions for managing and validating content gathered from customers, trading partners and employees. Solutions deliver seamlessly the extracted data, regardless of source and format, to applications such as document and content management, enterprise resource planning, or customer relationship management.

TISA's software improves clients' business processes by integrating different types of data and controlling their flow throughout the enterprise. The platform solution integrates multiple information sources into a single enterprise-level solution that increases effectiveness in the clients' business processes and boosts their shareholder value.

Story

Izhak Nakar, Founder and Executive Chairman, left the company in 2001 and returned to TISA in 2009 when he purchased 20% of the company from Charterhouse Group International. Since then he has

This article discusses the investment opportunity in American Software (AMSWA), despite persistent problems in the Enterprise Resource Planning segment.

Background

AMSWA develops software and provides services that deliver enterprise management and supply chain solutions designed to support business operations and enhance enterprise value in companies of all sizes. Solutions are provided by the company and its wholly-owned subsidiaries through three major business segments; Supply Chain Management (SCM), Enterprise Resource Planning (ERP), and Information Technology (IT) Consulting.

SCM (Logility, Inc.) provides supply chain solutions to streamline and optimize forecasting, production, distribution and management of products between trading partners. Customer base is 1,250 companies worldwide; one of the largest bases of customers among application software vendors.

ERP (American Software ERP and New Generation Computing) provides solutions in purchasing and materials management, customer order processing, financial, e-commerce and manufacturing. NGC focuses in industry-specific business software to both retailers and manufacturers in the

On July 25, 2012 ClickSoftware Technologies (CKSW) announced 2Q, 2012 Earnings. This article discusses the earnings report, the conference call, and mispricing of the stock. It also suggests the importance of management paying attention to fundamental investors, an important segment among market participants.

Q2 2012 Earnings Report and Conference Call

• Revenues grew 9% year-over-year to $22.5 million. Excluded from this figure is a very large contract signed four days after the close of the quarter -a contract with Oi, Brazil's leading telecom, valued between $10 million and $15 million
• Gross Profit declined 6% y-o-y to $12.7 million
• Operating Income declined 97% to $90 thousand
• Net Income declined 97% to $70 thousand
• 2012 revenue guidance was revised to $98 to $103 million, representing about 13% to 18% growth over 2011; lower than the previously provided guidance in the range of $100 to $105 million.

Revenues increased y-o-y due to

Previous articles estimated the fundamental value of the ClickSoftware (CKSW) stock. This document discusses market noise and investing execution from the perspective of investor opportunity. It also suggests management actions to realize value.

Value-Price Gap

Underlying investor opportunity is the large disparity between fundamental value ($13.00/share) and price ($8.40/share). Value is driven by the firm's track record -- return on invested capital of well over 100% during each of the last three years, easily exceeding 10% weighted average cost of capital; and revenue growth averaging 22% per annum in the last five years. Embedded in these metrics is low business risk.

Low business risk is characterized by the combination of market and product leadership, client and revenue diversification, steady revenue and EBIT growth, no debt, and high liquidity. Focused operating activity entails risk well within industry specialization and management competence.

At a basic level, low risk reflects the

On May 2, 2012, ClickSoftware (CKSW) announced Q1 Earnings. This article discusses the report from the perspective of strategy, shareholder value, and investor opportunity.

Q1 2012 Earnings Report

• Revenues grew 13% year-over-year to $21.8 million
• Gross Profit grew 6% y-o-y to $12.4 million (margins decreased from 61% to 57%)
• Operating Income declined to $0.49 from $2.81 million, y-o-y
• Net Income declined to $0.7 million ($0.02/share) from $2.2 million ($0.07/share), y-o-y
• 2012 revenue guidance was reiterated in the range of $100.0 million to $105.0 million, or 17% increase y-o-y (management is very conservative and has a good track record in meeting and exceeding guidance).

How does the Q1 earnings report change the investment thesis or the fundamental value of the stock ($13.00/share) discussed in the most recent Seeking Alpha article?

In my opinion the earnings report does not detract from the investment thesis or the fundamental value of the

Consider a business with the following attributes:

1. Returns over 20% on capital invested, with free cash flow growing at over 30% a year.

2. Revenues are recurrent and diversified; market opportunity and adept use of technology enable continuing growth.

3. Business risk embedded in activities and strategy is relatively low. Performance is steady; there are no "bet the ranch" plays, or financial engineering convolutions.

4. Financial policy is conservative. Debt servicing capacity is ample, stock buybacks are well timed, dividends are growing, dilution is minimal.

5. Management is capable and stockholder friendly. There is clarity in vision and message. Execution is in line with strategy. Agency risk is minimal; management ownership in the firm is substantive and stable.

First, a brief background; EBIX is a leading provider of software and e-commerce solutions to the insurance industry. The vision is to focus on the convergence of all insurance channels, processes

ClickSoftware (CKSW) provides workforce and field service management products and optimization solutions. The product suite includes shift planning and scheduling, field data communication for mobile and back-office staff, and customer appointment booking, and customer satisfaction surveying.

These services enable clients to be more effective and efficient in the management of their own resources, to increase the quality of service to their customers, and to enhance regulatory compliance. Such enabling role, embedded in the clients' basic business activities and daily contact with their own customers, is of critical importance in the clients' creation of shareholder value.

This article discusses FYE 12/11 financial results within the context of historical performance. The focus is in the creation in shareholder value and in the value of the stock. Metrics discussed are relevant to fundamental valuation.

Metrics

ROIC in excess of WACC and Revenue growth are overall enterprise value objectives. The first one determines the

ClickSoftware Technologies Ltd. (CKSW) provides workforce and service management products and solutions. This article discusses the competitive attributes inherent in the company's business model.

The business model is the representation of balance among three basic components; Value Proposition (Client benefit in the eyes of clients), Economic Equation (Financial statements and risk-adjusted return to shareholders), and Management Effectiveness (Core competence and effective organization of resources) that achieve a strong value proposition and favorable economic returns.

The article makes the case that ClickSoftware’ business model is robust. It comprises valuable services to clients and attractive returns to shareholders. Industry leadership, client wins, financial results, and superior ROIC, support the view that the company’s business model is robust, durable, and fast-growing.

Embedded in the model are the company’s working capital and capital investment processes. At the operating level the processes entail productive relationships with stakeholders (read: clients, echo-system partners, and suppliers of

Making good capital investment decisions, optimizing working capital, and achieving a balanced capital structure, are the most important financial roles of management.

This article focuses on capital allocation at Ebix (EBIX). The purpose is to examine the importance of capital allocation in creating shareholder value, measure results, and discuss how management is able to generate 20% on ROIC, year after year.

Metrics

• ROIC (Return on Invested Capital) = NOPAT / Operating Capital
• NOPAT (Net Operating Profit after Taxes) = EBIT (1- Tax Rate)
• OC (Operating Capital) = NOWC (Net Operating Working Capital) + OLTA (Operating Long-Term Assets)
• Capital Allocated = Increases in OLTA (principally due to strategic acquisitions)
• WACC (Weighted Average Cost of Capital)
• EVA (Economic Value Added) = NOPAT – (Operating Capital x WACC)

The objective of capital allocation is to achieve ROIC in excess of WACC. Management expands OLTA based on prospective NOPAT generation. OC and NOPAT, together,

On November 16, 2011, Ebix (EBIX) announced the acquisition of online health exchange HealthConnect Systems.

A leading supplier of on-demand software and e-commerce services to the insurance industry, Ebix provides end-to-end solutions and facilitates transactions across diverse entities like employers, brokers, general agents, third party administrators, and insurance companies.

This article discusses the implications of the acquisition.

Vision and Execution

In many occasions in the past, Ebix has announced its strategic view, actions, and prospective priorities that support and realize aspirations. Central to such strategy is the construction and strengthening of the network in the insurance industry.

The announced acquisition is another important step in strengthening the power of network, and in growing revenues and free cash flow.

Strategic Acquisition

In the announcement, HealthConnect Systems CEO Peter Everett said, “This combination is a compelling, ‘hand in glove’ fit that will substantially increase the value proposition we provide to our

This article on insurance industry software developer Ebix (EBIX) focuses on the financial measures of economic performance. The perspective is fundamental valuation. The context is lack of recognition in the marketplace, as reflected by a significant gap between fundamental value and the price of the stock.

By way of background, the Q 9/11 report highlighted record operating cash flows. Market response was only tepid.

ROIC

Ebix consistently exhibits robust ROIC. For Q 9/11 annualized ROIC was 21% despite the substantial year-over-year increase in fixed assets (OLTA) due to acquisitions. Management of NOWC results in minimal use of capital. ROIC, well in excess of WACC (10%) represents robust creation of shareholder value.

• ROIC (Return on Invested Capital) = NOPAT / Operating Capital

• NOPAT (Net Operating Profit after Taxes) = EBIT (1- Tax Rate)

• OC (Operating Capital) = NOWC (Net Operating Working Capital) + OLTA (Operating Long-Term Assets)

• WACC (Weighted Average

By way of background, ClickSoftware Technologies (CKSW) is the leading provider of automated workforce management and optimization solutions for every size of service business. Solutions, available on demand and on premise, create business value through higher levels of productivity, customer satisfaction and operational efficiency.

Over the last few years the company has exhibited sustained rapid and profitable growth, even in the face of macro-economic slowdowns.

This article discusses recent progress and points to an investment opportunity based on fundamental valuation.

Q 9/11 Financial Results

On October 31 ClickSoftware announced blowout earnings for Q 9/11 –Revenues increased 32% to $23.16 million, y-o-y; EBIT more than doubled to $5.30 million, y-o-y.

Implicit in the announcement was continuing strength in its competitive position – widening industry leadership recognition, rapid growth, and low business risk. This translates in superior liquidity, efficient capital utilization, attractive ROIC returns, and a steady dividend payout (discussed in

In the vast universe of companies there are only a few that seemingly make the right moves - operationally, financially and strategically speaking. In my opinion Ebix Inc. (EBIX) is one of them.

Going back a-half-dozen years or so, EBIX was acquiring businesses when there was relatively little in the way of free cash flow (FCF). In 2004 annual revenues were less than $20.0 million, FCF less than $2.0 million.

How easy is to make an acquisition under tight financial constraints?

Not too easy. It is much easier now with a history of performance behind, and with more substantial and growing FCF. By way of an order-of-magnitude-comparison with 2004, 2010 revenue was $132.0 million and FCF $47.0 million. Net Operating Profit after Taxes to Revenues (NOPAT/Revenues) grew from 11% to 39%. FYE 12/10 ROIC was in excess of 20%.

What that does this mean?

I would argue that EBIX has

I have followed the company for a while and concluded that the financials presented by the company are believable, that Ebix Inc. (EBIX) management is consistent, capable and truthful; that growth is sustainable, and that the market price of the stock is severely undervalued relative to its fundamental value.

Previous articles presented the business as a compelling combination of attributes – a network that delivers critical value in the core activities of clients, a history of strong economic returns, and management effectiveness in the deployment of resources that grow shareholder value.

More recently, I find it sensible that the company is strengthening its sales force to beef up organic growth, expanding the product suite, continue to repurchase stock, and continuing to seek accretive acquisitions. All this contributes to strengthening “the value of the network.”

The CEO’s equity position and the company’s own stock repurchases are substantial and in line

I have written in the past about the unique attributes of ClickSoftware (CKSW) and the underlying investment opportunity. Now, I re-affirm the investment thesis previously presented by way of a quick checkpoint review and updated fundamental value, and point to an attractive entry point under current market conditions.

Industry Leadership

ClickSoftware provides automated workforce management and optimization solutions for every size of service business. The company’s technology helps businesses find the right balance between reducing costs on the one hand, and increasing customer satisfaction, maximizing employee skills and complying with industry regulations, on the other.

Concordant with ClickSoftware’s industry leadership is the company's announcement, early this year, regarding the launch of the ClickAppStore to deploy mobile workforce management solutions. This is a service store that offers a variety of ready-to-use modular apps, and a development environment where the applications can be assembled into end-user solutions under the guidance of

This article covers three drivers in fundamental value; free cash flow, growth in free cash flow, and business risk. Also discussed is return on invested capital, a measure of comprehensive performance.

This discussion elaborates on previous analyses, emphasizes standing conclusions, and reaffirms estimated fundamental value at $38/share - $40/share (for detail see 3/7/11 article).

Information provided by Robin Raina, CEO, on occasion of investors’ day on 4/1/11, is a source of important input.

Ebix Inc. (EBIX) is presented as a business with a compelling combination of attributes –a network that delivers critical value in the core activities of clients, a history of strong economic returns, and management effectiveness in the deployment of resources that grow shareholder value.

Context

Major elements in the estimation of fundamental value are shown in the formulas below.

• EBIT = Operating Income
• NOPAT = Net Operating Profits after Taxes = EBIT (1