Click Commerce's Low Hum of Internal Growth

| About: Click Commerce (CKCM)
This article is now exclusive for PRO subscribers.

For the second time in a row Click Commerce (CKCM) reported quarter results that met our expectations but disappointed the Street, which was focused on aggressive views embedded in the consensus EPS estimate.

Total sales were $19.7 million, providing $3.2 million in net income or $0.24 per share on a GAAP basis. We had forecast $20.5 million in sales providing $3.2 million in net income or $0.23 per share on a GAAP basis. Negative cash flow of $500,000 in the quarter was in part due to an increase in deferred revenue by $1.4 million and accrued compensation expense of $1.7 million, which in combination soaked up net earnings in the quarter.

Cash flow generated by operations in 2H06 was $7.7 million.

Organic growth was put in sharp relief by the absence of an acquisition in the quarter. Second quarter is the first in several that an acquisition was not added to the mix. Although recent performance suggests that organic growth as stalled, we believe this is an inadequate period of time to determine a trend given that the Company’s sales cycles can run as long as a year for some customers. We update our chart of organic versus acquired growth in our most recent report dated July 28, 2006.

During the second quarter earnings conference call, management mentioned adding a "big box retailer" as a new customer for its service supply solution. The retailer will use it to manage a return and repair function.

The updated estimates for 2006 are $85.6 million in sales providing $14.0 million in net income or $1.02 per share on a GAAP basis (from $85.0 million in sales, $13.8 million net income or $1.00 per share). Our 2007 estimates for $16.7 million in net income or $1.17 per share on $100.0 million in sales are unchanged. We continue to rate CKCM a Buy.

Although we are not changing our $30.00 price target, we are moving it out another six months to mid-year 2007.

Disclosure: Author is long CKCM

CKCM 1-yr chart: