Thursday, January 25, 2007
Epolin (EPLN) Q3 results, sold the stock
The short version is that revenues are down. They believe that this is temporary. I believe that, too, but I've decided to sell all my shares. I didn't have many to start with, but I tried to take my time selling them to avoid pushing the price down too much. I had very small loss on the investment (less than 5%).
12 million shares on Jan 1, 2007. 341K options outstanding (.39 strike).
Revenues are down 20% from the prior year and down roughly the same from Q2. Gross margins are down to 60.6% from 71.6% (still quite good). Net income is down 45%. SG&A increased a bit (employment agreement with new CEO).
When you look at the segment results on page 18 for 9 months, US sales dropped 13%. Europe sales dropped 28%. Asia sales increased a bit. There was an 18% customer in the US. 42% of sales were to 4 customers.
The balance sheet has more cash vs Nov 05. Some building improvements. Everything looks fine.
Cash flow from operations is great, due to an AR decrease. Capex is a bit higher than depreciation. They paid the dividends, but otherwise, not much else going on (which is good).
No share repurchases (which is fine).
However, our sales level did fall during the three months ended November 30, 2006 compared to the prior year. Yet, we are confident that this is simply a temporary downturn which we do not expect will continue. Nevertheless, we recognize that net income has not increased like our revenues have increased. When we began to reassess our direction in fiscal 2005, we placed an emphasis on sales growth which we have now achieved and which we expect will continue. We recognize that we still have to gain more control over our costs and expenses so that we can improve our overall results. This is something we are currently undertaking and we have already instituted certain measures in this regard. We are confident that we will be able to successfully meet this challenge like we have been able to achieve the growth in sales.
I suspect the future will be good for Epolin. I didn't sell my shares because it's not a good investment, but because I'm finding things I like better. I like this company and how it's being run. They may very well tap into a large new set of customers, I don't know.