TOP IDEAS: Intrinsyc
Technologies Corporation (TSX: ITC) is cash-rich and refocused to yield revenue
growth and profits.
In the past, TSX-listed small cap turnaround
stories have been very rewarding stock picks for the Investorfile blog’s Top
Ideas. One of our first small cap value picks was RDM Corp. (TSX-RC) in January
2012 (See: RDM Corporation: Cash-rich small cap turnaround, offers value and
opportunity). From a low of $0.88 per share when first recommended RDM’s stock,
today it trades at $2.25, a 156% gain. Later that year we profiled the
turnaround occurring at Caldwell Partners International Ltd. (TSX: CWL). Since
our first blog post recommending an investment in shares of Caldwell Partners
in November of 2012 (See: Caldwell
Partners International: US expansion pays "dividends” for small cap value
investors), the Company’s stock price is
up today over 77%, rising from $0.74 to $1.31. Both these companies pay shareholders
a quarterly dividend too.
Today our focus is on another
turnaround story with our latest pick for Top Ideas - Small Cap Value Stocks:
Intrinsyc Technologies Corporation (TSX: ITC - $0.75).
Intrinsyc Technologies has
undergone a transition. Just a few months ago the Company changed its name
(replacing the word "software” with the word "technologies”) to better reflect
its overall business direction going forward. With this name change came a 1
for 8 share consolidation.
Better is the transformation
happening to the Company’s financial results; a turnaround from consistent
losses to a string quarters with revenue growth and emerging profits.
Technologies is a leading provider of solutions for the development of embedded
and wireless devices and is a product development company that provides
hardware, software and service solutions that enable next-generation embedded
and Internet of Things ("IoT") high-tech products. The Company says
its solutions span the development life cycle from concept to production and
help device makers and technology suppliers create compelling differentiated
products with faster time-to-market.
The Company is transitioning its business
operations from a primarily services-oriented offering to more complete
solutions, including manufacturing computing modules, which the Company says
will bring great value to customers and provide Intrinsyc with greater repeat
product sales and/or royalty revenues. As such, the
Company has shifted for a greater business focus to the development of
An embedded system
is a computer system with a dedicated function. Embedded systems control many
devices in common use today in a wide variety of vertical markets, including:
Automotive, Communications Infrastructure, Consumer Electronics,
Surveillance/Security, Industrial Control, Energy/Power, Medical, Retail
Solutions and Military/Aerospace.
For Intrinsyc, the
Embedded Solutions segment includes the sales of the Company’s proprietary
computer modules and development kits, as well as engineering services related
to those modules and kits. The Company says it offers original equipment
manufacturers ("OEMs”) and application developers' flexible wireless
development platforms and production-ready Machine-to-Machine ("M2M”) modules,
with enabling technology and intellectual property for device development.
Intrinsyc has been promoting
its leading-edge System-on-Module (SOM) solutions to reduce product development
cost, while decreasing time to market and technical risk to OEMs. The Company
says by utilizing a SOM solution, device developers realize a fully customized
electronics design, complete with custom interfaces and form factor without the
effort of a ground-up electronics design.
A leading-edge product
is Intrinsyc's OPEN-Q™ System on Modules which are based on Qualcomm
Technologies Inc.'s advanced Snapdragon processors. Intrinsyc is a Qualcomm
Technologies, Inc. licensee and a leader in Qualcomm® Snapdragon™ product
development for the embedded systems market. The Snapdragon family of mobile
processors is said to be redefining mobility for consumers around the world by
offering an optimal combination of mobile processing performance, powerful
multimedia, wireless connectivity and power efficiency that is enabling a new
generation of mobile and embedded devices.
Company is building an expanding base of customers and prospects for the Open-Q
family of SOMs. Intrinsyc’s customers build a diverse set of embedded device
products, such as: smart glasses and other wearable technology, robotics,
digital signage, and more. As these customers increase sales of their products,
the Company says it will benefit from repeat sales of their computing modules
and/or design royalties.
evidence that sales are increasing as a result of the business transition. As
of June 30, 2014, Intrinsyc announced that it achieved strong annual and
sequential revenue growth. Revenue was US $2.5 million (the Company reports in US currency) in
the second quarter of 2014, up 58% from the prior year and up 12% from the
previous quarter. This was the Company’s third consecutive quarter of revenue
growth, with revenue up 71% year-to-date since it refocused its business
operations. Embedded solutions now account for 72% of Intrinsyc’s total
forward the revenue growth outlook continues to look positive based on a
growing pipeline of product development kits and prototype modules sold over
the last 6 months. Company management has said that it has made
significant progress gaining new customers for its Open-Q(TM) computing module
and expects to see growing revenue contribution from these customers as they
enter production early in 2015.
With the recent revenue growth, Intrinsyc
has become profitable. Over the last three quarters earnings before interest,
income taxes and depreciation and amortization (EBITDA) was positive and
growing. In the most recent quarter, the Company reported net income of
about US $200 thousand and earnings per share (EPS) of US $0.01.
For a small cap company Intrinsyc has
very strong balance sheet. The Company has about US $7 million in cash and a US
$1.5 million note receivable ($0.40 per share) and no debt.
Given the strong balance sheet, several
consecutive quarters of revenue growth and improving profitability, we identify
Intrinsyc as an intriguing turnaround growth story. Best-of-all, for
value-conscious small cap investors the shares for this Company are still
trading at reasonable valuation levels.
Based on the Company’s market
capitalization (adjusted to US dollars) current revenue run-rate (US
$2.5M/quarter) and normalized adjusted EBITDA margins (8%), the shares of
Intrinsyc trade under 7-times Enterprise Value (EV) to EBITDA. Given the
Company’s outlook, exiting 2015 we anticipate that the revenue run rate could
increase to about $4 million per quarter, generating EBITDA margins of 12.5% or
US $2 million annually. That said we are comfortable recommending that small
cap investors should accumulate the shares of Intrinsyc up to a price of CDN
$1.20, a valuation level which is under 7-times EV/EBITDA based on our growth
As an aside, because the
Company is currently generating cash from operations and has considerable cash
resources, strategic investments of its cash holdings could result in the
Company’s shares trading way beyond the CDN $1.20 level too.
With most turnarounds (that succeed), over
the longer-term early-in investors can earn a significant return by buying and holding
Intrinsyc Technologies is based
in Vancouver BC and has approximately 50 employees. Last
reported management and directors own about 14% of Company shares.
The Company has approximately 20.5 million
Intrinsyc website: www.intrinsyc.com
Author’s share ownership
disclosure: ITC - Yes
article is for informational purposes only. This article is based on the
author's independent analysis and judgment and does not guarantee the
information's accuracy or completeness. The information contained in this
article is subject to change without notice, and the author assumes no
responsibility to update the information contained in this article. The
information contained within this article should not be construed as offering
of investment advice. Those seeking direct investment advice, should consult a
qualified, registered, investment professional. This is not a direct or implied
solicitation to buy or sell securities. Readers are advised to conduct their
own due diligence prior to considering buying or selling any stock.
is not engaged in an investor relations agreement with Intrinsyc Technologies
Corporation nor has it received any
compensation from Intrinsyc Technologies Corporation for
the preparation or distribution of this article.
author of this article has acquired and may trade shares of Intrinsyc Technologies
Corporation through open market
transactions and for investment purposes only.