If You Build it They Will Come - Analyst Blog

Ken Nagy, CFA

If You Build it They Will Come

Revenue and New Contracts at Two and Three Year Highs.

On March 22, 2011 DATATRAK (DATA) announced results for the fourth quarter of fiscal year 2010 ending December 2010. Revenue increased to $2,014,851 compared to $1,464, 441 in the same period of 2009. Sequentially the firm’s top-line improved by 10.9%. Gross profit margin improved to 85% compared to 73% for the three months ended December 30, 2009. The improvement in the Company’s gross margin reflects the increase in revenue and a 23% reduction in direct costs.
Looking at future growth, the fourth quarter of 2010 marked the highest quarter in three years for new contracts with over $3 million in dollar value signed.

Backlog and Cash Take a Breather
As of December 30th 2010 cash stood at $1,026,369 an increase over the December 31, 2009 cash balance of $947,984. Sequentially cash fell from last quarter’s mark of $1,172,772.
Looking at Backlog, DATA saw an increase from $9.5 million at December 31, 2009 to $11.2 million at December, 2010. Sequentially backlog fell from $11.4 million in the third quarter of 2010, which represented first decline after five consecutive quarter-over-quarter increases in backlog.

Our Take
DATATRAK’s unified system is clearly superior to integrated solutions. That said maybe the firm is not yet seeing explosive top–line growth right now because firm’s look at the financial power of a firm trading on the pink sheets. It is important to realize just how far DATA has come since 2008. Just three short years ago backlog was trending down, the firm was incurring losses, had a $3 million dollar balloon debt payment due, and cash flow was negative $1.8 million. Flash forward to the recently completed 2010 and the company shows backlog trending up, no balance sheet debt, a profit, and positive cash flow. As these metrics continue to improve the growth will follow. If you build it they will come. We would add shares at these levels.

Item	2008	2009	2010
Backlog:	Trending Down	Trending Up	Trending Up
Income/Loss	$(17)M	$(1.9)M	Profit
Balance Sheet Debt	$3M Note	No Debt	No Debt
Cash Flow	$(1.8)M	$(1.4)M	Turned Cash Flow Positive in Q2
Auditor Opinion	Noted $3M Baloon Debt Payment Due	Going Concern	Clean