As always, Steven, you raise interesting points. Let me respond to them in order, with your remarks in italics.
I might ask, are you including in your forecast the conversion of $13 million in subordinated debt that occurred in the third quarter of 99?
I'm only trying to forecast EBITDA and EBIT, so interest expense isn't included. The company will not have net income in 3Q99. I'm not even sure if they'll have positive EBIT.
It certainly is difficult for me to understand why there is no revenue growth when clearly the rest of the industry seems to be moving in the right direction. There is an answer which we have yet to discover. It could be the sales force.
Overall revenue is down because of slippage with 3 large accounts: AT&T, US West, and First USA. Comparing 2Q99 with 2Q98 pro forma, revenues for those three accounts are down $14.5M. Also, E&L was down $2.0M in 2Q99 versus 2Q98.
There are two other areas of growth for this industry that AGIS hasn't addressed yet, and I wonder if they will. The first is using the internet as another aspect of customer relationship management. Among the public teleservices companies APAC, ICTG, PRRC, TLSP, and TTEC have all announced product offerings that allow their agents to converse with clients' customers while those customers are online. I put the question to CEO McNeely during the mid-May conference call. He said they have the technology, their customers know Aegis' capabilities, they just haven't chosen to make an announcement to that effect. The other area is in the deregulation of electric power utilities. I've already seen one company announce a contract with a utility. I wonder if AGIS will get any of that business.
Respecting your comments concerning more pain for the shareholders, this is where I might disagree, simply because of the Questor investment of $46 million.
The reason I expect more pain for us, the shareholders, is that the results for 3Q99 will compare so poorly with 3Q98. Revenues will be down, perhaps as much as 20%, and all margins will be lower. I hope the story line of press release will be: Yeah, we had another losing quarter, but our margins were better than 2Q99, and we still expect a profit in 4Q99.
Right now the market cap for the company is $26 million. A cash infusion of this magnitude is bound to have a positive impact on the stock price.
I hope you're right. I really want to believe it.
Questor made be influencing AEGIS right now more than we know. Perhaps this explains the stagnant revenue growth. Changes in management may be on the drawing board and present individual senior management may be floating resumes. This type of transition environment is usually not a good time for growth.
I agree that changes in management may be coming. But I disagree that Questor's influence may be the reason for stagnant revenue growth. Merrill Lynch only arrived on the scene to pitch this Questor idea to AGIS in mid-summer. The revenue growth problems have been around much longer than that. And for over a year they've been attempting to consolidate after the merger, while migrating out of the Dallas-Fort Worth area.
If Questor is coming in with $46 million and AEGIS hasn't lost revenue and progress on lower expenses is on track, we may be
at the bottom now.
I do not believe that Questor would make this type of investment in a company that doesn't have a foundation for growth.
These are excellent points, and I want to believe them. And that is precisely why I continue to hold my considerably large position.
I wish you would post more often, because it forces me to think harder about my analysis of this company and the sector as a whole.
Phil |
