Monday, January 31, 2011

Healthstream ( Nasdaq - HSTM ) -- Launches Simulation Business

Healthstream (HSTM $6.75) plans to launch its high potential simulation software line in April.  The company and its 50-50 partner, Laerdal Medical, recently completed the underlying technology platform.  It now is developing specific applications which will be sold on a recurring revenue basis.  Healthstream initially will market the software to its existing customer base in the United States.  Laerdal Medical, which is based in Norway, will focus on the international market.  Development kits have been provided to several third parties, which are experts in various medical procedures.  Those applications will be sold to end users through the Healthstream-Laerdal online store, similar to the iTunes model.  The partnership also will provide management software, to run individual events; and software viewers to operate the simulations on the end user computers.  The company declined to forecast the new line's 2011 revenue potential.  Our estimates assume only a modest contribution will be generated during the early going, and that some start up costs will continue to be incurred.  After the technology gains momentum substantial growth appears attainable.  Meantime, business remains strong in the core educational software line.  Our estimates are unchanged. 

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Friday, January 21, 2011

Acacia Research ( Nasdaq - ACTG ) -- Follow-up Report

Acacia Research (ACTG $27.50) appears on track to report excellent on target Q4 results.  As expected, the company didn't complete any large deals in the period.  Earlier in the year Acacia licensed all the patents it controls to Oracle and Microsoft in separate transactions, boosting performance sharply in those periods.  Our estimates reflect a generally breakeven showing in the December quarter.  Acacia did end the year with about 180 patent portfolios, and the company continues to accumulate intellectual property at a fast pace.  Individual settlements are likely to keep expanding in number during 2011.  Acacia remains confident it will consummate three large transactions this year, as well.  Investment requirements remain modest.  So most income is likely to turn into into cash flow.  Acacia may invest that money in patents directly, eliminating the need to split its winnings with existing patentholders.  Dividends and buybacks are a possibility, as well.

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Saturday, January 15, 2011

Image Sensing Systems ( Nasdaq - ISNS ) -- Follow-up Report

Image Sensing Systems (ISNS $13.50) appears on track to report excellent on target Q4 results.  The company is the leading manufacturer of machine vision systems used in traffic management applications.  Cameras are mounted at intersections.  Images are fed into onboard computers, which dynamically change the lights to keep the cars moving efficiently.  Besides being more intelligent, machine machine systems cost less than conventional underground sensors ("loops").  Those products require the road to be torn up when they're originally installed or replaced.  Image Sensing's technology also is used on highways and in tunnels to report accidents, fires, and other emergencies. 

Results have stalled over the past two years due to budget pressures.  State and local governments account for most of the company's orders.  Image Sensing has responded by driving down costs and prices, improving performance, and gaining market share.  Two years ago Image Sensing acquired a maker of radar detectors, which work better than machine vision in poor lighting or bad weather conditions.  This year the company plans to launch a combination system that employs both radar and machine vision.  Image Sensing also purchased a license plate reading technology in 2010.  That remains a niche market at present but could be integrated as a standard feature over time.  Police and homeland security funding could supplement highway department outlays, helping things from a budgetary standpoint.

Foreign business varies from period to period.  But the long term trend is higher.  Image Sensing currently is strongest in the Far East and Eastern Europe.  Marketing efforts have been expanded in those areas and could lay the groundwork for accelerating gains in future periods.  For now, we estimate that financial performance will remain solid but unspectacular.  Income appears headed towards $.90 a share in 2010, down from $1.15 the year before.  Next year a rebound to $1.35 is possible as the new products kick in, international volume keeps rising, and overall U.S. demand improves modestly.

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Zagg ( Nasdaq - ZAGG ) -- Penetrates Verizon Retail Stores

Zagg (ZAGG $9.75) will start selling its Invisible Shield products through Verizon's retail stores.  Last year the company signed up ATT as a retail partner.  Best Buy remains Zagg's largest distribution channel.  The launch will be coordinated with Verizon's introduction of the Apple iPhone in February.  Protective coverings for the iPhone probably will account for most of the incremental revenue boost, although the company could benefit from Blackberry and Android business, as well.  Results also promise to respond from Zagg's new Irish distribution center in 2011.  Europe presently accounts for 10%-15% of sales but customer acceptance of the Invisible Shield is high, and volume could respond to more aggressive marketing efforts.  U.S. results could gain an additional lift if Radio Shack, which hasn't done much to date, adjusts its marketing efforts to reflect Best Buy's approach. 

We are raising our 2011 earnings estimate by a dime to $.60 a share.  We also are lifting our sales estimate by $5 million to $90 million.  Growth is likely to be sustained at above average rates for at least several more years as the mobile device market keeps expanding.  Zagg hopes to leverage that success by launching additional products that capitalize on its brand name and distribution network.

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Simulations Plus ( Nasdaq - SLP ) - First Quarter Results on Target

Simulations Plus (SLP $2.85) reported excellent on target Q1 (November) results.  Sales advanced 15% to $2.81 million despite a reduced contribution from nonrecurring project income.  Pharmaceutical software sales climbed 18% and represented 73% of the total.  The non core synthetic speech line generated the balance and posted an 8% year to year improvement.  Non-GAAP earnings improved 33% to $.04 a share.  Virtually all of the company's income was provided by the drug development simulation business.  That segment remains unusually profitable because the technology is sold on a subscription basis, instead of as perpetual licenses.  So revenue is reoccurring.  Profitability tends to expand as unit volume grows.  A price hike implemented last spring is providing additional impetus.

Sequential improvement is likely in upcoming quarters.  The renewal rate remains close to 100%.  Most cancellations occur due to mergers or when scientists change jobs.  Those scientists tend to place new orders once they resurface.  Recent product upgrades have led some corporate buyers to purchase more copies of the software, moreover.  Additional features also have created new sales opportunities.  Simulations Plus encounters direct competition on a niche by niche basis across its entire product line, but the company generally leads in all segments and remains the only broad based supplier.  The Words Plus text to speech line has benefited from product upgrades, as well.  Our estimates assume a neutral contribution from that segment although a modest degree of profitability recently was achieved.

We continue to estimate fiscal 2011 (August) non-GAAP income will rise 29% to $.18 a share.  Share repurchases have enhanced comparisons over the past several quarters, and that program may be continued.  Sales could rise 21% to $13.0 million.  Faster growth could be realized if Simulations Plus leveraged its established distribution system with additional software products and services.  The company has eyed a number of prospective acquisitions in the past but hasn't pulled the trigger due to pricing and other concerns.  The decision to retain the Words Plus operation (which earns little or nothing), and the buyback program (which yields a 5%-7% return on investment,depending on whether trailing or estimated EPS is used in the calculation), suggests that caution will remain the order of the day.  Still, worthwhile appreciation is possible even in the absence of a more dynamic corporate development strategy.

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