March 03, 2010 - 2:25pm EST by
2010 2011
Price: 1.35 EPS nm nm
Shares Out. (in M): 18 P/E nm nm
Market Cap (in $M): 25 P/FCF 2.0x 2.0x
Net Debt (in $M): -18 EBIT 2 3
TEV ($): 7 TEV/EBIT 4.4x 2.2x

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The thesis on Mind CTI is as simple as the stock is cheap. A free cash flow yield greater than 50%, a CEO who owns greater than 20% of the shares outstanding and has demonstrated a willingness to return cash to shareholders through dividends and stock buybacks, and recent business wins that should result in improved top and bottom line performance in 2010 are three reasons why Mind CTI is worth owning today.

Mind CTI is an Israeli based company that services and provides billing and customer care software for carriers worldwide.  The business is largely built on recurring revenue (60-70% per management) and generates consistent cash from operations (you have to go back to 2001 to find a negative quarter).

The company is currently trading for an EV of $7mm, yet by my calculations will have done over $6mm in cash from operations this year (capex has historically run <500K).


Cheap Stock:


Valuation Snapshot:

Stock price                 1.35
Shares out       18,428,918
Market Cap       24,879,039
Cash       18,000,000
EV         6,879,039
Conservative FCF Estimate         4,000,000
FCF Yield             58%


One reason the stock is so cheap is because there has been a persistent disconnect between net income and cash from operations. This is largely due to an auction rate security issue, which they largely wrote down in 2007/2008 only to reverse it in the most recent quarter (the reason why they had a GAAP net income gain of 19mm last quarter).



MIND will release 4Q earnings Monday, March 15th. Based on what we have been given to date, my ballpark estimate is that the business generated around $2mm in the quarter. My full year cash from operations number is $6.2mm.

  2007 2008 2009E
Revenue 18.4 19.4 17.6
Net Income -11.9 -6.4 19.5
CFO 4.7 4.1 6.2


Cash at end of 3Q09       31,500,000
80 cent Dividend       15,000,000
Cash used for Buyback           400,000
Cash Left       16,100,000
Cash Reported       18,000,000
Cash Generated         1,900,000


Aligned CEO: No value trap

Monica Eisinger founded the company and owns over 20% of the stock. Since the company initiated a dividend policy in 2003, they have paid a yearly cash dividends six times (buyers today will get an upcoming 20 cents cash dividend, 15% dividend yield; timing should be announced anytime) and just recently paid a special 80 cents dividend in December. Additionally, the company has opportunistically bought back stock (spent almost $3mm buying back stock in 2009 and late 2008) and just announced another program that will allow them to buy back another $1.8mm worth of shares going forward. Monica has indicated that she would be open to sell the entire company once the recent business momentum shows in the numbers and the stock price is at a more fair value.


The future should be better:

Up until the second quarter of 2009, MIND had gone 14 months without one new business win. Since then, they have announced four new customers and two large upgrades. Given that this has all taken place in the last 10 months, and at least a 6 month lag exists between announcement and the win flowing through to the numbers, there is little uncertainty as to why Monica is bullish on 2010. I think now that the ARS issues are behind them and the business momentum is back, Monica feels like she has the opportunity to regain investors trust and plans to tell the story to interested parties.



High customer concentration - In 2008, one customer was 10% of revenue. There is no customer today over =>10%.

Future dumb acquisitions - One was made in Oct 2007, which Monica admits. While I think the lesson was learned, it remains a risk.  


  • March 15th call
  • Performance in 2010
  • Upcoming Dividend
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