Description
Rimage Corporation (RIMG) designs, manufactures, and markets high
performance CD-R and DVD-R duplication and publication equipment.
Rimage sells primarily to the corporate market, where data duplication
and storage is of primary concern or there is a need for multiple copies
of an individual data source. Customers include Microsoft (who use
RIMG’s machines to pre-release beta versions of software), Kodak
(transferring analog pictures to digital pictures), banks
(statements and checks are now stored on CD-R’s and sent out to customers
instead of paper statements and the actual checks), insurance companies
(large policies will be stored and/or sent via CD-R’s), music production
studios, and others. Rimage also offers the capability to “print” onto
the surface of the CD-R or DVD-R, utilizing their own publishing software.
80% of revenues is derived from system sales, while the remaining 20% is
derived from servicing, printer ribbons, printer cartridges, etc.
Rimage offers a number of products to customers segmented by throughput
and speed. Rimage’s most efficient publishing system is the Producer
Prostar, an 8 drive, 500 CD capacity system that can create 45 CD’s in
less than 10 minutes. This particular system will only set you back
$60,000. On the lower end of throughput and speed is Rimage’s desktop
series, which are equipped with a single drive, 60 disc capacity, and
much less speed. Rimage offers a number of products between the two
examples presented here. A Rimage publishing system can be configured
as a network printer, or as a stand-alone for a single user.
Rimage does all final assembly of components from third party
manufacturers for their publishing systems. Since most components
are outsourced, Rimage has the task of installing circuit boards, CD-R
or DVD-R drives, electric motors, and their own proprietary software.
In December of 1996, Rimage hired Bernard Aldrich as CEO. Aldrich quickly
realized that Rimage was wasting time and money on CD-ROM stamping
presses and business services. Over the next two years, Aldrich scaled
out of the services business and started to focus on CD-R, and later
DVD-R, publishing equipment for commercial applications. The results
over the last 4 years under Aldrich’s leadership are wonderful.
I believe that Rimage is attractively priced at current levels. Rimage
currently has a market cap of $72.5M. Rimage has no debt and has
$27.2M in cash, leaving us an enterprise value of $45.3M. LTM EBITDA
is $8.4M, so we are paying 5.4x EV/EBITDA. Rimage continues to pour out
cash. Through September, FCF was $5.7M, and I expect the 4th quarter
to be on par with the 3rd quarter, yielding a possible FCF number of
$7.2M for the year. Over the previous three years, RIMG has generated
between $5 - $7M in FCF annually.
Insiders own 23.5% of the shares outstanding, and Kern Capital
management owns 14%. Liquidity is of some concern, as the daily
average volume is around 13,000 shares.
Now for the dislikes.
These guys like to issue shares and are fans of options. As of the
most recent 10Q, there are 1.7M shares available under option. In
early March of 2000, RIMG acquired Cedar Technologies, a developer
and manufacturer of desktop publishing equipment. I believe that
Rimage overpaid for Cedar, and I also believe that sales of desktop
publishing equipment have not lived up to Rimage’s expectations.
Sales of Cedar desktop products in the year 2000 were a shade
over $4.5M, representing less than 10% of revenue.
Catalyst
Stock is cheap! Rimage is also the leader in a growing, profitable
industry.