Business Context and Reporting Period
MIND CTI Ltd. (NasdaqGM: MNDO) is a provider of convergent end-to-end billing and customer care solutions for tier 2 and tier 3 carriers. This Form 6-K, dated February 27, 2008, reports preliminary unaudited operating results for the fourth quarter and full year ended December 31, 2007.
Key Financial Metrics
Quarter Ended December 31, 2007
- Revenue: $5.6 million
- GAAP Operating Income: $157 thousand (3% of revenue)
- Non-GAAP Operating Income: $395 thousand (7% of revenue), excluding amortization of intangible assets and equity-based compensation.
- Revenue Mix: 28% from licenses ($1.6 million) and 72% from maintenance and services ($4.0 million).
- Geographic Mix: 52% Europe, 36% Americas.
Full Year Ended December 31, 2007
- Revenue: $18.4 million
- GAAP Operating Income: $1.3 million
- Non-GAAP Operating Income: $2.0 million
- Cash Flow from Operating Activities: $4.7 million
- Liquidity: $12.4 million in cash and cash equivalents as of December 31, 2007.
- Investments: $20.3 million invested in asset-backed auction rate securities.
Material Changes vs. Prior Period
- Q4 Revenue Growth: Increased 10% compared to Q4 2006 and 38% compared to Q3 2007.
- Full Year Revenue Decline: Decreased to $18.4 million from $20.1 million in 2006.
- Full Year Profit Decline: GAAP operating income decreased to $1.3 million from $2.5 million in 2006.
Outlook, Risks, and Unusual Items
Auction Rate Securities and Litigation
The company holds $20.3 million in auction rate securities which have become illiquid due to credit market uncertainties. While interest payments continue, the company cannot obtain timely third-party valuations. An independent valuation is planned for Q2 2008, which may result in a material impairment charge to earnings for Q4 2007 or the full year. On February 20, 2008, the company filed an arbitration claim against an international bank alleging fraud and breach of fiduciary duty regarding the investment of these funds in collateralized debt obligations (CDOs) without authorization.
Dividend Declaration
The Board declared a cash dividend of $0.20 per share (before 20% withholding tax), payable April 2, 2008, to shareholders of record on March 18, 2008. Court approval was obtained to facilitate this distribution despite insufficient retained earnings under Israeli law.
Management Changes
Rafi Wiesler was appointed Chief Financial Officer, replacing Oren Bryan.
New Contracts
The company secured two significant wins in the US market: a five-year managed services agreement with a wireless provider and a billing/customer care deployment with a wireline/wireless provider.
Investor Verification Checklist
- Verify the potential magnitude of the impairment charge related to the $20.3 million in auction rate securities once the Q2 2008 valuation is complete.
- Monitor the status of the arbitration claim against the bank regarding the unauthorized CDO investment.
- Confirm the impact of the 20% tax withholding on the declared $0.20 dividend.
- Assess the sustainability of the Q4 revenue growth trend given the full-year revenue decline.