It’s a busy time of year from an earnings perspective, and the real world has gotten in the way of my normal posting schedule.

However, I’m pretty happy with the earnings results so far, as most of my current positions have performed well – some more so than others.

While one quarter’s (or even a year or longer in many cases) performance doesn’t make or break the merits of a selection, I continue to monitor my investment thesis closely for any signs of deterioration, whether from competition, changing market conditions, or other catalysts.

To be more efficient, I’m going to combine several earnings reports into a series of summary posts.

AMCON Distributing Co. (DIT)

Despite a challenging distributing environment and significantly higher energy costs, AMCON turned in a solid quarter.

Second quarter revenues came in at $206m, down 6% from $230m during the same quarter in 2010. The majority of this decrease was a lower volume of cigarette sales (down $18.7m) that was not offset by a corresponding increase in cigarette prices (up $5.9m).

Net income was $1.5m, down 12%, translating to quarterly EPS of $2.56.

While the income statement showed some pressure, management continues to strengthen the balance sheet.

Due to the nature of the DIT’s business model (i.e. extremely low margins, decent operating leverage), it was good to see the company pay off $5.8m in debt during the quarter.

More importantly, the company renewed its credit agreement with Bank of America – an absolutely vital lifeline for the distributing side of the business – for another 3 years on significantly better terms:

Amcon Distributing DIT Credit Agreement

Management continues to take a long-term perspective, not only in expansion but in potential acquisition targets as well:

“We are delighted to have an enhanced credit facility that we believe will give us additional flexibility to take advantage of potential acquisitions and merchant opportunities …We are taking a long range view as we continue to make investments in foodservice, technology and related value added propositions designed to increase our customers’ bottom line… We are carefully evaluating new store locations in both of the regions we operate in. Our recent store opening in Tulsa, Oklahoma has met our expectations. Our niche in the retail market is well defined and we believe there is room to prudently expand…”

Sparton Corp (SPA)

After reporting tough second quarter results back in February, Sparton’s stock sold off sharply over the next few days, dropping almost 20%, despite reasonable explanations for the mixed results and several positive developments.

The confidence was vindicated with the third quarter results this week, as quarterly revenues shot up more than 30% to $50.3m, compared to $38.6m in the third quarter last year.

The new acquisition of Byers Peak is providing immediate gains – with further margin improvements possible due to the planned plant consolidation – and the EMS segment finally showed a big jump in margins as management focuses on profitable contracts.

This margin improvement led to the largest quarterly gross profit in over five years, with quarterly net income more than tripling to $2.5m, or $0.25 per share.

The turnaround is continuing nicely, setting up SPA for its stated (and very bold) goal of reaching $500m in sales by 2015.

Advant-E Corp (ADVC)

The company continues to chug along with steadily improving results. First quarter revenue was up 5% to $2.3m, compared to $2.2m in the same period the previous year.

Edict Systems, the amazingly-consistent SaaS growth machine, turned out another 2% revenue increase, but the big surprise was the Merkur Group with a 22% jump in sales.

Merkur was hit hard during the recession – even posting small losses – but the acquisition is looking better as the economy recovers.

Net income was up to $385k, equal to $0.006 per share, up 45% over the first quarter last year.

More importantly, the company announced another special dividend of $0.02 per share, payable in two installments during the remainder of 2011. The last special dividend was a big part of the original investment thesis.

By the end of 2012, the company will have returned $0.05 per share in dividends in less than two years – almost 20% of the current market cap – once again showing a commitment to rewarding “shareholders, many of whom are long-term investors in the Company.”

Gaming Partners International (GPIC)

I was very late in posting my viewpoint on GPIC’s 2010 financial results, as the company quickly followed up my post by announcing stellar first quarter earnings.

According to the press release,

“For the first quarter of 2011, the Company posted revenues of $17.8 million and net income of $1.7 million, or $0.21 per basic and diluted share. These results compare to revenues of $10.9 million and net income of $37,000, or $0.00 per basic and diluted share, for the first quarter of 2010.”

And backing up my thesis:

“The primary reason for the significant increase in first quarter 2011 net income was comparably higher sales of chips to casinos in Macau.”

As far as the company’s prospects for the rest of 2011, consider this:

GPIC’s first quarter EPS of $0.21 is roughly 40% of the company’s earnings for all of 2010, the 2nd best year in the company’s history, AND the first quarter is usually the slowest of the year.

While the company warned that the rest of the year will unlikely match these results, I think it bodes well for the annual outlook (and hopefully the stock price!).

Concluding Thoughts

I continue to look for ways to raise additional cash in the portfolio, as I remain skeptical on the overall market.

However, there are quite a few stocks, including a few international ones, that I am tracking closely. I’ve had 6-7 bids outstanding for many weeks, as I continue to remain patient about picking up shares in some of these illiquid issues.

I hope to showcase some fresh analysis over the coming months.

Make sure to stay tuned for Part II as more holdings report their results.



Advant-E is a small e-commerce software company that is showing strong growth while remaining undervalued by the general market.

As a tiny player in the huge Information Technology field, ADVC has managed to carve out a solid niche and continues to throw off cash at impressive margins.

While many software companies trade at outsized multiples which reflect the general attractiveness of the industry (margins are certainly impressive in the software business), ADVC trades with a P/E ratio of under 10.

Despite increases in revenue, EBIT, and net income during this past year, the stock price actually declined in 2010, closing the year trading at multiples below its long-term averages.

Industry and Technology Overview

Sales are broken out into two reporting segments:

Edict Systems

Edict Systems offers Software-as-a-Service (SaaS) solutions primarily to small and medium businesses to assist in Electronic Data Interchange (EDI), a fancy term for the act of sending and receiving business documents (such as purchase orders) electronically using a standardized format.

In the retail space in general, large purchasers have significant power over the wide array of small and medium suppliers that hope to gain their business.

Once a large purchaser starts conducting business via EDI – an attractive ROI proposition for a big company – they force their suppliers to comply or face significant financial penalties.

Edict Systems provides an easy-to-use web-based EDI solution at a low price point, ranging from $50 – $250 per month, for suppliers to convert and send their documents electronically.

Unusually, Edict charges the suppliers, and allows the large purchaser to get the benefits for free.

This means other suppliers must pay to stay competitive, or potentially lose a large customer.

As more documents are sent using EDI – signifying that the supplier is theoretically making sales – ADVC shares in that success via their volume pricing, a nice business model.

Merkur Group

The Merkur Group is more of a traditional IT business, offering software and services that are delivered on-site and hooked into existing Supply Chain Management (SCM), Customer Relationship Management (CRM), and Enterprise Resource Planning (ERP) systems – the lifeblood of any decent-sized retail organization.

Merkur offers a number of different services around document delivery such as fax automation, sales orders, and accounts payable processing.

Integration with existing enterprise toolsets is not cheap, usually requiring services work to complete the installation. Merkur therefore has lower margins than the internet side of the business.

Financial Results

Overall, revenues were up 8% in 2010 to $9.3m compared to $8.6m in 2009, with the majority of the increase driven by Edict Systems.

Edict Systems showed strong growth among its various product lines, with the Grocery and Automotive products seeing 11% increases respectively compared to 2009.

Fourth quarter results were down slightly from the 3rd quarter, but the company has still managed an impressive track record of sequential growth:

ADVC - Edict Systems Revenue by Quarter (2010 Annual Update)

The Merkur Group managed to squeak out a 2% sales increase.

Despite a rough showing in the first quarter of the year (sales were down $140k from the same quarter in 2009), the Merkur segment showed 3 consecutive QoQ revenue increases to finish out the year.

The company has set a target of 20% pre-tax margins across the business units. Combined, the two segments earned $2.4m in operating income, for a pre-tax margin of 25.8%.

Reported net income was $1.59m, up 33% from the $1.19m in 2009, for an annual EPS of $0.024 based on 66.7m shares outstanding.


Avant-E is a closely held corporation, with the CEO and founder Jason Wadzinski owning 54.8% of shares outstanding.

He has been at the company for over 20 years, and struggled through the hard times before the company started taking off in 2003 after making the transition to the SaaS model.

In a profile last year, Wadzinski describes the challenges of growing the business and the importance of taking a long-term view.

There is no doubt that ADVC is Mr. Wadzinski’s company, but he seems to be a prudent manager and draws a very reasonable salary.

In fact, despite a record year in 2010, his annual salary actually declined from $220k to $160k.

He has already demonstrated a commitment to returning cash to shareholders by paying a special dividend last year, saying

“The purpose of the cash dividend is to reward the Company’s shareholders, many of whom have been shareholders for a very long time, and to enable them to likely take advantage of favorable Federal income tax treatment that is scheduled to expire at the end of 2010.”


ADVC - 2010 Financial Overview

Many acquisitions in the software industry are based on a sales multiple.

As a group, stocks within the computer software sector trade for 3.4x EV/Sales ; ADVC is currently trading at a 1.3x multiple.

While some discount is warranted due to the closely held nature of the firm and small size, even a 2x multiple would translate into a fair value of $0.32, or nearly 40% upside from current prices.

Traditional metrics are low as well, with the company trading at an EV/EBIT of 5.2 and EV/FCF of 7.8.

Assigning more realistic multiples of 10x EV/EBIT and 15x/EBIT would allows room for 100% upside from the stock’s current market price.


Software is a rapidly changing field and notoriously difficult for value investors.

There is a long list of software companies that relied on once-promising technology only to be quickly obsolete when faced with an upstart competitor with a new twist.

In addition, the company’s founder, Jason Wadzinski, controls ADVC without a group of independent directors assigned to look after shareholders’ interests.

Theoretically, large insider ownership helps align interests, but this is an extreme case where the CEO holds most of the power and could make decisions at odds with the best interest of minority holders.


Advant-E is a stock that has effectively captured a nice market niche, and an example of the powerful economics and attractiveness of software companies.

Average ROE of 30% and CROIC of 65% show-off the tremendous power of a well-run software company, and the stock currently has a FCF yield over 10%.

Despite these phenomenal numbers, the stock should still appeal to value investors looking for a solid business at a low price.

ADVC boasts over 4000 customers, and the business does not show any signs of slowing down.

The latest press release hits on some of the high points from 2010:

  • Edict Systems revenue increased for the tenth consecutive year
  • Net income exceeded $1 million for fourth consecutive year
  • 2010 marked the eighth consecutive year the company has reported a net profit
  • Exceeded goal of 20% pre-tax profitability in 6 out of last 7 years

Looking into 2011, the company is making an investment in upgrading its Web EDI platform to add superior functionality and greater customer value, which could temporarily depress earnings during the migration period.

Although this initiative might depress earnings over the next few quarters, it is another example of making investments with the eye towards the future.

The company now sits on $2.9m in cash offset by no outstanding debt. Hopefully management can find a way to continue re-investing that cash into the business at attractive rates of return.

Although as a shareholder, I wouldn’t complain about another special dividend!



Advant-e Corporation (ADVC.OB) continues to chug along with outstanding results, posting another record setting release in the third quarter of 2010.

Financial Results

Third quarter revenues were $2.38m, a 10% increase compared to the same quarter last year.

The Edict Systems Group continues to impress, passing the $2m mark in revenue for the first time in company history – this result only adds to the consistent performance by ADVC’s Software-as-a-Service business.

ADVC - SaaS Revenue by Quarter (Q3 Update)

The traditional software business, The Merkur Group, reported its second consecutive QoQ sales increase, with revenues increasing 5% for the quarter to $379k.

Merkur continues to struggle with weak market demand, but management has cut costs and reduced bonuses in order to keep the segment continually profitable throughout the downturn and subsequent (slow) recovery.

Overall, net income jumped 37% to $434k or $0.006 per share. Year-to-date, net income is already over $1.05m.

By comparison, the company had net income of $1.19m for all of 2009 (which was the best year in company history) – if the business can even just match last year’s Q4 performance, it will be another record-breaking year.

The balance sheet remains solid with almost $0.05 per share in available cash along with an unused $500k credit line.


As previously discussed, ADVC has another cash dividend of $0.01 scheduled before the end of 2010. In addition, the earnings press release offers a potential growth opportunity:

“We are continuing to direct much of our energy to growth opportunities in the health care and manufacturing industries, where potential customers have shown interest in our service offerings.”

Leveraging existing software to branch into new markets is a solid business strategy – I imagine the healthcare field would be extremely interested in ADVC’s SaaS offerings.


While software companies are not usually the typical candidates for value investing, the market will sometimes choose to ignore even the steadiest performers.

Estimating ADVC’s intrinsic value using both DCF and EPV, the stock is worth $0.27 – $0.30 per share, a discount of 22% – 36% based on the latest closing price.

With so much cash on hand, I’d like to see management offer an additional special cash dividend in 2010 before the favorable tax treatment expires.

The company’s CEO, Jason Wadzinski, owns more than 50% of shares outstanding so it would be a nice payout for him as well.

(A thought process which reinforces the importance of investing in stocks where management and common shareholders’ interests are aligned!)