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GSB - GlobalSCAPE


Okonomen
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Hi.

 

I would like to get some feedback on GlobalSCAPE, a US micro 80 mcap stock with a huge net cash position (27 mUSD) and a strong moaty business trading at ~8x /EV/EBIT despite nice growth in a sticky high switching cost tech biz. No customer accounts for +10% of revenues. In short, they work with 1) EFT (enhanced file transfer), i.e. secure and optimal transfer of documents within government agencies (healthcare, schools, military etc) and businesses and 2) IPaaS, i.e. integrated platform as a service. In general, they have a high +90% customer retention rate due to high switching costs and a very strong and acknowledged product portfolio (excellent reviews by tech geeks who notes that GSB's products are easy to use, of state-of-the-art quality/functionality and with good customer service). They grow revenues ~5-10% annually and invests adequately in R&D (little under 10 % of revenues). They have high EBIT margins of ~20-25% and no debt. GSB is a super strong cash flow machine and they trade at less than 10x EV/EBIT.

 

There are a few concerns, however, which is probably the reason why the stock has declined recently:

 

1) They are currently working on an internal investigation related to possible accounting fraud. Therefore they are working on restating FY 2016 and YTD Q 2017, i.e. the SEC has them currently on their watch list due to not respecting filing deadlines. The 2016 restatement is due to some (deliberate?) miscalculations of receivables/revenues however of pretty minor significance. Read more here: https://www.globalscape.com/news/2017/11/15/globalscape-inc-provides-update-concerning-internal-investigation-and-declares and here https://dynamic.globalscape.com/files/2017-11-14_10Q%20_12b-25.pdf

2) A contract with the US military worth 1,8 mUSD annually got terminated. This was ~ 5% of revenue

3) The current CEO is of low quality according to employee review sites (glassdoor.com), stating that the upper mgmt are micro managing heavily

 

The first concern is by far my biggest and this is the issue I would very much like to get some feedback on. The current internal accounting investigation will cost around 1 mUSD in 2017, but this should just be regarded as non-recurring costs. If this issue is not escalating further this looks like an extremely interesting value case. However, I don't know if this is just the top of the iceberg.

 

Good write-up on the following link to VIC: https://www.valueinvestorsclub.com/idea/GLOBALSCAPE_INC/139217

 

BR

Steffen

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They switched capitalized software and CDs and Goodwill and DTA's. Then haven't reported for two quarters. So the metrics are 6 months old.

 

 

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feedback from local source indicates that there is a possibility that more people involved in the accounting fraud.  it may be tiny small possibility, but can not be ruled out. So as long as the existing management and board are still involved, i guess i am sitting on the sidelines for this one.

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feedback from local source indicates that there is a possibility that more people involved in the accounting fraud.  it may be tiny small possibility, but can not be ruled out. So as long as the existing management and board are still involved, i guess i am sitting on the sidelines for this one.

 

Um, what do you mean by "local source" ?

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feedback from local source indicates that there is a possibility that more people involved in the accounting fraud.  it may be tiny small possibility, but can not be ruled out. So as long as the existing management and board are still involved, i guess i am sitting on the sidelines for this one.

 

Um, what do you mean by "local source" ?

 

People in San Antonio that know this company and people involved in this company for a long time, like for example former employee who used to work for this company in the headquarter at San Antonio, or a business man that is in the circle of stock broker dealers...

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