Myth: They don't break out each of their three revenue sources, but this sentence in their most recent PR makes clear YOY Q3 revenue growth is from tissue and recurring revenues--not new enrollments and associated processing fees:
"Revenues are generated primarily from three sources; new enrollment/processing fees, recurring storage fees (both from cord blood and cord tissue) and fees associated with other tissue related products. The increase in revenue is due to growth in recurring storage fees and fees from other tissue related products."
The same sentence was in their Q2 PR so it's been going on for a while. Sequential revenue Q3 from Q2 was essentially flat, and sequentially recurring revenue only increased $10,000 reflecting the net addition of only a modest number of new customers. The growth of the tissue business and their dependable recurring revenue has been masking the their declining number of new enrollments. Now their tissue revenue seems likely to go away in Q4 as per their own PR their primary customer stopped placing orders:
"However, at the end of the third quarter a large tissue customer informed the Company that they expect a significant reduction in orders such that orders from this customer will be minimal in the foreseeable future. This reduction commenced in October."
While recurring revenue will continue to be steady going forward, their other two revenue sources are in decline. Overall Q4 revenue and earnings should be down significantly over Q3 but we won't find that out until the end of March.Their own guidance implies they won't have positive earnings in Q4:
"The Company should continue to generate positive EBITDA and cash flow in the fourth quarter and in 2016 inclusive of diligently managing expenses."
The real question is how much is $2.5 million of sticky annual recurring revenue worth? It's intrinsically valuable, but their current SGA is also running at about $2.5 million annually so it's all absorbed by their current cost structure. There will also be continuing (but apparently declining) new enrollment revenue but that will be absorbed for debt service. It appears the company will be at best barely profitable for the foreseeable future with no evident growth catalyst but has a current market cap of $6 million. It seems very fully valued based on its capacity to generate earnings going forward.
