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PR on 10-10-13. COVR and MFX announce strategic alliance. While we really don't have any specific details I view this as a "no lose" scenario as it should be a way of increasing both revenue and market penetration/share with little or no $ cost to COVR. MFX is a wholly owned subsidiary of Fairfax Financial Holdings so COVR is definitely dealing with a quality company.
Singular Research presentation on Thursday, 10/3. Definitely worth listening to and also looking at the COVR info on the slides. The # of customers is listed as 33 and growing. One of the slides shows 20+ of the current customers with the most prominent new name being Allstate. Lexington Insurance Company (AIG) was one of the 2013 upgrade/renewals. Another slide shows a very ambitious goal of increasing gross margins.
PR on Tuesday 10/1/13 announcing the availability of the Business Intelligence Suite.
Q3 Licensing Revenue. Depending on when revenue is recognized it could be from as many as 5 contracts.
PR on Tuesday, 9/17. COVR announces organizational changes. The one item that does stand out is that Sales & Marketing will be reporting directly to Manish Shah.
COVR presentation by Manish Shah at the Singular Research "Best of the Uncovereds" Eighth Annual Research Conference
10-3-2013 @ 11:00 a.m. (Pacific time)
Some Random Thoughts:
- COVR salespeople now have a full suite of products (policy, claims, billing, business intelligence, etc.) to sell.....should hopefully lead to additional sales.
- Manish Shah discussed on the CC how there is revenue/cost mismatch as the R&D costs must be amortized over a 3 year period while the finished software product can sometimes be sold well beyond that.
- I continue to be impressed with Manish's knowledge of the marketplace and that he is willing to take a long-term approach even if it results in negative short-term results.
- the bar to success remains very low. No mistake about it they need customers to sign contracts but if they can also increase margins/reduce costs we should see a nice bump to the bottom line.
- if not for the large insider ownership (approx. 40+%) it would not surprise me if a private equity firm tried to acquire the company for $1.50-2.00 per share. Do not see any chance of that happening.
PR on 8-20-2013. A division of a nationally well-known Tier I insurance company has selected the Business Intelligence Suite software.
Sheer speculation on my part and probably wishful thinking but is it possible that the new customer is BRK's recently established (by the former AIG executives) division? They definitely fit/match the info that is provided in the PR.
CC #6:
During the Q & A Roger Benson asked about the possibility of COVR having a chance of doing any business with Berkshire Hathaway's Specialty Insurance Group. It was established in April (2013) when they hired a group of AIG executives to run it. The executives are from AIG's Lexington Division which according to Benson is COVR's largest customer.
Manish Shah said that it is too early to say but that they are certainly aware of the situation and that he has a good relationship with those executives.
CC #5:
R & D
Have completed the design of COVR billing and are now focusing on 2 key projects
1) Dev Studio which is expected to be released late Q3 or early Q4 (2013). They have already pre-sold 2 licenses of Dev Studio and of course that future revenue has not been recognized yet.
2) New and improved version of COVR policy which is expected to be released in 2Q of 2014.
CC #4:
Business Intelligence (BI) Product(s)
- going to be starting a sales & marketing campaign
- view it as a niche market segment
- targeting Tier III insurance companies....supposedly 1000+ firms in that category.
CC #3:
- High demand for professional services
- $5.5 million backlog....should be able to complete within the next 12 months.
- reorganizing and sizing the professional and services organization to meet this future need
- initiative to increase direct margins for professional and support services......expect to see a significant improvement by 2014 Q1.
CC #2:
Forward Guidance
- "still confident of a record revenue year (2013)"
- "strong sales pipeline"
- "have various deals in the pipeline"
CC #1:
After listening to the CC my general thoughts are that COVR is a "work in progress" with a number of "moving parts" especially in regards to products that just became available or about to be released within the next year.
Management has stated two primary goals:
1) increase market share in the US market
2) increase direct margins in both support and professional services
No idea where the stock price will end up closing today but on every CC for at least the past year management has consistently and repeatedly said (with strong emphasis) that both revenue and earnings will be lumpy. Not sure what else they could have said....guess the positive is that there is no basis for a lawsuit by one or more of the many law firms that crawl out of the woodwork when a company has disappointing earnings.
Could always be wrong but my take remains that the downside is very limited for the simple reason that the company has real customers and real revenue, etc. As it is the valuation is less than 2X sales and that is for a recurring revenue business model where customers sign 5 year contracts and they've recently signed a decent number of customers.
Q2 earnings results & CC. Will post my notes within the next few days. They did have 3 new contracts but were only able to recognize the revenue from two of them (third one will be recognized in Q3) so that hurt the results.
COVR sold before earnings: losses lessening but losses, not clear for me the "path".
COVR have COVR hope it travels on Monday!!!
Some Ownership Changes. Per Yahoo.
Manish Shah now owns 329,980 shares (+ 12,980). Reported on 7-29-2013.
Gallegos (now at 218,545) and Cleveland (195,545) both increased by 23,545.
Have to wonder if all of the above are director 'freebies', options, etc.
Also Maryanne Gallagher now holds 182,277 shares which is a decrease of 20,023.
Q2 earnings release & CC will be on Monday, 8/12. Both after the close of trading.
7-15-2013. PR. 3 customers have signed contracts for an upgrade/renewal....no names mentioned. By my count the # of customers for the new system/products is now at 12.
COVR 1.22 bit me too.
#6: Potential Upside & Downside Risk
Never a guaranteed outcome but I would argue that COVR offers the possibility of a huge upside gain with minimal downside risk. Listed below are a few (of many) possible scenarios. I will not give a probability of any one scenario occurring because it would merely be a guess.
SCENARIO #1: MULTI-BAGGER
- the majority of the current customers sign 5 yr. upgrade/renewal contracts
- new customers (5 yr. contracts) are added at a slow but steady pace
SCENARIO #2: HUGE % RETURN (at least a double)
- at least 1/2 of the current customers sign 5 yr. upgrade/renewal contracts
- occasionally add a new customer (5 yr. contract)
SCENARIO #3: 50-100% RETURN (or more)
- company is acquired by a larger player
SCENARIO #4: TREADING WATER
- # of renewals/upgrades is disappointing
- struggle to sign new customers
Going forward in the event Scenario #4 takes place my question would be, "considering that they already have signed 9 customers how much lower can the valuation be?"
From an investment standpoint what makes this situation so attractive/interesting is that a great deal of the downside risk no longer exists. The risk was greatest when they had zero contracts for the new system/products.
Also the performance 'bar' for a really nice upside gain is not all that high/difficult to meet.
Compelling R/R Post #5:
Some additional thoughts....
- Relatively low stock float. If a decent amount of good news then there is a strong possibility that we'll see a sharp upward move in the stock price. From my own experience I can say that in order to accumulate shares one has to be very patient and that limit orders are a must.
- the recurring revenue model is a huge plus as usually companies with that business model are priced at a premium. Keep in mind that COVR customers are signing 5 yr. contracts.
- considering the low valuation at some point COVR has to be viewed as a merger/takeover candidate. Possibilities would include a competitor looking to immediately increase revenue & market share or a software company that wants to enter this particular market.
- newly promoted CEO who is both young and energetic and has been directly involved in developing the software AND selling it to customers.
Per the PR that came out today think that customer #9 is probably Old Republic and have noted it on the customer list.
Compelling R/R Post #4:
Valuation of COVR relative to competitors specifically the "industry leader" Guidewire (GWRE). The following numbers are from Yahoo so probably not 100% correct but we can assume that they are somewhere in the ballpark.
GWRE
Market Cap: 2.41 billion
Forward PE: 93
Price/Sales: 8.8
COVR
Market Cap: 36.4 million
Forward PE: 11.67
Price/Sales: 1.86
To put the above in perspective even if the valuation of GWRE were cut in half I think one could still argue that in relation to GWRE the market cap of COVR represents a compelling investment opportunity/value.
Compelling R/R Post #3:
COVR has previously listed the number of customers as being 35. As we have discussed the legacy system is going to be discontinued....current customers MUST upgrade/renew or find another vendor. As of today COVR has announced 6 upgrades/renewals for the new system/products. Thus there is the OPPORTUNITY to have as many as 29 upgrade/renewal contract announcements within a relatively short time frame (I'm guessing within the next 18 months). Cetrtainly they may already have had customers decide not to upgrade/renew but on the last CC John Roblin mentioned that they have not lost any significant contract opportunities.
What type of impact would the announcement of 15-20 (or more) newly signed contracts have on revenue, earnings, the stock price, etc.???
Compelling R/R Post #2:
Currently COVR is supporting both its legacy and the new system. A while back John Roblin had said that as of 12/31/2013 COVR would no longer support the legacy system and while no $ figure was given he did imply that it would involve a decent amount of cost savings.
Based on the recent CC we can almost be certain that the 12/31/2013 date has been extended as John said that customers currently using the legacy system that sign contracts upgrading to the new systme will recieve free legacy system support for a period of 1 year as they transition to the new system.
To error on the side of caution my guess is that support for the legacy system will be discontinued no earlier than 12/31/2014. In any case when that takes place it will result in immediate cost savings and some of those savings should flow directly to the bottom line.
Compelling R/R Post #1:
THE PRODUCTS. Going forward without question customer contracts, both new and upgrades/renewals, will determine the success of the company. Before going any further we need to try and determine as to whether COVR has quality products. I would argue that the answer is "yes" supported by the following:
1) 9 customers (3 new, 6 upgrades/renewals) have signed contracts to utilize the new products.
2) 2 of the 9 customers are Tier 1 insurance companies with one of them being a new customer.
3) Some time back when beta testing was taking place Manish mentioned on a CC that he had customers telling him that they did not want COVR to take the new system away from them....that they needed it.
4) As one would expect COVR management has raved about them but in my opinion John Roblin is a man of both high integrity and honor and when he spoke about the new product(s) it was with a great amount of conviction/pride.
In summary with a strong weight on reasons #1 and #2 ("actions speak louder than words") I have a great deal of confidence that COVR does in fact have quality products that are well positioned to compete in the marketplace.
What is also interesting is that this represents an investment opportunity where the product(s) are already (i.e. available for sale) in the marketplace as opposed to being "under development" with the company telling you how great they will be when finished, etc.
Think that the Risk/Reward is compelling especially in the current market. Over the next week or so I'll have a series of posts as to why I think COVR is a stock that is a "pound the table" buy. Never a guarantee and all my opinion but I believe that we have one of those rare scenarios that offers the possibility of a huge upside gain with minimal downside risk.
See I-Box for a list of customers that have signed new contracts. Should be a total of 9 (per the recent CC) but so far I've only been able to find PR's for 6 of them.
# of customers for COVR's new Policy solution, etc. (contracts all signed during the past 9 months):
3 entirely new customers
6 upgrades (renewals)
When a customer contract is signed it is generally a minimum 5 year commitment which is the basis of the recurring revenue business model.
Thoughts on Management Change/Transition. Per Yahoo John Roblin is 68 yrs. old (Manish Shah is 42) so one knew that at some point the issue would need to be addressed. Hopefully no health issues involved. I had been wondering if John might eventually try and find a buyer for the entire company and exit that way but for now the plan appears to be staying independent In regards to Manish he is definitely the best person for the job and I especially like that he has been directly involved in the sales process.
Manish Shah named CEO. Effective 7/1/2013.
John Roblin, Chairman & CEO, will be resigning as CEO and transitioning to non-executive chairman.
Director Russell Cleveland:
"Manish is particularly well suited to becoming our next CEO. In addition to serving as our President and a Director since 2008, in his role as Chief Technology Officer, he has been primarily responsible for creating our new technology solutions. He knows our products and our customers, and has a deep understanding of our business and the competitive landscape in which the company operates."
Some info about the bidding process/selection (from the CC):
Starts with approximately 45 vendors
Then reduced to a 'short list' of 3-4 firms
9 out of 10 times COVR is ON the short list
GWRE and Accenture mentioned as key competitors.
From the CC, cont.
"....have not lost many significant sales opportunities."
- Roblin
From the Recent CC:
"...significant discussions with a number of customers and prospects."
- John Roblin (CEO)
From the annual meeting held on 6/6/2013:
Regulation FD Disclosure
Manish Shah (President and Chief Technology Officer) gave a presentation during which in response to a question he stated that management of the Company expects that the Company's revenue for fiscal year ending 2013 will exceed its revenue for the fiscal year ended 2012.
Existing Credit Facility:
On 9/11/2012 COVR entered into a $2.25 million credit facility with Imperium Commercial Finance Master Fund LP which consists of a $2 million 3 year term loan at 8% and a $250,000 revolving credit facility (also at 8%). Imperium also received 5 year warrants to purchase 1.4 million shares of common stock @ 1.48 per share.
Shares Outstanding: 26 million
Largest Shareholders:
RENN Capital 7,600,000
John W. Roblin 1,600,000
JP Morgan 1,200,000
Manish D. Shah 216,900
Maryanne Gallagher 202,300
Earl Gallegos 195,000
G. Russell Cleveland 172,000
Stephen M. Mulready 116,200
TOTAL 11,302,400 = 43.47%
Partial List of Customers (slide from the 12-5-12 LD Micro Conference Investor Presentation)
Aix Group
ALFA Insurance
Chartis Growth Enterprises
Lexington Insurance (Chartis)
MAPFRE
Old Republic
SECURA Insurance Companies
Seguros Multiples
Triple-S
Universal
Willis
XL
As of 12-5-12 the total # of customers was listed as being 35.
Focus on EBITDA.
From the 10-Q 5/15/2013
As we shift over time from software development to deployment, from a financial perspective, the non-cash charges for amortization of developed software will increasingly impact our bottom line. Therefore, in order to provide more visability to investors, we have decided to also report EBITDA to show what we believe is the Company's earnings power without the impact of, among other items, amortization. In the first three months of 2013, the non-cash charge for amortization of capitalized software increased more than 48% from the same period in 2012 to $1,092,000, and we expect this amount could exceed $3 million, or 0.12 per share, in 2013 depending on our sales success. Therefore, we believe that EBITDA will be a useful measure of the true earnings power of the Company while we complete the development and deployment cycle. As such, we expect to increasingly focus on EBITDA to evaluate our progress.
The company defines EBITDA as earnings before interest, taxes, depreciation, and amortization.
BOD and upper management stock ownership:
Board of Directors
G. Russell Cleveland (President & CEO of Renn Capital Group)
Renn Capital owns 7,600,000 shares 29.3%
John Roblin (COVR Chairman & CEO) 1,600,000 6.0%
Manish Shah (COVR President) 216,900 0.8%
Earl Gallegos 195,000
Stephen M. Mulready 116,200
Additional Upper Management
Maryanne Z. Gallagher (Executive VP & COO) 202,300
Ann F. Massey (Secretary, Controller & CFO) 55,000*
* from Yahoo as of 8/15/2011
with the exception of Massey all of the ownership info is from cnbc.com
To listen to a replay of the CC:
1-855-859-2056
Passcode: 69481260
Available until 6/13
Has been some time since anyone posted. I think that COVR is in the process of really turning things around. During the past 4 trading days I have significantly increased my position. As time permits will be posting my DD, thoughts, etc. A good starting point is to look at the market cap of competitor GWRE and compare its sales, profits, etc. with COVR.
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Cover-All Technologies Inc.
412 Mt. Kemble Avenue
Suite 110C
Morristown, NJ 07960
United States
Phone: 973-461-5200
Web Site: http://www.cover-all.com
- Serving Property & Casualty Industry since 1981 - Evolving from provider of a niche solution to enterprise-wide solutions through development & acquisition PRODUCTS Software and services targeting Property & Casualty core operations and business intelligence. STRENGTHS Software Design Insurance Expertise Technology I/P & Inventory Customer Base Recurring revenue model with multi-year contracts BUSINESS MODEL License & Support - Perpetual or Subscription License - Recurring Support revenue from renewable multi-year contracts - Growth through new products, services and product expansions Services - Initial implementation & ongoing modifications - 100% service performed by COVR, customer or consultant. - Onshore & offshore scalable staffing model. - listed on NYSE: MKT - COVR - Employees: 80 full time, 95 dedicated offshore ********************LIST OF CUSTOMERS / SIGNED CONTRACTS*************************** 1. 2. 3. 4. ACE Puerto Rico ( PR on 11/6/2012) Upgrade/Renewal 5. Mountain West Farm Bureau Mutual (PR on 11-12-2012) NEW Customer 6. Triple-S Propiedad - Puerto Rico (PR on 1-8-2013) Upgrade/Renewal 7. Society Insurance (PR on 2-21-2013) NEW Customer 8. Tier 1 Multinational Insurer - to handle their strategic commercial lines business for their U.S. operations (PR on 4-2-2013) NEW Customer 9. Nationally-known Tier 1 Insurance Company (PR on 4-18-2013) Upgrade/Renewal ***from the PR on 6-20-2013 think that this is Old Republic*** 10. Upgrade/Renewal. PR on 7-16-2013. 11, Upgrade/Renewal. PR on 7-16-2013. 12. Upgrade/Renewal. PR on 7-16-2013. 13. A division of a nationally well-known Tier I insurance company - Business Intelligence Suite software. PR on 8-20-2013. 14. Antilles Insurance (PR on 9-4-2013) Upgrade/Renewal 15. SECURA Insurance (PR on 9-18-2013) Upgrade/Renewal 16. Allied World U.S. (PR on 9-26-2013) NEW Customer ************************************************************************************************** |
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