Act Teleconferencing Inc (fka ACTT)

[1manband]

Current revenue is not that high. I think it is probably closer to $50-$70 million.

Take a look at the company's history. In 2003-2006, revenue actually FELL from $55.7 million in 2003 to $53.6 million in 2006. Yet you want us to believe revenue has QUADRUPLED in the 4 years since? No way. Especially because 80% of their 2006 revenue was audioconferencing, which has been hurting. In a market research report, international audioconferencing revenues FELL 24% in 2009! Thanks to cheap bandwidth and the internet (Skype, for instance), the price of such services has been falling. From ACT's 2006 10-K:
"Volume increases accounted for roughly $7.2 million in increased revenue, pricing concessions eroded the increase by about $4.8 million".
That is a HUGE price decline, and as the survey demonstrates, volumes are WAY down since then as well. And, much of ACT's revenues came from a contact from AT&T - a contact they no longer have. That contract provided between 30-40% of ACT's revenue. Put all that together and all signs point to little to no growth in their audioconferencing revenues. If not outright declines. What once was 80% of the company's revenues has not been mentioned much at all in the company's press releases in years. Not a good sign, either.

The one segment which ACT has been talking about has been their video conferencing. That is probably growing, but how much? Again, from the 10-K, their video conferencing revenues actuall FELL substantially between 2003 and 2006. From $18.5 million to just $10.3 million! The base from which they were growing is pretty low.

Yes, they have been talking about some milestones in their press releases, but they are mostly trumpeting gains in specific and very narrow areas. Such as "Reservationless conferencing", which suggest a low margin business. Also, their releases indicate much of their revenue gains have come in "channel revenue" - in other words, from third parties. Because those are resales through third parties, they have much lower margins.

Do I think ACT is doing well? Actually, compared to the industry, yes. BUT, because of ACT's convertible preferred shares, with their liquidation preference which increases by 44% every year, I don't think it is nearly enough to give the common stock any value. I tried incredibly hard to find a case where the company's value would be greater than the liquidation value, but I just don't see it. Not now, and certainly not in future years where the common stock gets even further underwater. Salas acquired the company for $16 million in 2006 - nothing I have seen would account for the current value of the Company to now be above $72 million - the mimimum number for the common shares to have any value whatsoever.

They are in what has become a commodity business. Even their most recent SEC admit as such - there is very little unique about them that separates them from any other audio or web conferencing company (of which there are a lot). Even if we assume the company is growing at a 30% rate year-over-year, it is still not enough to bring value to the common shareholders. Because of the overhanging preferred stock, they need a 44% increase in value EVERY YEAR just to keep up and tread water, much less increase in value. I just can't get the numbers to work. Oh, and one more telling fact – ACT is currently hiring, but if you search the web, they list their annual revenues in the $50-100 million category. I think it is closer to $50-70 million.

If anyone wants to check the number as well as the convertible preferred description and how it makes the common shares worthless:, read the last 10-K and 10-Q.

10-K http://www.sec.gov/Archives/edgar/data/918709/000119312507070183/d10k.htm

10-Q http://www.sec.gov/Archives/edgar/data/918709/000119312507115105/0001193125-07-115105-index.htm

Under what scenario does the common stock have any fundamental value? Only if the value of the Company exceeds the value of the preferred stock liquidation value (right now at least $72 million). Even if you believe that the value of the Company RIGHT NOW is great than the current liquidation value (around $72 million, but may be higher), the only way the common stock would have value in that case is if Salas decides to sell the company. Common shareholders would receive the difference. But, Salas is not dumb - quite the contrary. His preferred stock grows in value by 44% every year. He is unlikely to sell the company until he maximizes his percentage return. To do that likely means no sharing with common shareholders. Unless the company is growing at 44% every year, even if you believe in the unlikely scenario that the common shares have any value now, they probably won't next year. Or the year after. Or the year after that. It is in his best interest to wait it out and make sure he and the preferred shareholders get 100% of the money, and the common shareholders get nothing. Since his liquidation preference is increasing at the rate of 9.55% every quarter, all he would have to do is wait.