Posts from the ‘Uncategorized’ Category

Research: Innodata

Innodata

What they do:

• data engineering
• solve complex data challenges that companies face when they build and maintain artificial intelligence (AI) systems and analytics platforms
• seems like they basically manipulate large data sets so it is more usable
• 27.6mm shares outstanding at $1.95 for $56mm market cap
• they have $11mm of cash and $5mm of debt
• revenues were flat yoy on Sept quarter
• about 35% gross margins
• they made about 3c EPS in September quarter
• they were operating cash flow positive $4mm of operating cash flow in 9m

Employees:

• have 3000+ employees
• deep data domain expertise in various fields, including law, sciences, health, finance, and technology
• process data in over 25 languages
• work from our global operations centers in India, Israel, Sri Lanka and the Philippines
• expert staff provides an attractive alternative to the crowdsourced labor pools of competitors
• well-suited for high-context data, such as legal contract classification, medical images, medical records, and scientific and legal literature
• hybrid approach to produce large-scale, highly accurate data – AI and human expertise to tackle

AI SaaS Platform

• have AI-augmented SaaS platforms
•                 automates complex data annotation and data transformation tasks
• combines advanced dataflow, deep learning (a branch of AI), and purpose-built applications used by human experts
• enables us to perform data annotation and data transformation at higher efficiency
• dataflow technology enables us to configure workflows for specific data annotation and transformation setting and refining our accuracy thresholds and quality assurance parameters
• our AI is suite of domain-specific and task-specific microservices each of which performs a discrete data-related task
• AI microservices have a range of capabilities for data annotation and data transformation including deep sequence labelling, categorization, segmentation and sequence-to-sequence mapping
• when review required, dataflow automatically routes data to an appropriate human expert
• Synodex intelligent data platform – competes with Risk Righter, EMSI, Parameds and a few BPO companies
• Agility intelligent data platform competes with Meltwater, Cision, Kantar, Infomart and West Corporation

Problem they seem to be trying to solve:

• For AI-based algorithms to perform accurately, they need to be trained on large amounts of high-quality data
• projects fail, stall or perform inadequately because data sciences teams are unable to perform the complex and resource-intensive data preparation tasks necessary to properly train, tune, and operationalize AI models
• preparing high-quality data takes up 80% of the time for most AI and machine learning projects
• 19% of companies responding stated that lack of data or data quality issues was a main bottleneck holding back further AI adoption

New Market Opp

• re-designed our solutions and product portfolio in order to address the needs of enterprises across verticals for data annotation and data transformation
• aim to dramatically expand our addressable market
• historical core market for providing data services to information companies is relatively small (estimated by us to be approximately $250 million and to not show growth over the next several years), the market for AI and machine learning-relevant data preparation solutions is estimated to grow from $1.5 billion in 2019 to $3.5 billion by the end of 2024
• overall enterprise AI spend that is projected to reach $53.06 billion by 2026, registering a CAGR of 35.4%
• intend to shift our revenue mix from “services” to “solutions” and “SaaS products”

What is data preparation?

• data annotation (which is estimated to take up 25% of the time)
  • image and video annotation services and platforms may be used to annotate, or label, objects or people in images/video for facial recognition systems
  • text annotation services and platforms may be used to convert raw text data into richly tagged, AI training data
  • provide image/video data annotation and text annotation as full solutions, in which we provide all required technology, infrastructure and expert resources
  • provide data annotation for healthcare, compliance, scientific, financial and legal markets
• data transformation (which includes data identification, aggregation, cleansing and augmentation and is estimated to take 55% of the time)
  • data transformation solutions for high-accuracy data identification, aggregation, cleansing, augmentation and extraction
  • enables data to be extracted from websites, as well as internal data stores; converted from disparate formats including PDF; enriched with the necessary semantics, metadata and linking; and classified in accordance with an ontology or knowledge graph
  • consumed via API
• TAM: AI and machine learning-relevant data preparation solutions is estimated to grow from $1.5 billion in 2019 to $3.5 billion by the end of 2024
• global services and technology company focused on data transformation, enrichment, and management

Q2 Results/CC

• Synodex and Agility: expecting that we grow both of these businesses this year
• Synodex
  • have built the technology and systems to extract complex medical data from unstructured medical records
  • first half revenues increased 28% over last year, with revenues this quarter increasing 31% year-over-year.
  • enjoys strong 60% plus incremental margins, and nearly all of its revenue is recurring in nature
• Agility
  • SaaS Platform
  • providing full PR workflow platform
  • small player in the overall $3 billion global PR workflow market
  • ended the quarter with a year-to-date net retention of 87%, just a few points shy of our internal target of 90%
  • booked about $750,000 of new business with a small direct sales staff
  • from Q1 2019 to Q4 2019, we practically tripled bookings per sales executive.
  • given improved productivity, economics now support rapidly scaling the sales force
• on AI market:
  • late last year, we discovered a whole other market, practically made-to-order for us, just in its formative stages with significant growth expected in the next several years. This market is the AI data preparation and annotation market
  • Data sciences teams that want to build AI models need to train those models with large quantities of very high-quality data. But they express continued frustration that creating high-quality data is a task for which they are ill equipped
  • started marketing and selling AI data prep and annotation services in Q4 of last year
  • have closed 15 new customers. We have another 16 customers in late-stage pipeline that are expected to close in the second half.
  • majority of these deals will produce recurring managed services revenue at our target margins.
  • one of our recent data annotation wins is with a prominent big tech company
• did a very important release just in the fourth quarter. And the result of the work that we’ve done, the release that we’ve done is enabling us to compete with the 2 largest companies that dominate this market.
• product has been validated by Atlas and ranked highly in, I think, 7 out of 9 areas. It’s ranked as the top product
• saw a couple of important acquisitions take place last year in this space. One of which was -I want to say it was 5x revenue, their valuation
• Forecast:
  • new data annotation market in combination with a forecasted expansion from one of our largest traditional market clients will nevertheless enable us to show sequentially improving revenues
  • just the first half of 2020, we have already booked 71% of our full year 2019 bookings
  • presently forecasting beating 2019 bookings by 32%,
  • expect that the result will be a net savings of approximately $2 million in 2020 and $2.6 million in 2021

Tough to buy this after the big move.

Research: Innovative Solutions and Support

Notes from their Q2 Release and Call:

Q220 results

• backlog was up to $6.5mm
• started seeing production deliveries from newest customer – Textron
• they had just announced that they had been awarded supplemental type certification (STC) with thrustsense autothrottle of the Beechcraft King Air 300 on Aug 4^th
• thrustsense provides VMCA and engine protection – proportionally reduces engine power to maintain directional control
• offers protection against catastrophic upsets with the loss of an engine if pilot fails to maintain adequate airspeed
• installing the autothrottle is risk mitigation
• is the first and only certified autothrottle for King Air 200 and 300 aircraft
• there are over 5,000 King Airs out there
• annual production rates of King Air is higher than Pilatus
• is being actively marketed at service centers and at Textron shops
• will be standard equipment on all new King Air 360 turboprops
• also will be added to new 200s and C9s
• – their operating expenses were not up at all even though revenue was up 30%
• so now they have OEM production contracts for 3 aircraft: Boeing KC-46A, Pilatus PC-24 and the King Air
• are beginning to market the autothrottle to Textron and other OEMs for twin jets – so so beyond twin turboprop aircraft
• from QA: also do single engine airplanes, finding that military and air transports
• said in Q&A they are in advanced discussions with other OEMs and military
• Pilatus program remains on-track to deliver 50 aircraft this year – that woud be about $2.75mm for the Pilatus
• they are already on 100 Pilatus manufactures
• seeing steady demand for flat panel displays from air cargo companies buying 757 and 767 and converting them
• KC-46 program, which is also a production contract, continues to make contribution
• the one questioner seems to suggest that new production from the King Air isn’t very much – says King Air has been around for 30 years, doesn’t know how many new King Airs will be produced
• large market for King Air is not ongoing production, it is the 5,000 units out there – and points out these are valuable aircraft, not “single engine piper cubs” – the piper cub is a small 1-2 seater, vs a King Air is this:
• new King Air 360 is a fast airplane – and older airplanes are getting upgraded with new engines
• FAA said they lose 100 lives a year and that the safety feature on the autothrottle will save those
• they shipped 13 units for King Air in the quarter
• the company is built on retrofit, in the past did: $150 million on the KC-135 program. RVSM for over 60% of the world market
• according to one questioner – they are doing “pretty aggressive hiring”
• Textron retrofit business could be more than the OEM business – sounds like it should be – the 5,000 aircraft out there are all operating, they are significant investments, retrofit cost is small compared to the expensiveness of the airplane
• have not sold one retrofit yet and market opportunity is $250mm to $300mm – this is King Air only, we are not talking the existing Pilatus retrofit opp
• should know in 1-2 quarters how they are penetrating retrofit market

While I imagine the stock still doesn’t screen that well because they haven’t hit any inflection, this is aerospace so there would be a perception that this will get hit by commercial air travel recession (it will not) and it remains a small company ($120mm market cap).  But the business is as well placed as it could be.  Unless they are lying about the opportunity I don’t see what derails this.

Research: Big 5 Sporting Goods

I have been surprised that Big 5 has not performed better.  One reasonable bear case I can think of is that this year will be a flash in the pan.  I looked back at the historical results to see how Big 5 has performed over the last 10 years.

Highlights from Q2:

Q220 result highlights:

• SSS increased 31.9% in July
• at end of July had no debt and $38mm cash position
• in Q220 they had SSS decrease 4.2% yoy
• in second half of Q2 SSS increased 15.5%
• they had much higher GMs, up to 31.7% from 30.3% yoy – due to product mix favoring high margin categories, less promotional activity
• also they have reduced costs, and reduced warehousing
• SG&A was lower because of “lower employee labor expense reflecting reduced store operating hours and lower advertising expense during the period”
• they are guiding for 5% to 15% SSS increase through the rest of Q320 – would mean 14% to 20% SSS for Q3 as a whole
• EPS for the quarter would be $1-$1.30 per share
• still have 431 stores in operation
• they had opened all closed stores by May

HIBB Comp:

Research: YRC Worldwide

• this is from a Stifel note
• they started YRCW at hold, $5 target

we don’t expect much focus on a company employing union workers in an election year that is going to be usingthe money to buy equipment from U.S. manufacturers.

• YRC has oldest fleet in the industry
• new trucks will save $20k per year in opex
• if they spent $400mm on new tractors, run rate EBITDA would improve $60mm by YE 2021
• even a 5-year old truck would be newer than their fleet right now
• when you add the $700mm from the gov’t onto existing debt total debt is $1.57b by YE 2021
• the EBITDA increase from the new equipment isn’t likely to be beyond $60mm IMO – in the YRC Q2 call they said:

our maintenance expense for a 1-year unit is somewhere in the $1,000 to $2,000 range. Obviously, a full powertrain warranty. And you might ask why $1,000 to $2,000, well you’ve got few — I mean, you’ve got brakes, you’ve got antifreeze, you’ve got oil. You got everything that goes with the daily maintenance of that unit. And then you go out to 5, 6, 7, 8, 9, 10 years, you get in into a number that is probably closer to $11,000, $12,000. So we can easily clip a 10,000, maybe a little bit more coupon per tractor on maintenance expense alone and does nothing to take into consideration what we can get on miles per gallon and fuel efficiency.

• so really, you’ve got a market cap of $170mm and a 2021 EV of $1.74b – even at $300mm EBITDA you are at almost 6x EV/EBITDA
• when I look at an ArcBest they are cheaper than that (~4x EV/EBITDA) and a better company.  The idea that YRC should trade at any premium to the average trucking name is kinda crazy
• its been a nice run but really this was just about getting a ramp from the short interest and the government bailout.  It is probably time to get out