Saul, What made you pick PSIX? It is Cash flow negative, doesn’t make a profit but I see that its Revenue is going up and it does have an operating profit. But won’t it need to raise revenue soon if it doesn’t become profitable or at least cash flow positive? Could you give me some insight on why you picked this company?
Andy, I got interested in PSIX about a year ago, in early 2013. At that time the relevant statistics were from the end of 2012. Their revenue from 2010 to 2012 had gone up 100% in 2 years (from $101 million to $202 million). Their adjusted earnings had quadrupled in the same time frame from 19 cents to 81 cents.
They have outstanding warrants (I believe from their IPO). This means that when the stock price goes up GAAP reprices the warrant “obligation” and the GAAP earnings go down. It’s another example of how ridiculous GAAP earnings are and why I ONLY use adjusted earnings (or “real” or “cash” earnings).
Here’s an explanation from the most recent earnings announcement.
Other expense for the fourth quarter includes a non-cash charge of $6,373,000, or $0.60 per diluted common share, resulting from an increase in the estimated fair value of the liability associated with the warrants issued in the Company’s April 2011 private placement. The increase in the estimated fair value of this warrant liability was primarily related to the increase in the Company’s stock price in the fourth quarter.
The net loss for the fourth quarter of 2013, which included the warrant revaluation adjustment, was $3,752,000, or $0.36 per diluted common share. This compares to net income of $745,000 or $0.08 per diluted common share for the fourth quarter of 2012, which also included a warrant revaluation adjustment.
Net income for the fourth quarter of 2013, adjusted to remove the warrant revaluation impact was $2,621,000, or $0.24 per diluted common share.
Now if that’s not enough to make you never pay attention to GAAP earnings again, I don’t know what would be. And to think that GAAP was originally supposed to be to help investors get a clearer picture of what’s happening in the company!