Diligent shares soar with sales, investor support

Diligent shares soar with sales, investor support

Jan. 19 (BusinessDesk) – Shares in start-up software company Diligent Board Member Services jumped 19% after it posted record fourth-quarter sales and major investors showed their support for the company.

Despite the company's strong progress and appearance of beginning to generate strong cash flow, Diligent's major shareholder, Spring Street Partners LP decided to forego US$200,000 of the dividend it was entitled to for the preferred stock it holds, which amounts to two-thirds of total preferred stock on issue A total of US$359,338 in dividends was due on Jan. 3.

Chief executive Alex Sodi says those dividends have been completely foregone and won't be held over or paid out in shares.

“No strings attached, it's pretty remarkable. He (Spring principal David Liptak) decided to waive it for the company to use for growth. They're a significant shareholder so I guess you can say they're helping themselves,” Sodi says.

The preferred stock was issued in early 2009 to Spring and another Wall Street firm, Carroll Capital, on very favourable terms in a rescue package for Diligent. Spring effectively owns about 25% of Diligent. Sodi says Carroll was happy to take its share of the dividends.

Sodi says he expects Diligent's sales momentum to continue.

Diligent's actual fourth quarter sales rose 59% to US$2.45 million (NZ$3.2 million), taking annual sales for calendar 2010 to US$8.3 million, up 66% on the previous year.

Additional annualised license fees in the quarter were US$1.56 million, up from US$0.75 million in the fourth quarter of 2009, taking annualised sales to US$10.02 million from US$6.3 million at the end of 2009.

The shares jumped to 80 cents from 67 cents yesterday after the results were released. That's still down on the $1 float price in late 2007 but well above the 7 cents low in March 2009 when Diligent's future was in doubt.

John Kidd at McDouall Stuart, which sponsored the Diligent float, said the company had been saying for some time “its pipeline looks good into 2011 so a strong 4Q10 result isn't unexpected.”

Gina Meo at First NZ Capital, which initiated coverage of the stock after arranging a NZ$1.86 million placement at 62 cents a share for Diligent in October last year, says the additional license fees for the quarter were well above her US$1.2 million forecast.

“With such a strong sales result reconfirming our investment thesis on the stock, we remain positive on Diligent's prospects,” Meo says. In December, she valued the shares at 99 cents.

The company, which broke even on a cash-flow basis for the first time in its third quarter, didn't mention its profitability, other than to say it increased its gross margins every quarter of 2010 and significantly strengthened its balance sheet and cash-flow generation.

Sodi says the company didn't add any expenses in the quarter – it had eight sales people and has since added another two including one in Singapore (opening the Singapore office is one of the reasons the company expects upwards sales momentum).

That suggests the cash flow position was even stronger in the fourth quarter. Diligent had US$1.2 million in cash at September 31 and the October placement added a further about US$1.4 million.

Sodi places great significance on the acceptance of Diligent's Boardbook software, aimed at directors of boards, for Apple iPad 1.0 into the Apple App store earlier this month which the company says “has created unprecedented demand.” Previously, Diligent had an iPad-compatible version.

Sodi says the new iPad version means directors no longer need to log on but receive continuously updated and encrypted data – security is a key requirement, he says. “It looks and feels even more like a paper book.”

The iPad versions had little impact on fourth quarter sales but are likely to generate a lot of interest from now, Sodi says.

Diligent reported a US$580,000 operating loss for the three months ended September but made a US$590,000 net profit for that quarter after writing back US$1.1 million on previously written-off debt.

(BusinessDesk)

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