Friday, 15 August 2008

Brainhunter's Q3 Numbers Out

Brainhunter Inc. (BH - TSX)


Basic shares: 47.24 million

Below is a summary of a series of points taken from the Management Discussion & Analysis in conjunction with the release of Q3F08 (June 30) with the first numbers being the current fiscal period and the latter from the corresponding period in F07.


  • Revenue nine months UP: $180.6 million vs. 167.3 million.


  • Revenue Q3 UP: $61 million vs. $55.6 million.


  • Cost of sales nine months UP: $154.6 million vs. $142.8 million.


  • Cost of sales Q3 UP: $52.4 million vs. $47.5 million


  • EBITDA nine months DOWN: $1 million vs. $5.4 million.


  • EBITDA Q3 DOWN: $1.2 million vs. $1.8 million.


  • In relation to EBITDA declining in the F08 periods, there is a long list of items listed in the MD&A ranging from $1 million in costs and reserves for potential litigation to additional office space in three cities, higher staffing salaries, increased consulting fees, higher G & A expenses etc.


  • Earnings from continuing operations nine months DOWN: ($6 million) vs. ($1.6 million).


  • Per share DOWN: ($0.14) vs. ($0.04).


  • Earnings from continuing operation Q3 DOWN: ($899k) vs. ($654k).


  • Per share FLAT: ($0.02) vs. ($0.02).


  • Gain from disposal of discontinued operations nine months: $8.6 million = $0.20/share


  • Gain from disposal of discontinued operations Q3: $1.6 million = $0.04/share


  • The above two points relate to the $10 million licensing sale to Workopolis for BH's CareerSite technology in North America.


  • Total long-term financial liabilities Q3 DOWN: to $33.9 million from $41.1 million


  • BH has repurchased 691 thousand shares to June 30th under the Normal Course Issuer bid announced this past March.

We believe based on discussions with management that it is very focused on knocking down debt as is evidenced by the drop in its financial liabilities. To make the company more attractive to all audiences, debt reduction and attention to the balance sheet is rather important to state the obvious.

However, in context of the fact that EBITDA is down considerably in the first nine months of F08 compared to F07, a reality check says the market is not going to rush to this stock until sustained quarter over quarter is delivered.

Brainhunter deserves kudos for closing the licensing deal with Workopolis, which speaks to the value of that technology, which is a drum that management has been banging for a considerable period of time. We are of the mind that management is working on other possible licensing arrangements but are not aware of anything immediately pending.

The stock has been pushed down to the $0.30 range on miniscule volume. Based on the revenues for the first nine months, it looks like BH should be around $240 million in sales this current fiscal year. We are now in Q4, which wraps up at the end of September. While one could point out that equates to about $5 sales per share, it may be a better measure to solely look at the gross margin.

It's running at around 14% of sales. Based on a $240 million number that equates to about $34 million or $0.72/share. On the other side $34 million is very close to total long-term financial liabilities.

Should the market be solely looking at the EBITDA number for the first nine months of the fiscal year, that works out to $0.025/share compared to approximately $0.12/share a year ago.

There's lots of ways to look at BH in context of its history, potential and ups and downs. From the market's perspective on BH, it's been a long road to this point and now we'd all like it to be a drive across the prairie as we've done our time through the mountains.