Captaris CAPA
May 22, 2001 - 9:28pm EST by
2001 2002
Price: 2.89 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 89 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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Captatis (CAPA), formerly known as Applied Voice Technology, is a company undergoing a significant transition. Yet, during this period of change the company has managed, with the exception of an extraordinary last quarter, to generate a profit and positive cash flow. Concurrently, the company has continued to fund product enhancement and development efforts. The returns from these investments and its recent acquisition will likely be felt over the coming year.

Captaris is a software company with its roots in call processing, call center, fax server and production fax software solutions. Sounds like a mouthful, but the company has over time build a diverse portfolio of product offerings for a $100 million concern, largely through acquisitions.

The RightFax product line is the market leader in managing the distribution of documents via fax over local area networks. CommercePath software enables mass fax document distribution in a production environment. A travel agent might use this software to automate the daily distribution of travel itineraries to vacationers. Or a brokerage firm might use the software to automatically send confirmations to its customers. MediaLinq provides outsourced fax services to companies that don’t want to manage document distribution processes in house.

I am less familiar with the call processing and call center product offering but understand these software products to be sold largely to small and mid-sized companies.

The company has no debt, $77 million in cash and, with the exception of last quarter, generates positive cash flow. The current equity market capitalization is $89 million. Therefore, you can pick up a business that will likely return to generating positive cash in the $18-$20 million range annually for LESS THAN ONE TIMES CASH FLOW.

This company was once a growth darling and earned a handsome multiple. Growth hit the wall last year for reasons that aren’t at all clear. Revenues contracted from $130 million to $100 million. Net income dropped from $18 to $11 million.

Certainly corporations scaled down their software spending last year and this had an impact, particularly in the call processing business. MediaLinq lost a major account and had to invest to develop a web enabled version of its software. Captaris’ channel partners (100% of sales are made to VARs) seemed to drop the ball and loose focus. Market saturation for fax servers….the list goes on.

Despite these problems the company had the resources to acquire Infinite Technologies and reposition itself as a “unified communications and mobile business solutions” provider. Infinite develops software that “extends the user's desktop by making traditional applications and information accessible to mobile workers via wireless, Internet-enabled mobile phones and devices”. Another mouthful.

The bottom line here is that the company is using a sizzling “unified communication” and “mobile business solutions” story to help it, through its VARs, sell more (or upgrade) business communication software solutions. This marketing strategy, and the addition of the Infinite Technologies product line, will help re-ignite growth over time. In the meantime, you’ve purchased a company with an exceptional balance sheet and positive cash flow for what amounts to less than one time cash flow.


Success moving new product and new message through an external distribution channel will move the top line and jump start the share price.
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