A tale of two companies: GVI and Mace
3Q results for both GVI and Mace were released yesterday, and I couldn't help thinking that the two companies are more than a little comparable, and that Mace could maybe look to GVI's success as instructive. When I first started covering GVI, newly installed management team of Steve Walin and Joe Restivo came to the company swimming in debt and in a somewhat desperate search for funding. Coming off a $4.5 million quarterly loss, "This has led to a situation where the company has just $1.8 million in cash and a working capital deficit of $3.6 million." As in, yikes! However, the company issued a billion shares, raised $4.75 million, and got itself back on track by cutting all non-core business operations, focusing on the Samsung brand and product line, and running a top-notch operation in terms of service and dealer support. Now, even in an economy that continues to lag, especially for those depending on the construction market, GVI is reporting its 11th straight profitable quarter, just as it moves into the private sector, escaping a million bucks a year in money spent to be compliant with government regulations. It's barely profitable, of course: "[N]et income was approximately $84,000 or $0.00 per diluted share, as compared to net income of approximately $254,000, or $0.01 per diluted share, in the quarter ended September 30, 2008." But if you can report profit in this economy, you're pretty happy. Just ask Mace. Despite the efforts of Dennis Raefield, the company continues to struggle. Mace's third quarter results aren't that pretty:
Net loss for the three months ended September 30, 2009 was approximately ($2.4) million, or ($0.15) per share, compared to a net loss of approximately ($2.1) million, or ($0.13) per share, for the three months ended September 30, 2008.Further, that larger net loss is on smaller revenues: "Total revenues for the third quarter ended September 30, 2009 were $8.2 million, as compared to $10.3 million for the same period in 2008." Raefield is understandably disappointed and sounding frustrated:
â€œThe third quarter was disappointing in that we were not able to achieve the revenue growth we had anticipated. The effects of the economic downturn which began in 2008 were much longer lasting, limiting new building construction, which continues to delay projects requiring our security products, and separately, negatively impacting our Digital Media business through a tightening of credit availability for our customers. Even with continued rising monthly sales in our Security Segment, we were not able to achieve our overall sales and profit goals. We recognize that, while we are recovering, it is still not fast enough.At this point, even with the CSSS buy, Mace may very well find itself right where GVI was three years back:
The Companyâ€™s net book value was $35.8 million, or $2.23 per share, at September 30, 2009. In addition, Mace had $49.2 million in total assets, including $4.6 million of cash and short-term investments, at September 30, 2009.Losing $2 million a quarter and just $4.6 million in the bank, will Raefield be seeking funding the same way Walin and Restivo were? Very possible. Is the environment for such a placement far worse now than it was in 2006/2007? Um, yes. Might the best option for Mace be a similar acquisition by a private equity firm, getting rid of those pesky public reporting requirements and getting some of the pressure for instant profit off of Raefield's back so he can build the recurring portion of the business without quarterly reports hanging over his head? That kind of makes sense to me. We'll see what happens.