EVANS & SUTHERLAND COMPUTER COR (ESCC) research, news, and more from GeoInvesting

Company description

Wed, 30 Jul 2008 04:00:00 GMT

Evans & Sutherland Computer Corporation engages in the production and sale of visual display systems used primarily in full-dome video projection applications, dome projection screens, and dome architectural treatments in the United States and internationally. The company’s products include planetarium and dome theater systems consisting of proprietary hardware and software, and other visual display systems primarily used to project digital video on large curved surfaces. It also produces content for planetariums, schools, science centers, other educational institutions, and entertainment venues; and show content for its own library that it licenses to customers and for specific customer requirements for planetarium and dome theaters. In addition, the company manufactures and installs metal domes with customized optical coatings and acoustical properties that are used for planetarium and dome theaters, and other custom applications; and designs and supplies geometrically complex structures for customized architectural treatments. Evans & Sutherland Computer Corporation was founded in 1968 and is headquartered in Salt Lake City, Utah.

Research

Tue, 11 Feb 2020 05:00:00 GMT

Yesterday we highlighted a definitive agreement in which ESCC agreed to be acquired for $1.19 per share in cash. Shares traded up 96% to $1.14 for the majority of the trading day. Via premium tweet we stated that we had closed out our position.

In 2014 we added ESCC to our Run to One Portfolio when the stock was trading at $0.14. Yesterday’s tender offer of $1.19 represents a 750% return.

Research

Mon, 10 Feb 2020 16:07:40 GMT

Evans & Sutherland (OOTC:ESCC) ($0.58, $6.6M market cap), a company that engages in the production and sale of visual display systems used primarily in full-dome video projection applications, announced that they have entered into a definitive agreement in which Elevate will acquire, through its acquisition subsidiary, E&S for $1.19 per share in cash.

"Under the terms of the agreement, a subsidiary of Elevate will commence a cash tender offer to purchase all of the outstanding shares of E&S common stock for $1.19 per share. The closing of the tender offer is subject to customary closing conditions, including the tender of greater than 50% of the shares of E&S common stock on a fully diluted basis. The agreement contemplates that Elevate, through its subsidiary, will acquire any shares of E&S that are not tendered into the offer through a second-step merger, which will be completed as soon as practicable following the closing of the tender offer. It is expected that the transaction will close during the first quarter of 2020, subject to customary closing conditions.

The boards of directors of Elevate and E&S have each unanimously approved the transaction. Contemporaneously with entering into the merger agreement, certain shareholders of E&S holding in the aggregate approximately 51.1% of the outstanding shares of E&S, executed tender and support agreements pursuant to which they agreed to tender their shares in and vote in favor of the transaction."

In 2014 we added ESCC to our Run to One Portfolio when the stock was trading at $0.14. Today’s tender offer of $1.19 represents a 750% return.

Research

Thu, 08 Aug 2019 15:30:23 GMT

Evans & Sutherland (OOTC:ESCC) ($0.76, $8.8M market cap), a company that engages in the production and sale of visual display systems used primarily in full-dome video projection applications, dome projection screens, and dome architectural treatments in the United States and internationally, announced Q2 2019 results:

Sales of $8.0 million vs $8.8 million in the prior year
EPS of $0.02 vs $0.04 in the prior year

While sales are still down year over year, it was nice to see the Company return to profitability after posting a loss in the prior quarter.

ESCC continues to be an unexciting story as it deals with limited growth opportunities in its small niche market. Until it finds new channels for its legacy products or retools them to enter new markets, we think ESCC’s financial performance will remain capped and unexciting with occasional large positive and/or negative surprises.

We expect, in the worst case scenario, as the company continues to explore new growth opportunities, that the stock likely trades between cash per share and book value per share, $0.57 to $0.67.

Research

Tue, 21 May 2019 15:24:23 GMT

Evans & Sutherland (OOTC:ESCC) ($0.61, $7.0M market cap), a company that engages in the production and sale of visual display systems used primarily in full-dome video projection applications, dome projection screens, and dome architectural treatments in the United States and internationally, recently reported sub-par Q1 2019 results which we highlighted here.

Several days after the quarter, diretor Tim Pierce filed a form 4 showing he purchased 49,600 shares at an average price of $0.60. This open market purchase, coupled with the fact that ESCC is trading near cash per share of $0.55, has us believing the stock is near a level of support.

While we’ve previously lightened up on our position, we plan to re-interview management before making our final decision on our plans for the remainder of our position.

Research

Mon, 13 May 2019 15:40:36 GMT

Evans & Sutherland (OOTC:ESCC) ($0.72, $8.2M market cap), a company that engages in the production and sale of visual display systems used primarily in full-dome video projection applications, dome projection screens, and dome architectural treatments in the United States and internationally announced Q1 2019 results:

Sales of $7.1 million vs $7.5 million in the prior year
Loss of $0.06 vs a loss of $0.01 in the prior year

“The low volume of new customer orders decreased the sales backlog to $15,128 as of March 29, 2019 compared to $17,366 as of December 31, 2018. New orders to replenish the sales backlog will be critical to produce sales at sufficient levels for profitable results. We remain encouraged that the Company’s sales prospects will produce sufficient orders to sustain sales at profitable levels over the long term; however, we anticipate that the low backlog as of March 29, 2019 could continue to challenge profitability in 2019.”

It was certainly a good ride from $0.14, when shares rose to hit $1.46 as the company cured balance sheet issues, stabilized its business and returned to a positive shareholder equity standing. As we've been disclosing in prior updates, we have been significantly reducing our position in ESCC. We are considering removing the stock from our selected long screen, but we are waiting to follow up with management first.

Research

Tue, 12 Mar 2019 16:29:55 GMT

Evans & Sutherland (OOTC:ESCC) ($0.78, $8.9M market cap), is a company that engages in the production and sale of visual display systems used primarily in full-dome video projection applications, dome projection screens, and dome architectural treatments in the United States and internationally. Yesterday we highlighted the Company’s Q4 2018 results, which can be seen here. We noted that:

“Over the medium-to-long-term, ESCC is going to need to find ways to accelerate its growth rate by entering new markets or exploring new ways to apply its technology.”

After a closer inspection of the 10-K, we noticed that the Company’s market size did in fact expand. In this years 10-Kmanagement states:

“We continue to maintain a significant share of the overall planetarium market. We estimate that the annual market for our planetarium products ranges from $65 million to $100 million and varies each year depending on the timing of customer projects. We estimate our share of the planetarium market has ranged from 30% to 50% each year.”

Prior 10-K verbiage showed a market size of approximately $65 million with the Company’s market share ranging from 35% to 70%.

As we stated yesterday, with the stock trading near its cash and tangible book value, it is likely that these levels will offer some support as the Company tries to replenish its backlog and capture a greater share of the increased market it serves.

Research

Mon, 11 Mar 2019 14:39:04 GMT

Evans & Sutherland (OOTC:ESCC) ($0.89, $10.1M market cap), a company that engages in the production and sale of visual display systems used primarily in full-dome video projection applications, dome projection screens, and dome architectural treatments in the United States and internationally, filed its 10-K.

Q4 2018 results:

$8.5 million vs $7.7 million in the prior year
EPS of $0.06 vs $0.06 in the prior year

After a strong Q3 that was boosted by a one time project, ESCC has returned to a more normalized quarterly run rate. While revenues for Q4 2018 were up slightly over the prior year, the backlog was down from the previous quarter and from the prior year period. As of December 31, 2018, the Company’s backlog was $17.3 million compared to $18.7 million as of September 30, 2018 and from $27.3 million in the prior year period.

Management offered caution for the early quarters of 2019 as they attempt to replenish the backlog.

“We remain encouraged that the Company’s sales prospects will produce sufficient orders to sustain sales at profitable levels over the long term; however, we anticipate that the low backlog as of December 31, 2018 may result in lower sales that could challenge profitability for early reporting periods of 2019.”

With the stock trading at close to cash per share levels and a TBV of $0.70 and $0.56 respectively, it is likely that these levels will offer some support as the Company works to replenish its backlog.

Over the medium-to-long-term, ESCC is going to need to find ways to accelerate its growth rate by entering new markets or exploring new ways to apply its technology. Otherwise, revenues will continue to remain in a tight range as it continues to serve a market that's limited in size, where it normally has anywhere from a 1/3 to to 2/3 market share.

Research

Tue, 06 Nov 2018 16:51:17 GMT

$12.2 million vs $8.0 million
EPS of $0.20 vs $0.06

“The results for the three and nine months ended September 28, 2018 produced net income of $2,361 and $3,019, respectively. The 2018 results exceeded expectations and are unusually high compared to the three and nine months ended September 29, 2017 as well as reported earnings in the Company’s recent history. The outstanding 2018 results were attributable to higher sales from an unusually large volume of work performed on customer planetarium projects in the third quarter of 2018. The work completed on customer projects in the third quarter of 2018 included expenditures of resources required to complete several planetarium installations and to meet customer schedules for upcoming installations. Although exceeding our expectations, the results of third quarter of 2018 demonstrate the degree of variability in sales that can occur from the timing of customer orders and deliveries. We do not expect sales at this level in any foreseeable quarterly reporting periods.”

While the results were certainly strong, unfortunately a majority of the increase was from a one time project which the company does not anticipate it will repeat.

It looks like the turn around we wrote about in 2014 has fully played out. At this point, we believe the company will need a major catalyst like a new product line, new industry target or a liquidity event such as being acquired, to provide solid returns to shareholders. In the meantime, given the small industry ESCC plays in, we think sales annual sales will not deviate much from recent levels. It’s worth noting that the company’s fully diluted cash per share is $0.60 and net cash per share is $0.47.

Research

Tue, 07 Aug 2018 14:23:15 GMT

Evans & Sutherland (OOTC:ESCC) ($1.02, $11.6M market cap), a company that engages in the production and sale of visual display systems used primarily in full-dome video projection applications, dome projection screens, and dome architectural treatments in the United States and internationally, filed its Form 10-Q with its second quarter results this morning. The company reported:

EPS of $0.05 vs. a loss of $0.02
Sales of $8.87M vs $6.74M

We have been watching billionaire Peter Kellogg, who has been accumulating shares of ESCC since last year. He now owns over 4 million shares. ESCC is currently in our "Microcap Run to One" Mock Portfolio. You can read our full research on the name here.

Research

Thu, 12 Apr 2018 13:59:25 GMT

Evans & Sutherland (PINK:ESCC) ($1.43, $16.2M market cap), a full dome video projection company, continues to see open market purchases from billionaire investor Peter Kellogg. In a Form 4 filed this morning, it was disclosed that Mr. Kellogg added another 70,719 shares at prices between $1.30 and $1.40, marking the highest levels he has paid in recent years, bringing his total to over 4 million shares.

Research

Mon, 26 Mar 2018 14:13:39 GMT

Evans & Sutherland (PINK:ESCC) ($1.13, $12.8M market cap), a full dome video projection company, which has been one of our top performers over the years, saw billionaire investor Peter Kellogg resurface with an open market purchase 45,700 shares at $1.02 on March 21, 2018.

We last discussed Kellogg’s involvement in late 2016 into early 2017 when he was continuously adding to his already large stake ( 3.7 million shares) by purchasing shares on the open market. In our May 8, 2017 email, shortly after shares hit a new 52 week highs of $1.65 but reported flat Q1 2017 results, we stated:

“that we wouldn't be surprised if billionaire investor Peter Kellogg, who has continuously been adding to his position in the open market, provides price support on share pullbacks.”

While Friday’s form 4 was the first since May, it was encouraging to see. Even more encouraging would be a continuation of this activity, which remains to be seen.

Comments & Business Outlook

Tue, 13 Mar 2018 15:11:39 GMT

Evans & Sutherland (PINK:ESCC) ($1.04, MC $11.8M market cap), a full dome video projection company, announced its Q4 2017 results:

Sales of $7.6 million vs $9.4 million
Non-GAAP EPS of $0.07 vs non-GAAP EPS of $0.17 in the prior year

Results were via 10-k, so commentary is limited. We are reading through the 10-K to see if there are any new insights on product developments and overall outlook.

While results were down on a year over year basis, last year’s Q4 was an unusually strong quarter. The company was able to maintain profitability and the 10-K maintains its outlook for continued growth and product development initiatives.

Research

Mon, 06 Nov 2017 15:26:11 GMT

Evans & Sutherland (PINK:ESCC) ($1.07, MC $12.1m) reported Q3 2017 results:

Sales of $8.0 million vs. $10.3 million in the prior year
EPS of $0.06 vs. $0.05 in the prior year

Quotes from 10-Q (no press issued)

“The current sales backlog and prospects with our current cost structure provide an encouraging outlook for profitable annual results which are slowly improving our financial position. As our recovery progresses from a large stockholders’ deficit eliminated mainly by the 2014 Pension Settlement, we will continue to improve our products and explore new opportunities to increase our sales and profits in an effort to grow shareholder value.”

We feel ESCC has now become more appealing to long term investors who are willing to wait for the next catalyst to drive growth.

Research

Mon, 14 Aug 2017 14:30:51 GMT

ESCC ($1.05) reported Q2 2017 results:

Sales of $6.7 million vs $5.3 million in the prior year
Loss per share of $0.02 vs loss per share of $0.09 in the prior year

Quotes from management via 10-Q

“While the results of operations are disappointing, new sales orders improved the sales backlog to $28,021 as of June 30, 2017. This strong sales backlog along with promising sales prospects provide an encouraging outlook for higher sales levels and profitable results for the second half of 2017.”

Research

Mon, 08 May 2017 14:51:16 GMT

ESCC ($1.52) released its Q1 2017 results via 10-Q after hours on Friday.

Sales of $8.0 million vs $7.9 million in the prior year
EPS of $0.02 vs $0.02

ESCC is up around 1000% since we first alerted members we were buying shares at $0.14 based on a misunderstood pension liability issue. At this point the special situation is over, and it looks like the quarterly run rate is going to fall between break even to $0.08 per quarter depending on the margins of the backlog. We can see the stock trading in a range of $0.80 to $1.50 until management finds new growth drivers (which it is actively seeking). We won’t be surprised if billionaire investor Peter Kellogg, who has continuously been adding to his position in the open market, provides price support on share pullbacks.

Research

Thu, 16 Mar 2017 15:23:06 GMT

ESCC ($1.65) - ESCC reported 2016 year end results on March 13, 2017.

Full year sales of $32.9 million vs $35.2 million
Full year EPS of $0.15 vs loss of $0.11
Q4 sales of $9.5 million vs $7.7 million in the prior year period
Q4 EPS of $0.17 vs $0.04 in the prior year period

ESCC is now up around 1100% since we first alerted members we were buying shares of the company at $0.14 based on a misunderstood pension liability issue.

After taking a closer look at results, it looks like the huge Q4 (well outside the norm for any previous Q) came from a big boost in gross margins. Q4 2016 gross margins were 43% vs. 35% in Q3 2016. Due to the nature of their business, we are more inclined to believe that this was the result of a favorable project that occurred in the quarter as opposed to a new run-rate for gross margin. We have been modeling that the company can report EPS between $0.20 to $0.32 per year on about $30 million in revenues. However, we do see about a $10 million range on our annual revenue assumption to either the upside or downside. This depends on the company’s capture of market share, which ranges between 35% and 70%. Q1 you should give us an interesting perspective on gross margins.

A key limiting factor to excitement over ESCC is that even though the company is a dominant force in its market segment, the size of the market is only about $65 million. Now that the company has put its pension liability issues behind it, management’s next step is to explore new growth opportunities in current and new markets - a task they are pursuing.

It's also important to note that the company's quarters can have occasional volatility due to timing of orders which can at times result in minimal quarterly profits or even losses. On March 14, 2017 we discussed ESCC’s strong Q4 results. You can see the full summary here.

ESCC engages in the production and sale of visual display systems used primarily in full-dome video projection applications, dome projection screens, and dome architectural treatments in the United States and internationally.

Research

Tue, 14 Mar 2017 15:19:44 GMT

ESCC ($1.47) engages in the production and sale of visual display systems used primarily in full-dome video projection applications, dome projection screens, and dome architectural treatments in the United States and internationally. ESCC reported Q4 2016 results via 10-K after hours yesterday. Thus far there is no press releases with the year end and Q4 results (InfoArb). The 10K only breaks out the year. Here is our breakdown of Q4:

Sales of $9.5 million vs $7.7 million in the prior year period
EPS of $0.17 vs $0.04 in the prior year period

Outlook from 10K:

“The year ended 2016 produced healthy sales and gross profit down slightly from 2015. The continued healthy sales and gross profit were attributable to strong sales bookings in 2014 through 2016. The sales backlog remained healthy at the end of 2016 which supports an encouraging outlook for 2017.”

This certainly seems like a blowout quarter in terms of EPS. After taking a quick look at their finanical since 2005, we have not seen one quarter anywhere near the levels of these Q4 EPS results. Since there was no press release, we need to contact management for further clarity.

Research

Mon, 30 Jan 2017 16:01:56 GMT

ESCC ($1.29) - Billionaire investor Peter Kellogg continues to add to his stake. A Form 4 filed yesterday after hours shows he added another 40,000 shares through his limited partnership “Bermuda Partners”. As of the most recent filing, Mr. Kellogg owns 3.75 million shares (directly & indirectly).

Research

Wed, 04 Jan 2017 20:09:53 GMT

ESCC ($1.30) - The buying continues. Billionaire investor Peter Kellogg continues to add to his stake. A form 4 filed yesterday after hours shows he added another 40,000 shares through his limited partnership “Bermuda Partners”. As of the most recent filing, Mr. Kellogg owns 3.7 million shares (directly & indirectly).

Research

Mon, 19 Dec 2016 18:35:05 GMT

ESCC ($1.15) - Billionaire investor Peter Kellogg continues to add to his stake. A form 4 filed Friday after hours shows he added 135k shares through his limited partnership “Bermuda Partners”. As of the most recent filing, Mr. Kellogg owns 3.6 million shares (directly & indirectly).

Research

Thu, 15 Dec 2016 15:31:36 GMT

ESCC ($0.97) - We have been covering ESCC since February 2014 when the stock was trading at $0.14. Recent notes include information arbitrage opportunities that we presented from the company’s last two quarterly results, as well as recent purchases by billionaire investor Peter Kellogg. You can see all of our past coverage here. You can also see some of our marketing material here to see a case history of events.

Over the last two days, we noticed some unusually high trading volume of 80,000 and 225,000, respectively, as the stock dipped below $1.00 (avg vol is 24k). Unsurprisingly, a Form 4 was filed yesterday after the close showing that Peter Kellogg added 28,500 shares on December 13. It makes sense to expect another Form 4 filed after the close today showing additional shares purchased by Mr. Kellogg, but this remains to be seen.

Research

Mon, 07 Nov 2016 16:12:30 GMT

ESCC ($1.05) Information Arbitrage Alert

ESCC has offered several information arbitrage opportunities since we began our coverage of the company in February 2014 at $0.14. See our latest research here.

In line with how the company issues earning updates, the company filed its 10-Q last Friday afternoon (November 4, 2016) and still has not issued a press release. Our request urging the company to issue a press release with non-GAAP earnings was met with some resistance. We encourage investors who are long ESCC to reach out to management to do the same. The strong Q3 2016 results were:

Sales of $10.3 million vs $9.3 million in the prior year
GAAP EPS of $0.05 vs $0.08
Non-GAAP EPS of $0.11 vs $0.10

More importantly, the company offered some encouraging comments regarding its outlook for the remainder of 2016 and heading into 2017. Quotes from 10-Q:

“The sales backlog decreased but remained healthy at the end of the third quarter of 2016 which supports an encouraging outlook for the remainder of 2016 and into 2017. With the healthy backlog and sales prospects, we anticipate sales at levels that should continue to produce profitable results for the remainder of 2016.”

“Revenue backlog was $23,288 as of September 30, 2016, compared to $26,298 as of December 31, 2015. The decline in the revenue backlog is attributed to a low volume of new orders booked in the first quarter of 2016, which was partially offset by a higher volume of new orders booked in the second and third quarters. Sales prospects support the outlook for a strong volume of new orders through the remainder of 2016 and into 2017.”

Research

Tue, 04 Oct 2016 15:41:29 GMT

ESCC ($1.46) - As expected, anotherform 4 filed for the 300,000 block we observed go off on September 29, 2016. We stated:

“We were also alerted via one of our members of a block trade that filled yesterday in ESCC. 300,000 shares at $1.25. We would not be surprised to see a form 4 in the coming days by Kellogg for this transaction.”

Yesterday, after the close, Peter Kellogg filed a form 4 showing he had purchased 300,000 at $1.25. Shares are now up 75% since we first alerted you of Kellogg adding to his already large stake on September 9, 2016.

Research

Fri, 30 Sep 2016 04:00:00 GMT

ESCC ($1.30) - The buying continues. As we have been highlighting over the recent weeks, billionaire investor Peter Kellogg has been adding to what was already a sizable stake. Another form 4 filed yesterday shows he added 44,936 shares at average price of $1.26. This marks the 6th form 4 in September.

We were also alerted via one of our members of a block trade that filled yesterday in ESCC. 300,000 shares at $1.25. We would not be surprised to see a form 4 in the coming days by Kellogg for this transaction.

Research

Wed, 28 Sep 2016 15:26:43 GMT

ESCC ($1.30) - A form 4 filed after hours yesterday shows that billionaire investor Peter Kellogg bought another 24,164 at $1.13. This marks the 5th form 4 in the last three weeks. Kellogg owns nearly 3.1 million shares or 28% of the total outstanding shares.

As we stated before, Kellogg has been a shareholder for more than 15 years, the recent purchases indicating he likely has a good feeling about the company’s growth prospects. We noticed some block buys the last several days, and we would not be surprised to see another form 4 filed in the coming days.

Research

Mon, 26 Sep 2016 15:55:59 GMT

ESCC Breaks $1 To The Upside

When ESCC shares fell sharply on Q2 earnings, we considered this to be an arbitrage opportunity. On August 4, 2016, the dip in shares enabled us to add some shares, tweeting the following:

The following day, on August 5, 2016 we stated:

We argued that despite the terrible-looking numbers, this situation seemed to be temporary. Management's optimism for the future had us nibbling shares at these depressed prices. We believed that when the rest of the market digested commentary hidden in the Q2 SEC filing, ESCC would return to or surpass prior levels. These are chances we normally only get with microcap stocks.

Research

Wed, 21 Sep 2016 14:44:04 GMT

ESCC ($0.87) - Over the past week we have been highlighting that Billionaire investor Peter Kellogg has been adding to his already sizable position in ESCC. Yesterday after the close, Mr. Kellogg filed another form 4, the fourth in the last two weeks and also filed a 13D/a updating his current ownership stake. With the recent purchases, including the 13,500 filed yesterday, Mr. Kellogg owns 3,066,618 shares or 27.4% of the total outstanding shares. We are beginning to find it intriguing that Kellogg is increasing his position size in an illiquid name. What we do know is that Kellogg has been a shareholder for at least 15 years, an indication to us that he has a good feeling about the company’s prospects.

Research

Mon, 19 Sep 2016 15:19:50 GMT

ESCC ($0.98) - Billionaire investor Peter Kellogg continues adding shares of ESCC. On Friday, September 16, 2016 after the market close, Mr. kellogg filed a form 4 showing he added another 80,500 shares (@ $0.92). This marks the third form 4 in the last 10 days bringing his total to 129,500 shares during that time frame, and his total to over 3 million shares held (directly & indirectly). The majority of the shares are held by IAT Reinsurance Company, which Kellogg is the majority shareholder.

Research

Tue, 13 Sep 2016 04:00:00 GMT

ESCC ($0.83) - On September 9, 2016 via premium tweet we stated that a large shareholder added 16,900 shares at open market prices. In a Form 4 filed yesterday after hours, Peter Kellogg added another 31,000 shares on September 8th and 9th. These recent Form 4’s bring Peter’s total stake to over 2.9 million shares, the majority held by IAT Reinsurance Company, which Kellogg is the majority shareholder.

Kellogg was the CEO of IAT Reinsurance Company. He is on the Forbes list as an American businessman and philanthropist with estimated net worth of $3.4 billion. See full background here.

The recent purchases coincide with the management changes that were announced on September 6, 2016. We will continue to track the Form 4 filings to see if Mr. Kellogg continues to increase his stake.

Research

Wed, 17 Aug 2016 15:06:49 GMT

ESCC Note to Hit Seeking Alpha Today

Our information arbitrage note on ESCC that was issued to members 2 weeks ago will be made public today on Seeking Alpha. Recall the following information arbitrage we pointed out after ESCC’s earnings were released:

While the results of operations are disappointing, a healthy volume of new sales orders in the second quarter of 2016 helped the sales backlog rebound almost to the level at the beginning of the year. In addition, significant new orders already booked early in the third quarter of 2016 and several promising prospects attributable to positive reactions to recent product demonstrations are expected to sustain a healthy sales backlog for the remainder of 2016. The sales backlog and customer delivery schedules support our positive outlook for higher sales levels and profitable results for the second half of 2016.

See our full information arbitrage opportunity note here.

Research

Fri, 05 Aug 2016 12:04:21 GMT

Information arbitrage (“InfoArb”) is one of the biggest opportunities in the microcap investing space. It exists when information that is public is not picked up on by the financial media, analysts, or investors of a specific company. InfoArb also occurs when investors misinterpret press release content. We spend most of our time at GeoInvesting looking for and researching these information arbitrage opportunities. Luckily, another one landed in our lap yesterday afternoon.

Evan & Sutherland - A Classic Microcap Information Arbitrage Opportunity

Evans & Sutherland Computer Corporation (ESCC) is a company that we have been long and following since 2014. Technically, ESCC is too small to be considered a microcap. With a market-cap of only $7 million ESCC is technically a nano-cap,

Evans & Sutherland Computer Corporation (E&S) focuses on the production of visual display systems used primarily in full-dome video projection applications, dome projection screens, dome architectural treatments, and content for planetariums, schools, science centers, other educational institutions and entertainment venues. It operates in the visual simulation market segment. The Company through its subsidiary, Spitz, Inc. (Spitz), is a supplier of planetarium systems, dome projection screens and other dome displays.

Our first go-round of information arbitrage on this company was when we bought shares at levels near $0.28. In February 2014, we identified a potential catalyst in a past due pension liability that was depressing the stock price. Disclosures in SEC filings, but not in press releases, clearly communicated that the pension liability issue would be settled imminently. We initially targeted a range of $0.40 to $0.80 level for the company if the pension issue became resolved, which it eventually was in April 2016. The stock went on to reach a high of $1.21 before pulling back to the $0.75 range on the heels of unexciting Q1 2016 results in May. You can read all of our past ESCC coverage here.

Double Dipping Isn’t Always A Bad Thing

The company released its second quarter 10-Q report yesterday afternoon and the stock immediately sold off 30% hitting a low of $0.51. On a precursory glance the quarterly performance was dismal. Revenues came in at $5.0 million, down almost 50% from the same quarter last year. The company posted a GAAP loss of $0.09, although narrower from the loss $0.24 they posted in the year prior.

The information arbitrage opportunity is in the management discussion and analysis in the 10-Q, where management made the following comments:

The second quarter of 2016 produced only $5,268,000 of sales. This unusually low sales volume was attributable to the timing of customer deliveries of planetarium systems and a temporary drop in backlog from low sales orders in the first quarter of 2016. The low sales volume resulted in under-absorption of fixed overhead which negatively affected gross profit. Also considerable resources were expended on product demonstrations at a major bi-annual planetarium conference resulting in higher than normal selling expenses. As a result, we reported a net loss of $969,000 in the second quarter of 2016 which offset first quarter net income to produce a net loss of $733,000 for the first half of 2016. This variability in the timing of sales orders and customer deliveries are an element of our business that occasionally affect results in this way.

While the results of operations are disappointing, a healthy volume of new sales orders in the second quarter of 2016 helped the sales backlog rebound almost to the level at the beginning of the year. In addition, significant new orders already booked early in the third quarter of 2016 and several promising prospects attributable to positive reactions to recent product demonstrations are expected to sustain a healthy sales backlog for the remainder of 2016. The sales backlog and customer delivery schedules support our positive outlook for higher sales levels and profitable results for the second half of 2016.

As you can see, despite the terrible-looking revenue numbers, there seems to be a reasonable explanation. Management's optimism for the future has us nibbling shares at these depressed prices. We believe that when the rest of the market digests this commentary, ESCC will return to or surpass prior levels. These are chances you normally only get with microcap stocks.

When the company eventually issued a press release we noticed subtle differences between it and the related 10-Q. Pay particular attention to the bold.

This unusually low sales volume was attributable to the timing of customer deliveries of planetarium systems and a temporary drop in backlog from low sales orders in the first quarter of 2016. The low sales volume resulted in under-absorption of fixed overhead, which negatively affected gross profit. Also, considerable resources were expended on product demonstrations at a major bi-annual planetarium conference, resulting in higher than normal selling expenses. As a result, we reported a net loss of $1.0 million in the second quarter of 2016, which offset first quarter net income to produce a net loss of $0.7 million for the first half of 2016. This variability in the timing of sales orders and customer deliveries are an element of our business that occasionally affect results in this way.

While the results of operations are disappointing, a healthy volume of new sales orders in the second quarter of 2016 helped the sales backlog to rebound almost to the level at the beginning of the year. In addition, significant new sales orders already booked early in the third quarter of 2016 and several promising prospects, attributable to positive reactions of recent product demonstrations, are expected to sustain a healthy sales backlog for the remainder of 2016.

The statement in the 10Q about getting back to profitability and increased revenue expectations for the remainder of 2016 is not in the press release.

Valuation

We estimate that ESCC’s baseline annual revenue and EPS can hold around 30 million and $0.10, respectively. In the meantime, as it explores growth opportunities now that the pension issue is behind it, we do not think it’s unreasonable that shares should trade at an EV/S to 1.0 or, $2.86. Looking at two of the closest publicly traded comps, Ballantyne Strong (BTN) and IMAX Corporation (IMAX), supports this opinion.

BTN designs, integrates, and installs technology solutions for the retail, financial, government, and cinema markets worldwide. The company operates in two segments, Cinema and Digital Media.

IMAX operates as an entertainment technology company specializing in motion picture technologies and presentations worldwide.

BTN is the better comparable for ESCC because of its size and the challenges it has faced to profitably grow its business.

As we continue to review ESCC’s results and provide updates in a timely fashion, we'll also remain committed to be on the lookout for more information arbitrage opportunities in the microcap universe that we can all benefit from. An interview with ESCC management is on our to-do list.

Research

Tue, 10 May 2016 15:07:56 GMT

ESCC ($0.97) - As we stated in our earnings preview email yesterday, ESCC is facing tough EPS comps throughout 2016. We have reduced our position size, but remain long.

ESCC reported Q1 2016 results during the trading day yesterday:

Sales of $7.9 million vs $8.0 million in the prior year
Non GAAP EPS of $0.03 Vs $0.06
Backlog as of April 1, 2016 was $22.3 million compared to backlog of $26.3 million as of December 31, 2015

Quotes from management:

“The revenue backlog decreased, but remained relatively healthy at April 1, 2016. The decrease in the revenue backlog was attributable to a low volume of new sales bookings due mostly to the timing of prospective customer decisions. The April 1, 2016 revenue backlog and a strong sales prospect list support an encouraging outlook for the remainder of 2016…

We continue to expect variable but reasonably consistent future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses and meet our obligations including the Pension Settlement Obligation. The net income for the first three months of 2016 brings us closer to the elimination of our shareholders’ deficit and our goal of building shareholder value. With the settlement of the Pension Plan liabilities, we expect our improved financial position to present opportunities for better results through the availability of credit and stronger qualification for customer projects.”

Although not a great quarter, it seems a delay in orders from some of its customers negatively affected the quarter and the backlog. The fluctuation in quarterly results is a common occurrence with ESCC. Management feels confident it will be able to replenish the backlog moving forward.

Research

Mon, 09 May 2016 14:56:21 GMT

ESCC ($1.14) – Fueled by strong earnings and its pension liability relief, ESCC is trading near 52 week highs. Shares are up over 700% since our initial special situation alert on 2/28/2014. While the Company stated they anticipate sales at levels that should continue to yield profitable results in 2016, ESCC will be facing some tough EPS comps throughout 2016. We have reduced our position size.

Comments & Business Outlook

Thu, 17 Mar 2016 15:03:24 GMT

ESCC ($0.89) - Reported Q4 results yesterday.

Q4 sales of $7.7 million vs $6.5 million in the prior year
Q4 EPS of $0.04 vs a loss of $0.05 in the prior year

Quotes from management:

“On April 21, 2015, the Company executed agreements ('Pension Settlement Agreements') to terminate its Pension Plan and to settle the underlying pension liabilities.

The charge for the settlement of the pension liabilities is not a recurring expense item. Absent this charge, results would have been profitable for 2015. The 2015 results illustrate the profit potential of our business without the burden of the Pension Plan. With the healthy backlog and sales prospects, we anticipate sales at levels that should continue to yield profitable results in 2016.

With the settlement of the Pension Plan liabilities, we expect our improved financial position to present opportunities for better results through the availability of credit and stronger qualification for customer projects.”

Research

Tue, 10 Nov 2015 16:29:40 GMT

ESCC ($1.12) Reported Strong Q3 2015 Results

In May, we stated that despite being up 492% from our initial special situation alert on 2/28/2014, we were maintaining our long position in ESCC. Shares are now up 700% from that point. Over the last couple of months, the company’s settlement of a pension liability, which we wrote about here, gave shares a boost.

Yesterday, during the trading day, ESCC reported strong Q3 2015 results:

Sales were $9.4 million, compared to sales of $7.7 million for the third quarter 2014.
Net income was $0.9 million or $0.08 per share compared to a net income for the third quarter 2014 of $0.6 million or $0.06 per share.
Backlog as of October 2, 2015 was $29.2 million compared to backlog of $28.2 million as of December 31, 2014.

With the pension liability behind them, we believe it has enabled the company to increase order flow and continue to fill its backlog which is evident in the sequential increase from Q2. For the first nine months of 2015, ESCC has reported NON-GAAP EPS of $0.21. The company expects this trend of profitability to continue. Quote from press release:

“we were profitable in each of the first three quarters of 2015 before the non-recurring pension related charges. With the healthy backlog and sales prospects, we anticipate sales at levels that should continue to yield profitable results for the remainder of 2015.”

We continue to hold our long position.

Comments & Business Outlook

Mon, 09 Nov 2015 21:16:07 GMT

Third Quarter 2015 Results

Sales for the third quarter were $9.4 million, compared to sales of $7.7 million for the third quarter 2014.
Net income for the quarter was $0.9 million or $0.08 per share compared to a net income for the third quarter 2014 of $0.6 million or $0.06 per share.

“The third quarter of 2015 reported improved sales volume and $921 of net income compared to the third quarter of 2014, which reported a net income of $639. Although sales volume improved, the gross profit contribution was comparable to the third quarter of 2014 due to unfavorable margins on some large unrelated projects in 2015. Reduced operating expenses, primarily pension related, contributed to the higher net income in the third quarter of 2015 compared to 2014. The first nine months of 2015 reported improved sales volume and $9,710 of gross profit as compared to the first nine months of 2014, which reported gross profit of $7,371. The stronger sales and improved gross profit in 2015 was attributable to stronger sales bookings over the prior year. The sales backlog remained healthy at the end of the third quarter of 2015 which supports an encouraging outlook for the remainder of 2015 and into 2016. Operating expenses, except for a $3,620 charge for the settlement of the pension liabilities, were lower for the periods presented primarily due to decreased pension expense in the period. The charge for the settlement of the pension liabilities is not a recurring expense item. Absent this charge, results would have been profitable for both the three- and nine-month periods ended October 2, 2015. Also, we were profitable in each of the first three quarters of 2015 before the non-recurring pension related charges. With the healthy backlog and sales prospects, we anticipate sales at levels that should continue to yield profitable results for the remainder of 2015.

"We continue to expect variable but reasonably consistent future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses. Although we reported net income for the third quarter, we had a net loss for the first nine months of 2015 due to the pension settlement charge of $3,620. However, the pension settlement contributed largely to total comprehensive income which amounted to $30,295 for the first nine months of 2015. This nearly eliminated our stockholders deficit, which was reduced from $30,703 as of December 31, 2014 to $308 as of October 2, 2015. With the settlement of the Pension Plan liabilities, we expect an improved financial position that may present opportunities for better results through the availability of credit and stronger qualification for customer projects. We remain positive for the success of the business.”

Research

Tue, 08 Sep 2015 14:51:54 GMT

$ESCC ($0.99) shares hit highest level in almost 5 years; Maintaining our long position

In May, we stated that despite being up 492% from our initial special situation alert on 2/28/2014, we were maintaining our long position in ESCC. Shares are now up 614% from that point. Over the last couple of months, the company’s settlement of a pension liability, which we wrote about here, gave shares a boost. ESCC shares spiked almost 30% on Friday as well, at about 10 times normal trading volume on no noticable news. As of today, the company’s backlog is at near record levels. The stock continues to trade around $1 and we remain long. The key for ESCC to continue to perform strongly is if the company can show investors they can grow past 2015. Stay tuned for any change in our disclosure.

Comments & Business Outlook

Mon, 17 Aug 2015 16:04:13 GMT

ESCC ($0.83) reported strong Q2 2015 results:

Sales of $10.3 million vs $5.7 million in the prior year
Non-GAAP EPS of $0.10 vs a loss of $0.05 in the prior year

Quotes from management:

“On April 21, 2015 the Company executed an agreement with the Pension Benefit Guaranty Corporation (PBGC) to terminate its pension plan and settle the underlying pension liabilities. This is a major milestone and completes a process that began over two years ago. The Company’s goal in seeking a distress termination of the pension plan is to ensure that pension benefits of all pension plan participants are paid up to the federally guaranteed limits and that the Company continues to operate as a going concern while avoiding the costly damage and disruption to the business which would result from bankruptcy reorganization. We believe the settlement agreement has achieved that goal.

The first half of 2015 reported improved sales volume and $6.4 million of gross profit as compared to the first six months ended June 27, 2014, which reported gross profit of $4.1 million. The stronger sales and improved gross profit in 2015 was attributable to stronger sales bookings over the past year. The sales backlog remained healthy despite decreasing in the first half of 2015 which supports a continuing encouraging outlook for the remainder of 2015. Operating expenses except for a $3.6 million charge for the settlement of the pension liabilities were comparable for the periods presented. The charge for the settlement of the pension liabilities is not a recurring expense item. Absent this charge, results would have been profitable for both periods presented. With the healthy backlog and strong sales prospects, we anticipate that sales and overall results for the remainder of 2015 will exceed the results from 2014.

We continue to expect variable but reasonable consistent future sales and gross profits from our current product lines at annual levels sufficient to cover or exceed operating expenses. We had a net loss for the three and six months ended July 3, 2015 due to the pension settlement charge of $3.6 million. However, the pension settlement contributed largely to total comprehensive income which amounted to $29.1 million and $29.4 million for the three and six months ended July 3, 2015 respectively. This nearly eliminated our stockholders deficit, which was reduced from $30.7 million as of December 31, 2014 to $1.2 million as of July 3, 2015. With the settlement of the Pension Plan liabilities, we expect an improved financial position that may present opportunities for better results through the availability of credit and stronger qualification for customer projects. We remain positive for the success of the business. ”

Comments & Business Outlook

Wed, 13 May 2015 04:00:00 GMT

First Quarter 2015 Results

Q1 2015 revenues of $8.0 million vs $6.6 million in the prior year
Q1 2015 non-GAAP EPS of $0.03 vs a loss of $0.03 in the prior year

Quotes on backlog from 10-Q:

"Revenue backlog continued to improve totaling $34,324 as of April 3, 2015, compared to $28,173 as of December 31, 2014. We expect sales for the remainder of 2015 to result in total annual sales in excess of 2014 based on delivery schedules from the improved revenue backlog and strong sales prospects."

Research

Thu, 12 Mar 2015 04:00:00 GMT

ESCC nearing settlement of its pension liability issue - shares could increase materially

$ESCC ($0.28)

A strong backlog and the potential nearing of a settlement of its pension liability by the end of March 2015, could lead to a sharp increase in ESCC shares. Shares are trading at a significant discount to GeoInvesting’s calculated tangible book value of around $0.80 if we assume that the pension liability is resolved. ESCC produces and sells visual display systems used primarily in full-dome video projection applications, dome projection screens, and dome architectural treatments in the United States and internationally.

On 4/3/2014, we highlighted a bullish special situation catalyst in the ESCC story. Clues in SEC filings hinted that management was highly optimistic that it would settle a past due pension liability, which would meaningfully and positively impact its net income (from loss to profit) and significantly increase tangible book value per share. Unfortunately , at that time, no timeline was provided as to when mangement expected a resolution of its pension liability issue. You can read a full recap here.

Finally, in its Q3 2014 10-Q, ESCC provided specific language that dictates that it is highly likely that it would settle its pension liability by January 15, 2015. It’s worth noting that the settlement of the pension liability should also resolve a default notice recently received from one of its lenders that arose as a result of the pension liability issue. Although we expressed some optimism that a resolution of the issue would lift ESCC shares closer towards its tangible book value per share of $0.80 (with no pension liability), we mentioned that the company’s inability to consistently grow its business could limit valuation expansion. In fact, over the past several years the company has only stated that it would maintain current sales levels. To us, it looks like ESCC ‘s growth trajectory is about to take a major leap forward which could lead to significant valuation multiple expansion.

Yesterday, near the close of trading, the company reported its year end 2014 results:

Sales for 2014 were $26.5 million, compared to sales of $29.6 million for 2013; for Q4 2014, $6.43 million vs $11.12 million in Q4 2013.
The net loss for 2014 was $1.3 million or $0.12 per share, compared to a net income of $1.2 million or $0.11 per share for 2013; Q4 2014 - net loss of $0.05 vs Q4 2013 EPS of $0.18
Revenue backlog as of December 31, 2014 was $28.2 million compared to a backlog of $17.2 million as of December 31, 2013.

While the numbers look dismal at face value, there are plenty of reasons to be optimistic, including a surge in company backlog and two year visibility.

The company’s comments on the decrease in sales for 2014:

“sales decline was due to unexpected changes to customer schedules, which delayed several installations and not the result of a downward trend in the business. To the contrary, new sales bookings were extraordinarily strong, leading to a 65% increase in the sales backlog to $28.2 million as of December 31, 2014 compared with backlog of $17.1 million as of December 31, 2013. Sales prospects remain very strong, which supports an encouraging outlook for 2015 and 2016. We believe that sales for 2015 will exceed sales recorded in 2014, which is expected to lead to improved results.”

Update on settlement of pension liability:

“We have made significant progress toward the settlement of our Pension Plan liabilities through the distress termination application process. Recent correspondence with the Pension Benefit Guaranty Corporation indicates that the application process should result in a settlement of the Pension Plan liabilities on terms that should enable the Company to continue to operate as a going concern.”

Backlog to sales multiplier

Since we have not interviewed management, we looked at the relationship between historical year end backlogs to forward 12 months revenues relationships for 7 years to help us forecast 2015 sales. Based on the company’s sales-to-backlog ratio average of 1.52 over the last 7 years, 2015 sales are projected to be $42.8 million. (7 year sales to backlog ratio range was 1.23 to 2.06)

The major considerations/potential caveats that we are still following:

We are still unclear of how the pension liability will be resolved, whether it will be a one time hit or amortized over several years.
We’re unsure as to the gross margin tied to the work contained in the company’s backlog
The company deals with large products, so we anticipate that revenue growth could still be lumpy moving forward
While management expects 2015 sales to exceed 2014 levels, they do not provide any further details about how much of an increase is expected.
Previously managment expected the resolution in mid January, so we need to take the end of March comments with a grain of salt.
As stated before, we have not interviewed management for well over a year.

Liquidity Requirements

Fri, 21 Nov 2014 05:00:00 GMT

From Third Quarter 10-Q

Liquidity

The Company has experienced recurring annual losses since 2007. Furthermore, as of September 26, 2014, the unfunded obligation of the Company’s qualified defined benefit pension plan (“Pension Plan”), as measured for accounting purposes, amounted to $19,001, contributing to a total stockholders’ deficit of $13,861 as of September 26, 2014. Aided by prior cost reduction efforts and improved 2013 sales volume, the Company reported annual net income for 2013 but incurred a net loss of $780 for the first three quarters of 2014. The Company does not believe it can sustain and improve annual profitability at sufficient levels to fund its existing Pension Plan obligation. In order to preserve the liquid resources required to operate the business, the Company stopped making cash payments due to the Pension Plan trust beginning in October 2012. The Company initiated an application process for the distress termination of the Pension Plan in accordance with provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”) which it believes will result in a settlement of its Pension Plan liabilities on terms that are feasible for the Company to continue in business as a going concern through 2014 and beyond. Because of the payments due to the Pension Trust, a lien in favor of the Pension Plan has arisen against the assets of the Company. On October 3, 2014, the lender for the Company’s Spitz Inc. (“Spitz”) subsidiary’s mortgage notes, a commercial bank, notified the Company that the liens placed on the Company assets by the Pension Plan constituted an event of default under the mortgage notes’ credit agreements. Citing cross default terms, the bank suspended borrowings on the Spitz $1,100 working capital line of credit. The bank has not elected to accelerate the payment of the loan balance or exercise any other remedies available upon an event of default. The bank expressed interest in a continuing credit relationship upon satisfactory settlement of the pension liabilities and agreed to forbear from exercising any further remedies until January 15, 2015. The mortgage balances totaled $2,408 as of September 26, 2014. The Company has not used the Spitz $1,100 working capital line of credit since 2011 and, if necessary, the Company believes that it will have sufficient funds to satisfy the Spitz mortgage note balances if the bank were to accelerate the maturity under its default remedy. However, the Company further believes that it will conclude a satisfactory settlement with the PBGC by January 15, 2015 or within a time frame acceptable to the bank. The Company continues to progress through the termination process toward a settlement; however, as of the date of this filing, the Company is uncertain of the timing or the ultimate outcome and it cannot provide assurance that its expectations set forth above will occur in a timely manner or at all.

Comments & Business Outlook

Tue, 11 Nov 2014 05:00:00 GMT

Reported Third Quarter 2014 Results

Sales for the third quarter were $7.7 million, compared to sales of $8.5 million for the third quarter 2013.
Net profit for the quarter was $0.6 million or $0.06 per share compared to a net profit for the third quarter 2013 of $1.0 million or $0.09 per share.

Comments from David H. Bateman, President and Chief Executive Officer: “Sales volume and net income for the third quarter of 2014 were slightly lower than the comparable periods of 2013. For the nine month period, sales and gross profit contributions improved in 2014; however, the net loss was comparable due to higher operating expenses in 2014. The higher 2014 operating expenses were due largely to a credit from a settlement of a dispute which reduced expenses in the second quarter of 2013. Also, sales and marketing expenses in 2014 were higher due to a bi-annual tradeshow and the redirection of production and engineering resources to sales and marketing activities. The third quarter compares favorably to the first two quarters of 2014. The improvement was attributable to the timing of work and deliveries on customer projects. The sales backlog and prospects remain strong which supports an encouraging outlook for the remainder of 2014 and into 2015. Cash balances are expected to continue to be variable as a result of the timing of progress payments on customer orders. We continue to believe that sales and overall results for 2014 will be comparable to 2013.”

Comments & Business Outlook

Fri, 08 Aug 2014 04:00:00 GMT

Reported Second Quarter 2014 Results

Sales for the second quarter were $5.7 million, compared to sales of $5.2 million for the second quarter 2013.
Net loss for the quarter was $0.9 million or $0.08 per share compared to a net loss for the second quarter 2013 of $0.4 million or $0.04 per share.

Comments from David H. Bateman, President and Chief Executive Officer: “Although sales volume showed improvement, the net loss for the second quarter of 2014 was larger than the comparable period of 2013. The higher net loss was attributable to higher operating expenses in the second quarter of 2014 due largely to a credit from a settlement of a dispute which reduced 2013 expenses in the second quarter of 2013. Also, sales and marketing expenses in 2014 were higher due to a bi-annual tradeshow and the redirection of production and engineering resources to sales and marketing activities. Despite the higher 2014 operating expenses and increased loss in the second quarter, higher sales helped the first half of 2014 show improvement from the comparable period of 2013, with a net loss of $1.4 million for the first half of 2014 compared to $1.8 million for the first half of 2013. Neither of the first two quarters of 2014 compares favorably to the two consecutive profitable quarters in the last half of 2013; however, the weaker sales and resulting net loss in the first half of 2014 was primarily the result of the timing of work and deliveries on customer projects rather than a negative trend in the overall business. New bookings and the sales backlog continued to improve which creates a more encouraging outlook for the remainder of 2014. Also, cash balances continued to improve from progress payments received on new customer orders. With the improved backlog and strong sales prospects we still believe that sales and overall results for 2014 will be comparable to 2013.

“For the longer term we expect variable but reasonably consistent future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses, excluding the pension expense.”

Comments & Business Outlook

Fri, 09 May 2014 04:00:00 GMT

First Quarter 2014 Financial Results

Sales for the first quarter of 2014 were $6.7 million, compared to sales of $4.7 million for the first quarter 2013.
Adjusted Net loss per share for the quarter was $-0.01 compared to a net loss for the first quarter 2013 of $-0.08.

Comments from David H. Bateman, President and Chief Executive Officer:

“Although sales volume and the $551 net loss in the first quarter of 2014 showed improvement to the comparable period of 2013, which reported a loss of $1,357, it did not compare favorably to the most recent two consecutive profitable quarters in the last half of 2013. The weaker sales and resulting net loss for the first quarter of 2014 was primarily the result of the timing of work and deliveries on customer projects rather than a negative trend in the overall business. New bookings were strong and the sales backlog improved which creates a more encouraging outlook for the remainder of 2014. Also cash balances improved as a result of progress payments received on new customer orders. With the improved backlog and strong sales prospects, we believe that sales and results for the remainder of 2014 will improve resulting in annual levels comparable to 2013.

“We continue to expect variable but reasonable consistent future sales and gross profits from our current product lines at annual levels sufficient to cover or exceed operating expenses excluding the current expense of the Pension Plan. The success of our efforts to settle our pension liabilities for an amount that the business can satisfy remains critical to the long term viability of the Company. We believe an improved financial position that would result from relief of the Pension Plan burden may present opportunities for better results through the availability of credit and stronger qualification for customer projects. We remain positive for the success of the business.”

Research

Thu, 03 Apr 2014 04:00:00 GMT

Summary

It appears that ESCC is close to resolving issues surrounding its pension obligation liabilities.
If pension obligation issues are resolved, significant upside exists for the stock price.
The company reported strong 2013 full year results, including EPS of $0.20 for the fourth quarter of 2013.

On 2/28/2014, we provided the reasons for tracking Evans & Sutherland (OTCQB:ESCC) to our GeoInvesting premium members when the stock was trading around $0.14. On 3/7/2013, we disclosed our long position when the stock was trading around $0.24.

Today's Special Situation Update

Yesterday, the company released year-end 2013 results. In the company's 3Q 2013 press release management mentioned that it expected breakeven result for 2013. The company easily surpassed expectations.

Please see our full report here.

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Comments & Business Outlook

Wed, 02 Apr 2014 04:00:00 GMT

Fourth Quarter 2013 Financial Results

Sales for 2013 were $29.6 million, compared to sales of $24.9 million for 2012.
The net income for 2013 was $1.2 million or $0.11 per share, compared to a net loss of $2.3 million or $0.21 per share for 2012.

Comments from David H. Bateman, President and Chief Executive Officer:

"Stronger sales for all of our products in 2013 resulted in a larger operating profit for the year as compared to an operating loss for 2012. The net income for 2013 marks the first annual profit reported in several years. The total comprehensive income is primarily attributable to a $10 million decrease in the accounting measurement of our pension and retirement obligations, which was caused by an increase in the discount rate used to measure the pension obligation along with investment gains in pension plan assets.

"We have made significant progress toward the settlement of our Pension Plan liabilities through the distress termination application process. Recent correspondence with the Pension Benefit Guaranty Corporation indicates that the application process will result in a settlement of the Pension Plan liabilities on terms that will enable the Company to continue to operate as a going concern. However, the Company is uncertain of the timing or the ultimate outcome as of the date of our 10-K filing.

"Customer interest in all of our products remains strong and we intend to continue to aggressively pursue opportunities in the digital theater and other markets served by our products, as well as development and improvement of new and innovative products. We expect variable but consistent future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses, not including the expense of the Pension Plan. With relief from the burden of the Pension Plan, we believe an improved financial position may present opportunities for better results through the availability of credit and stronger qualification for customer projects.

"Our outlook for the business remains positive."

Research

Fri, 28 Feb 2014 05:00:00 GMT

Evans & Sutherland (OOTC:ESCC) ($0.14) - engages in the production and sale of visual display systems used primarily in full-dome video projection applications, dome projection screens, and dome architectural treatments in the United States and internationally. Reasons for tracking:

We believe ESCC presents a potential special situation opportunity rather than a growth opportunity. The company had good Q3 2013 financial results.

Sales for the third quarter were $8.5 million, compared to sales of $5.4 million for the third quarter 2012.
Net profit for the quarter was $1.0 million or $0.09 per share compared to a net loss for the third quarter 2012 of $1.1 million or $0.10 per share.

This appears to be the first time ESCC has reported a quarterly profit in sometime. Company guidance infers that it will report EPS of at least $ 0.07 for the fourth quarter 2013, and that it may be able to maintain profitability going forward.
Unfortunately, this story is not without significant risk, as is the case for stocks with depressed valuations. The company’s balance sheet reveals a $33 million pension liability that has resulted in stockholder equity being negative. A special situation opportunity arises from a possibility, through negotiations with relevant regulatory bodies (ERISA), that the company may be permitted to settle its pension liability, thereby removing it from the balance sheet.
We presume that if the company is successful with this endeavor, and given its improved cost structure, shares would see a significant lift somewhere between its ash per sale of $0.40 and to it’s tangible book value of $0.90
Another positive aspect to the story is that an increasing interest rate environment should lower the pension liability.

Caveat:

It is still unclear to us if the company can maintain profitability at a lower level of sales revenue that it reported in the third quarter 2013. The company is also not ready to commit to consistent growth. Please see link for full management commentary.

Comments & Business Outlook

Thu, 27 Feb 2014 05:00:00 GMT

Third Quarter 2013 Resutls (results released on 11/8/2013)

Sales for the third quarter were $8.5 million, compared to sales of $5.4 million for the third quarter 2012.
Net profit for the quarter was $1.0 million or $0.09 per share compared to a net loss for the third quarter 2012 of $1.1 million or $0.10 per share.
Backlog as of September 27, 2013 was $22.1 million compared to backlog of $15.5 million as of December 31, 2012.

Comments from David H. Bateman, President and Chief Executive Officer: "Sales for the third quarter and first nine months of 2013 were better than the comparable periods of 2012, and the gross profit percentage also improved in 2013 compared to the comparable period in 2012. Customer bookings and the sales backlog remain strong. As a result, we expect 2013 annual results to be close to breakeven. For the longer term we continue to expect variable but reasonably consistent future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses, excluding the pension expense."

Q3 2013 Filing

Sales for the third quarter of 2013 were significantly higher than the comparable period of 2012 as result of increased sales bookings and the timing of customer deliveries. The higher third quarter sales were expected and resulted in sales for the first nine months of 2013 that were slightly higher than the comparable period of 2012. The improved customer bookings increased the sales backlog to $22,123 as of September 27, 2013 compared to $15,511 as of December 31, 2012. The forecasted bookings and customer deliveries indicate that sales levels for the remainder of the year will also be strong. The gross profit percentage for the third quarter of 2013 also improved compared to the third quarter 2012 and contributed to gross margins for the first nine months of 2013 comparable to 2012. We expect the gross profit percentage and results for the remainder of 2013 to be similar to the results of the third quarter of 2013. We do not believe the third quarter sales volume is an indication of any long-term trend, but rather a typical fluctuation that can be expected occasionally from the timing of orders and deliveries. For the long term, we believe the existing markets we serve will yield annual sales at various levels comparable to the sales reported from 2009 through 2012. We have found it challenging to find opportunities for significant sales growth from new markets due to our current resource limitations and the worldwide economic environment.