TOP IDEAS: RDM Corporation (TSX: RC) revenues, profits and cash are on the up.
There is growth and there is good growth. For RDM Corporation it is the latter.
RDM just generated another $540,000 in cash and ended fiscal Q2 with $15.6 million in its bank account with no debt. No doubt, in Q2, the Company was more profitable too.
After a year, the new management team at RDM has righted this ship to sail again by growing revenues AND improving profitability. The Company's Management Discussion and Analysis (MD &A) filing for Q2 provides evidence of the key trends.
RDM has pioneered technology to capture cheque images for electronic transmission and deposit to financial institutions (Remote Deposit Capture "RDC”), thus eliminating the physical handling of a paper cheque. The Company's bread and butter business is the recurring revenue it earns from payment processing services associated with RDC user sites deployed.
In fiscal Q2, RDM added 1,656 new RDC user sites (revenue generator seats) in addition to 956 new seats added in Q1. This sequential quarterly growth is paying big dividends. In one year the Company's gross margins for its payment processing services have jumped from 47% to 67%. RDM is achieving serious cost savings related to the economies of scale as the growth in its recurring business continues to gain momentum.
The Company's RDC hardware business has also improved. Q2 revenues grew 24% from the prior quarter: most notably in Q2, hardware sales margins were 3% higher on lower sales volumes compared to the prior year. The Company's objective is to build on profitable growth.
Overall RDM's gross margins were 50% in Q2, up from Q1 and significantly higher than the prior year.
So what does this all mean? Well, if the current trends in the revenues and margins continue, the Company is positioned to become more and more profitable. That's good news for RDM investors.
Admittedly when we first profiled RDM (blog post: Cash-rich small cap turnaround, offers value and opportunity) we were attracted by value of the Company's working capital position and cash, and we still are!
But undeniable to us is the profit potential of the Company's payment processing services business and how RDM will use its $15.6 million in cash to leverage this potential.
Currently trading at $1.10, RDM's share price is up 25% since its posting date on Investorfile's Top Ideas list for small cap value stocks.
Author's Ownership Position TSX: RC - Long
This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.
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