TOP IDEAS: Intrinsyc Technologies Corporation (TSX: ITC) is cash-rich and refocused to yield revenue growth and profits.

In the past, TSX-listed small cap turnaround stories have been very rewarding stock picks for the Investorfile blog’s Top Ideas. One of our first small cap value picks was RDM Corp. (TSX-RC) in January 2012 (See: RDM Corporation: Cash-rich small cap turnaround, offers value and opportunity). From a low of $0.88 per share when first recommended RDM’s stock, today it trades at $2.25, a 156% gain. Later that year we profiled the turnaround occurring at Caldwell Partners International Ltd. (TSX: CWL). Since our first blog post recommending an investment in shares of Caldwell Partners in November of 2012 (See: Caldwell Partners International: US expansion pays "dividends” for small cap value investors), the Company’s stock price is up today over 77%, rising from $0.74 to $1.31. Both these companies pay shareholders a quarterly dividend too.

Today our focus is on another turnaround story with our latest pick for Top Ideas - Small Cap Value Stocks: Intrinsyc Technologies Corporation (TSX: ITC - $0.75).

Intrinsyc Technologies has undergone a transition. Just a few months ago the Company changed its name (replacing the word "software” with the word "technologies”) to better reflect its overall business direction going forward. With this name change came a 1 for 8 share consolidation.

Better is the transformation happening to the Company’s financial results; a turnaround from consistent losses to a string quarters with revenue growth and emerging profits.

Intrinsyc Technologies is a leading provider of solutions for the development of embedded and wireless devices and is a product development company that provides hardware, software and service solutions that enable next-generation embedded and Internet of Things ("IoT") high-tech products. The Company says its solutions span the development life cycle from concept to production and help device makers and technology suppliers create compelling differentiated products with faster time-to-market.

The Company is transitioning its business operations from a primarily services-oriented offering to more complete solutions, including manufacturing computing modules, which the Company says will bring great value to customers and provide Intrinsyc with greater repeat product sales and/or royalty revenues. As such, the Company has shifted for a greater business focus to the development of Embedded Solutions.

An embedded system is a computer system with a dedicated function. Embedded systems control many devices in common use today in a wide variety of vertical markets, including: Automotive, Communications Infrastructure, Consumer Electronics, Surveillance/Security, Industrial Control, Energy/Power, Medical, Retail Solutions and Military/Aerospace.

For Intrinsyc, the Embedded Solutions segment includes the sales of the Company’s proprietary computer modules and development kits, as well as engineering services related to those modules and kits. The Company says it offers original equipment manufacturers ("OEMs”) and application developers' flexible wireless development platforms and production-ready Machine-to-Machine ("M2M”) modules, with enabling technology and intellectual property for device development.

Intrinsyc has been promoting its leading-edge System-on-Module (SOM) solutions to reduce product development cost, while decreasing time to market and technical risk to OEMs. The Company says by utilizing a SOM solution, device developers realize a fully customized electronics design, complete with custom interfaces and form factor without the effort of a ground-up electronics design.

A leading-edge product is Intrinsyc's OPEN-Q™ System on Modules which are based on Qualcomm Technologies Inc.'s advanced Snapdragon processors. Intrinsyc is a Qualcomm Technologies, Inc. licensee and a leader in Qualcomm® Snapdragon™ product development for the embedded systems market. The Snapdragon family of mobile processors is said to be redefining mobility for consumers around the world by offering an optimal combination of mobile processing performance, powerful multimedia, wireless connectivity and power efficiency that is enabling a new generation of mobile and embedded devices.

The Company is building an expanding base of customers and prospects for the Open-Q family of SOMs. Intrinsyc’s customers build a diverse set of embedded device products, such as: smart glasses and other wearable technology, robotics, digital signage, and more. As these customers increase sales of their products, the Company says it will benefit from repeat sales of their computing modules and/or design royalties.

There is evidence that sales are increasing as a result of the business transition. As of June 30, 2014, Intrinsyc announced that it achieved strong annual and sequential revenue growth. Revenue was US $2.5 million (the Company reports in US currency) in the second quarter of 2014, up 58% from the prior year and up 12% from the previous quarter. This was the Company’s third consecutive quarter of revenue growth, with revenue up 71% year-to-date since it refocused its business operations. Embedded solutions now account for 72% of Intrinsyc’s total revenues year-to-date.

Going forward the revenue growth outlook continues to look positive based on a growing pipeline of product development kits and prototype modules sold over the last 6 months. Company management has said that it has made significant progress gaining new customers for its Open-Q(TM) computing module and expects to see growing revenue contribution from these customers as they enter production early in 2015.

With the recent revenue growth, Intrinsyc has become profitable. Over the last three quarters earnings before interest, income taxes and depreciation and amortization (EBITDA) was positive and growing. In the most recent quarter, the Company reported net income of about US $200 thousand and earnings per share (EPS) of US $0.01.

For a small cap company Intrinsyc has very strong balance sheet. The Company has about US $7 million in cash and a US $1.5 million note receivable ($0.40 per share) and no debt.

Given the strong balance sheet, several consecutive quarters of revenue growth and improving profitability, we identify Intrinsyc as an intriguing turnaround growth story. Best-of-all, for value-conscious small cap investors the shares for this Company are still trading at reasonable valuation levels.

Based on the Company’s market capitalization (adjusted to US dollars) current revenue run-rate (US $2.5M/quarter) and normalized adjusted EBITDA margins (8%), the shares of Intrinsyc trade under 7-times Enterprise Value (EV) to EBITDA. Given the Company’s outlook, exiting 2015 we anticipate that the revenue run rate could increase to about $4 million per quarter, generating EBITDA margins of 12.5% or US $2 million annually. That said we are comfortable recommending that small cap investors should accumulate the shares of Intrinsyc up to a price of CDN $1.20, a valuation level which is under 7-times EV/EBITDA based on our growth assumptions.

As an aside, because the Company is currently generating cash from operations and has considerable cash resources, strategic investments of its cash holdings could result in the Company’s shares trading way beyond the CDN $1.20 level too.

With most turnarounds (that succeed), over the longer-term early-in investors can earn a significant return by buying and holding the stock.

Intrinsyc Technologies is based in Vancouver BC and has approximately 50 employees. Last reported management and directors own about 14% of Company shares.

The Company has approximately 20.5 million shares outstanding.

Intrinsyc website: www.intrinsyc.com

Author’s share ownership disclosure: ITC - Yes

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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.

Investorfile.com is not engaged in an investor relations agreement with Intrinsyc Technologies Corporation nor has it received any compensation from Intrinsyc Technologies Corporation for the preparation or distribution of this article.

The author of this article has acquired and may trade shares of Intrinsyc Technologies Corporation through open market transactions and for investment purposes only.