We said Sapient (SAPE) would beat estimates for $0.08 per share by at least four cents. We hit this one right on the head. Total revenues increased 12% YoY to $293 million, and Non-GAAP net income increased 20% to $0.12 per share. The company finished the quarter with $226 million in Cash versus no Debt. The stock did not budge on the news.

We said to avoid Aruba Networks (ARUN) because the company was going to miss estimates for $0.15 per share. We nailed this one too. ARUN posted disastrous results and lowered guidance. The stock fell over 20%. Although revenue rose 12% YoY to $147.1 million, net earnings fell 28% to $0.11 per share, which missed estimates by four cents. Management said it expects 4Q revenue in a range of $148 – $150 million, below the consensus of $157 million; earnings are expected in the range of $0.10 – $0.12 per share, well below the consensus $0.18 per share.

For next week, we discuss three companies and we do not like any of them, a true bearish theme.

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• Author: Thomas Byrne, Analyst
• Pages: 7
• Purchase Price: $50.00
• Companies Mentioned In This Report: TIVO (TIVO), NAVARRE (NAVR), SIGMA DESIGNS (SIGM)

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• Author: Thomas Byrne, Analyst
• Pages: 33
• Purchase Price: $50.00
• Companies Mentioned In This Report: Accelrys (ACCL), Calgon Carbon (CCC), Exlservice Holdings (EXLS), Linn Energy (LINE), NeoGenomics (NEO)
  

EXLS is getting stronger every quarter. Management is incredibly conservative and it will not add new clients/business unless it feels it can do so with the highest level of customer service. The balance sheet and cash flows remain strong and the pipeline for new clients and acquisitions remains robust.

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• Companies Mentioned In This Report: Exlservice Holdings (EXLS)

We think the new CEO is making all the right moves by cutting costs and getting ready for significant growth in 2015 due to regulations coming into effect over the next two years. In the meantime  CCC provides vital services necessary for human survival, such as potable water, so we think the downside risk is limited.

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• Companies Mentioned In This Report: Calgon Carbon (CCC)

This was a disappointing quarter across the board. Costs are rising but sales are not. Integration costs are lingering. Moving to a new headquarters is creating more costs. The sales cycle is expanding. Foreign exchange rates are creating havoc. Customer budgets are constrained. A new sales approach requires extensive training. This has greatly increased the risk factor for ACCL from a year ago when 50% of the stock was in cash and the valuations were low. Today, 30% of the stock is in cash and the valuations are high. For these reasons, ACCL loses its status as our Number One Top Recommendation. However, we firmly believe that ACCL has a fantastic product line, strong management team, and a significant market opportunity.

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• Companies Mentioned In This Report: Accelrys (ACCL)

NEO has come a long way since we picked up coverage two years ago. It is no longer a weak duckling hoping to survive; it is now a small company seeking to grow. The company now has two great things going for it ― NEO can make acquisitions in order to grow, or it can be acquired since it has some of the best molecular tests in the industry. Either way, our clients win.

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• Pages: 9
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• Companies Mentioned In This Report: NeoGenomics (NEO)

After three straight years of smooth growth, LINE has hit a blip. Production and Cash Flow came in below expectations in the quarter, plus the huge acquisition of Berry presents some accounting problems. So, this stock is not without risk. The good news is that the company is increasing its dividend and it has the best management team among all MLPs. Plus, all production is 100% hedged for the next five years ― no other MLP hedges 100% of its production.

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• Author: Thomas Byrne, Analyst
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• Companies Mentioned In This Report: Linn Energy (LINE)

By Thomas Byrne, Analyst

Byrne Investment Research

We went 7-for-12 in terms of our earnings predictions last week, which led to nice return of 23%. This brought our year-to-date return for this newsletter in 2013 up to 237%.

Over the last six months, Top Recommendation Calgon Carbon (CCC) has eliminated sales offices, warehouses, low margin products, and a manufacturing plant. There has been increased focus on procurement, supply chain, sales and marketing, plant performance, responsible care and emerging opportunities. CCC implemented a 5% price increase in February 2013, the first price increase since 2010. Plus, the company has a $50 million buyback program that must be completed by September 2013. We said all of these factors will allow CCC to beat 1Q estimates for $0.15 per share. Although sales were flat at $135 million, Net Income improved 27% to $9.8 million, or $0.18 per share, which clobbered estimates by three cents. Despite the monster beat, the stock did not budge. We think sales and earnings will explode in 2014 and 2015 so get in now.

We said Pegasystems (PEGA) would crush estimates for $0.16 per share and we were right. Revenue for the 1Q of 2013 increased 5% YoY to $116 million and Net Income more than doubled to $9.1 million, or $0.23 per share, up from $4.1 million a year ago. The stock soared 17% on the news.

Byrne Investment Research

We went 7-for-10 in terms of our earnings predictions last week, which led to a whopping return of 64%. This brought our year-to-date return for this newsletter in 2013 up to 214%.

Roper Industries (ROP) is one of our Top 10 mid-cap companies and we said it would beat estimates for the third quarter in a row. We were right. ROP reported 1Q 2013 non-GAAP earnings of $1.27 per share, beating the consensus estimate of $1.22 per share by five cents. ROP also increased its fiscal 2013 earnings outlook from $5.60 – $5.82 per share to $5.76 – $5.94 per share. Despite all this good news, the stock lost 4%.

Ecolab (ECL) is also one of our Top 10 mid-cap companies. We said ECL would miss the mean estimate for $0.59 per share and the stock would fall on the news. We were right. Sales increased 2% YoY to $2.9 billion, and net earnings soared 221% to $0.53 per share. Management increased its full-year earnings guidance to $3.45 – $3.55 per share, up from prior guidance of $3.38 – $3.48 per share. The stock fell less than 1% to $84 where we think it is a good buy for the long-term.

We called Martha Stewart Living (MSO) “one of the worst companies ever to come public.” We also said that, “We have no idea how much money MSO will lose this quarter because we do not trust the accounting, but we do know this company has zero value.” The quarter was another disaster. Total revenues declined 25% YoY to $37.2 million, and MSO posted an operating loss of ($3.0) million. The net loss was ($3.3) million, or ($0.05) per share, which beat the loss estimate for ($0.08) per share, but the company included a “net gain on the sale of a subscriber list of $2.7 million,” so it really missed estimates without this accounting trick. The stock lost 1% to $2.40, which is exactly $2.40 more than the stock is worth. This company is a complete sham.

We said Denny’s (DENN) is trying to complete a turnaround that it started three years ago when the company was mired in red ink. Progress has been slow, but there has been progress ― the company has posted small profits two years in a row. We said cost-cutting, less shares, and a lower tax rate would allow DENN to beat estimates by a penny. We were right. Although total operating revenue decreased 7% YoY to $115 million, cost cutting led to a 20% increase in net income to $7.1 million, or $0.08 per share, which beat estimates by two cents. The stock gained 1% after the report.

We said the transition to a new CFO, inefficiencies, plus the issues and costs associated with the FDA, would cause Anika Therapeutics (ANIK) to miss estimates this quarter. We were wrong. Revenue grew just 6% YoY to $15.2 million, but net income soared 63% to $3.1 million, or $0.21 per share, which beat estimates by four cents. The company had multiple manufacturing problems in the prior quarter that seem to be resolved much earlier that we thought. The stock rose 6%.

ExlService Holdings (EXLS) is a Top Recommendation from our firm. We did some digging into BPO software and we found conditions were very soft in the first three months of this year. This led us to believe that EXLS would miss the sell-side estimates for the quarter. Our estimate was $0.36 per share, or three cents below the mean estimate, and we said the stock would fall on the news. We were wrong, sort of. Revenues increased 11% YoY to $116 million, which missed the sell-side estimate by $2 million. Net income increased 10% to $9.8 million, or $0.40 per share, which beat estimates by a penny. The stock fell 8% on the news and it’s a great buy under $32.

Accelrys (ACCL) is a Top Recommendation. We said the company was going to miss estimates due to integration costs, which is exactly what occurred. Revenue increased 5% YoY to $43.9 million, which was about $2 million lower than sell-side estimates, but in line with our model. Non-GAAP net income fell 22% to $3.6 million, or $0.06 per share, which missed the sell-side estimate by two cents and our estimate by a penny. Management blamed the lower earnings on integration costs associated with five acquisitions made over the last two years, exactly as we predicted. Management lowered its guidance for fiscal 2013. Revenues are expected in the range of $176 – $181 million, down from prior guidance of $185 – $190 million. Net earnings are expected in the range of $0.32 – $0.34 per share, down from prior guidance of $0.36 – $0.39 per share. We said the stock would fall on the news, but it lost more than we expected. The stock lost a whopping 20% to $7.90. ACCL finished the quarter with $130 million in cash, or $2.34 per share. Backing out the cash, the stock is trading for 16 times the 2013 forecast. We recommend aggressive purchase of the stock under $8 because ACCL has the best technology for modeling and simulation, enterprise lab management, workflow and automation, and data management.

We said Callidus Software (CALD) would post a small profit this quarter and beat the $0.00 per share estimate by a penny. We noted that the company recently hired a new CFO that takes over in July 2013, and the stock is trading for 60 times the 2013 earnings estimate of $0.07 per share, which is too rich. Revenue increased 16% YoY to $25.5 million, but the company posted a non-GAAP net loss of ($0.8) million, or ($0.02) per share, which missed estimates by two cents. Plus, the company lowered guidance for the next quarter. Despite the terrible quarter, the stock rose 15%, which befuddles us. Take any gains (or losses) you have off the table.

We said Guidance Software (GUID) would miss the loss estimate for ($0.05) per share and the stock would fall on the news. We were right on both counts. Revenue increased just 4% to $26.9 million, which badly missed estimates by $3 million. On a non-GAAP basis, the company posted a net loss of ($3.9) million, or ($0.15) per share, which badly missed estimates by ten cents. The stock got whacked on the news, losing 27%.

We said Telular (WRLS) would beat the mean estimate of $0.11 per share by two cents. The company did not announce earnings because it received a buyout offer from Avista Capital Partners for $235 million, or $12.61 per share, a premium of 31% to its closing price on Friday. Several large shareholders immediately filed lawsuits against WRLS because they think the acquisition price is too low, so take your gains off the table.

Next week, we discuss 12 companies including five Top Recommendations in CCC, MTSC, FF, JBT, and SPA.

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• Author: Thomas Byrne, Analyst
• Pages: 14
• Purchase Price: $50.00
• Companies Mentioned In This Report: Calgon Carbon (CCC), Pegasystems (PEGA), Interactive Intelligence (ININ), MTS Systems (MTSC), Natus Medical (BABY), Biolase (BIOL), Future Fuel (FF), John Bean Technologies (JBT), Sparton (SPA), Globecomm Systems (GCOM), I.D. Systems (IDSY), USA Technologies (USAT)

Ticker Symbol: CCC

Sector: Industrial Goods

Industry: Pollution & Treatment Controls

Recommendation: BUY

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• Author: Thomas Byrne, Analyst
• Pages: 16
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