AeroMechanical Services Ltd.
(TSX:V-AMA)
BasicShares: 103.1 million
Fully Diluted: 117.6 million
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Two issues that have fixatedAeroMechanical (AMA) investors for many years are what is going on inChina after AMA announced a deal to equip over 500 aircraft thereseveral years ago and getting AMA’s technology installed on the factoryfloor.
Please click on theimage to enlarge
Small but revealing statements were made in theManagement Discussion and Analysis discussion that accompanied AMA’sannual report.
In reference to China, it was stated that anemployee is still spending “95%” of his time in that vast and boomingcountry to move business along.
And there was this statementabout enticing an aircraft manufacturer to install blue boxes whileaircraft are under construction:
“Efforts are being made to haveOEMs install afirs in the factory and we hope to see movement in thisregard in 2010.”
Bare bone statements that signify management isnot shrinking from the two business fronts despite past frustrations.
And speaking of frustrations, much was said of 2009 -the financial equivalent of a poke in the eye for the airline industry -including AeroMechanical (AMA).
Thankfullya sharp stick wasn’t the weapon of choice, a still painful but lessdamaging fat finger was.
So while sales failed to meet the hoped-formark, AMA's top line revenue still grew to $5.1 million from $3.1million in 2008.
One thing that’s clear is the company learnedhow to be leaner and meaner while enjoying the benefits of forgingalliances with critical business partners and enjoying theeyeball-catching financial power of a recurring revenue model.
AsAMA Chairman & CEO, Bill Tempany, put it in his letter toshareholders:
“It (2009) was one of those years for the recordbooks but in the face of many obstacles, we were able to make someheadway.”
Headway, indeed.
During the year, partnershipagreements were struck with:
1. L-3 Communications (NYSE:LLL) –the largest provider of aircraft black boxes in the world which teamedup with AMA in order to automatically transmit back to earth in realtime all the operational data going into a black box recorder when anaircraft malfunction occurs.
2. GuestLogix Inc. (TSE: GXI) – afast-growing Canadian company that provides passenger credit cardtransaction technology for airlines, ships and railroads. GXI wanted touse AMA’s technology so it could verfiy a credit card’s validity in realtime before an on board transaction took place, whether that be from anaircraft, cruise ship or railway car.
3. And Sierra NevadaCorporation – a private, U.S.-based that provides high-tech electronicequipment to the U.S. military and other militaries around the world.
Giventhat the high profile search for the missing black box aboard the AirFrance aircraft that disappeared into the Atlantic Ocean last summer isstill going on, the deal with L-3 has taken on the greatest prominence.
Thatdeal has been, as Mr. Tempany wrote, “a real feather in our cap” whilemeeting new potential customers along with L-3 executives or othercustomers AeroMechanical approaches on its own who have an interest inall the other capabilities of AMA’s technology.
None of thesedeals were expected to produce instant results when they were signedthroughout 2009.
But AMA is ideally positioned to take advantageof all three of them in the improved markets of this year. Some facts tonote while thumbing through the 2009 annual report:
As we notedabove, revenues grew 60%. That’s the beauty of recurring revenues andincreased sales from additional technological services. In real terms,“afirs Up Time” revenue rang in at $4.28 million versus just over $2million the previous year.
On the recurring revenue model, thegross margin between costs of sales and recurring money coming in theoffice door was 52.6% in 2009, compared to 16% in 2008. The margin isgrowing every year due to two factors - revenues keep rising due toincreasing installations against a relatively fixed cost and revenuesalso increase from adding additional capabilities to the on board AMAtechnology – such as fuel savings monitoring capabilities.
Importantly,expenses were cut by $2 million to approximately $7.4 million from $9.5million in 2008.
The net loss also improved dramatically fallingto $4.5 million in 2009 from $8.5 million in 2008.
A cash cushion isalways a positive and so it is with AMA from two financings in 2009that left it with $7 million in cash at year end.
To readthe full report, please click here.