Q1 Comments I agree that the company should do better at retaining customers. Organic growth would be a good thing to have, including more of those lucrative commercial accounts. There are, however, a few other things worthy of note:
1. Q1 revenue was off sequentially by a small amount, however, recent acquisitions have been cheap, with p/e's of about 4x. That allows for some leakage and still results in a nice improvement in cash flow.
2. The gross margin percentage sequentially took a 2.9% hit in Q1. According to the MD&A, the company hired additional field staff and hired a one-time consultant in Q1 to document health and safety protocols so they can serve larger customers. I took a look at quarterly results going back to fiscal 2008 and found that there were a few times the GM% dropped noticeably, but it always rose back to at least prior levels.
3. I could mention earnings but this company is not about earnings, it's about cash flow.
4. The company has obviously done a superb job of growing cash flow over the past few years, and that's why we're all here. In that regard, cash flow from operations (excluding changes in non-cash working capital items which for PCS fluctuate dramatically from Q to Q) was actually up sequentially by $17k. This adjusted operating cash flow wasn't as good as Q3 of last year, but still it wasn't bad. (Just as an aside, one of those non-cash items was prepaid expenses which was up $78k sequentially. In terms of analysis, one has to back out these types of fluctuating balance sheet items.) Those non-cash working capital items also affected free cash flow to about the same extent as they affected actual cash flow from operations, so there's nothing further to comment on there. It should be noted however that there were some one-time items which affected Q1 free cash flow, including relief camp infrastructure, mail server upgrade and new trucks.
5. The Pathcom acquisition is definitely a wild card. For its $3.5M of annual revenue, PCS paid only $800k. Of course, we don't know how profitable Pathcom is or will be. It could turn out to be another very low p/e acquisition.
6. With PCS's historically growing cash flow, there should be many more acquisitions to come.
My bottom line: I didn't expect much from Q1. For me, PCS was intended to be a longer term investment based on increasingly frequent acquisitions and rising cash flow.