RST continues to execute on its plan to simplify its business, reduce costs, and in our minds, position itself for a sale in 12 to 18 months. The company reported:

  • Lexia Learning’s revenues up 38% YOY with a year-end bookings estimate of $40 million.
  • Cash generated from operating activities of negative $2.5 million versus negative $13.3 million in the Q1 2015.
  • On track to realize $65 million annualized cost savings and identified an additional $19 million additional savings from exiting E & E language direct sales force outside of North America and Northern Europe.
  • Ended the quarter with $40 million cash and no debt, roughly 24% of the company’s current market capitalization.

RST’s E & E language business continues to be a show me story. The company is reporting favorable results from the beta-testing of its new Single Solution enterprise platform, which incorporates placement and assessment tools demanded by enterprise clients. Our sales contacts inside the company indicate excitement over the new E & E platform and a positive view of how the new platform will be received in the marketplace by governments, K-12 schools and corporations.

RST’s stock reacted positively to its first quarter announcement rising to the $8.50/share level but was reversed days later when The Motley Fool, having evidently grown impatient with the company’s turnaround efforts, recommended its subscribers sell their shares and buy one of their, “Starter stocks, Best Buys, and newest recommendations…” We posted a response on Seeking Alpha to reiterate our investment thesis with the underlying data buttressing our view.

As a result of our willingness to average down (accumulating in the valley but rarely at its bottom), once long-term conviction has been established, RAM’s cost basis in this key position is $7.96 despite an initial purchase price closer to $10/share.

This post has been excerpted from the Roumell Asset Management Q1 2016 Letter.

Disclosure: The specific securities identified and described do not represent all of the securities purchased, sold, or recommended and the reader should not assume that investments in the securities identified and discussed were or will be profitable.