Monday, November 9, 2009

Tii Network Technologies Reports

Tii Network Technologies (TIII) is one of those small caps I've been saying is attractive. I picked up a small amount of shares back in the middle of October. You can read my initial reason for buying through that link. Here's the release:

Net sales for the three months ended September 30, 2009 were$7,460,000 compared to $8,521,000 in the comparable prior year period, a decrease of $1,061,000 or 12.5%. Net sales for the nine months ended September 30, 2009 were $19,703,000 compared to $27,248,000 in the comparable prior year period, a decrease of $7,545,000 or 27.7%. The decrease in the 2009 periods was primarily due to the economic downturn, which has negatively impacted sales of our connectivity and network interface device products, and the loss of landlines by the service providers which has negatively impacted sales of our network interface device products. Additionally, in the three months ended September 30, 2009, the decrease in sales was partially offset by an increase in sales of our broadband products into the growing broadband market and to new customers.

Kenneth A. Paladino, President and Chief Executive Officer, stated, "The sequential increase in sales for the quarter was due to the improving economy's positive impact on our markets and sales to new customers from recent market share gains. Though total sales for the quarter were lower than the comparable prior year period, we are very pleased that sales of our more advanced broadband products were higher by almost 25%.

The decrease in gross profit margin for the quarter was to due to freight
and expediting costs incurred to satisfy an increase in demand for certain products with contracted delivery requirements where inventory levels for these products had been reduced due to the economic downturn. Increased production levels of these products have enabled us to significantly reduce expediting costs and as a result we expect to return to historical gross profit margin levels in the fourth quarter.

We continue to manage our other operating expenses and balance sheet
closely. Our operating expenses are down 22% or $1.9 million for the
first nine months. Cash is now $12.3 million, up $4.0 million for the same period.

Though our sales have not yet recovered to prior year levels, we are
confident that we are executing the right strategy and with the improved economic outlook, we expect that our profitability will also continue to improve."


I highlighted a couple of key points. The key with these small cap names is value. This company is now sitting on $12.3 million on cash with a $16.9 million market cap. In a normal market, companies like these might not be so undervalued. So this becomes more of a buy and hold until the market realizes some of its value more so than a bet on the company increasing earnings.

Disclosure: Long TIII

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