Boring Portfolio

<THE BORING PORTFOLIO>
Kronos Clocking Gains
A former radar stock makes good

By Alex Schay (TMF Nexus6)

ALEXANDRIA, VA (April 16, 1999) -- Hi, Mr. Mortality here for another Bore update. Well, it's done. American Power Conversion (Nasdaq: APCC) took another hit on Wednesday and the Bore decided to power up -- check out the numbers, and Dale's report. The move has generated some solid commentary from the community, so interested investors should peruse the board as well. In order to avoid the charge of being too morbid, I'll just briefly mention that some funeral home and cemetery operators were raised from the dead this week. Both Service Corp. (NYSE: SRV) and Stewart Enterprises (NYSE: STEI) -- mentioned in last week's report -- were up big today on some positive industry news (check it out in the Evening News).

Much to my chagrin, Kronos Inc. (Nasdaq: KRON) clocked in some huge gains today. It was a company "on the radar" in the middle of 1998, but through a fault entirely my own -- a bungled watchlist technology swap -- it disappeared off of the screen without a trace. Despite its small market capitalization, Kronos is estimated to control about 60% of the market for time and attendance systems technology. It was founded in 1977 to automate time and attendance punch card systems with early DOS-based computer programs that kept track of mechanical time clock data and fed it into payroll systems.

Today, thanks to a client/server initiative begun a year ago, Kronos offers a "Timekeeper" client/server system that can use, say, Windows NT and a SQL server for central data needs. Workers clock in and out using an identity card (or hand recognition units for that matter) with an embedded magnetic strip that runs through a dedicated terminal. The data is then transmitted to a central server and then on to a firm like Ceridian Corp. for payroll processing. The real value added by Kronos though is in its analytical tools, which allow managers to:

"apply uniform pay policies in line with time and attendance; trace employee leave; forecast business volume and workload requirements and create detailed employee schedules; track work in progress; and provide alternatives for more cost-effective staffing. Analysis of multiple operations can be centralized to help executives identify trends and compare performance across the enterprise."

For a complete overview of the Kronos product line, including those packages tailored for particular industry groups, check out the website. Today, the firm reported that, "revenue results for the second quarter... were higher than any previous quarter in the Company's history." Here's a chart with the current revenue data (Q2' 99), and how it relates to the company's sales and marketing and R&D efforts over the last couple of quarters:


Sales Productivity


         Q2'99     Q1     Q4      Q3      Q2        Q1 
Sales/Mkt.       18,688  18,450  17,670   15,878   16,051
Sales     61,686 53,115  58,745  52,679   46,472   44,573
SMkt./Sales%      35.18   31.41   33.54    34.17    36.01
R&D               6,003   5,485   5,334    4,557    4,324
R&D/Sales%        11.30    9.34   10.13     9.81     9.70
Numbers in (000)

The company has been steadily pulling in revenue off of a fairly constant R&D and Sales and Marketing base. As can be seen, year-over-year comparisons for the last two quarters have been excellent. Operationally, Kronos has been top notch (note: the firm has no debt so these are unleveraged figures):

ROIC: 22.94%
Boring Ratio: 4.63%
Working Capital: 48,134.00
Capital Turnover: 3.10
Days Sales Outstanding: 79.83
Days in Payables: 25.74
Asset Turnover: 1.54
Assets/Equity: 1.75
Net Margin: 7.59%
ROA: 11.68%
ROE: 20.46%

Taking the firm's trailing cash flow statistics at the first quarter -- even with today's almost 15% run-up -- Kronos is trading at only 12 times enterprise value to free cash flow. Here are the numbers:

Cap Ex: $9,500.00
Working Capital Change: $10,725.00
Net Op. Cash Ex. WC Change: $28,188.00
Net Cash from Operations: $38,913.00
NCFO/Reported Earnings: 226.70%
Cap Ex/NCFO: 24.41%
Cap Ex/Begin Invested Capital: 12.94%
FCF: $29,413.00
EV/FCF: 12.37
EV/NCFO: 9.35
P/E: 21.19
EV/Operating: 13.14
EV/Net Income: 21.19

The million dollar question for the future is where can the company throw its capital around to keep generating these great returns? A substantial expansion of its sales force would seem intuitive, but first we want to see those second quarter numbers completely broken out.

Anyway, we'll be taking a closer look in the future.

By the way, attention to Washington, D.C. area readers! Come out to a golf shoot-out this Saturday, April 17, to benefit our own Tim Aycock, who's undergoing cancer treatment. There's a $10,000 cash prize for the first hole in one! Check out this link for more information.

Fools Wanted: Apply Within.

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Boring Portfolio Archives »  

04/16/99 Close
Stock Change   Bid
BRKb  +43      2400.00
CSL   -  1/8   45.25
CSCO  -4 5/8   105.69
GTW   -1 11/16 64.19

                  Day     Month   Year  History
        BORING   -1.33%  -1.81%  -1.53%  32.21%
        S&P:     -0.29%   2.54%   7.62% 119.54%
        NASDAQ:  -1.54%   0.91%  13.29% 138.63%

    Rec'd   #  Security     In At       Now    Change
  6/26/96  225 Cisco Syst    23.96    105.69   341.18%
  8/13/96  200 Carlisle C    26.32     45.25    71.89%
 12/31/98    8 Berkshire   2244.00   2400.00     6.95%
   2/9/99  100 Gateway 20    72.38     64.19   -11.31%


    Rec'd   #  Security     In At     Value    Change
  6/26/96  225 Cisco Syst  5389.99  23779.69 $18389.70
  8/13/96  200 Carlisle C  5264.99   9050.00  $3785.01
 12/31/98    8 Berkshire  17952.00  19200.00  $1248.00
   2/9/99  100 Gateway 20  7237.50   6418.75  -$818.75


                             CASH   $7658.52
                            TOTAL  $66106.96

</THE BORING PORTFOLIO>