Is Workstream Turning A Corner?

Mar 13, 2009
This article is part of a series called News & Trends.

Something strange is happening in Maitland, Florida. Workstream’s stock has jumped 1000% since the end of the year when it closed at a barely perceptible 2 cents a share. And that was before the current market run-up, so the increase is more than just a coattail phenomenon.

A provider of SaaS HCM software and owner of 6FigureJobs and personal career consultant Allen and Associates, Workstream was bleeding red ink last year. Its obituary was all but written after its deal to be acquired by payroll processor Empagio fell apart.

But in July the company reported ekeing out a small quarterly profit, earning an EBITDA of $.5 million. For the fiscal year (which ended May 31) the company lost $52 million, with more than half of that coming from a downward valuation of goodwill.

Now, as of the last report filed with the SEC covering the 2nd quarter which ended Nov. 30th, the company had shaved $5 million from its operating expenses and cut its quarterly loss by 77 percent compared to the same quarter in 2007. Revenue, though down, was off by about 25 percent compared to the same quarter the year before. The half-year numbers were equally impressive. The company is losing money, but CEO Steve Purello has managed to cut the losses by close to two-thirds from the previous year.

“It has been nice,” Purello told us of the jump in stock price even as he observed that getting multiples of 10 are easier when the price starts at 2 cents.

He attributes some of the rise to the expense reduction, some to holding on to revenue, and some  to simply getting the company’s financial house in order.

“We’ve done all the things we said we were going to do,” Purello told us, recalling conditions last year that prompted hand wringing over Workstream’s future. “At the time, it might have seemed pretty bad.” Besides the mounting losses, the bad news included delisting warnings from NASDAQ, where the stock is traded, and delays in filing reports with the Securities and Exchange Commission.

Now the company is up-to-date on its filings, and the NASDAQ has decided to temporarily suspend its listing requirements for all the 300 or so companies whose stock price is below the $1 a share minimum. CFO Jay Markell left at the end of January. The position has yet to be filled, though Purello told us it would be.

We tried to coax the third quarter numbers from Purello, but he was unyielding: “We just closed our quarter, so I really can’t say anything.” The numbers will be released the middle of April. The only hints he gave were what you might expect; Workstream continues to control expenses, and is working to grow revenue. About the latter, Purello did point out that some of the company’s larger clients like Wells Fargo have acquired other firms, adding to their headcount, and presumably to Workstream’s subscription income.

“We’ve got many Fortune 2000 companies,” Purello pointed out. About 35 of them have more than 10,000 employees.

Workstream also has technology that’s gotten good reviews, especially the latest release of its TalentCenter 7.0. Encouragingly, its last financial release showed that amidst all the cost cutting, research and development wasn’t whacked as hard as other areas.

There’s one other possible reason for the stock price: taxes. Workstream shareholders might have decided to dump the stock before year end to take advantage of the deduction, then buy it back after the 30-day waiting period. It wouldn’t take many buyers for a lightly traded stock like Workstream to feel the effect.

This article is part of a series called News & Trends.
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