As promised, I will be sharing my impressions of meetings I had with CEOs at the LD Micro conference in Los Angeles last week. The first two names are ones that I have written about several times for Real Money, and I'll have some new names in next week's columns.
Acme United (ACU) CEO Walter Johnsen noted in our meeting that he was "very confident" in the company's guidance for EPS of $1.63 in 2016. While ACU is still running numbers for 2017, he did not object to the EPS estimate of $1.90 for 2017 from my firm, Portfolio Guru LLC, as published in Issue 2 of my newsletter, Microcap Guru.
So when the CEO blesses your earnings estimates, that is a good feeling as a shareholder. ACU is rock-solid with a $0.40 annual dividend per share and continued market-share growth in its key cutting and measuring end markets.
It's been a great year for Johnsen and company, with ACU shares providing a 34% total return on nine-month 2016 revenue growth of 13% and EPS growth of 26%.
So the near-term future is bright for ACU, but the longer-term goals will require consistent execution. Johnsen has thrown out a goal of $180 million in revenues for 2018, which represents 21% compounded growth from the $123 million figure for which ACU has guided for 2016 revenues. Our estimates are much lower -- $160 million in revenues for 2018. The difference is explained by the fact that I don't include potential acquisitions in my earnings estimates. Clearly, though, Acme is looking, and Johnsen noted that he is being shown as many potential takeover candidates as ever.
That's the real variable for ACU, with its attractively stable core business going forward. What does it buy and how much should it pay? Johnsen is extremely happy with the results from the DMT Sharpeners acquisition completed in February, and if ACU continues to buy well, 2017 and 2018 will be just as lucrative for ACU shareholders as 2016 has been.
In contrast to ACU's terrific year, 2016 can only be described as an annus horribilis for Second Sight (EYES) . The Center for Medicare and Medicaid Services (CMS) decision to slash reimbursement rates for EYES' Argus II retinal implant system was a crushing blow to the company's profitability. Worse, the confusion over reimbursement rates made implanting surgeons much less likely to perform procedures, and EYES' U.S. business dwindled to almost zero at the beginning of 2016. Also this year, EYES' founder, the legendary medical device innovator Al Mann, passed away at the age of 90.
The CMS reimbursement issue has been resolved, and as of January 2017, the Argus II system will be reimbursed by Medicare at a rate of $150,000. At LD Micro, I did not get the sense from EYES' management that they expect a tsunami of implantations beginning Jan. 1. It's going to be a long slog rebuilding the Argus II momentum with implanting surgeons and with potential patients stricken by retinitis pigmentosa (RP).
Going forward, the spice in EYES' story was always two trials for different uses of the Argus II architecture. In our meeting, management remained confident on the progress of the trials under way in the U.K. of Argus II on patients with age-related macular degeneration -- a much more common condition than RP. Orion I is a device that involves direct cortical stimulation of the visual cortex of the brain.
Success in those trials would greatly expand EYES' addressable market, but trialing is expensive, and EYES management reiterated that they will need to raise capital by midyear.
So if EYES can regain the momentum in domestic implantations of Argus II, and if the company can continue to grow internationally and if it can provide successful feedback from its dual market-broadening programs, 2017 will be a much better year and EYES shares are massively undervalued at $2 each. If the market comes to that elation, that would make EYES' capital raise that much easier.
I used four "ifs" in the last paragraph, and that's a situation familiar to most microcap investors. Watching a previously blind Argus II patient regain some functions of vision is amazing -- search for "Argus II" on YouTube to see them -- and Second Sight is truly providing a service to humankind. If it gets rid of the "ifs," the market will again realize the value in their mission.
