Let's first talk about worst case valuation for this company. They have $115mln more in current assets then they do TOTAL liabilities. In other words, giving them no value for any PPE, etc, just current assets, in a liquidation you get $115mln back (only tweak I'm making to actual liabilities is splitting the payable to MIG guys into cash and stock, keeping the cash liability, will account for the stock piece in a minute). They are guiding to $270mln in rev, of which 1/3 is advertising and 2/3 marketing. Using publically listed peers, MM, even after this drubbing, is trading at 1.25x 2013 rev. If we use 1x for Velt advertising piece, that's $90mln. For the marketing piece, INTQ.LN trades at 1.1x 2013 rev. If we use again a haircut 1x, that's another $180mln of value. So adding this all up, have $385 of value.
As for sharecount, have 65mln shares. Assuming they pay MIG guys in stock for th $14 mln they can pay in stock, that's another 7mln in stock. Let's assume they give another 3mln this year, that's 75mln shares. $385mln/75mln is $5.15/share.
As for the three big bear qualitative cases. First, HSBC will extend the loan. They are more than covered by receivables alone ($250mln in receivables vs $50mln loan), and remember, these guys use to do VELT's factoring, so they are comfortable with the receivables. Banks dont just shut down companies for missing covenants, they just dont. Instead, they'll jack up the interest rate another 300bp, which is HUGE in this low yield mkt, and call it a day.
Two, they won't need to do a secondary, because on their guidance, assuming they pay MIG in cash, they have $15mln of cash at the trough. If they work a deal with MIG guys to delay this, they will trough at $30mln of cash. That's more than enough wiggle room, even if they miss FCF guidance by $10mln. And the MIG guys will extend, because they are getting stock worth 10% of this company, so will take the stock, negotiate some interest rate on stub piece, put
this is for the most part nonsense as there is little to no liquidation value here - at this point nobody knows if the AR on the balance sheet are collectable at all or to which extent. So if management would go out and dismantle the company tomorrow shareholders most likely won't get anything.
As for the cash position management already referred to Q1 as "on the edge" but they are hoping to get through this without the need of another cash infusion. Given on the company's history of overpromising and underachieving you can bet that they will need more cash going forward - which they won't get as there is no access to capital markets for them currently. Nobody would underwrite a VELT offering at this point.
On the call the CEO was asked how sure he feels about the new projections with his answer being "70 to 80%".
I have said it before and I say it again now - the company will file for chapter 11 within a few months from now.
Jeff new to company. He had opportunity to go through all receivables with fresh eyes and no baggage. He was incented to be conservative b/c he was new and had no legacy issues. In fact, it was in his personal best interest to over-reserve, as once he reserved a dollar, he was implicitly signing off on everything left.
CEO didn't give the 70-80%, it was Jeff. All the above apply.
As for being "on the edge" that assumed they had to pay MIG guys $15million in cash. I don't believe they will, at least immediately.
As for other comments. In terms of more institutional investors, do I sound retail? I know of at least 3 big funds (1 MF, 2 HF) that are buying (although I do think Fidelity has lightened up). But trust me, when you see the 3 of our 13G's, you will be more impressed we're buying then worried Fidelity is selling.
CEO does work for nothing, takes a $1 salary.
The bankruptcy line of thought is getting old. why do all shorts go back to this argument? its pretty tired man. you need some new material. we all know it will not go bankrupt, they have a ton of revenues. a company like CLSN or AFFY, maybe. but not VELT
Nice analysis. While I do not disagree with your analysis, I do wonder why the short interest is so high on this one. And institutional investment is so low. I also wonder why both MM and VELT are planning to report significantly lower Q1 numbers YoY. Seems it is a sector problem. The sector is obviously out of favor. I feel that VELT is the best play in the sector, but it would be really nice to see some institutional interest on the long side to signal a trend reversal.
The sector is now getting crowded with Google and Facebook challenging in it.
As for the shorts they have been right all along for the last two years in the face of misplaced optimism from the management which has consistently proved wrong, and somehow someone must be giving the shorts information.
...out a press release saying they pushed out debt and no secondary, and make money in a heartbeat.
And then three, on the accounting. Jeff is still there. He's had time to go over everything. The receivables are just late, not fraudulent. And we also know he's gone over them with a fine tooth comb because he wrote some off (which pervesly i loved to see because while it's never good to see a write-off, it meant Jeff signed off on what he didn't write down.
This thing is a screaming buy until at least $5, which will probably take until they report Q3 numbers in November. By that time, I'll have plenty of data to decide if upside beyond that. I've been buying for the last 3 weeks, thanks for all the shares. And I strongly encourage anyone to debate any of the above, I would love to get a real debate going to see if anyone can poke a hole in any of this.
And one other way that Jeff is important here. Companies have to revalue intangible assets at least annually, if not more often. Again, we know jeff has gone over this with a fine tooth comb because he wrote off some intangibles in q4 as well as receivables ($17mln). So again, he's signing off on what's left. The company has $165 million of intangibles and goodwill post this write down. You add this to my $115mln of Current Assets less Total Liabilities (remember, I didn't include these before), you get $290mln vs my prior $385mln. Using same share count of 75mln, this is $3.85/share (and still is not including all other Long Term Assets). This means the company (and their auditors) agree this thing is worth at least $3.85/share, or else would have been more write downs. Keep in mind, companies don't write UP intangibles, only Down. So this $3.85 means we know the company thinks it's worth at least that amount. They could think it's worth $3.86, $5.15 (my number), or higher. But the new CFO, with a track record and a reputation, is telling you the floor. You should listen