Company now can now buy back most of the freely trading float (at current PPS). $50m available now for buybacks. Everybody was wondering why they modified the old credit agreement to allow for buybacks and then never exercised any. Now the answer is here. They just doubled their line of credit, under very favorable terms, with a $50m buyback clause and essentially guided for at least $40m in profit in 2016 (and thats min. $10m per quarter meaning the strong Q4 will be double that at least, making $50m-$60m a reasonable target and a PPS of $40 reasonable given the growth story will be back). This is a very interesting and revealing 8-k. Worth a read for investors. Analysts have the company making about $5.6m or $0.21 per share in 2014, but the credit line covenants require an EPS of a minimum of $10m for 2014, or about $0.36 per share. Knowing that its a quarter by quarter number for covenants, they have to make alot more than even that because its $2.5m minimum per quarter, even in the historically weak quarters, and the strong Q4 will at least double the weak Q1 for instance. Gotta figure at least $0.60 per share or even $1 per share (as I've said they have a chance for in the past). Estimates have to go up based on this as they are far too low. No way Skullcandy, who has an impeccable balance sheet and is in the drivers seat during this type of negotiation, ends up making a credit agreement that will have them default. So barring a default in the agreement next year (which I put as a very very low probability), the estimates are far too low simply based on the minimum net income needed per quarter not to default. Its late here, so I apologize for the rambling but I think the stock will run on this tomorrow.
Unfortunately, you are mis-reading the covenants. It's a rolling four quarter period, so a minimum of $2.5mm in annual profit through 9/30/2014 or $0.09 per share. It's a guarantee that the company will need to stay profitable in future years, by cutting expenses if necessary, but not a sufficient reason for estimate revisions or analyst upgrades.
Hope no one bought shares based on this flawed analysis.
Nhlennox00 is right....that table they put there shows the amount of net income that needs to be reported on a rolling 4 quarter basis not per quarter....to their benefit it always ends with December....also they can't have a losing quarter!!!!
c) net income attributable to Borrower, measured on a rolling 4-quarter basis for each fiscal quarter set forth in the table below, determined as of the last day of each such fiscal quarter....
So basically eps needs to be at least 9 cents for the 2014 year, 18 cents 2015, 27 cents by 2016 and 36 cents by 2017
If it is as charlesmoscoe says that would be a minimum of 36 cents for 2014, 72 cents for 2015, 1.08 by 2016 and 1.44 by 2017....this seems a pretty high barrier for a credit facility when it already charges 3 month LIBOR and is super senior secured and doesn't let the company buy any fixed assets. Also they can't use this facility until next year I believe.
Thanks for this. I read the agreement last night as well and noticed things like couldn't buy fixed assets worth more than $12mm so basically can't acquire companies with this. I do believe this is to partly fund the buyback but I don't think that it would be smart for the management to do now unless they see a very very strong quarter or traction in their turn around efforts.