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CryoLife Inc. Message Board

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  • dlhild Feb 25, 2010 7:41 AM Flag

    dhild, i see you like to spam, but can

    IMO, when you have a young growth company, everything is about three things. First, you need cash flow to stay alive and grow. Second, you need good profit margins. Third, you need to be a sales driven machine, which is Gary's main strength. If you focus on these three things, the rest works itself out over time. The Medafor model has all three, and this is why SGA wants to acquire Medafor. Having said that, the 2008 financial statements were issued at a time when Medafor still had very tight cash flow. It was shortly after the financial statements were issued that Medafor sales took off across the board...Japan...China...and USA. There was some balance sheet clean up too, specifically a combination of debenture conversion to stock and debenture time extensions. I'm guessing that there was about $6M cash flow improvement during the 8 months after the financial statements were issued. Cash flow continues to improve every day now too. I think Medafor will have at least $18M sales during CY 2010...sales could exceed this too. But let's use $18M, as a pretty good estimate. What is important here is that if you start with $18M sales and subtract off the cost to make the product and all variable costs, you have at least $12M left to cover your fixed costs and if need be pay attorneys to fight CRY. Medafor's fixed costs are in the ball park of $6M. That leaves you with $6M cash flow (Medafor is using NOL's now too). This same formula applied to 2011 probably puts cash flow in the $9M range. For 2010, Medafor's cash flow would then be about 30% of CRY's cash flow. For 2011 Medafor's cash flow would probably be about 50% of CRY's cash flow. Four years out in time, Medafor could generate cash flow equal to CRY's. Ultimately, both CRY and Medafor will become taxable. So if you want WAG EPS numbers, apply a 40% tax rate to the cash flow number and you will get a working number for EPS. Conclusion: Because of its rapid exponential sales growth, Medafor's real value is about 3-4 years out in time. During this period, it is all about cash flow, because you need cash to keep the doors open. Also, it is all about driving sales higher,because MPH has an excellent gross margin. GS is the absolute best at driving sales numbers. This is just one of several reasons why shareholders strongly support him.

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