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  • propitiousaugury Aug 15, 2013 4:48 PM Flag

    In the middle of adversity...lies opportunity?

    Hi all,

    I came across UNTK in my quest of hunting for bargains (beaten down, hated, neglected stocks in the trashcan). A very very leveraged situation.

    Few questions I had:

    1. Is there no backlog for Fulfillment segment?
    2. What advantages does UNTK have compared to Dycon Inc, MasTec Inc, Multiband Corp?
    3. What happens if litigation costs (incl settlements) exceed insurance reserves? BTW their casualty insurance expires in Sept 2013.
    4. Pinnacle contingent consideration was paid, but not earned, hence company pursuing repayment - of some $1.9M, correct?
    5. AT&T contributed ~$74M of revenue in 2012 and it'll be $21M lower in 2013, so $53M. Will gross margin remain same?
    6. They say "additional fees (some of which are noncash) that will impact our future liquidity" - why do noncash charges impact liquidity?

    Enterprise Value as of Dec 31, 2012:
    Company has $161M of LT debt & capital lease obligations + $28M operating lease obligations + $6M Skylink Earnout = $200M obligations. Add that to $31M of market cap and we get $230M enterprise value.

    Adjusted EBITDA for 2012 was ~$40M. That puts EV/EBITDA at 5.75

    Let's see how they performed in 2013. I think lower interest rates (through re-fi) would help a lot. The silver lining I see here is that lenders don't want UNTK to go under.

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    • Hello Propitiousaugury,

      Welcome to the Unitek message board.

      I will let someone more knowledgeable than me answer the questions, but I will pipe in that I think that question 4 is interesting (I am in favor of the company reclaiming everything it can, getting money from whoever defrauded them and from the auditors --- in fact, I am also in favor of getting refunds from the BoD members who were on the audit committee and apparently were not completely up to par -- well, actually, I think they should do the honorable thing and volunteer to return the money and equity they have received, but somehow I don't see that happening.)

      The issue of the refund from the Pinnacle sellers is impossible to address, I think. I mean, it is supposedly fraud, so there are a number of questions: Who were the principals behind the fraud, do you have to prove fraud before you can claim a refund, was there some fraud before the merger, and were the principals in selling the company involved in the fraud (and, if so, all or some?)

      I think the starting point is to withhold the pending payments. Beyond that it gets really sticky, really quickly.

      Personally, if there are fraud issues related to the Pinnacle principals, I don't see why the company should not go back and reclaim a substantial amount (for instance, the purchase agreement was, I think, changed to swap equities for cash last year, and, so, to my mind, the only question is if that leaves that cash payout open to a claim for re-claw.)

      Hmmm... I am not sure that this was clear. The bottom line is that I believe that there may be potential for far more than $1.9 million (plus costs) if a link can be made between the fraud at Unitek and the Pinnacle sellers, but it would be a long a hard slog to get there.



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