Agree with your note. Hard to tell from the conference calls if the CEO (and team) are still trying to turn the business around by "investing" in marketing or adding labor to improve the experience (they've talked about that) or if they are now looking to save every penny. Frankly, I'm not sure either path would result in a positive outcome. They appear to be too far gone and don't have enough firepower to turn it. Their big issue is revenue and that's hard to grow quickly. It would take a massive redesign of the menu....and then customers would have to be told something's new....and then those customers would have to decide to give it a try. That cycle takes a long time...and...as we both have forecasted...time is not on their side. As I've said before, I don't have some sort of vendetta against this concept....heck, I wish it would turnaround...however, the business model just doesn't seem to work and it's unlikely it will get fixed in time.
Based on their current trends and store count, I project Q4 "Gross Profit" will turn slightly negative. It was only $832k in the last quarter. Extrapolating seasonal and recent trends will likely result in total revenues at $20.3 million....lowest in recent history.
Doubt they can make meaningful adjustments to the operating cost structure (not to mention the impact of deleverage due to sales declines). Even adjusting for further G&A cuts, the loss could be $3.5 million vs. last quarter's loss of $2.5 million. This is before any unusual items such as impairment charges/closure reserves (which would be non-cash charges).
In terms of cash flow, the wild card will be how they manage working capital. I suspect they'll pull back on capital expenditures and they'll be below depreciation by $200k. This would put the cash burn around $3.1 million before any changes in liabilities, inventory, etc. You have to believe they'll be stretching payables and shrinking receivables but who knows what they're locked into on that end. So...on the bad end, the cash burn could be $3.5 million and my conservative estimate wold be $2.75 million. Given they ended last quarter at $8.25 million, that's getting awfully close for comfort to fund the normal swings in the business. Not sure how they could raise any more capital if things get tigher. Disclaimer: I don't own this stock...never have.
It's likely they've already tested those waters. As a public company that isn't overly "complex", much of the information needed to value the company is provided via their filings. You don't have store level statistics but it's unlikely that would shed any info that would drive a valuation that is significantly off from where it trades today.
unfortunately, that's not accurate on the NOLs....check out section 382 of the tax code. Severe limitations.
I'm not sure why "wassayassa" has to be so rude and ugly with his responses. It reduces his credibility. However, his point on NOLs is directionally correct. Section 382 of the tax code severely restricts the use of NOLs by the buyer. It's based on the equity value of the acquired company immediately prior to the deal multiplied by the IRS' determination of what the long-term, tax-exempt interest rate is at the time. The short answer is that the value of the NOL won't be anywhere near what the deferred tax asset is being carried for on the books.
I don't agree with much of what you post given the unprofessional attacks you make, however, you are right about two things. First, the next quarter will likely be bad. It's usually a tough quarter and, given the trends, it is likely to cut through half of their remaining case. Second, they won't report until March 2014. While you seem to think that's criminal or wrong, it's a normal amount of time for a company to report their annual 10k. They reported it on 3/14/2013 last year and one should expect them to report it around mid-March of 2014.
You're right...they have no debt however they do have lease obligations. While not accounted for as debt, they are relatively substantial and are a contractual obligation. If things continue to go south, they must have locations that lose money. That will be a drag and I'm not as confident that a company with no history of making a profit that is generating a loss at the EBITDA line and burning cash would be able to borrow any significant money. This could be a problem in 2-3 quarters.
Love it when people compare Price/Book as if every stock in that industry should have the same multiple. CECO burns cash....EDMC, APOL, DV all generate cash. LNC is essentially breakeven on the cash line. CECO has negative EBITDA....everyone else is positive. CECO has a negative ROA....everyone else is positive except LNC at (1.4%). Bottom line...CECO is being valued by the market much closer to LNC...CECO currently is 0.6x Book and LNC is 0.7x. These companies are in the same industry....but they are very different. APOL may be the one to look at in terms of valuation at this point.
Other than talking about Mr. Miller, does anyone have a logical case for where the value is here? It currently has a book value of only $0.51/share and it is burning cash at a high rate. With another quarter like they just announced, they'll cut their cash in half....and it could be worse because this quarter is seasonally low historically. Not dumping on the firm.....like a few others...just trying to understand if there's any logic when folks say "buy" or are they just dreamers? I think it's the latter.
I tend to agree with you. The cash burn next quarter could top $5MM if past trends persist. Though they don't report any owned real estate, maybe someone would like to takeover their leases in big markets like Chicago and DC. Can't imagine they'd pay much for that though and it's unlikely they'd want to buy the whole company.
you were not even close....huge loss...again....not even close to breaking even. Instead of conjecture....please review the financials over time and you'll see how unlikely it was that they would make money last quarter. In fact, I'll go out on a limb and suggest the losses will be even larger next quarter given the seasonality of the business.
I understand the hypothesis but I don't see how someone gets the value out of this. I guess if you could pick up the entire business and cut 100% of the SGA, it might work. They don't own any real estate so there's no value there. They've got some cash but it's being burned at an increasing rate. The business barely brokeven at the Gross Profit line. Hard to see why someone would pay the market cap for it.
yup...it came. Ouch. Really bad quarter and when you look at how the next quarter has done vs. this quarter, the next release could show a cash burn of $5-6 million if things don't pick up. They only have $8 million left now.
Most recent quarter was a tough one to say it mildly. Gross profit was almost breakeven....that's before paying SG&A. While SG&A came down, it's still $2.6 million for the quarter (lowest it has ever been) so there's much improvement needed on the topline before they simply breakeven on the bottom-line. The cash burn is very concerning. They burned $3.7 million in the quarter which brought Oct 2013 cash levels down to half of what they were a year ago. At that burn rate, they have roughly 2 quarters of liquidity left. However, it might be worse....the quarter ending December tends to be down vs. this quarter. If those trends occur between this quarter and next, Total revenue could be down $2 million which would put the burn at around $5-6 million and with only $8.3 million currently on hand, that could be too close for comfort in terms of running the business day-to-day. Unlike some readers, I don't wish them harm. Seeing a business fail isn't something to celebrate. I hope they find a way to resurrect themselves however I fear time is not on their side. Disclaimer: I do not hold any position in this stock nor have I ever.
curious....why do you think there will be good news? Not trying to be argumentative, just curious what your premise is for optimism.....same store sales growth? cost reduction? a new franchise deal? It's not clear where the growth will come from. I'm not trying to be negative....just looking at the facts that have been provided and it's not clear if they have the ability to pull this one out of the dive.
If you extrapolate their recent trends, it appears they'll deliver an Operating loss in the range of $1.5-$2.0 million.
Total revenue could dip below $22 million for the quarter (July Q was down 11% vs. July 2012; Oct "12 was $24.4 million) and the wild card (IMHO) is how bad the cost of revenue margin will be on that low a level of sales. The lowest quarterly SG&A has been in the last several quarters was just under $2.8 million. That leaves "Other" and "non-recurring"....they've been in the 0.9-$1.3 million range for the past few quarters. When you pull it all together, you get another relatively large operating loss. This is likely to lead to a cash burn for the quarter UNLESS they (1) push working capital (stretch payables, collapse receivables), (2) don't spend anything on capital expenditures which have averaged $437,000/quarter for the past 4 quarters, or (3) raised more money via financial engineering. Neither of those 3 options are sustainable.
Given where their Payables were last quarter, don't see that increasing so I'll assume all the non-operating stuff that impacts cash flow will be a hit of $500.000 which would make the quarterly cash burn in the $2 million range. Luckily, they had $12 million at the end of the last quarter so they have time to right the ship.
Can't wait for their release. Disclaimer: I don't own a position in this stock now or have I ever.
I find it interesting to see the spin companies put on their quarterly results. In this industry, it's usually "our enrollment declines got less negative" or something along those lines. Also, in the case of CECO, they'll tout cost reductions but costs should go down as you close locations and lose revenue. The reality is that their Gross Profit margin (both in terms of dollars AND %) was the lowest in a very long time. G&A appears to be trending down but not by much. The overall result is a big loss AND they burned a ton of cash. Now, many will say "yeah but they sold their European business for a ton". Yup...they did. It was in much better shape than the domestic business and does NOT face the tough governmental headwinds that the US post-secondary faces. They've bought some time but, in my opinion, this will continue to be one of the tougher stories in the industry going forward. The next step is likely for them to carve out the University vs. the Career schools and monetize one of them to continue to provide cash so they can buy time to turn the remaining schools around. Disclaimer....I don't own a position in this stock and I've never owned one.