Think you are looking at a possible financing to buy some time, or an unwind/sale of the company once the interim CEO really gets into the meat of the problems and sees the hornet's nest he has to deal with. At his age, it depends on whether he wants to play lead to a multi-year turnaround/reclamation project w/no certain outcome. I am sure he realizes he has to move quickly and already made the first move two weeks ago.
Greenie, a lot has changed. The CEO was sacked. They have gone from growing the company to racing to save it. Cash from U.S. sources and borrowing capacity could be depleted in a matter of months. They company closed dilutive, cash burning, low margin acquisitions that have killed gross margin and are now embedded in bookings and backlog. To your point however one thing has not changed: shareholder value has not changed in over a decade.
Did anybody see any guidance in the release or 10Q? The 10 Q for most companies has an Outlook paragraph. That's just peachy. Half way through the quarter and they have no idea what even the top line of the Income Statement will look like. They can't even offer a revenue range. That speaks either to the fact this should not be a stand alone enterprise given that kind of variability and lack of transparency due to customer timing decisions--- or-- that these guys should not be running a business. Everything is a surprise? How can that be? I thought they had some super duper new accounting system in place to track everything? Comedy and tragedy at the same time w/this company. Yeah, tragicomedy, that is what this company is. I'm laughing and puking at the same time.
Downgraded to strong sell a week ago ahead of the earnings report. Remaining covering analysts are in a tough spot having carried anything other than a sell rating and maintaining their double digit price targets. Throw out the earnings models and just pin the tail on the donkey. That's your new estimate. One thing they cannot afford is to have their name and recommendation tied to a company that could face an equity wipe. Like I said before, the only one who comes out ahead is the former CEO. Sweet package.
It's like that 1950 film noir D.O.A., the poison is already in the system. You might recall the more recent re-make w/Dennis Quaid.
When your cash balance is $8.7 million (much of it overseas), your maximum borrowing capacity under a recently expanded credit facility is $4.5 million and you are burning $4.5 million cash from operations in just the last quarter alone---well, you do the math. Debt or additional equity is on the horizon, the near term horizon. Apparently, they would rather let the acquisitions strangle the company than sell it. They are boxed in. Assuming an average employee salary of $75,000 annually they could have hypothetically cut head count by half and still not have come close to breakeven cash from operations in the latest quarter. The business model is broken. The math is very simple. They still have to find yet another CEO to step into this mess. That's going to cost a penny or two as well.
Not sure who would take the other side of that trade at any price. Negative cash flow from operations was almost $5 million this quarter. The die is cast. The margin erosion subsequent to the recent acquisitions combined w/the rate cash is evaporating is beyond alarming. Throw in a global manufacturing downturn and you have a potentially lethal cocktail for the company. A little over a year go they had almost $4 cash per share. That number is under $1 per share now and has perhaps continued to fall since the end of December. There is no cash backstop for the share price.
The incompetence is staggering, mind-numbing. Ironically, they do not realize they have sealed the company's fate as currently structured under the current business model. They have held to the same talking points from a $14 share price to $5, from $34 million in cash to $9 million, for five consecutive quarters of negative cash flow from operations, through changes in the executive suite too numerous to mention. They are oblivious to the cash burn and talk of ample capacity for further financing. That is nothing short of insanity. What sound lender would provide financing given their record of devouring cash while producing loss after loss? Of course they have to mention ample capacity for further financing because any fifth grader can timeline the cash use and will have to ask the logical question: what will you do when you run out of cash soon? There is no sense of urgency. There is no massive cost reduction effort in a cyclical company entirely exposed to a global manufacturing recession--whether they plan to serve autos, aerospace, white goods, or agriculture. They pay lip service to enhancing shareholder value while simultaneously destroying it. In short, the inmates are running the asylum.
All the cash will probably be gone soon, maybe before calendar year-end. Then they begin to burn though the line of credit. But they'll have great backlog and bookings, really really great backlog and bookings.
the just released fiscal 2Q results begs the question: how bad do you have to perform to get fired for cause w/o a severance payment? Who's job is it to monitor the cash balance at the company? The CEO? The CFO?, The entire Board of Directors, The Chairman? Apparently it's no one's job. It's a runaway train now headed for Frankford Junction. Brace yourself.
They can skip the next few chess moves and go right to putting together the financial restructuring team they will probably be needing.
They are citing backlog and bookings while the company may be trending toward financial Armageddon due to anemic margins from the recent acquisitions, and are clearly experiencing an accelerating cash burn. From $32 million cash to under $9 million cash in a year. You can't eat backlog and bookings. You need positive cash flow from operations. They are going to choke to death. The cash requirements of the acquisitions and the outstanding bookings and backlog were probably under-estimated. This goes well beyond just an under-managed situation. There has to be some minimum test of business acumen to be allowed to sit on a Board. Like frogs in slowly boiling water they will realize the outcome only too late. First though, they will try to borrow themselves out of the problem. The handwriting is on the wall. That's the way these situations always end.
A simple extrapolation of the last 5 quarters trend would suggest they have to tap the credit line and probably expand it to avoid solvency questions within the next 2 years. Excluding the Chairman recently appointed as a temporary interim CEO stopgap, the company has 1 remaining executive--the CFO who has been on the job for 5 months. Chief Technology Officer doesn't count as an executive position. Shareholders investment is likely already burned, at a minimum the fuse is lit. Now they need to try and save the jobs of over 350 employees. Holy Geezus they burned over $5 million cash in just the December quarter. They have waited too long to explore strategic alternatives. That process should have been initiated 12-24 months ago.Would-be buyers will likely let this just unwind and pick it up for pennies on the dollar. An equity wipe-out cannot be ruled out.
didn't take long for those options to move under water. The more options they award executives, the more quickly the market votes and renders them almost immediately valueless. Probably not going to be a lot of confidence in the interim CEO after his performance as Chairman. Company being held together w/duct tape at this point.
Is $14 million cash enough? Assuming they still even have $14 million cash at the end of the December quarter and achieved cash flow breakeven. At the BOTTOM of the last recession in late 2008/early 2009 the company had $23 million-$24 million cash. Now the company still has to get through a weakening manufacturing economy, costs to hire and fire executives, a strong dollar impact i.e. on foreign exchange costs, a weakening China manufacturing economy, a recession in Japan, the VW Crisis, working cap and cap exp costs to fund new product introductions and the recent acquisitions, outstanding litigation. The former CEO inherited a Balance Sheet w/ $34 million cash and did dilutive lower margin acquisitions that have not stemmed (and maybe even help produce) four consecutive quarters of negative cash flow from operations. So is $14 million cash enough to face the obstacles ahead? How much cash will remain if and when the economy revives in a couple years to grow the business? I assume the CFO is all over this and has his pencil sharpened. Or, they could just sell the company now.
almost forgot, the Controller retired last month as well. Just add her to the list. Working hard to keep the Chief Technology Officer happy: increasing his profile, paying him more, and throwing some options his way. Guess he's still there, as of yesterday anyway.
I do agree the current CEO has had almost 3 years to complete the turnaround. That should have been enough time to at least show some progress. He has not done that in terms of growth. I would not be opposed to a regime change at the company. I would want to be sure it was a better alternative and not just change for change's sake.
I'm not seeing outsized raises or anyone being egregiously overpaid. I am just not satisfied w/the lack of top line growth. As I said, the company does a relatively good job of managing its cost structure. But until they grow revenues, this remains moribund.
yes, but the market will be forgiving of a one-time cost seen as non-operating/nonrecurring (even though executives at the company seem to come and go about as often as I change my underwear). I would be more concerned, even excluding such one-time costs, just how the company expects to be profitable for Fiscal 2016. I suspect that is a legitimate question even if results are back-half of the fiscal year loaded. BTW, since the "resignation" was Jan. 26 it might be recorded as a fiscal 3Q item, not that that really matters. Separately, finding a new CEO, to take a job at this company, in the current environment--that will be a mighty challenge. Most candidates, if they are any good, will do as much due diligence on the company and its history (from operational results to tenure of its past executives) as the company or search firm will do on them. Business acumen, hard work, a great platform of technology at the vanguard pale in comparison to the whim and caprice of auto manufacturer spending and timing decisions as determinants of career wealth accumulation for that position. Easier to just come up a new app that goes viral if you want to control your own fate as regards personal wealth.