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Express Inc. Message Board

investor.gator 33 posts  |  Last Activity: Apr 3, 2014 2:35 PM Member since: Aug 15, 2012
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  • investor.gator by investor.gator Apr 3, 2014 2:35 PM Flag

    It's hard to imagine how any company could pay nearly 2.5x as much OAV to the government for liquidating surplus and still make money given that LQDT is a well-run, efficient company with specific expertise in this area. There is just no way.
    LQDT has enjoyed nice growth and good returns on capital, but not so high as to suggest they were overcharging the government. LQDT appears to be one of the few gov't contractors that shoots straight.
    Government procurment is not a predictable or smooth process. Gov't does now always have the flexibility to make common sense decisions.
    SCENARIO 1 (Be patient, be greedy when other are fearful)
    If a low bid came in and the usual disjointed, no-one-in-charge procurement process marched ahead. DLA could easiliy have made a decision here that will look monumentally stupid in retrospect. If we rule out a large reputable company as the winner and given that DLA could easily have awarded the contract to an unqualified party (see above) i am (literally) betting my money that a small company run by three guys and a dog but with some connections got into the process. We will disccover material misrepresentations in their bid about their ability to execute and will also discover absolutely no diligence (other than reading the application) done by DLA. DLA will claim they relied on representations in application.
    None of this helps LQDT in the short run, but in the long-term LQDT's franchise and track record of execution should help them get this business back
    SCENARIO 2: (I just lost a lot of money)
    A reasonably well-qualified, well-run company (perhaps another auction house or a gov't contractor looking to expand amid federal spending cuts) decided they wanted in to this business and used Microsoft-like tactics to buy the contract at an unprofitable level to shake out competitors hoping that they would have the market to themselves at renewal.
    -----
    This loss will be a big story in DC business circles and hopeful will get coverag

  • Reply to

    Revised Valuation

    by investor.gator Apr 3, 2014 10:40 AM
    investor.gator investor.gator Apr 3, 2014 11:20 AM Flag

    Another additional clue that LQDT believes there was irrational bidding is their inclusion of this language in the press release:
    "contract awards are subject to a protest period and a pre-award survey by the DoD regarding the bidder’s ability to satisfactorily perform the work in accordance with their technical proposal submitted in step-one of the solicitation."

    This language could indicate LQDT intends to protest the award (which often happens in gov't contracting)

    Having followed the company since '09 and having direct, high level government experience i am handicapping the following:

    60% chance LQDT protests rolling stock award
    33% change LQDT wins protest
    so...20% chance rolling stock contract comes back in next (30/60) days

    If LQDT wins rolling stock protest (20% chance), then there is a 75% chance they try to revisit the economics on the non-rolling stock contract ASSUMING that contract was biid up by same irrational bidder as rolling stock.
    There is a 80% chance will recapture some economics for a 12% overall chance the non-rolling stock economics improve

    SO: roughly 32% chance that damage from DLA contract fiasco is mitigated in next 30/60 days

    If damage is not mitigated, there is no question this is a big ratchet down for the profitability of the company. Only way to dig out is for company to improve private sector reverse supply chain activities. This will be difficult but LQDT will be rewarded with a higher multiple going forward if mix shifts towards non-government

    In the meantime, this is dead money but not worth taking a loss just yet given that this is a good management team working with a stronf balance sheet in a niche business in which they are a dominant player)

    (disclosure: long 8,700 at $21.12. Eff me)

  • investor.gator by investor.gator Apr 3, 2014 10:40 AM Flag

    Given recent insider buying and early February FY'14 guidance, we can assume events of this week were a surprise to management and caused by unusual bidding by competing parties for the DLA contracts (more on that later)
    Assuming a 25% to 30% reduction in EBITDA for FY'15 and assuming FY'14 comes in at the mid point of management's previous guidance (the latter based on the the fact that management says there will be no impact to FY'14):
    At $18.50 per share, LQDT has an enterprise value of ~$515M against revised FY'15 EBITDA of $75M (about 25% to 27% less than FY'14 midpoint of guidance) for EV/EBITDA of 6.9x.
    This valuation is 'fair' given the negative trends in the business offset by strong balance sheet, good moat around the business, founder run business, etc...)
    As for the bidding in the auction, there are some clues that bidding was highly unusual. It will be interesting to see who the winning bidder is for both rolling and non-rolling stock
    * LQDT says bid amount for rolling stock was so high it jeopardized ability to provide high service levels. It is unlikely that any other company can dispose of stock more efficiently than LQDT and so this is LQDT warning the GOV'T that the low-bidder will screw up the liquidation of rolling stock. Government is known for accepting low bids that later have horrendous execution. This contract will come back to LQDT after a termination withing the two year initial award is my prediction
    * As for non-rolling stock increase from 2.x% to 4.35%, this is a shocking increase. We assume the company felt they could provide service under this contract and at least break even. Either way, this is a massive hit to the business model. In buisesses not otherwise hit by technological or regulatory chages, econmics just do not change this much overnight. Cleary an irrational bidder (perhaps the same one that won the rolling stock bid) bid this contract up. Whoever this company is, they will screw up and disappear.

  • investor.gator investor.gator Mar 21, 2014 10:29 AM Flag

    FACTS
    1. The company must elect to forgo up to 20 years of future tax benefits in order to receive a refund on FY'13 and FY'12 taxes paid. The company may or may not do this. Keep reading to understand why.
    2. IF BODY does elect to receive a refund, the amount to be received is nowhere near $17M, it closer to $13M or $13.5M and BODY will not receive one penny of it until Crystal, the non-bank lender, is repaid in full all amounts outstanding under the revolver
    3. BODY will not receive one penny of any refund if they are in default of the various terms of the loan agreement, which they likely will be very soon
    4. If BODY does elect to receive a refund and if they are not in default and if they revolver is paid down to $0.00 and if there is anything left over, then BODY can get the leftover amount subject to a further cap of $13.5M less all amounts prepaid on the revolver or to other creditors
    5.. the timing of any refund is uncertain but is not imminent and any monies received in the future may not be received in time to help with current liquidity crisis
    6. So...if you are BODY and you are being advised by your restructuring advisor, you will likely not make the election to get the refund only to have it go right out the back door to your lenders. You will save it as negotiating leverage

  • investor.gator investor.gator Mar 21, 2014 9:28 AM Flag

    FACTS

    1. The company must elect to forgo up to 20 years of future tax benefits in order to receive a refund on FY'13 and FY'12 taxes paid. The company may or may not do this. Keep reading to understand why.

    2. IF BODY does elect to receive a refund, the amount to be received is nowhere near $17M, it closer to $13M or $13.5M and BODY will not receive one penny of it until Crystal, the non-bank lender, is repaid in full all amounts outstanding under the revolver

    3. BODY will not receive one penny of any refund if they are in default of the various terms of the loan agreement, which they likely will be very soon

    4. If BODY does elect to receive a refund and if they are not in default and if they revolver is paid down to $0.00 and if there is anything left over, then BODY can get the leftover amount subject to a further cap of $13.5M less all amounts prepaid on the revolver or to other creditors

    5.. the timing of any refund is uncertain but is not imminent and any monies received in the future may not be received in time to help with current liquidity crisis

    6. So...if you are BODY and you are being advised by your restructuring advisor, you will likely not make the election to get the refund only to have it go right out the back door to your lender. You will save it as negotiating leverage.

    The outcome is very complex and uncertain...but to characterize the situation as BODY about to receive $17M and suggesting it helps the equity as 'cash on hand' is wildly inaccurate and irresponsible.

    Investors should do their own homework. (And, at this point, obviously ignore false and materially misleading statements posted on this board).

  • FACTS

    1. The company must elect to forgo up to 20 years of future tax benefits in order to receive a refund on FY'13 and FY'12 taxes paid. The company may or may not do this. Keep reading to understand why.

    2. IF BODY does elect to receive a refund, the amount to be received is nowhere near $17M, it closer to $13M or $13.5M and BODY will not receive one penny of it until Crystal, the non-bank lender, is repaid in full all amounts outstanding under the revolver

    3. BODY will not receive one penny of any refund if they are in default of the various terms of the loan agreement, which they likely will be very soon

    4. If BODY does elect to receive a refund and if they are not in default and if they revolver is paid down to $0.00 and if there is anything left over, then BODY can get the leftover amount subject to a further cap of $13.5M less all amounts prepaid on the revolver or to other creditors

    5.. the timing of any refund is uncertain but is not imminent and any monies received in the future may not be received in time to help with current liquidity crisis

    6. So...if you are BODY and you are being advised by your restructuring advisor, you will likely not make the election to get the refund only to have it go right out the back door to your lender. You will save it as a negotiating #$%$.

    The outcome is very complex and uncertain...but to characterize the situation as BODY about to receive $17M and suggesting it helps the equity as 'cash on hand' is wildly inaccurate and irresponsible.

    Investors should do their own homework. (And, at this point, obviously ignore false and materially misleading statements posted on this board).

  • The amount of the refund, if any, cannot exceed the notional value of the NOL. This amount is nowhere near $17M

    More importantly, the timing of any refund is 4Q'14 at best. This is well past the point where it would be helpful in solving the company's current liquidity issue. Finally, given the collateral shortfall, the refund amount, if any, would inure to the benefit of the senior lenders.

  • * Assuming the company needs $30M to finance a turnaround and give confidence to lenders, suppliers, (normally I would say customers, too. But I don't think teenage girls buying lingerie care about the credit quality of their clothiers)

    * $30M is based on 2013 burn and assumes it takes 1 year to turn around.

    * Assume $30M raised at 25% discount to current equity valuation or $1.50 per share. 20M new share issued with existing equity owning 16/36 or 44% of company

    * After store closings and restructurings assume store count down 10% and 7% EBITDA margins ~ $17.5M of EBITDA normalized at 6.0x multiple = $105M enterprise value post turnaround

    * Debt free, cash free equity valuation = $105M with 36M shares o/s = $2.91/share

    Note: Equity will likely come in the form of convertible preferred and if anything goes wrong during turnaround, common stock is last in line
    Above numbers assume turnaround works and preferred is converted to common.

  • Given that BODY likely burned between $9M and $10M between 12/31 and 3/12 (see my previous post), it is highly likely they have liquidity problems. I wouldn't be surprised to see a going concern on the 10-k and a concurrent announcement around the hiring of advisors to explore 'options'

    I believe the 10-K needs to be out before 3/28 for the company to avoid violating an information covenant on the new Crystal facility (but that would be the least of their problems)

    For stockholders, the main concern is that there is now a non-bank lender that has a first lien position on the company's assets. Let's assume the amount of this first lien is still $12M as it was at the last disclosure and is secured by substantially all of the company's assets.

    A this point, it is worthwhile to understand what a liquidation looks like:

    CLAIMS:
    Senior lenders first priority claim: $12M

    Fees and Expenses: $5M (this is probably low for a liquidation, but this one should be simple. This includes professional fees for financial advisors, lawyers and other as well as key employee wages for 8 weeks)

    Unsecured claims: $10M (@33% trade payables and accrued wages)
    Total priority claims and expenses:$27M

    SOURCES:
    Cash: $8.5M (@100%)
    A/R: $1M (@85%)
    Inventory: $12M (@60%)
    Other: $3M
    PP&E: $4M (@10%)
    Total liquidation proceeds: $28.5M

    Distribution to equity: $1.5M = $0.10 per share

  • Reply to

    Cash burn, Q1, $9.5M

    by investor.gator Mar 14, 2014 12:39 PM
    investor.gator investor.gator Mar 14, 2014 3:57 PM Flag

    part ii
    but since the ending cash balance at 3/12 was down $3mm, the burn from 12/28 through 3/12 was 6.5+3=9.5
    Assuming Q1 looked like Q4 (sales of 66M, ~18.5% gross margin, $25M SGA) then you can assume an operating loss of $15M. Non cash D&A and stock based comp would equal about $2.5M but would be offset somewhat by some minimal level of capex, say $1M or $2M. Assume payables were stretched to make working capital breakeven or slightly positive and you end up with cash burn of ~$13.5m to $14.5m of burn for quarter, then pro rate it to account for less than a full quarter through March 12th and you end up at $9.5M cash burn.

  • The technical accomplishments of this company have to be separated from its valuation. The giga factory announcement is merely an admission that battery prices are nowhere near where they need to be (

  • investor.gator by investor.gator Mar 14, 2014 12:39 PM Flag

    The company ended 12/28/13 with cash of $16.5M and debt on the old BB&T facility of $5M, for 'net cash' of $11.5M.

    In February, they refinanced the BB&T facility:
    SOURCES:
    Crystal facility: $12M
    Total sources: $12M

    USES:
    Repay BB&T facility: $5M
    Estimated expenses of refi: $0.5M
    Working capital and general corporate purposes:$6.5
    Total Uses: $12M

    Cash at 3/12: $20.5M
    Debt at 3/12: $12
    Cash net of debt: $8.5M

    Given that the company added $6.5M of estimated cash to its coffers following the refi in February, the net cash position should have increased by the same amount as of March 12th IF THE COMPANY NEITHER GENERATED NOR BURNED CASH from 12/28 through March 12. Since Q1 is typically seasonally strong, the company usually SOURCES cash in Q1.

  • investor.gator by investor.gator Mar 14, 2014 7:39 AM Flag

    * Hopefully the delay in the 10-k is not the result of ongoing discussions between BODY and the auditor over a 'going concern qualification'
    PROs
    * Q1 is a seasonally strong quarter (i don't expect it to be very good for BODY, but it should be relatively good)
    * Q1 offers an opportunity to stretch payables to conserve cash
    * Crystal facility does not appear to have financial covenants nor does the term loan amortize (need to double check this) The latter gives the company until 2017 to pay the 12M, although the interest expense is high at $1MM per year+
    * Feb retail sales prelim numbers were reportedly good
    CONSs
    * coming….

  • 9/28/13
    Cash and equiv.:$19.95M
    BB&T facility: $0
    Cash less debt: $19.95

    10/31/13:
    Cash and equiv: ?
    BB&T facility: $5M
    Cash less debt: ?

    12/28/13
    Cash and equiv: $16.5
    BB&T facility: $5M
    Cash less debt: $11.5

    2/6/14
    BODY replaces BB&T facility set to expire 3/5/15 with new Crystal asset based facility. Crystal facility consists of $12M term loan drawn closing, $5M revolving credit facility undrawn at closing and $7M uncommitted facility.

    3/12/14:
    Cash and equiv: $20.5
    Crystal facility:$12
    Cash less debt: $8.5

  • AEO is a very compelling buy at 6.0x EBITDA, 4% dividend yield, 6% FY2015 and 8.2% steady state free cash yield. No other retailer offers such a classic deep vale play

    There is an incredibly detailed analysis on the truthorfinance site that delves into these numbers.

    The analysis points out that most of the cause of the decline in FY2014 free cash is due to two temporary factors and the 8.2% steady state free cash yield assumes only a partial operating margin recovery to 7%

  • investor.gator by investor.gator Mar 13, 2014 5:27 PM Flag

    At these lelvels, AEO is a very compelling stock at 6.0x EBITDA, 4% dividend yield, 6% FY2015 and 8.2% steady state free cash yield.

    There is an incredibly detailed analysis on the truthorfinance site that delves into these numbers.

    The analysis points out that most of the cause of the decline in FY2014 free cash is due to two temporary factors and the 8.2% steady state free cash yield assumes only a partial operating margin recovery to 7%

    The eagle is a screaming buy at $12.XX

    Sentiment: Strong Buy

  • investor.gator by investor.gator Mar 12, 2014 3:39 PM Flag

    Forgot to add that the delay in announcing earnings increases the likelohood of a concurrent announcement around some type of actual or contemplated corporate action. Examples include hiring a bank to explore strategic alternatives, major executive changes (yes, even the CEO after a short tenure), restructuring program including store closures, etc...

  • investor.gator by investor.gator Mar 12, 2014 3:29 PM Flag

    The larger teen retailers continue to report miserable numbers (AEO, EXPR) and outlooks. These larger teen retailers are bellweathers: if they didn't draw high mall traffic or see a lot of conversions from the traffic they did get (i.e., transactions down) and they saw big margin compression and related delveraging on SGA, etc..it is highly likely that BODY will fall victim to the same trends.
    The difference is that after several quarters of poor performance, BODY's financial position (cash balance, CA/TL coverage) is significantly eroded.
    BODY will likely get crsuhed when they report.
    The odd silence from the company around earnings announcement is not good. I believe other posters have sent inquiriies to the company on when they will announce and not received an answer.
    Note: i am looking to initiate a long position because if BODY is worth anything it is worth at least double the current share price.

  • investor.gator by investor.gator Mar 11, 2014 8:11 PM Flag

    too bad investors cannot short a new issue. COUP is set to drop like a rock
    the truthorfinance page has a great analysis

  • investor.gator by investor.gator Mar 10, 2014 8:51 PM Flag

    I'll take a pass at just over 10x EBITDA, 20.0x P/E and paltry 2.8% free cash yield. There is a good article at the truthorfinance site that does a deep dive. Best to buy closer to 6x EBITDA

EXPR
14.64-0.42(-2.79%)Apr 17 4:02 PMEDT

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