The CFO embarrased himself and wasn't prepared, they will have an investor day on the 12th where they will hopefully clarify the companies cash flow power. The CEO is excellent and will lead the company, but he should have been allowed to choose his own CFO.
Book value is a meaningless metric because managment team's have the ability to manipulate their values, a wireless company can write their spectrum down to $0 and sell it the next day for billions of dollars. I pay no attention to book value, I care about market value. Companies do this for tax reasons, writing things off saves real $$$ in taxes.
Ebitda and adjusted Ebitda can have a lot of differences. Here managment teams can get tricky with it, but usually the bank agreements have what is allowable and what is not for leverage calculations. So usually Adjusted Ebitda is the metric to use. I'd say almost all the one time expense items are added back. Hiring a law firm for a one time legal defense, severance packages to employees, one time legal settlement or gain (works the other way too). Usually, adjusted ebitda is the metric investors should be looking at (every once in a while someone might take liberties by adding in future synergies from an acquisition that will take a while to be realized). It really is up to the investor to decide what to give them credit for and what not to, but like I said usually the banks have this agreement in their indenture. My estimates are they will do about $260m in adj. Ebitda, EV value of about $1.37B, roughly 5.3x. Another way to value the equity is on a free cash flow yield basis. They will generate about $25m in free cash flow this year, that's amost a $1, so trading at $17.50 its about a 4.7% yield, not what I would consider cheap. However, they have a lot of high interest debt in their capital structure, and when they refinance it, it could save them a lof of $$$$. So much so that I think in 2 years time they could be doing almost $3 per year in free cash flow. Now, will interest rates still be low by then, who knows. But that is the opprotunity in front of them (also selling themselves - a new buyer could refiannce their debt tomorrow and realize those savings).
You do not want to use Cap IQ, bloomberg, yahoo or anything esle, they are unreliable, best is to get the numbers strait from earnings releases or from the SEC filings. Don't rely on 3rd parties to do the work for you, it's extremely dangerous. They don't have pro forma #'s, they make a lot of mistakes. LVLT and CCOI are wirelines companies but they are different, the others are not. I stopped reading your post after I saw that your EV/Ebitda #'s were completely wrong as it immediately discredits the rest of your post.
When writing hit pieces you should try to be factual. Highest EV/EBITDA in the space? Based on what #'s? LVLT trades at 11.2x, CCOI 12.8x, Win 6.8x, CTL 6.2x, FTR 5.8x on a pro forma basis, CBB 7.8x, CNSL 7.4x, FRP is 5.4x. Only lower are HCOM and ALSK. Please use facts, does nobody good to make things up.
The 600mghz band of spectrum is excellent spectrum. Sprint and T-Mobile want it desperately because they have a serious lack of low band spectrum. VZ and AT&T are less willing to pay big $$ for this spectrum because they have a lot of low band spectrum already. This is the reason why AT&T and VZ have superior networks. VZ and AT&T want to delay the auction because they want to maintain their competitive advantage for as long as possible. TMO and Sprint want it tomorrow. Sprint sat out this last auction for the sole purpose of getting this spectrum. Dish probably won't be an aggressive bidder (but who knows) because I think they are trying to get a higher valuation for their current spectrum portfolio, they also have limited low band spectrum. When this auction does occur, AT&T and VZ will bid up the prices because they want TMO and Sprint paying as high of a price as possible. If their competitive advantage goes away on the operating side they want to increase it by stressing those companies balance sheets as much as possible. It's game theory.
Completely agree, that was about as good of a call as they could have had. Really liked the forward free cash flow guidance which was conservative because they are only counting the expenses and assuming no revenues, that won't happen.
Martel, any opinion on the broadcasters leasing their spectrum? I know a lot of them, especially SBGI believe that is a better option rather than just selling it. Although that may be just lip service, and they may have changed their opinion based on the last auction.
The numbers the FCC just put out are pretty amazing. I'm surprised how much higher some of the smaller markets are. But, you have to remember that this is a reverse auction, and that prices will come down from these levels (although it appears that the FCC will set the opening prices again 60 days before the auction). My point is the ultimate value is still unknown, but this is VERY encouraging. The IRS also said they will treat the spectrum sales as long term gains, and you can offset the value that they have off the books. Also seems to be ways that you can limit your taxes with the sharing agreements (I expect many will look to do this). Lastly, the most encouraging part that I saw (outside of the higher prices) is that it appears that these guys will get paid sooner rather than later. I was afraid they wouldn't get their check until the 39 months are up, but it appears that the FCC is going to cut them a check as soon as the bids are awarded.
Thanks for the info, yes the chart sure does look ugly. On the fundamental side you might want to pay attention to the current spectrum auction as it values Gogo's spectrum north of $3B (if it gets repurposed, which is easy to do).
Serious question, do you shorts just look at charts or is there a fundamental thesis as well? If so, what do you value Gogo's spectrum at? $0?