The big question mark is that there is no real evidence that the management missteps have ended. I generally would be buying every share that I could possibly buy when a stock is trading at 90 cents and it has $1.25 in cash and no debt. It seems like a no brainer, you're buying the cash at a discount and getting the rest of the company for free.
But Leapfrog's cash decreased from $199 million on June 30, 2014 to only $88 million on June 30, 2015. If that trend continues, they will be out of cash before next summer. You can mention market manipulation like some posters have, or you can mention what one trader says the nadir is based on technical analysis, but the real issue is that Leapfrog is going through cash very, very quickly.
I agree that the stock price could triple or better if they are successful with their turnaround efforts. But there is no indication that is happening when you look at their financial statements. Compare the March 31, 2015 Income Statement to the March 31, 2014 Income Statement and then compare the June 30, 2015 Income Statement to the June 30, 2014 Income Statement. For me, the first thing that pops out is that Gross Revenue is down about 30% for each of those quarters when compared to the prior year. Gross Profit is off by more than that and Net Losses are much greater. So, the lead in to the 2015 Christmas Season is looking much worse than the lead in to the miserable 2014 Christmas Season.
I am totally okay with someone disagreeing with me. But please post what you see that is factual that leads you to your conclusion. Not just the fact that they have $1.25 per share in cash and no debt but some indication that you see that the cash won't be totally gone by next spring.
I don't think that many people are doubting what the current value of the assets are. I'd go along with A/R probably being worth more than 75% since the amount per book should already take into account an allowance for bad debts and I'd also say that inventory is probably worth more than 50% because management is supposed to be accounting for that at the lower of cost or market. In theory, they should be able to sell it for what it is on the books for but their track record has not been great about that but I'd still think that's it's worth more than 50%. I noticed that you left off A/P, accrued liabilities, and deferred revenue and those amount to about 75 cents per share, so they should be deducted.
But, in any case, there isn't much argument that book value is a lot more than the current stock price. But the way that they've been burning through that book value is the big question. Will that stop??? The fact that revenue are lower than they were in the June 2014 quarter by 18% is not good. Remembering how bad the December 2014 quarter was and the LF current comparisons are unfavorable to the numbers that led into that fiasco. I guess that the comparisons are less bad than the March 2015 is a small glimmer of hope but I wouldn't buy stock based on that.
I think a buyout would have to be by one of the big players in the industry. Even when Leapfrog was profitable, it had a terrible gross profit percentage when compared to Mattel, Hasbro, etc. Like 60% compared to Leapfrog's 40%. The difference was that Leapfrog has huge Selling, General, & Administrative (S,G&A) expenses. These expenses are direct selling expenses but are not part of the actual production process. If a company like Mattel or Hasbro bought out Leapfrog, I'd think that they could eliminate the majority of the S,G&A since they already sell to the same customers. But, it seems current management and presumably the largest shareholders are against a buyout and the huge hit to sales over the past 9 months makes it less attractive to a potential suitor. Still a possibility though I suppose.
The September quarter is always a cash burn quarter. Partly because they are building inventory for the Christmas season and partly because sales are not good in the September quarter. Also, I think that the December quarter being "almost a lock" to turn back profitable is optimistic. But even if the December quarter does turn a profit, it is just 1 quarter of 4 that make up a year. It has to make enough profit to offset the other 3 quarters. There are other companies in seasonal business that do have only 1 of 4 quarters that turn a profit and they are successful.
Go back and look at last December's financial statement and even without all of the goodwill, fixed asset, and tax benefit write downs, there was still a huge loss. Saying that this coming holiday season will definitely turn a profit when the March and September quarters compare so unfavorably to last year is a stretch.
I bought this company largely because I saw it as a value play when it was $8-$9. The PE was low, it had no debt, the price to book was reasonable, the price to sales was low. I even continued buying as the price fell and got my average cost down to $6 by buying at $4 or so when the book value was $6 or more. I sold when they delayed the earnings conference call two quarters ago within hours of when it was scheduled. They had to know days or weeks before that they were not going to be able to issue the financial statements when scheduled.
This has been a very mismanaged company and there is really nothing in the most recent quarter that indicates a change. The most positive thing that can be said is that sales were only down 18% when some analysts projected down over 40%. But the net loss was still much greater than analysts predicted.. Please show me where the cost cutting is.
This quarter had higher sales than I expected by about $5 million but the net loss was still there as was the cash burn. I generally would be all over a stock that was selling for less than 50% of book value but in LF's case book value has plummeted so quickly I think that it is justified. I hope that the company pulls out of this but I think that the odds are against it. This Christmas season will tell the story.
That's a very good question and I wish that I had an answer. The Milken family owns about 40%, you'd think that they'd be actively looking for change and with 40% ownership they should be able to initiate change almost on their own. If this goes past Christmas with the same miserable trends, there will be nothing left to sell.
I am glad that I sold at $2.10 but my average cost was about $6 so I'm no genius on this one either. From the very beginning one of the fundamentals that lured me in was the stock price compared to book value and I think that is still what is getting some people to buy and others to hold on. But that book value is going away very quickly.
If management and the BOD were open to selling this, they may still be able to get $2.50 or more per share considering the cash, receivables, inventories, and maybe there is some value to the Leapfrog name. But if they hold out trying to make this work, and especially try doing it with the same management team, then they are almost certainly doomed.
It doesn't seem like very long ago when I thought that posters were crazy when they said that LF was going below $5. It hit $1.03 earlier today and book value is close to $3 at the end of last quarter.
It is tempting to buy even considering its miserable recent earnings reports, but I just can't help thinking that there won't be another miserable report released next week. Looking at the gross sales figures for the March 31 and June 30 quarters for the past couple of years the trend has been so negative. Gross sales for the quarter ending June 30, 2013 were $82.9 million and then June 30, 2014 they were $46.9 million down about 44%. Then when you look at the March 31, 2013, March 31, 2014, and March 31, 2015 the sales were $82.9 million, $56.9 million, and then just $33.9 million this year.
Based on all of these trend figures, it wouldn't be unreasonable to think that sales could be 30-40% below last year. So, unless they had a miraculous positive change in sales, I'd be looking for gross sales of about $33 million, a net loss of at least 50 cents per share and negative cash flow of another $30 million.
I think that they have no chance of building cash in the June 30th quarter. Their cash increased by $30 million in the March 31st quarter but that is simply collection of accounts receivable from their Christmas season and it happens every year. A year ago the March 31st quarter had $100 million increase in cash so the $30 million this year is not good. I'm expecting another horrible quarter and I think that the recent stock price weakness supports that.
I'd like to see this company pull out of this but I am not at all confident that they will.
I do hope that you're correct, but I have reservations. I almost always would jump at the chance to buy a stock that is selling for less than 50% of tangible book excluding fixed assets and no debt. But LF has gone through about $100 million in calendar year 2014. I'm not talking about the tax benefit, goodwill, and asset write downs, I am just talking about actual liquid assets (cash, accounts receivable, inventory, and subtracting accounts payable). That's huge.
On the positive side they say that they're cutting expenses and they've eliminated almost 100 employees. But their comparable sales have dropped 35% each of the two prior quarters when compared to the prior year. Their gross profit last quarter was barely positive before deducting their operating expenses. We will know a lot more after the upcoming conference call, but if it's another really bad quarter then I just don't see how they'll turn it around.
I am totally out but still looking at it mainly because it is selling at a huge discount to tangible book value. I do think that they'll go through that cash quickly unless they do end up ousting the management team. These guys have made mistake after mistake.
It'll be interesting to see how the June 30th quarter turns out. One of their excuses for the March 31 quarter poor results was that Easter was later this year moving it from the March 31 quarter to the June 30 quarter. So, in theory, that should positively affect the June 30 quarter. I'm not holding my breath.
I am thinking that they own less than 5% because I don't see them listed anywhere. You'd think that the news stories would give a clue to that information. Blue Pacific Partners need to get the Milkens on board with them or it is going nowhere. But I do agree with them. This current management team is a joke. The CEO has been there for 4 years and he has a cumulative huge loss to show for it and the current trend for revenue, net income, stock price, etc. is getting worse not better.
I just looked and the list is on page 27 of the most recent annual report available on the LF website. Michael 27.9% Sandra 7.2% and Lowell Milken 4.8% for a total of 39.9%.
I think that they are in his name, his wife's name, a trust, and one of his sons. It has been a while since I looked at it but it is disclosed in a footnote to the financial statements of their annual report. The index refers to the note for major shareholders.
I really don't see much difference between mixed and lukewarm. It definitely is not an across the board rave review that's for sure. I have read several of the 5-star 48% reviews and they do have good things to say. But I pulled up many other products that I use everyday to see their review percentages and 48% 5-star is not really very high. I have a 7 inch Nexus tablet that comes in at 64% 5-star and I don't like it at all. I am currently on my 2nd one after getting a replacement and the new one has problems too. Of the 6 or 7 other products that I looked at the worst was 49% 5-star. My point isn't to say that Leap TV is not good, just that the Amazon ratings are not a very good way to determine how good the product is.
Anyway, I do hope that Leap TV is successful and the Leapfrog pulls out of their current problems. I personally think that it is a long shot. Several other posters had mentioned that the Leap TV price point is too high. The problem is that their gross profit percentage is already very low for the industry because of huge Selling & Administrative expenses. Cutting selling prices may sell more units and maybe even raise revenue but those S&A expenses are a huge hurdle.
If it returns to profitability soon, then it is a very good buy at this price. Cash is almost $2 per share and receivables and inventory are double the accounts payable balance so its book value of good solid assets is probably at least $2.50 per share. Normally, I'd say it was a steal at this price with no debt. But they have been so hugely cash flow negative that it is not going to take long to use up all of their cash if things don't change quickly.
As I understand it the big hope is Leap TV. I've read many reviews and they seem lukewarm at best (except for some posters on this board). I haven't used the product, so I can't say first hand.
I agree that it doesn't mean that they're done. It may be possible to double or triple your money in 7 or 8 months if LF has a great Christmas season this year. Personally, I think that it's a long shot but we'll have to wait and see.
I totally agree that they'll make it through Christmas 2015 without a liquidity problem. But if Christmas 2015 is even close to as bad as Christmas 2014 then they are done. So a mildly successful Christmas season or even a so-so Christmas season buys them time, but disaster like last year and that is it.
I did buy back in a few shares at $1.42 yesterday hoping for something positive.
I agree that there is no chance of a liquidity event prior to January 2016 but that is only 7 months away. Also, many posters point to the $75 million revolving line like they could draw on it once all liquidity is depleted. Most revolving lines of credit and other debt instruments have liquidity restrictions in place. They can be canceled any immediately payable when your current ratio, quick ratio, debt to equity ratio, etc. falls below a specified level. So, it's true that they can draw on it for short term cash needs like the Christmas inventory increase. But it very likely will not be available if they have depleted all available resources and are attempting to use the revolver just to stay afloat.
I've taken a few college level financial and accounting classes and I tend to agree with timintaz1. The quarter ending March 31st is their historically best quarter from a cash flows perspective because they are converting the Christmas sales receivables to cash during this quarter. So the fact that they generated $33 million is not surprising and it was about half of what they generated in that quarter the prior year. Leapfrog typically generates more than 100% of their annual cash flow in the quarter ending March 31st with the other 3 quarters totaling a negative.
As far of the June, September, and December 2015 quarters go; look back at prior years. They have historically been negative cash flow quarters. Not just last year, but in previous years.If Christmas 2015 is not at least mildly successful then they will be a very serious trouble and if it is as bad as Christmas 2015 then they may not see Christmas 2016. It is that serious in my opinion.
I'm not trying to be negative just realistic. Do not look at the March 2015 quarter's $33 million increase in cash as a positive and an indication that things are on the mend. That positive cash flow is simply a seasonal trend that happens every year and the $33 million was a very low positive cash flow for that quarter. I'd be a lot more focused on the fact that the March 2015 quarter's gross profit was only $3.5 million compared to the prior year of over $21 million, the net quarterly loss was $76 million compared to a year earlier loss of only $12 million, and that sales were down 40% from the year earlier March quarter.
As a disclosure, I have no position long or short in the stock. I sold at about $2.10 taking a big loss. I continue to watch for some positive indication that things are changing but I have not seen that yet.