MIFI is difficult to value right now being that although revenue and gross margins are increasing, albeit through acquisition, they continue to struggle to turn a profit and generate Free Cash Flow. And with only ~$15M in cash ($10M from MIFI and $5M from Digicore) and repeatedly lowering their revenue projections throughout 2015, this is why MIFI is trading where it is. Yes, they have a revolving credit line of $48M from Wells Fargo, but hopefully this would only need to be used to fulfill future business commitments and not to run the business.
As you probably know, there are many ways to calculate a valuation. Some bulls will look at the $70M Q4 revenue projection and equate that to $280M per year and apply a 1X or 1.5X multiple minus debt and say MIFI should be trading at $3 to $6 per share. Others will say none of that matters if they are losing money, have no P/E multiple, and have little cash on hand. You can also see that MIFI is trading at less than 1/2 of their Enterprise value which is $124M.
At the end of the day, MIFI's future depends on their ability to grow revenue, increase margins, and generate positive EPS and Free Cash Flow. All other valuations are people trying to calculate future speculation and you can always find a Bull or Bear biased calculation.
Or you can hope that MIFI announces some new $50M a year deal which could happen, you never know.
Yes, it was during the Q2 2015 earnings call in early August where MIFI management lowered their prior expectations and said the $200M annualized run rate ($50M quarterly) on Mobile Computing would be delayed until Q2 2016. But, it was also on this same call that MIchael Newman continued to reiterate:
"Based on our expectations for continued IoT growth trends, combined with the anticipated closing of the DigiCore acquisition, we are driving toward ending the year with M2M revenues at an annualized run rate of $200 million, along with 45% to 50% gross margins for the M2M business."
And when questioned again, he said:
Jonathan Segal - Okay. And then my final question, you said $200 million of revenues will essentially come from DigiCore and Feeney Wireless, is that right?
Michael Newman - $200 million from in order to, so it's DigiCore, Feeney, and Novatel IoT.
All I'm saying is that these past statements and the subsequent back tracking off of them has been music to the ears of the shorts. And the shorts have been on the right side of this trade vs. claims of manipulation. MIFI guiding to $66M to $72M in Q4 with ~$35M in Hardware & ~$35M in Software & Services won't meet Michael Newman's statement of ending the year with M2M revenues at an annualized run rate of $200M that was given on Aug. 9th. (A 30% miss) And let's not forget that Alex repeated this projection at the Rodman & Renshaw presentation on Sept. 10th. You would think that they would have had the visibility to know by Sept. 10th that they were going to fall short of their projections for the Q4. Will Q1 guidance be at a minimum of $50M in Software & Services? We'll find out on Feb. 18th.
We need to be honest with ourselves as I believe claiming that aggressive shorts have "artificially" kept MIFI's stock price down is acting as if MIFI had no involvement in this. MIFI management assisted the shorts with the earnings miss in Q2 2015 as well as their continual promotion at Analyst conferences that they would end 2015 with a run rate of $400M in annual revenue ($100M revenue in Q4) that is falling 28% to 34% short of that guidance with their $66M to $72M guidance. The Short strategy has worked better than the shorts probably imagined it could at the time. (Thus the 85% drop from the high of $6.89 on April 27th)
As for the shorts being vulnerable to an acquisition, of course that's a possibility, but again the $120M note and FW payment obligations would deter any acquirer until MIFI was able to show that with MIFI, FW, and Digicore all finally together, can they make enough money to justify the costs they paid to acquire FW & Digicore. Again, Q4 was touted to expect to generate $100M ($25M from NVTL IoT & FW, $25M from Digicore, and $50M from MIFI Mobile Computing). Falling 30% short of those numbers is significant and brings to question the amount paid for the acquisitions.
As soon as Alex Mashinsky started to pitch the private placement of a $120 note using a $5.00 stock price as collateral to buy a South African company, many short traders smelled blood. Not because the overall strategy was bad, but because they knew they could manipulate this strategy by driving down the stock price. The note & buyout of Digicore was baked on the premise that MIFI would be able to pay back the $120M via a conversion of 24M shares (diluting the stock price, but not cash) and that growing revenue to $500M - $1B by June 15, 2020 would only increase earnings & the stock price proving the strategy as successful.
Aggressive shorts saw this another way. By shorting and driving the stock price down (which MIFI helped them do via their Q2 2015 earnings miss), the idea of the future conversion of the $120M started to come into question. Add to the fact that the FW acquisition also had a $15M payout tied to shares in March 2016 just put the shorts into a feeding frenzy like lions on a weak gazelle.
So here we stand today, MIFI trading near $1 as the Shorts strategy has worked. FW renegotiated the $15M they were to receive in shares in March 2016 & their future $25M earn out potential by deferring them over time (3 yrs). And, MIFI has a $120 note that matures and will need to be paid by June 15, 2020 (~ 4 1/2 years from today) when today they have approx. $15M in cash.
So how does Sue Swenson combat the shorts? Clearly revenue growth is a must, but it needs to be profitable growth generating positive free cash flow knowing that FW & the note interest needs to be paid ~$3M per quarter. No matter how you look at it, MIFI has to show confidence that they will be able pay back the $120M they borrowed in the form of cash or up to 30M shares at $4 based on provisions of the contract. And until they do, the shorts aren't going to cover because as time passes, so will the increased possibility of bankruptcy or further dilution needed to raise cash.
With today's announcement that Cisco will acquire Jasper (a privately held company) for $1.4B, the IoT space continues to be a target for revenue acquisition growth. This announcement makes CalAmp's acquisition of LoJack look very small in comparison, but it does show interest continue to accelerate in IoT.
I concede that I missed the mark on this one and agree that this is a better scenario for those hoping for a future short squeeze. Although, MIFI dropping from $1.67 on Dec. 31st to $1.21 on Jan. 15th with short interest growing by almost 10% really indicates a continued sell side bias when many were hoping shorts would lock in profits following the beginning of the year.
MIFI earnings by itself won't move MIFI higher as I agree that Sue Swenson needs to make some major announcements indicating future revenue growth, positive earnings, and improved cash flows for the stock to gain buyer interest.
Fleetmatics, like MIFI, has seen a significant drop in the last 3 to 6 month as the sector is out of favor with investors. (You can include SWIR in that as well) And, it's possible that someone will need to be acquired in the space by a larger player to validate the overall group.
Back under $1.00 per share.
Today at 4pm EST, we'll get the Short Interest through Jan. 15th that I believe will be a reduction based on the trading volume on Jan 14th of 2.1M shares. The question will be by how much. If it's significant (1M or more shares covered), then it will tell me that some Institution(s) lost patience and dumped their position at a level that a market maker was positioning to a short holder. The low on Jan. 14th was .99c.
We'll have to wait another few weeks to see the short covering impact on Jan 20th when another 1.8M shares were traded, but I suspect another reduction with an identical situation. The low on Jan 20th was .97c which is the 52 wk low.
The Shorts have made the money on MIFI and they will remain patient until they see buyers coming in on a MIFI position. This is something they can see that the typical individual investor can not.
When the FW acquisition was announced in March 2015, it was expected that FW would received 3,225,806 shares of MIFI at $4.65 per share (the allocation of the stock price on the date of acquisition) in lieu of $15M in cash within 10 days of the end of 2015. In addition, they had a $25M earn out (up to $7.5M 2015, up to $7.5M 2016, and up to $10M in 2017) that could be paid in Cash or Stock at MIFI's discretion.
Now, FW will be receiving the $15M in cash spread out through March 2019. Up to another $7.5M in earn out spread out through 2019. And the remaining up to $17.5M in earn out will be spread out over three years with a total of 2,920,000 shares allocated. To achieve $17.5M from 2,920,000 shares, MIFI will have to increase to $6 per share.
Quite a concession and commitment from FW as the FW management would forgo these payments if they left the company.
August maybe this will help you. Look at the Form 4 for Russell Gerns filed on 10/5/15. These were restricted stock units (which are given at 0.00 or free shares to the recipient with or without vesting time lines) and not stock options, but it should help you understand.
Russell disposed or exercised 38,898 shares of previously awarded RSU's and converted them to Common Stock to increase his holdings from 124,802 to 163,700. You will see in Table II, the negative 38,898 to his previously awarded RSU's and in Table I, the increase in his common stock by the same 38,898.
Anytime an Insider is awarded stock options, restricted stock units, purchases, or sells shares, they have to file it with the SEC. Monday's filing was simply to reflect the Stock Option Grant awarded to Sue Swenson. If and when Sue ever exercises these options (buys them at $2.27 or $1.66) you would see the same Form 4 as the one for Russell Gerns where in Table II, there would be a reduction in Sue's stock options grants (the 1,903,100 awarded since Oct.) and an offsetting increase in her common stock ownership.
You can also look at a similar Form 4 filed by Sue on 6/8/15 when she exercised/converted 6,110 RSU to common stock which brought her to the current holding of 69,708. This is what she officially hold in shares today.
To clarify, Sue has been granted two separate Stock Option awards of 951,550 shares totaling 1,903,100. The October 29th grant has a strike price of $2.27 and the January 4th grant has a strike price of $1.66.
Both grants have a 4 yr. vesting period that starts with 25% vesting on the one-year anniversary of the grant date, followed by 36 months of ratable monthly vesting.
As of today, none of these options have vested so Sue couldn't exercise any shares even if she wanted. Today, Sue owns 69,708 shares from her duties as a Board Member over the years. By this time next year, Sue will have an additional 475,775 shares vested from these options and eligible to exercise. The only way these options could vest sooner would be if MIFI was sold and her options could fully vest at the time of the buyout. St067753 is correct that this Form 4 is a declaration of options granted to Sue Swensen, but nothing has been or could be exercised as of today.
Short Interest increased by 459,980 shares to reach its highest point in MIFI shares. This was a 7.8% increase from the prior report of 5,864,797 on 11/30/15.
MIFI closed at $1.75 on 12/15/15 as compared to $1.84 on 11/30/15 and, with today's opening price of $1.70, the short interest continues to trade in the green.
One year ago, MIFI had short interest of 473,842 on 12/15/14 reflecting an increase of over 13X during the year.
Just Google the titles of the Articles that I gave in my prior post. Yahoo doesn't allow posting of web links.
Press Release: Novatel Wireless Delivers Innovative Ctrack Telematics Solution for KLM
Industry Article: Acorn Analytical Services selects Ctrack for advanced vehicle tracking
Industry Article: AfriForum partners with Ctrack to up safety on farms
Industry Article: JMHC thwarts hijacking with tracker
This is the third reported decline in Short Interest since peaking at 6,233,655 on 9/30/15 when MIFI closed at $2.21.
Only 148,950 shares were purchased to cover short positions between 11/13/15 (MIFI @ $1.88) and 11/30/15 (MIFI @ $1.84).
The low was $1.63 on 11/17/15.
Actually, it's my understanding that the 72,000 connected device variance from FW's count and MIFI's presentation is due to Non-Fleet/Telematics devices. Although Telematics is a major focus of FW (especially in the Gov't space), FW has several customers that have deployed Kiosk, Vending Machine, Surveillance, and Digital Signage solutions.
I tend to avoid analysis on future speculation as the only documented guidance (SEC filing) at this point is for $66M to $72M revenue and $.1 million to $1.7 million in adjusted EBITDA in Q4. As I stated before, any increase in revenue and gross margin will need to be accompanied by an increase in Non-GAAP EPS for MIFI to move higher. This hasn't happened over the last year and the stand alone MIFI business (not including FW or Digicore) has had a downward trend throughout 2015. With that being said, if MIFI can grow to $400M plus in annual revenues with $25M to $40M EBITDA for 2016, MIFI's share price will increase substantially. But, if MIFI reports adjusted EBITDA within guidance at $1M in Q4, in addition to the ($.3M) in Q3, ($2.3M) in Q2, and $.6M in Q1 for a total of ($1.0M) adjusted EBITDA loss in 2015, going from ($1.0M) in 2015 to $25M to $40M in 2016 would classify as an enormous feat.
Last Dec. 2nd 2014, MIFI closed at $3.09 as it began its ascent to the highs in April 2015.
When MIFI reported 2014 Q4 earnings on February 19th, 2015, MIFI hit a high of $5.49 on February 20th.
Looking back to last Feb. 19th, MIFI reported Q4 2014 revenue of $55.4M, Non-GAAP Gross Margin of 23.8%, and Non-GAAP EPS of .01. (pre-FW & Digicore)
Today's Q4 2015 guidance is $66M to $72M in revenue, Non-GAAP Gross Margin of 34% to 37%, and Non-GAAP EPS of (.08) to (.05). (post-FW & Digicore)
The clear difference from last year to this year is that although revenue and gross margin are projected to grow substantially YoY, the Non-GAAP EPS is not. The other major differences were the acquisitions of FW & Digicore (and the associated Debt). FW was expected to bring in ~$10M and Digicore was expected to bring in ~$18M in revenue quarterly at the time of the announcements. FW seems to be producing as expected, but Digicore is falling short primarily due to the drop in RAND vs. the USD. (.08168 Jun 18 vs .06963 today) And, where MIFI produced $55.4M as a stand alone business Q4 of 2014, that business seems to have dropped to the mid $40M. (Assuming $70M in Q4 minus $10M FW & $16M Digicore)
Overall, for MIFI to move higher, they need to project positive and growing EPS along with increased revenue & gross margin. With higher revenue and gross margins in the mid-30%'s as compared to the mid-20's, it makes you question how Q4 2015 Non-GAAP EPS guidance is still negative. This should be Sue Swenson's main focus as John Carney needs to take responsibility of the sales efforts.
This is why MIFI is trading where it is. Pure and simple. Some believe MIFI can sell themselves out of this valuation. I.e. $100M in quarterly revenue in Q2. Maybe so, but EPS will need to trend in the same direction and IF it does, MIFI can move substantially higher.
As of today, FW shows 236,357 Connected Worldwide Devices on their website. Up from 228,839 on July 15th. That's an increase of 7,518 devices over 4 1/2 months which would equate to approx. a 9% annual growth rate.
Short Interest as of 11/13/15 was 6,013,747. MIFI closed at $1.88 on 11/13.
An increase of 52,606 shares short and the first increase since 9/30/15.