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Readers will remember that I was pounding the table about the Grubb & Ellis (GBE) short throughout the Spring when it was trading at wildly overvalued levels.

Second quarter EBITDA was negative $10 million and the company's very generous "Adjusted EBITDA" metric was negative $5 million.

Here's the interesting thing: the Management Services (MS) and Transaction Services (TS) segments are both reporting higher revenues than last year. But MS segment income is lower than last year, and the TS segment is still losing money.

That shows the key problem with the human services business model. The reason the segment revenue improvements are not translating into segment income improvements is higher commissions and compensation to employees.

Management "remains committed" to achieving the adjusted EBITDA guidance of $10 million to $15 million. On the conference call, analysts were skeptical since they would have to achieve adjusted EBITDA of $26 million in the second half of the year to cover the $16 million negative from the first half. Management says they are looking for a big fourth quarter.

But even if they achieve the EBITDA guidance for the year, it's barely enough to cover the dividends on the preferred stock!

I am still short. In my view there is no equity in the company, and the fulcrum security is the $90 million in outstanding 12% cumulative participating perpetual convertible stock. (Market capitalization is only $75 million.)

Disclosure: short

Source: Grubb & Ellis Still a Short Based on Q2 Results