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Andreas  

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  • Edgewater Technology Offers An Attractive Risk-Reward Opportunity To Investors Today [View article]
    Sorry for late response, been out of office. On the questions. Growth would come from an increase in clients and well-controlled expenses, which would lead to operating leverage. The software Oracle and Microsoft provide yields powerful cost/efficiency information to CFOs to reduce costs. We believe global economy remains weak, which means limited revenue growth, which means companies continue to focus on cost reduction. Not a guarantee but wouldn't bet against it. Yes, revenue growth has been tepid but adjusted EBITDA has grown quite strongly and this is what we are most focused on. On FCF, our talks with Chief Financial Officer indicate adjusted EBITDA is a pretty good proxy for FCF, and this is what we are looking at. LTM adjusted EBITDA is about $10m. Minimal capex needs, minimal working capital needs, and limited cash taxes mean a high % of adjusted EBITDA converts to FCF. Why is the stock cheap? Under-followed stock, small float, etc., who knows? It will stay cheap until it isn't. However, the steady generation of FCF is one of the very best drivers of shareholder value recognition for small companies, in our opinion. If $8m to $9m of FCF does pile up on balance sheet over time, people will notice. Regarding dilution, yes there are 4m options outstanding, but they have a strike price, so company takes in cash if they are exercised and entire 4m shares don't get issued without a bunch of cash coming into company. Regarding flat revenues, most companies we invest in have flat or tepid revenues. They are unexciting. However, they (hopefully) generate great FCF. We are watching FCF not revenue. Wall Street is always extremely focused on the top line, because it is easy to track. Very few analysts track FCF. Therein, sometimes, can be an inefficiency in the stock market, which an investor can exploit. This is one thing we try to do. Keep in mind EDGW is about a 4% position in our fund. We don't bet too heavily on any one idea. However, it is a very cheap company, and a very good company (high returns on invested capital a la Joel Greenblatt Magic Formula) and, importantly, there is a lot of room for error. The odds are decent for the investor. This is our opinion. We can be wrong. But we feel like its a good bet. Hope this helps a bit. Best, Andreas
    Nov 21, 2014. 08:42 PM | 4 Likes Like |Link to Comment
  • Willdan: 20% Free Cash Flow Yield, A Ft. Knox Balance Sheet, And Promising Opportunities In Energy Efficiency And Transport Infrastructure [View article]
    we have exited the remainder of our WLDN position in the $14.50 to $15 range. great company with great prospects but valuation has moved up significantly.
    Sep 30, 2014. 01:18 PM | Likes Like |Link to Comment
  • Willdan: 20% Free Cash Flow Yield, A Ft. Knox Balance Sheet, And Promising Opportunities In Energy Efficiency And Transport Infrastructure [View article]
    updated thoughts on WLDN....stock has moved up to $11 to $12 per share, above our target and we have exited about half of our position. however, we retain the other half because we have been impressed with the CEO and like his long term vision and believe WLDN could materially exceed our target adjusted EBITDA and FCF estimates. WLDN has an excellent business model and may have the wind at its back over the next couple of years in energy and engineering businesses.
    Sep 9, 2014. 03:31 PM | Likes Like |Link to Comment
  • Willdan: 20% Free Cash Flow Yield, A Ft. Knox Balance Sheet, And Promising Opportunities In Energy Efficiency And Transport Infrastructure [View article]
    Thomson One....
    Dec 19, 2013. 06:06 PM | Likes Like |Link to Comment
  • Willdan: 20% Free Cash Flow Yield, A Ft. Knox Balance Sheet, And Promising Opportunities In Energy Efficiency And Transport Infrastructure [View article]
    Thanks, interested to hear any new info or thoughts you get.
    Dec 19, 2013. 11:58 AM | Likes Like |Link to Comment
  • Willdan: 20% Free Cash Flow Yield, A Ft. Knox Balance Sheet, And Promising Opportunities In Energy Efficiency And Transport Infrastructure [View article]
    Thanks for the list of good questions. I will do my best to answer them. On ROIC, I use current assets, removing cash, less current liabilities, or about $32m less $10m cash less $15m A/P or about $7m net working capital investment + net PPE < $1m. I do not add back goodwill. LTM EBITDA is about $4m with minimal cap ex and I expect EBITDA to grow. So ROIC is $4m/$8m or 50%. The key point is the business has potential to generate solid FCF and doesn't use a lot of assets. I am looking forward not backward so I don't penalize for goodwill write offs but those are certainly a ding on management performance. On early 2012, management mistakes, yes, they should have cut costs much faster, they should have not been surprised by the contract delays. You can read CEO mea culpa on Q1 and Q2 calls in 2012 and I give him credit for taking responsibility. Also, they let working capital get out of control, up to 133 days or so, that was a disaster. I hope they learned their lesson but if that happens again, it won't be good, because it obviously eats up cash big time. On buybacks/dividends, I don't really expect these. I expect management to try to do tuck in acquisitions to build up energy over time. I am hoping they are very careful and execute well but this could be another risk. On cyclicality, I would actually argue we could be heading into an up-cycle on engineering services biz and also that energy segment will help smooth out cyclicality over time. So I am hopeful it could become a less cyclical type company, but this is clearly not certain. Lastly, on the EBITDA margin, they are running at about $34m in cash operating expenses, gross margins are improving to mid 40s, and I am hoping for some revenue growth by 2015, to maybe $95m (might be aggressive). This is far from certain, but they have said their backlog is strong for 2014. Assume 44% GM = $42m GP - $34m Op ex = $8m Adjusted EBITDA. And maybe that happens by 2015. This is all very ballpark. Key is that there is a lot of room for error here (I hope). If they can even head towards my numbers, investors should do Ok. But I have found it best to rely on general projections and leave a lot of room for error in case things happen, which they almost always do. Hope this helps. Best, Andreas.
    Dec 18, 2013. 05:46 PM | 1 Like Like |Link to Comment
  • Willdan: 20% Free Cash Flow Yield, A Ft. Knox Balance Sheet, And Promising Opportunities In Energy Efficiency And Transport Infrastructure [View article]
    I think engineering segment (40-45% revs) is pretty exposed to government spending, either through infrastructure projects, or providing outsourced engineers to local government. However, I would just point out these projects / revs are lumpy w/ long sell cycles and can be volatile quarter to quarter, even with the tailwinds. for example, the high speed rail project in CA they have talked about may not happen any time soon (if at all), although they have said they have not counted on it in their 2014 backlogs. Overall, yes, hoping for nice tailwinds in 14 and 15.
    Dec 17, 2013. 12:20 AM | Likes Like |Link to Comment
  • Willdan: 20% Free Cash Flow Yield, A Ft. Knox Balance Sheet, And Promising Opportunities In Energy Efficiency And Transport Infrastructure [View article]
    Yes, I think its a good risk reward, but mgmt needs to deliver the goods. Hope its not a lump of coal. Best, Andreas
    Dec 16, 2013. 07:09 PM | Likes Like |Link to Comment
  • Willdan: 20% Free Cash Flow Yield, A Ft. Knox Balance Sheet, And Promising Opportunities In Energy Efficiency And Transport Infrastructure [View article]
    i think it is non cash write downs of goodwill related to earlier acquisitions.....
    Dec 14, 2013. 11:22 AM | Likes Like |Link to Comment
  • Willdan: 20% Free Cash Flow Yield, A Ft. Knox Balance Sheet, And Promising Opportunities In Energy Efficiency And Transport Infrastructure [View article]
    thanks for the industry insights. i am always trying to dig deeper into my investments so your inside perspective is helpful.
    Dec 13, 2013. 09:01 AM | Likes Like |Link to Comment
  • Willdan: 20% Free Cash Flow Yield, A Ft. Knox Balance Sheet, And Promising Opportunities In Energy Efficiency And Transport Infrastructure [View article]
    Thanks. I hope it turns out to be a gem. Time will tell.
    Dec 12, 2013. 07:47 PM | Likes Like |Link to Comment
  • Willdan: 20% Free Cash Flow Yield, A Ft. Knox Balance Sheet, And Promising Opportunities In Energy Efficiency And Transport Infrastructure [View article]
    on management track record, keep in mind CEO joined in 2007 and walked into a pretty difficult situation, given the focus on real estate infrastructure in SoCal. I give him some credit for the diversification into energy efficiency to offset this decline. that said, management mistakes clearly led to the problems in early 2012 and that has to be considered. I am hopeful that will stay laser focused on generating FCF and effective deployment of excess cash but we will have to see.
    on FCF, you probably have a good point on the NOL, but even if we use EBITDA and assume a modest multiple, we get a pretty strong valuation. Given the energy efficiency focus and growth opportunities therein, I am hoping the business will be less cyclical going forward, so not sure I would view 2015 as peak cycle. I am hoping there less cyclicality going forward. we will have to see...
    Dec 12, 2013. 01:55 PM | Likes Like |Link to Comment
  • Willdan: 20% Free Cash Flow Yield, A Ft. Knox Balance Sheet, And Promising Opportunities In Energy Efficiency And Transport Infrastructure [View article]
    thanks for the nice comments...yes, same person....I have high hopes for this idea but keep in mind I never bet too much on any one position, so I would size it accordingly....I can definitely be wrong....but I think its an attract risk-reward near these levels...we will see.....
    Dec 12, 2013. 01:46 PM | 1 Like Like |Link to Comment
  • Willdan: 20% Free Cash Flow Yield, A Ft. Knox Balance Sheet, And Promising Opportunities In Energy Efficiency And Transport Infrastructure [View article]
    yes...it does on energy efficiency contracts....
    Dec 12, 2013. 01:43 PM | 1 Like Like |Link to Comment
  • Harris Interactive Offers A Double-Digit, Unleveraged Free Cash Flow Yield With A Proven Turnaround Manager [View article]
    This worked out well. HPOL is being bought out for $2 per share by Neilsen Holdings, which is a significant premium to $1.15 per share when we wrote this up.
    Dec 12, 2013. 06:50 AM | 1 Like Like |Link to Comment
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