Dan Willis

Long/short equity, deep value, special situations
Dan Willis
Long/short equity, deep value, special situations
Contributor since: 2014
To the best of my knowledge, Tilson still does own CALL (Kase Capital Management). He was present on the Q3 call and engaged management with questions.
I hope this helps.
Mykie,
First off, I know this has been a controversial name. I know a lot of people got involved with Tilson earlier in 2014 and things have been rough. I am sorry to hear that.
MJ was running at ~3.4% monthly churn in 2012, saw a high of 3.6% in Q4'13, and closed out Q3'14 at 3.1%. Really, 30bps of improvement is probably statistically insignificant, so a lot remains to be seen. I know it's one of Kase Capital's major concerns as well, because no company can do that well losing over 1/3 of their customers every year.
At $8 a share (considering their balance sheet), in my opinion, the Street is expressing a belief that 1) churn will not improve and 2) MJ does not have a long-term viable value proposition/growth potential. I look at it like this: if they lose 90,000 customers a month, and 30,000 of those losses are due to spotty customer service, that's something they can address with success (and I believe they are beginning to do so). Obviously I do not know how much of their customers they lose to customer service, but considering negative feedback that I have heard and read from reviews, I think it's significant.
I hope this answers your question. Hopefully we can see some execution in Q4 (and a little LatAm success as a lottery ticket) and MJ can become a smaller loser. Best of Luck.
freenpv - forgive me for not getting back to you earlier, it's been a crazy holiday season.
In response to unit sales declines, I believe you are speaking in totals. Between the MJ Go and the MJ Plus, total unit sales did indeed see a dramatic decline. In my article, I was attributing this to the phase-out of the MJ Plus. I was referring to sell-through of the MJ Go alone, net of the Plus.
I should have been more clear, my apologies. Let me know if you have any other questions, and thank you for the comment.
DarioR - thanks for your comment, I appreciate the contribution. Can you point me to where/how you found out about this tax avoidance? I would like to take a deeper look.
My understanding was that the taxes other non-CLECs paid were in fact fees to other operators for last mile termination. I'm not sure if I complete misunderstood something or just failed to dig deep enough. Thanks again.
Thanks for the comment beerman.
I did not include in my note that they are looking at offering some products to the SOHO market (Small office/Home office), which I think could provide upside. They would likely need to spend a greater portion of their FCF in support for that product line, so it will be interesting to see what comments management has when they report Q4.
I understand that this stock really has not found a bottom (although I am inclined to believe it is getting close), so watching it to see where it settles is a good strategy. I have legged into a small chunk, with some dry powder to add if/when they start executing.
Thanks for the clarification... both AR and Michael, much appreciated. I broke into the S-1 today and ready an initiation report from a top-tier ib. Expectations are through the roof, and I do not see how the street gets there.
Great call, AR, Q3 looks a little light.
I've read the comment thread 3 times now. Wonderful work and hysterical reading.
AR - great write-up, very compelling thesis.
You mentioned independent distributors are handling distribution for FPRT. How exactly does that work? Are distribution/re-stocking reps going into all of their retail locations twice-a-week/weekly/etc. and making the call on what fridges need to be stocked when?
Also, on the inventory turns - you mentioned 8x (which it has to be high given the shelf-life). Is that monthly (meaning the fridges are re-stocked 2x a week)? Has the sell-side or anyone brought up anything regarding product loss? If the tube of "hot dog meat" only lasts for a week, they have to be losing some money on unsold inventory.
I apologize for the rambling questions. I have yet to look at the name, going to hop on the call tomorrow and look into it.
I find it very interesting (and suspect) that none of the large, well-established brands have used this model - leads me to believe that it is, indeed, not profitable. Thanks again for the great article.
yes, I noticed that too when I was working on the write-up - they are actively reaching out to customers that had both a good and bad experience. They are taking customer care seriously, and that's a big improvement over a year ago.
Thanks for the fair warning, Hector. Best of luck to you.
Are you doing channel checks? How did you come to find out that they're out of stock on the Go in these retailers? I am just curious - I think that ties in well with my thesis that end-user demand is strong and FY14 was light due to winding down the plus and introducing the Go. I think it goes a long way in providing support behind the idea that management's re-positioning is starting to get traction with customers also.
I appreciate your comments.
To address your questions, as best I can:
1) I am not sure of management's goal to partner with an MVNO, and they really have not spoken to the idea of becoming an MVNO as of yet. I think a lot of their focus has been on re-introducing a better product and stopping the sub churn. Being that they are already a CLEC, it seems like it would bolster their position in the marketplace by becoming/partnering with an MVNO. But like I said, management has not given any indication on that (perhaps I'll shoot IR an e-mail, they're pretty open with investors).
2) In terms of bundling, adding "presence" to their offering is in the works. I am not sure what it looks like to from a financial standpoint to put together a full-fledged bundle offering, i.e. capex and investment. I imagine it's no small task.
3) No word yet on Android TV - again, they need to address sub retention with their core market before they start experimenting with Android TV/AppleTV/etc.
4) They're playing with the App right now, to make it more of a supplementary tie-in with the Go device. Basically, they're not really worried about losing app subs that were low quality and didn't present any revenue opportunities. Example, I am deployed to South Korea right now, and several marines in my unit use the MJapp to call back home over wifi, but they are not likely to ever become device customers. They recently (mid-3Q I believe) made users of their app register with the company, giving them up-sell candidates; this led to a drop-off in downloads, but now they subs they have are more qualified to be paying customers.
5) They are already placing end-caps and product displays in the middle of mobile sections at a number of retailers, and I think they expect to revisit results at year-end and see if it is something they would like to expand on.
6) The magicjack Go (and the plus, phased out) both allow you to plug the device directly into the router, so there is no need for a pc at all.
I hope I was able to address some of your questions freedom, and thanks again for your comments.
jgflg, right. They generate a ton of cash, and have very strong gross margins. And I think it is often overlooked that they are a CLEC which provides them some competitive advantages.
But I think you are correct in terms of timing - either they stem their sub losses and have success launching in Mexico (and put that cash to work) or they could be dead money.
rrurban, thanks for the comment. I think it obsolescence is a stretch, as there is clearly demand for the MJGo in their retail channel. And in all reality, obsolescent technology does not necessarily keep them from offering a compelling value proposition to the cost-conscience customer - especially if you consider international markets.
In regards to management, Dan Borislow was, in my opinion, was the rotten egg. The addition of Tim McDonald and the almost immediate re-statement of 2012 financials in early '13 tells me that they're trying to do the right things by investors.
Definitely a "show me" story.
He was still asking questions on the 3Q call, and he typically is a longer-term holder. I believe he is still involved
ValGal,
I've started going through TREE's '08 10-k, and they do not have data for their match fee business pre-2006. From 06-07, their fee match revenue declined 4%, and from 07-08 it declined 29%. Nothing too surprising here as 2006 was likely the peak of the real estate market.
Interestingly enough, most of LendingTree's "salad days" were generated through loan origination - match fees only accounted for 18% of total revenue in 2006. Whereas loan origination accounted for ~46% of revenue in the same year.
I am not sure how helpful this is; we may never know how much match fee business TREE did in 05, 04, etc. But intuitively, it makes sense to me that lenders would be less reliant on leads when credit is abundant and standards are lax.
Interesting write up, I will have to take a deeper look.
Thanks for the write-up. How much have Italian spreads already widened over German bunds/USTs in response to the negative outlook decision?
Good article, thanks for the read. Any thoughts on Chinese demand? I understand the India demand picture, but the Chinese are on track (if they have not already) to displace India as the world's largest buyer... What is driving this?
Hot topic, this HLF business. I have been attempting to put aside the Icahn/Ackman fight - that seems to be about more than just their respective HLF positions. I am not in the stock, but I've been looking at it... the most alarming thing to me is the consumer reports and reviews. The majority of them are negative with numerous reports of people spending several hundred dollars attempting to take part in this business only to opt out and never see that money again. I cannot say this is anything more than people having bad dealings with their local distributors. And it is hard to make the argument that a bad distributor is representative of the company as a whole.
Anecdotally, great companies have pretty glowing reviews (typically vendors, sales forces and customers thoroughly enjoy doing business with a great company) and those seem to be lacking in the HLF realm. Incredibly polarizing name though, maybe I'll buy some vol... Keep up the entertainment.
I think the market needed this, and I think it needs to revisit 1750-1760 levels before longs can get excited again. Plus, there was a vacuum of US econ. news so some emerging market hiccups were bound to shake things out. 40 handles in one day, though... that's a sell-off.
I absolutely agree that CTB is a bargain... Shorts love a failed deal. From what I've read, the Chinese and USW labor issues arose from the deal being announced which leads me to believe they should subside if (more like when) it falls through.
Hawk, I like your taking a look at CTB here. Looking a little deeper into the situation, Apollo likely found something they really do not like. They were fighting in court to pay a lower price than their original $35 bid because of Union demands and a failing venture in China. Retuers reported that these issues made it difficult to secure financing for the deal... Either Apollo simply did not get the terms they want or there is potentially a bigger issue?
In any event, I am watching the stock to see if there is a bid around $21.50. Appreciate your write-up.
In going thru their fy12 10-k, I read the following, "Since our income tax expense is mailny a function of our operating expenses and cost-based transfer pricing methodologies and not a function of our consolidated pre-tax income, our effective tax rate will typically vary inversely to changes in our consolidated pre-tax income."
Is this normal? I am not an accountant, just a lowly stock picker. I have yet to come across this kind of verbiage in any income tax provisions in 10-ks. Any thoughts?