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  • The Importance Of Thinking Backwards, And 5 Inverted Questions That Will Flip Your Thinking Upside Down [View article]
    I agree with your thinking.. Touched on the same topic last year!

    Incorporating Right-Brain Thinking Into Your Investment Process

    http://seekingalpha.co...
    Apr 17, 2015. 10:50 AM | 1 Like Like |Link to Comment
  • Don't Be Fooled By Stock Market Noise [View article]
    "The stock market is filled with individuals who know the price of everything, but the value of nothing." - Phillip Fisher

    "Price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to…the operating results of his companies." - Ben Graham, The Intelligent Investor

    Here are a couple of articles we wrote covering similar thoughts.

    Checking Stock Quotes Regularly Is A Waste Of Time

    http://bit.ly/1GTeVmP

    The Illusion Of Control

    http://bit.ly/1GTeWHs
    Apr 17, 2015. 08:57 AM | Likes Like |Link to Comment
  • Carrols Restaurant Group: Benefiting From Multiple Growth Drivers [View article]
    That didn't take long.

    $200M Senior Secured 7 year notes. Basically extends the maturity of their debt by four years. Twice what I thought they would do, but with no equity issuance it makes sense.

    Revolver increased from $20M to $30M.

    Since the notes are twice what I thought they might do, there will be no dilutive equity raise. It is still possible they do one with the stock strong, but there is no compelling reason to do one now that the high yield notes have been retired with an upsized issuance.

    Counting the $20M in cash they will have $80M in liquidity, which is right in line with what I guessed, just got there in a totally different (and more shareholder friendly) mix.
    Apr 15, 2015. 10:05 AM | Likes Like |Link to Comment
  • Carrols Restaurant Group: Benefiting From Multiple Growth Drivers [View article]
    The $150M 11 1/4 2018 bonds are eligible to be refinanced on May 15th at $105.625. Since the company only has $21M in can and $8M on the revolver (plus another $25M if lenders agree), I would expect to see some kind of announcement on a new financing option soon.

    Almost a year ago to the day they issued 11.5M shares at $6.20 per share. I could see them doing another dilutive equity offering (say 11.5M shares at $7-8 note: the stock sold off from $7.80 to $6.20 last year to get the deal done), issue a $100M 5-7 year unsecured note with a 6-7.5% coupon and expand the credit facility to say $50M.

    It would take $160M to pay off the bonds, which would leave them with around $80-$90M in liquidity. Since the cap ex deficit looks to be $10M or less, that should be enough to do more acquisitions.

    Of course at some point the credit markets for small cap leveraged companies will tighten substantially, so I would think management wants to get a deal done as soon as possible. The company's agreement with Burger King pretty much mandates they finish the remodels within the next 5 years (including 46 of the
    new restaurants acquired in 2014) or they lose the ROFR in their territory. They are currently operating under a waiver, which I would expect to continue to be granted since TAST is the largest franchisee. Therefore, it would be hard to reduce cap ex to enhance liquidity. So the wild card is how much will the new facility allow TAST to spend on acquisitions and what leverage restrictions are placed on it.

    Since the company is able to buy stores at 1-3X EBITDA and then do sale leasebacks, the acquisition strategy is still an attractive use of cash. But growth by acquisition funded with external funds is always a risky strategy that is subject to the possibility of unpredictable liquidity issues that are out of the company's control popping up.
    Apr 15, 2015. 01:50 AM | Likes Like |Link to Comment
  • Carrols Restaurant Group: Benefiting From Multiple Growth Drivers [View article]
    You are welcome.. I own TAST and have done a lot of those same calculations.. Just trying to help out.
    Apr 14, 2015. 12:09 AM | Likes Like |Link to Comment
  • Carrols Restaurant Group: Benefiting From Multiple Growth Drivers [View article]
    I think you need to recheck your math for your EV.

    1. You need to include the 9.8M shares that can be converted from the preferred. The total shares outstanding is closer to 44M not 35M. Since the company is operating at a loss those shares are anti-dilutive. (page F-24 in the latest 10K). That alone would reduce your target price to around $9.25.

    2. Your net debt of $139M seems to be the same as year end 2014. They will probably run some kind of CFO-Cap Ex deficit this year which needs to be subtracted from the equity.

    3. If you are assuming that there are going to be acquisitions to get EBITDA from $36M to $55M in two years, that is going to have to be financed with debt, equity or both. They got $67M this year from the secondary. So you need to subtract any new debt from your equity. TAST spent $52M on acquisitions in 2014. There is no way the company can grow at 10% without acquisitions.

    If I add $10M for funding cap ex next two years and $25M for acquisitions (50% of last year to really conservative), net debt goes from $137 to $172M..

    Your future EV seems to be $550M.. (10 X $55M EBITDA). If debt is $172M that leaves $378M for equity. $378M divided by 45M shares seems to be around $8.40 per share.

    Refi of debt will add some CFO next two years so the debt may be slightly lower (They will pay at least $7M in cash to call the bonds so first year might be cash flow neutral).


    Maybe I am missing something (My CFO is probably too low) because your target price would now be below the current price, which seems odd with the additional EBITDA.

    Consensus revenue is $823M for 2015 and $827M for 2016. So it appears as though WS is not assuming any acquisitions (which seems unrealistic). So maybe they can get to $55M in EBITDA without acquisitions next year.

    Another way to look at it.

    EBITDA guidance is $44-$48 so call it $46M. Interest is $19M.. Call it $11M after refi. Cap Ex is $40M. Assume W/C changes are neutral. $46M-11M-$40M= ($5M). So CFO- Cap ex may only be ($5M) instead of the ($15M) average per year I was using. So that gets added back to the equity.

    Either way, your shares outstanding needs to be 45M when calculating the equity. The unknowns (not unknowable, you can make reasonable guesses) are what the new interest rate is (6-9%??), how much new EBITDA any acquisitions add and the way it is financed (they seem to be paying only 1-3X EBITDA) and the EBITDA margin improvement on the recently acquired stores.

    Good luck
    Apr 13, 2015. 04:32 PM | 1 Like Like |Link to Comment
  • Why Is It So Difficult To Keep Investing Simple? [View article]
    “The biggest investing errors come not from factors that are
    informational or analytical, but from those that are
    psychological.” Howard Marks. The Most Important Thing: Uncommon Sense for the Thoughtful Investor
    Apr 5, 2015. 07:38 PM | Likes Like |Link to Comment
  • 2 salesforce.com Mysteries [View article]
    I agree. The analytical process is more important than the outcome of any particular stock price movement. Good process and good analysis will show itself over time with more winners than losers.

    I don't even disagree with the conclusion that CRM is an overvalued company with a business model that hasn't shown to profitable up to this point.
    Mar 4, 2015. 01:13 AM | 2 Likes Like |Link to Comment
  • 2 salesforce.com Mysteries [View article]
    No doubt. One misconception about shorting I see all the time is that "shorts cause a stock to decline". Most of the time, and I would say all of the time if the stock has a market cap of at least $1B or so, what drives a stock price down is the incremental buyers become incremental sellers and the multiple contracts as the "sentiment (i.e. put your valuation metric here)" turns negative and negative momentum in stock price leads to lack of confidence and hesitation on the part of the potential incremental buyer.

    As much as investment theory touts "intrinsic value" and DCF analysis as the ultimate determinant of value, the reality is that at any point in time a company is worth what the incremental buyer or seller thinks its worth. Buffett, Munger, Howard Marks, etc. all confess that "intrinsic value" is more of a concept than a fact.

    Like I said before, the facts are the facts and they "don't matter until they matter."

    The old saying is "earnings are an opinion and cash is a fact". Unfortunately or fortunately, valuations are facts set by opinions..
    Mar 3, 2015. 05:00 PM | 6 Likes Like |Link to Comment
  • 2 salesforce.com Mysteries [View article]
    Couldn't remember off the top of my head when they went public. But I am sure that my colleagues at Behind the Numbers were writing this one up before I left in 2008.

    There is certainly a lot of controversy surrounding this company and the valuation would seem to not provide much protection to a long-term investor. "Story stocks" with premium valuations that are sustained for long periods of time are too few for my to worry about finding them. Never understood how institutional investors/analysts could pass the "fiduciary test" when they owned/recommended stuff like this. But successful shorting is the most difficult investing endeavor you can undertake. CRM has been a top 10 to top 25 short (measured by days to cover) for years. Not saying the thesis is wrong, just saying it is not easy to make money on good analysis on the short side.

    http://onforb.es/18L1SWm
    Mar 3, 2015. 04:34 PM | 2 Likes Like |Link to Comment
  • 2 salesforce.com Mysteries [View article]
    You are right about the employee number being total employees..

    In the 10Ks they do disclose the % change in sales personnel, not total..

    So the % change in sales personnel vs. % change in revenue and also M&S expenses would be interesting. If most of the change in revenue growth is tied to simply change in sales personnel, I would wonder where the scalability is (margin improvement potential) and just how many people are out there that aren't working for the company that they can add to the sales force and be effective?


    Our marketing and sales headcount increased
    by 25 percent since January 31, 2012 as we hired additional sales personnel to focus on adding new customers
    and increasing penetration within our existing customer base. Some of the increase in headcount was due to
    acquired businesses.
    Mar 3, 2015. 03:27 PM | 1 Like Like |Link to Comment
  • 2 salesforce.com Mysteries [View article]
    While M&S as a % of revenue declined 200bps, M&S per employee actually increased.. Not sure what that means. But another possible angle to explore.

    2014 2015
    Revenue $4,071.00 $5,374.00
    M&S $2,168.00 $2,757.00
    Employees 13312 16277
    Rev/Employee $305.81 $330.16
    M&S/Employee $162.86 $169.38
    Spread $142.95 $160.78
    Mar 3, 2015. 03:09 PM | 1 Like Like |Link to Comment
  • 2 salesforce.com Mysteries [View article]
    Your point,: "Is the company really spending $2.76 billion in Marketing and Sales in a single year? That seems awfully large and unrealistic for me. It's strange that the company does not see any kind of leverage in this line."

    Thought: Commissions (both current and deferred) are in this expense item. I would assume that commissions are some sort percentage of revenue, so that might explain why it "seems awfully large and unrealistic". 10K: "Marketing and sales expenses are our largest cost and consist primarily of salaries and related expenses, including stock-based expenses, for our sales and marketing staff, including commissions, payments to partners, marketing programs and allocated
    overhead." There is not enough disclosure to figure out how much commission is in there other than the disclosed deferred commission amortization. But on its face this does not seem "unrealistic". Plus, there is a growth in the number of sales personnel each year, which would flow through this. I would investigate the growth in sales staff vs. growth in revenue. That might be interesting. The two points where there is a change in trend '12 and '15 should be looked at with a high degree of skepticism and does warrant further investigation.
    Mar 3, 2015. 02:50 PM | 1 Like Like |Link to Comment
  • 2 salesforce.com Mysteries [View article]
    Your analysis of the change in % of deferred revenue to total revenue, does show that there is a "mix shift" in the length of contracts. However, management seems to be disclosing this trend.

    Last call: “ It's worth noting that the deferred revenue benefited from a couple of items. First is the invoice duration. In the quarter, 85% of the (22:02) were issued with annual terms. This is up four percentage points over last year and was more than we anticipated, frankly.”

    I am not sure how this is a "scheme". If they were attributing the growth rate to something else, that could be a problem. I would be careful using such an inflammatory word. I think that it would be more appropriate to point out that there is a diminishing amount of mix shift that is left and that eventually deferred revenue growth will be reflecting real "organic" future revenue growth. These numbers must converge at some point. It is the delta that is important.

    I would be interested in seeing some analysis of deferred revenue + unbilled deferred revenue growth compared to revenue growth and a % of next year's revenue. That might be interesting to see. Investors focusing simplistically on deferred revenue growth and no other metrics (like actual sales growth and growth in cash flow) deserve what they get in the end.

    The stock has been a favorite short sale since the early 2000's.. Its up 1500% since 2005 and 50% increase in shares outstanding.. What was true now was true then (unsustainable valuation, unsustainable growth rate, increasing competition, high stock comp % of revenue and dilution, promotional management). It has been my experience that most high EV/Sales companies do eventually implode when things that were always "true" but "didn't matter" to the momentum investor, suddenly "matter".
    Mar 3, 2015. 02:47 PM | 5 Likes Like |Link to Comment
  • 2 salesforce.com Mysteries [View article]
    I am not sure what you mean by "questionable adjustments". They use Cash from operations less cap ex. That is the definition of FCF and every company should use. Could you explain this further?

    Perhaps you meant to use the word "debatable" adjustments specifically referring to the $500M in stock base compensation, which is an extremely large amount for sure. The debate on the equivalent cash value for stock based comp that could be used to adjust "non-cash" to "cash" compensation has been going on for at least 15 years.

    I would also point out that CFO includes $612M in deferred revenue, which makes up a significant % of total CFO (70%+). So in my eyes, FCF is really almost zero in a sense. All else equal, if deferred revenue growth slows, CFO will be negatively impacted and therefore FCF. So management may be overstating FCF, but I am not convinced it is because of "questionable adjustments".
    Mar 3, 2015. 02:19 PM | 2 Likes Like |Link to Comment
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