Special Situations

Long/short equity, special situations, value, event-driven
Special Situations
Long/short equity, special situations, value, event-driven
Contributor since: 2013
I have no idea on how fairly valued it is on the balance sheet. I am just using 1x the value they have booked on the balance sheet. However, you should note that they have sold land this year at a price much higher than where it was booked. BUT, it was also a cherry-picked transaction - they wouldnt have sold it unless it was at a high valuation.
On the EBITDA side, you would be double counting. Read the transcript from this week. I think $5mm of the $113mm LTM EBITDA was a gain on real estate sale, or something like that (from memory).
This implies the actual EBITDA was like $108 from the ops. Which also implies fantastic growth expectations to $119mm expected EBITDA next year (they said next year's EBITDA does not assume any real estate gains).
Yes, but consider this: those locals would not come at all if they werent offered more attractive ETPs. They are still generating additional EBITDA that otherwise wouldnt exist. Who cares about the margin - we only care about the absolute value of the bottom line.
In addition, you need to think bigger picture. Its not just about the ski tickets. Its also about getting them to the mountain so they can make additional purchases that are ridiculously profitable: ski school, equipment rentals, F&B, lodging, etc.
Long story short, what Intrawest is doing is getting more visitation at lower ETPs, but making more money on the back end.
Just a few quick thoughts on what they are doing:
- Industry is in shrinking. Less skiers each year. More regional resorts shutting down each year. This is a capital-lite consolidation play.
- This means expanding their multipass product offering, which costs them NOTHING (by simply partnering with mountains that they dont own). However, it provides them with a huge network of mountains to market their multipass products off of.
- It also means developing & mining their customer database (a practice not yet implemented across the ski industry), but proven effective in gaming & hoteling (especially when backed by a huge network of properties).
- Pricing continues to grow. Last year they grew pricing mid-single digits. This year, they have already implemented a 4-5% pricing bump across the portfolio.
- Ticket sales are also growing. They just told us that multipass product sales are up 15% through today. Look at their website: they have greatly expanded the number of multipass products they are offering & greatly enhanced the reach of their marketing. They are doing an excellent job of scooping up the local/regional customers by offering very competitive ETPs through these products.
I dont think your canvas really matters.
Depends what's more important to you.
Certainly Steamboat is no Whistler or Vail; however, the management team is better at allocating capital.
SNOW will almost certainly continue growing organically faster than Vail, and it will continue to produce far greater FCF yields to equity.
I would argue that given the superior historical & anticipated organic growth, it should trade at a similar or higher multiple than Vail. After all, multiples are just abridged DCFs and the growth-rate is the most important assumption.
Uh, management is telling us the current EBITDA run-rate is $119mm. Not $105mm.
Their actual EBITDA for 2015 was $112mm.
Just FYI to anyone who has just started looking at this.
It was a very different business last time around. When this thing almost filed bankruptcy it was mainly a real estate developer.
While it didnt work out last time, I think its important to differentiate between business models. This is not the same intrawest from 8year ago when they bought it.
Also, on the growth side, do not underestimate the power of the Mountain network they are creating & the frequency products they are rolling out. They are effectively doing what Vail is attempting to do (they bought the Aussie resorts to improve their network), except SNOW is doing it without wasting precious capital. We have seen this same exact model flourish in the hotel industry & the gaming industry - and we are right at the beginning for the Mountains. These guys are smart, and they clearly have a better capital allocation playbook than Vail.
I responded to your concern about leverage in the earnings thread from this morning. Reposting:
Its so undervalued at this point that the leverage is working in your favor, not against you.

Its a sliver equity. If growth in EBITDA flows through, or they successfully monetize the RE, then you will make a multiple of your money (simply because the equity value is so small relative to the term loan).

Yes, the cycle could hurt, but its only mark to market. You need to be a value investor on something like this and ignore the mark the market. It can also swing violently both ways on precisely 0 news (as it has over the last 12months). All you really need to know is that the term loan requires only $28mm of interest expense & $5mm of principal repayment each year, therefore permanent capital impairment is unlikely even at the bottom of the cycle (even at the very bottom of the cycle, the ski biz was doing more than $40mm of EBITDA - sufficient to keep the doors open).

I would call this a levered option with an extremely long (5+yrs) tail. If you view this as anything else, you will probably be disappointed due to the inexplicable day-trading swings in both directions.
Its so undervalued at this point that the leverage is working in your favor, not against you.
Its a sliver equity. If growth in EBITDA flows through, or they successfully monetize the RE, then you will make a multiple of your money (simply because the equity value is so small relative to the term loan).
Yes, the cycle could hurt, but its only mark to market. You need to be a value investor on something like this and ignore the mark the market. It can also swing violently both ways on precisely 0 news (as it has over the last 12months). All you really need to know is that the term loan requires only $28mm of interest expense & $5mm of principal repayment each year, therefore permanent capital impairment is unlikely even at the bottom of the cycle (even at the very bottom of the cycle, the ski biz was doing more than $40mm of EBITDA - sufficient to keep the doors open).
I would call this a levered option with an extremely long (5+yrs) tail. If you view this as anything else, you will probably be disappointed due to the inexplicable day-trading swings in both directions.
Thanks for reposting my VIC writeup :)
Glad someone read it! I was under the impression nobody did
Vince,
I agree with that statement. I believe Gary @ CZR made a comment about this phenomenon back in May on their conference call.
Also, thanks for bumping my hotel math to the top
Also, I dont think Harrah's is getting crushed by players leaving. In fact, they had a rather large traffic increase over last year in May.
The smoking ban seems to simply result in less slot drop per player. However, I wish they were leaving Harrah's in droves.
Hi,
I've been following this as well. I just wanted to chime in on your last comment about the Silver Slipper maybe doing well. (I just posted this on VIC, but pasting here).
* Called the Silver Slipper and talked to reservations lady.
* She said their occupancy is about 50% on Monday-Weds. Full Thurs-Sun.
* Prices are $70 on Mon-Weds. $219 on Thurs-Sun.
* I think this implies about $3mm+ of incremental revenue from the hotel per yr, assuming I discount the winter/fall months by 50% vs today.
* Increases to $4mm+ once they open the remaining units (getting to 120ish units)
Check this dropbox link for the napkin-math:
https://db.tt/et93Sbtw
It was a scary few months. I owned it through the recent rout in size.
I feel bad for not pounding the table in the messages of my writeup on VIC. The selloff was a huge opportunity, likely linked to poor weather in Colorado in Feb/March.
This went from cheap & maybe-catalyst, to cheap & visible path to catalyst realization (RE development). I think we will do well and have added significantly over the past 2 months.
This is my largest equity holding currently, for none of the reasons you listed.
There's a writeup on VIC from 6months ago or so.
He's trying to stop them from lighting money on fire...
I think we would all try to do the same at OMEX, but the money has already been burned.
Gibor,
The most likely strategy for this company is M&A - whether it be acquiring to become a growth stock, or selling to someone bigger.
However, this was a tax-free spin. To preserve the tax benefit, conventional tax wisdom states that these guys cant sell for 24ish months from the spin date.
I havent spent much time looking at net income; however, I do know that in the last 6 months they expensed ~$50mm of restructuring (for closing a plant in Thailand that they dont use very efficiently) and ~$26mm for pre-spin-off transaction costs (paying advisors, lawyers, shuffling chairs, etc).
I would hightly recommend you look at EBITDA instead. Net Income is pretty useless here due to lack of comparability.
I have no doubt you will - and then some.
Again, on your points regarding Mexico:
Any schmuck can file a complaint in Mexico, then publish an inflammatory article to make it sound like it actually means something. Let me know when they have the prosecutor onboard - then I'll reconsider my statement.
The real question: will anything material to INFU come from this? (no, OMEX will run out of liquidity first)
Im a fan. Own it, but have a hard time recommending it to friends/family due to how whippy the price has been - they dont have the stomach for near-term losses that I do.
With that said, I think: 1) mgmt is strong; 2) its cheap; 3) they will get on the accretive acquisition bandwagon to drive growth on the med device side; and 4) they operate a pretty stable supplies / hospital consumables business that will help generate growth currency.
Each of the 2 businesses is about half of their EBITDA currently. Comps imply a 12x multiple on $257mm of EBITDA. Looks like this is trading south of 9x now.
In the near-term - there's 2 things that could change sentiment and drive profitability. 1) Oil prices - 70% of their sales are derived from oil (its their largest manufacturing input), they are a buyer of spot oil (which is increasing their margins currently due to declining prices), and do not pass-on savings to customers; and 2) ebola (which i am far less certain of).
Well, looks like mgmt lied about the outlook for the last few months.
Very glad im not still holding it.
I think there is a still a good thesis around taxact here - but I'm now fairly sure mgmt it dirty. May revisit after C-suite replacements occur.
Reported all of these chats. Hopefully they get removed.
Ive read many of RJM's writeups and thought he did good work. He's done a good job at INFU and did all the right things to create value for his investors.
I took a quick look at OMEX for curiosity's sake - I'm standing by @ the death knell.
Sailfish,
You should be voting FOR buybacks below NAV.
And voting AGAINST issuances below NAV.
or if the merger terms are re-cut. If that happens, BBX is likely to get less than the current terms, I think.
Not sure how likely it is, given that mgmt is controlling the process - but I certainly think its possible.
You are just getting paid for shouldering merger termination/renegotiation risk.
Honestly, it was a good trade. Exited when it crossed $20 in less than 2 weeks of initiating a position, yielding a fantastic IRR.
Management effectively repurchased shares from me as part of the new program they launched.
I was just discussing something similar with someone else, figured I'd add the comment here as well:
I dont think this is really that relevant. These assets (including the real estate) probably only provide a few marginal cents of value. You can probably expect like a 30% upside on RE assets - but thats not enough to make this thing a double.
I think the big picture investment thesis revolves around BXG.
Agreed. The cashflows it generates are pretty sweet.
Keep in mind, its a cyclical business, and they bought it at a much more favorable point in the cycle.
As mentioned in the original article - bluegreen earnings were a blowout. +60% EBITDA vs last year.
The capital light business model seems to be pulling through and growing for us.
Also, bluegreen is moving along quite nicely. EBITDA is up 60%...
Not much to add here besides what we already know and what you see in the press release. Im happy with the numbers and am even more happy with the new reporting format.
Its obvious they are improving their disclosures, which is the 2nd biggest catalyst for this name.
For those of you that listened to the call and were confused by the CMS stuff, here are my thoughts.
Two things have changed here:
• In July, CMS proposed not to include infusion pumps in the next set of Round 2 bidding (previously, it was only included in R1RC in very few CBAs). For the uninitiated, Round 2 included nationwide. To me, this is a huge win, because I viewed the major risk here as having CMS mandate a nationwide bidding process for infusion pumps & supplies. For various reasons related to pricing, I believed that we were highly likely to see infusion included in nationwide bidding. I think that INFU still benefits greatly from medicare reimbursement, but for whatever reason CMS seems to disagree. Either way, the takeaway here is that less recompete bidding is better, and infusion pumps avoided being included in Round 2 bidding.
• Later in July, CMS proposed cuts that would impact infusion pumps & supplies beginning in CY15. At a high level, it look like the cuts will result in 13% less medicare revenue for products included in the R1RC category with infusion pumps. Here is the long version of this proposal (http://1.usa.gov/1qUd1vc), with the relevant section starting in the 3rd column of pg40285. Basically, they proposed to apply nationwide cuts to DMEs that were included in less than 10 CBAs following this formula: ((1 – R1RC cut%) x (110%)) – 1). As a reminder the infusion category, the R1RC cut variable was approximately 21%. I think there is also a chance that they make these cuts less painful than proposed, as CMS has a tendency to do, but I’m not sure how to cuff that probability.
I’m working off of the assumption that medicare accounts for 31% of INFU revenues, which results in an ebitda impact of ~$2.3mm by my estimates ($56mm x 31% x13%). This is very back-of-the-envelope and could very well be wrong. But I think its a good starting point until the company provides additional detail.
I missed this completely. I wonder how that came about.