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Ted Barac

 
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  • Sprint And The Severe Market Overreaction, Part II [View article]
    Not sure about Sprint's access to Softbank's deep pockets. If Softbank commits additional capital, I think it would need to be on an arm's-length basis (because of the minorities) at close to market rates. At current price levels for the debt and equity, that would mean considerable dilution (if they put in new equity) or more leverage for an already highly debt-laden company (with additional expensive debt).

    That said, Sprint could, potentially, benefit from having Softbank as a lender of last resort and Softbank's implicit support puts downward pressure on the credit spreads of their debt instruments (though still very expensive/yieldy).

    I've been very disappointed with the recent results and, given pricing trends in the US cell phone market, I don't see much to be optimistic about on the operational side. That said, maybe the depressed share price could incentivize Softbank to take them private (and eliminate the minority complications and resultant need to conduct business in an arm's length) or some other M&A upside event.
    Dec 16, 2014. 02:40 PM | 2 Likes Like |Link to Comment
  • Softbank Vs. Mr. Market On Sprint: Place Your Bets [View article]
    Despite a significant jump in the price of Sprint in months following this article, this call has obviously performed poorly and, unfortunately, I do think that the sell-off in Sprint's shares has been entirely rational.

    The competitive environment has been worse than I expected and the margin developments, following the closure of the Nextel iDen network, has been disappointing to me. Given Sprint's already weak margins, I question their ability to turn things around by lowering prices (and the increasingly competitive price war that now characterizes the market is of very legitimate concern).

    I do see upside possibilities from M&A (even the potential for Softbank to take S private), but it's not enough for me to hold the shares right now.

    Note: Position may change at any time without notice.
    Dec 15, 2014. 01:06 PM | Likes Like |Link to Comment
  • Amazon: Free Cash Flow Not What The Bulls Purport It To Be [View article]
    Fair point, Paulo, and I understand the logic of looking at capital leases the way that you do. At the end of the day, all of these issues and a full analysis of the financial statements need to be considered. Amazon provides good details on the capital leases, so it's easy to make whatever adjustments you see as appropriate.
    Dec 12, 2014. 03:06 PM | Likes Like |Link to Comment
  • Amazon: Free Cash Flow Not What The Bulls Purport It To Be [View article]
    Dejavu! I went through this Amzn leasing debate with Paulo before (with his prior article on Amzn's overuse of operating leases and my rebuttal article...see link, below). Slightly different issue with capital leases, but the main ideas (accounting for leasing assets versus buying) are the same. I'm in Treetis' camp, but it's a good debate to have with important issues to consider.

    http://bit.ly/12CrK2V
    Dec 12, 2014. 09:37 AM | 2 Likes Like |Link to Comment
  • Alaska Communications: Better After The AWN Sale? [View article]
    Hi Munger fan,


    Fair point that the comparison is static and doesn't capture that the preferred payments will step down (which is definitely something that investors need to keep that in mind) or other expected trends (apart from the $12mn in expected divestiture synergies for newco).

    I believe that the mandatory debt payments, on the other hand, are something that directly and commensurately benefit shareholders, so I think it's fair to represent them under my definition of discretionary FCF (even though the debt payments are, in fact, mandatory).

    With respect to maintenance capex, I define it as how much a company needs to spend to stand still financially (not a breakdown of which $'s go towards new versus old projects). For example, if 100% of CAPEX goes towards new customer/projects and the end effect is that revenues and EBITDA only stand still (as these new customers are only offsetting lost revenues in other parts of the business), then I would still consider it all to be maintenance capex. In other words, the "maintenance" refers maintaining the financials and not maintaining the existing infrastructure and customers.

    All that said, my estimate for maintenance CAPEX is very rough (back-of-the-envelope) and purposefully conservative. In reality, the actual number could be considerably lower.


    Thanks for the great comments and dialogue. You're bringing up some very relevant and important issues to clarify.
    Dec 8, 2014. 02:12 PM | Likes Like |Link to Comment
  • Alaska Communications: Better After The AWN Sale? [View article]
    Great points, munger fan. I define "discretionary" FCF as FCF available to benefit shareholders (e.g. pay down debt (even if it's mandatory), make investments in growth CAPEX, pay dividends, etc). I should have clarified this, as people can define it differently.

    On the issue of maintenance CAPEX, I'm very conservative in making that estimate and, as a result, I could very likely be considerably overstating that amount. That said, I prefer to err on the side of conservatism (assume they need to spend more than they do, rather than the other way around). Estimating maintenance CAPEX is very subjective (more of an art than a science) and everyone should make their own estimates with which they are comfortable.

    How much annual CAPEX do you think that they need to spend to keep revenue and EBITDA constant?
    Dec 8, 2014. 12:38 PM | Likes Like |Link to Comment
  • Alaska Communications: Better After The AWN Sale? [View article]
    Absolutely, and they expect an additional $8mn in synergies (above the $4mn) from the divestiture ($12mn in total; all of which is included in the pro-forma EBITDA for newco in the article's spreadsheet).
    Dec 8, 2014. 11:49 AM | 1 Like Like |Link to Comment
  • Alaska Communications: Better After The AWN Sale? [View article]
    Nick,

    Further to my initial response (below) to your question about the dividend: In re-listening to the comments about a potential dividend from Friday's conference call (there was a direct question about it), the company basically responded that they had created a perfect set of conditions (e.g. growing revenues, low leverage, increasing EBITDA) such that the board can now focus on all the things they can do to increase shareholder value. They also stated that the debt agreement has a 3.5x leverage threshold for dividends (and they will be at 3.1x).

    So, they seem to be implying that a dividend is something that the board will consider following the closing of the transaction. Again, I wouldn't count on this, but it does seem like a possibility.
    Dec 8, 2014. 11:39 AM | 1 Like Like |Link to Comment
  • Alaska Communications: Better After The AWN Sale? [View article]
    Hi II,

    The cost of running the retail side of the wireless business (SG&A for retail stores, etc.) exceeds their revenues for that business by $4mn. So, they are running that business for a $4mn loss (a loss which will go away following the divestiture).
    Dec 8, 2014. 11:21 AM | 1 Like Like |Link to Comment
  • Alaska Communications: Better After The AWN Sale? [View article]
    Hi Nick,

    Thanks for the comment and kind words. Given the company's limited pro-forma free cash flow, and their recent focus on de-leveraging, I don't see much likelihood for a dividend in the near-term. It's always a possibility, but not something I would count on or expect when considering an investment in ALSK. At this point, I do think that they are better off putting money towards CAPEX and further strengthening their business.
    Dec 8, 2014. 09:52 AM | Likes Like |Link to Comment
  • Junk Bonds: Go Active, Or Don't Go At All [View article]
    Any evidence to support these conclusions? Seems that passive strategies are actually best for illiquid markets -- where the wide bid/ask spreads would disproportionately hurt the active managers that trade more frequently and have to pay these high (and hidden) transaction costs. Of course, there are some active managers that will outperform, but I suggest that most investors don't have the time, tools, or inclination to predict which ones will do so (as past performance doesn't predict future performance). As with other asset classes, I suspect that the active managers (in aggregate) will underperform the indexes. Would be very interested to see and evidence to the contrary, though.
    Dec 4, 2014. 10:45 AM | 1 Like Like |Link to Comment
  • A Farewell To Seeking Alpha, And To All Of My Followers [View instapost]
    Sorry to see you go, B.E. Best of luck in the future.
    Nov 25, 2014. 03:06 PM | Likes Like |Link to Comment
  • Pity The Hedge Fund Manager [View article]
    "The 2/20, which is much maligned, really isn't a terribly bad arrangement for anyone that has had a managed account kind of experience. There's especially something appealing about having your fund manager be aligned with your interests."

    I would (and do) argue that the 2/20 arrangement doesn't align interests very well, at all:

    http://seekingalpha.co...
    Nov 9, 2014. 10:28 PM | 1 Like Like |Link to Comment
  • The 401K Scam [View article]
    Since employers typically match 401k investments, up to a certain level, you are starting off with an automatic 100% gain on those 401k investments that qualify for matched contributions. I hope you aren't advocating that investor forego those matched contributions with the expectation that they'll do better by directing that money towards annuities.
    Sep 16, 2014. 01:19 PM | 14 Likes Like |Link to Comment
  • Why Twitter Investors Were Just Duped [View article]
    "Twitter's monthly active user base is one-fifth the size of Facebook's (NASDAQ:FB). And its revenue per user is 50% lower.

    Yet Twitter trades at a 44% higher price-to-sales (P/S) ratio."

    Tiny companies with small user/customer bases can (justifiably) have high P/S ratios and vice-versa (large companies can have low P/S ratios) as the metric is largely correlated with expected sales growth and isn't meant to be (and shouldn't be) correlated to the absolute size of the existing customer base.

    The "S" of P/S ratio already captures both the lower size of Twitter's user base and their lower revenue per user.

    Since P/S more correlates with expected revenue growth rates, and not absolute size/user-base, consider that Twitter's expected revenue growth for '14 and '15 is roughly double that of FB (per analyst estimates, for what it's worth). I think that's what's really more relevant when looking at the P/S ratio.
    Aug 6, 2014. 10:32 AM | 1 Like Like |Link to Comment
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