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Money McBags is the preeminent financial humorist and money maker in the world. While known for his ability to find and invest in undervalued equities, Mr. McBags is also a world class dick joke teller, an aficionado of lovely ladies, and avid reader of books without pictures in them. With... More
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When Genius Prevailed
  • Small Company Update: Dropping more KITD off at the pool

    KITD pre-announced their earnings today and in typical KITD fashion, they managed to both titillate and confound, like watching a hot chick deep throat Lexington Steele.  CEO Kaleil Tuzman certainly likes to keep things more interesting than a war of words between NFL players (and trust Money McBags that link is pure awesomeness) so Money McBags will break it all down for you below:


    The Good:


    1.  Q3 will be solid.  Revenue will be >$27MM and up 147% y/y and 18% sequentially as they continue to sell the fuck out of some shit (and buy companies to grow inorganically, but whatever).  The only bit of a head scratcher here is that their operating EBITDA will be up just 5% sequentially to $4.4MM from $4.2MM which is ~16% margin as opposed to the 18% of last Q.  In the release, Mr. Tuzman says "we have been consciously investing in additional above-the-line resources in direct sales, channel sales, deployment and product development" so if Money McBags reads between the lines, it looks like the EBITDA margin decline was simply caused by investing in the business rather than buying growth at lower margins or cutting prices to continue to grow.  Sounds reasonable enough.

    2.  Q4 2010 will be very solid. Guidance for the full year was given as >$100MM in revenue (Money McBags last guess was $108MM) so backing out the last 3 quarters ($17MM, $23MM, and now ~$27MM), that implies at least $33MM in Q4 revenue which will be another 100% growth Q and >10% sequential growth.  Not a huge surprise, but so far Money McBags likey (though not as much as he likey this).


    3.  2011 will be fucking solid.  In Money McBags last analysis of KITD, he guessed that revenues would be ~$145MM on the low end for 2011 and today's guidance is for $137.5MM to $152.5MM, so that seems about right since management of KITD likes to low ball as if they were Alan Greenspan going commando.  The range on revenue is because they are going to try to spin out their non-SAAS business which they deem non-essential, like proper spelling was to Teddy Roosevelt or morning after pills (or just having a fucking headache) are to Michelle Duggar.  They are also going to be recognizing all of their acquisition expenses in the next two Qs to try to start 2011 with a clean-ish income statement so investors can get a feel for numbers without having to adjust them like the B(NYSE:L)S seasonally adjusts their made up data or Traci Lords adjusted her age.


    EBITDA guidance is at least 21.5% margins for the $152.5MM scenario and at least 24% for the $137.5MM scenario which is ~$33MM in both scenarios.  This means that the $15MM tertiary business they want to sell is adding zero value to them and Money McBags is sure that will make a great selling point (KITD:  "We'll sell you $15MM in revenues"  Buyer: "What's it worth to you?"  KITD:  "Nothing."  Buyer: "I'll take two please.").  Anyway, at ~$33MM EBITDA and with $46MM in cash and ~$320MM market cap, the company is trading at ~8X EV/EBITDA which isn't that cheap anymore, but Money McBags is not sure that EV is correct because....


    The Bad and The Ugly:


    1.  Money McBags has always told his readers that he is no mathematician (though he knows the difference between anallgmatic curves and analjizztastic curves) but he is certain that A+B+C=Dilution.  And in KITD's case, it is:


    A = Allen and Company hired as strategic advisor.  Now for those of you who don't know, Allen and Company is a boutiquey NY based investment bank that advises tiny little companies on when they should do some shit bigger than just factoring receivables or putting smiley faced cupcakes on everyone's desks.  So KITD isn't hiring these guys to deck out their Czech offices and make sure the curtains match the drapes or all copies of Startup.com have been burned.  They are there to pull off a fucking deal and the bigger the better because that is how these financial middle men (the Lucky Pierres of the finance world) get paid.


    B = Buying share.  KITD has been doing this the whole time so to hear that they want to grow their market share through acquisitions is less surprising than learning that Christine O'Donnell's dad played Bozo the Clown.  KITD is in a land grab market (whereas Money McBags is in an assgrab market) that could be huge so grabbing as much land as one can now is a way to go (as long as they can do it profitably and not fuck up integration worse than Andrew Johnson's Presidential Reconstruction, and as an aside, fuck you for that Andy).


    In the press release, CEO Tuzman said he wants to take their market share from 20%+ to 50% in the next 12-18 months.  No really, he said that.  And that is one or two steps beyond ambitious, like, perhaps, really fucking ambitious.  To get there, they would need to more than double the size of their business and organic growth and rinky dink acquisitions just won't get them there.  So...


    C = Changing the company.  To quote Mr. Tuzman "we are considering more 'transformative' opportunities, where we might be able to acquire a top competitor and significantly extend our market share."  Boo-yahhhhhhhhhhh motherfuckers.  It is on like Donkey Kong, or rather, it is on like whoever bought Donkey Kong by diluting their shareholders first, but still managing to buy it at a reasonable price.  So when you add that all together you get..


    A + B + C = D-fucking-lution.  And remember, they filed a shelf for $250MM the other week which is big enough to buy a fuckload of lap dances (12.5MM to be precise, or 2.5MM in the champagne room) or their biggest competitors.  With the shelf they could raise, this company could see a bigger transformation than when Chastity Bono started peeing standing up.


    In the release, Mr. Tuzman also said:  "For this type of opportunity, we would potentially raise outside private or public equity capital. That said, we would not raise equity capital if we did not believe we could deploy it in an accretive manner and within a reasonable timeframe."  Which is shorthand for, bend the fuck over shareholders because daddy is going to mimic uncle Benny Bernanke with the dollar and make your holdings worth less (at least in the short run).


    And this is followed up with the greatest line in the history of company financial releases: "We continue to be a very dilution-sensitive management team, having invested significant personal capital alongside outside investors."  Blahhhhhhhhhhhhh.  Calling themselves a dilution sensitive management team is like Gabourey Sidibe calling herself a picky eater or the Jackson County Sheriff's Department calling October 22nd an "average day."  Just the other week Money McBags nicknamed CEO Tuzman "The Great Diluter" and here it comes so shareholders (and Money McBags is one of them) better hope the acquisition is accretive otherwise we've all been hoodwinked.


    Now to step back for a second, Money McBags, whether foolish or not, thinks Mr. Tuzman has done a fine job with running and growing KITD so he has no reason to believe KITD management will fuck this transformation up.  That said shit happens and the company finally started to gain momentum again before they went and did this (and judging by the company's 5% sell off today, investors aren't happy).  The questions become:  1.  Who the fuck are they going to buy?  2.  At what price are they going to issue shares?   3.  Why didn't Money McBags go to a Pac-10 school?


    As for those answers, only Brightcove and The Platform seem to big enough to be transformational and there is absolutely zero way Brightcove sells after having recently raised money and being closer to coming out public than Ricky Martin was in 2003.  Plus Mr. Tuzman often takes shots at Brightcove's inferior solutions so not sure why he would want to buy them (that said, Money McBags is also unsure why people listen to country music or think Drew Barrymore is hot, so whatever).  That leaves The Platform and all Money McBags knows about them is that they are or were a subsidiary of Comcast and that they have never been in his kitchen (and Money McBags knows he used that line last week, but so it goes),  So is KITD targeting The Platform or is there some other big player out there?


    As for question 2, Money McBags will guess in the low $12s (completely taking a wild guess, so flip a dong for a better one) and as for question 3, it is because he is an idiot.


    2.  DSOs jump again.  Remember, a few quarters ago KITD....READ MUCH MORE...

    Disclosure: Long KITD

    Disclosure: Long KITD
    Tags: KITD
    Nov 08 8:08 PM | Link | Comment!
  • Small Company Update: DGIT DGIstroyed iT

    With the market shooting up to whatever number is just above infinity (we'll call it Bernankity) thanks to the Fed's strategy that somehow revolves around making rich people feel richer on paper so they will hire poor people, Money McBags is going to focus today on DGIT who just put up a spanktastic Q.  He will be back tomorrow with his usual daily market report.

     

    Money McBags first mentioned DGIT on 8/30/10 when it had a ridonkulous sell off due to lowering guidance which was only perceived as lower because some dickbag on the Street just had numbers way too fucking high as his model either had an unnoticed circular reference or a desire to see if Excel could handle transfinite cardinal numbers.   Either way, the supposed lowered guidance caused all kinds of models to trip (and luckily not these models, but algorithmic models) and gave this already decently shorted stock a cause for negative headlines.

     

    Shorts pointed to the "lowered" guidance on the heels of DGIT's deal with Ascent Media ending as fodder to yell about DGIT's near monopoly coming to an end (though if it were coming to this end, Money McBags could understand) and to continue to highlight the emergence of sort of competitor Extreme Reach and the aforementioned Ascent Media.  The story of those two competitors coming in to take share away from DGIT is a story older than "boy meets girl" or "girl has a fucking headache so boy goes to rub one off in the bathroom" (and Money McBags highly recommends chapter six of that story), but the noise with the Ascent Media relationship last Q was certainly enough to warrant some rethinking of DGIT's business, but not enough for the 40% collapse that DGIT saw after a decent earnings number.

     

    Since then, Money McBags has written about DGIT several times saying a return to the mid $20s is pretty much a no brainer (or as it's known on the award winning When Genius Prevailed a "Carrie Prejean") and after today's Q, the stock is now back up to ~$28 so hopefully you all got in ~$16 and have made >50% in two short months.  That said, let's take a look at some of the highlights from the Q:

     

    1.  Revenue was up 18% to ~$57MM which was ahead of their $51M to $53MM guidance last Q. They said the outperformance was driven by a stronger August and September which perhaps was driven by the election season but they never quite gave a good reason for this on the call (though to be honest, Money McBags was multitasking during the call and had to turn his head many times so he may have missed their explanation).

     

    2.  HD revenue was up 54%.  This is the growth driver of the company and it was driven by increasing demand by marketers who want their customers to see products in HD because one really needs to see the Shake Weight in HD to understand its awesomeness.  The growth was also driven by a 10% sequential increase in HD adoption by broadcast networks as more channels move to HD because America demands clearer pictures of Katie Couric's colonoscopy and Olivia Munn.  HD is going to continue to grow so this is still a multi year growth market as HD is only 8.5% of all ad deliveries ad volume was up 95% for DGIT.

     

    3.  Unicast revenue was up 31% to $4.1MM. Money McBags doesn't quite know what to make of Unicast as it is more of a headscratcher than psychics in California bitching that people on welfare can longer use welfare cards for their services (because really, shouldn't psychics have seen that one coming?).  At the time, it was considered a pretty crappy acquisition for DGIT seeing as how it is a competitive market and people like GOOG (whom you may have heard of before) can offer similar solutions.  That said, they are growing this business, the purchase price is a sunk cost, so maybe there is a bit of upside here.

     

    4.  EPS was up 55% to $.34 and non-gaap net income was up to $.44 per share as they not only grew topline but also had nice operating leverage.

     

    5.  Match Point, their most recent acquisition for which they paid $26MM (or 1.3MM lap dances to make it easier for everyone to understand) a couple of months ago, was forecast to add ~$5MM in revenue in Q4.  That said, management did a poor job of explaining their guidance for this on the call as their full year guidance was raised by ~$6MM-$8MM from $230MM-$234MM to $238MM-$240MM, but they beat their previous guidance for Q3 by ~$4MM so adding in Match Point to the $4MM beat should have raised guidance by ~$9MM (though the low end of previous guidance to the high end of new guidance is $10MM, but that is kind of a jackholed way of looking at it).  This is definitely something that needs to be better understood.

     

    6.  The company's balance sheet remains hella strong with ~$66MM in cash after the Match Point acquisition, no debt, and FCF of $23MM during the Q.  Now most of you readers may remember someone tried to call Money McBags out on this company on the award winning When Genius Prevailed's message board (read here and here) by trying to show that DGIT does not earn returns above their cost of capital (though this was done using old numbers on current invested capital) and was not growing (despite every metric growing including number of shorts).  As Money McBags opined to this misguided and yet vociferous commenter, "he has chunks of investors like you in his stool" and Money McBags has proven to be correct here because the company now has generated ~$52MM in FCF for the first 9 months of the year which is an 11% ROIC and on pace for a 16% ROIC both of which are greater than DGIT's ~10% cost of capital.  Anyway, you should all read the comments section to see how shorts act by using old information to try to kill a stock.  That said, Money McBags always enjoys the back and forth with people who are too busy highlighting every singe footnote of Securities Analysis to see the growth through the ROICs.

     

    7.  They are buying back shares.  They spent $4.4MM..READ MUCH MORE INCLUDING VALUATION AT THE AWARD WINNING WHEN GENIUS PREVAILED....



    Disclosure: No Position

    Disclosure: No position
    Tags: DGIT
    Nov 04 6:51 PM | Link | Comment!
  • Small Company Update: QCOR rises as IS, MS, and (maybe) NS, prove not to be BS

    On Friday Money McBags promised he would get to QCOR's spankrific Q today and with the market quieter than dark matter or Tim Tebow's bedroom (wink wink) due to QE2, he finally found the time to do so.


    For those of you new to the award winning When Genius Prevailed, first of all, where the fuck have you been?  Secondly, Money McBags has written about this company extensively as it is more under the radar (or was) than the lovely Hayley Atwell, has two potential growth markets (one is currently growing faster than Christine O'Donnell's bush, and yes that is the third Christine O'Donnell bush joke in three days but it is the gift that keeps on giving, like comedy herpes, and the other is still in its early stages but could double the company's revenue), has an unbelievably clean balance sheet, generates more cash than an Aimee Teegarden kissing and blumpkin stand, is well run, treats a bunch of diseases that aren't going away, and is made from a pig pituitary so won't have any generic competition unless someone figures out how to clone Rosie O'Donnell.

    -

    For the full story, throw it in to the search engine above and you will see the voluminous work Money McBags has put up about this company ever since it was trading at less than half of its current price (so if you're keeping score at home, Money McBags gives you unfiltered macro analysis, original dick jokes, real fundamental research, and well performing stock picks, all in one place.  So speak kindly of him when you get fired for using your work computer to guess the NSFW muffs about which he told you).


    As for this Q from QCOR, here are some highlights:
     

    1.  Net revenue was up to $31.3MM driven by a 123% increase in MS sales.  MS sales are now ~55% of revenue up from <20% just a short time ago.  That said, sequentially MS sales were only up 6% so that is a tad bit worrisome, though not as worrisome as the fact that we may one day have to drink recycled pee.


    2.  EPS of $.18 which beat Money McBags estimates of $.15 due to lower operating costs driven by ~$800k lower R&D expense and ~$1.5MM lower SG&A expense.  The SG&A is a bit puzzling to Money McBags, like the concept of underwear (or tone) to Brittney Spears.  They doubled their sales force to 77 from 38 (well doubled it plus 1) so Money McBags juiced up their SG&A by $2MM which apparently was a bit fucking high.  On the call they said they expect expenses in Q4 to be higher and if Money McBags understood them correctly, they expect the sales force to add ~$12MM of incremental costs so ~$3MM per Q which should start to hit more in Q4.  It was a bit confusing, like pension accounting or the success of that show The View, but that is Money McBags' best interpretation of what management said (his second best interpretation is simply "costs are going up materially before revenues hit, dingbat," but whatever).

    3.  They only have penetrated ~9% of the 4,500 MS doctors (which is fewer penetrations than Nick Manning did all of last month, and just slightly less invasive), so there is more room to grow than in a pair of Hammer pants.  Doubling the sales force will certainly help.

    4.  They hired their first full time NS salesperson with 3 to 4 more on the way.  This is the next huge area of growth for QCOR and they will be presenting NS data on 11/20 at the American Society of Nephrology's annual meeting in between topics such as "There is nothing cute about Acute Renal Failure," "The kidney, neither kid nor knee.  Discuss," and "At least we're not urologists."  The point is, in time this could double QCOR's revenue if they are able to grow this business and Money McBags has it as ~$0 in his model right now.


    5.  They have a shitload of cash (~$114MM) and their second priority for it after investing in the business is returning it to shareholders.  Now it doesn't take $114MM to grow an MS and NS platform,....READ MUCH MORE....

    Disclosure: No Position
    Tags: MNK
    Nov 02 9:10 AM | Link | Comment!
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