Web Site
Investor Relation
Google Finance
SEC Filing
Aug 18, 2014
2014 Q2 Data
Check list:
1.Major Business.
RLEC(rural local exchange carrier) telecom service provider. Mainly provide phone lines access to rural areas.
2.Balance sheet.
Current price is $4.87. Shares 2.87m. + 233k B shares. Market Cap $15m. Tangible book value 0. Net Cash $6m. Debt $117m.
3.Credit facility.
$117m term loan: mature at Apr. 2016. .
Interest rate: Index rate(4.25% minimum) + 3.25% or LIBOR rate(3%minimum) + 3.5%. Current interest rate is 6.5%.
Repayment: 5% repayment of principal and 75% of excess cash must be used to pay down the loan.
Covenant: Total Debt/Adjusted EBITDA less than 4 .25
$5m revolving loan. mature and interest the same. no balance.
4.Financial data by years.
5.Insider holding, options, Insider trading info, share buyback.
Ira Sochet: 250k, 8.8%, an activist investor.
Management seems to hold very few shares.
6.Management compensation.
Quite high compared to the sales it has.
7.Employee numbers. Revenue/Employee. Compensation/Employee.
8.Industry comparison.
LICT
9.Auditor
10.Major events.
(1) The company filed for bankruptcy at 2013, mainly to cut the debt. Previously, it was traded under IDS(Income Deposit Securities) structure which contains one common share + $7.5 of notes at 13% interest rate with $109m in balance. After bankruptcy, the IDS is canceled, it also paid down other debt. so total debt reduced from $270m to $135m.
(2) In 2012, it loa an major contract with Time Warner. which is the major cause of $14m drop in revenue and EBITDA in 2013. Also its network access revenue is affected by new regulation as well.
11.Comments.
(1) The 2013 bankruptcy was not really a bankruptcy except just to wipe out old IDS holder. All the rest was unchanged.
(2) The stock is trading around 1/2 of one year EBITDA. Even after interest, tax and CapX, it still has around $8-$10m/year income. The price is really cheap.
(3) The company is still losing RLEC lines in the past several years, although the speed is lower now. Also its network access revenue seems decreasing as well. It is hard to estimate how the EBITDA will be in the near future. Generally it should be decreasing, but in 2m to 4m .
(4) Currently the company's TTM Adjusted EBITDA is about $29.5m. With 4.25 times ratio, it support maximum debt balance of $125m. With current debt balance of $117m, it requires a minimum TTM Adjusted EBITDA of $27.5m. The company is pay down debt as much as possible now. However, EBITDA is getting lower as well. It is kind a race that whether debt or EBITDA will be reduced faster. This post quite a big risk for another bankruptcy. This is the main reason the stock is so cheap now.
(5) First half of 2014 EBIDTA is $15m. Assuming second half of 2014 EBIDTA is $14m. Assuming 7.5% interest rate, $6m/year in CapX, $4m/year in tax. This would make it be able to pay down another 4m to 5m this year. That would make a debt balance of $112 to $113 by end of 2014. Assume 2015's EBIDTA is $26m, $8m in interest. CapX and tax the same. It would be able to pay down another $8m at 2015. That would make a debt balance around $105m at end of 2015. EBIDTA requirement for this two years would be around $26.5m and $25m. This is pretty much its bottom line to avoid triggering the debt default.
Update
Mar. 02 2015
(1)Q4 2014 date released. Adjusted EBITDA for 2014 is $28.7m. Interest expense $8.85m. CapX: $6.5m. Tax $3.2m. Debt balance at Dec. 2014 is $112m.
Update
Jan. 25, 2016
(1) Current Price $6.4. Total debt at end of 2015 is around $100m. The company renewed its debt which is due at Apr. 2016. With around $85m term loan( 9% interest rate) + $15m term loan(14%). The total debt/EBIDTA covenant is set to 4.4:1 at 2016 and will be gradually reduced to 3.25:1 at 2020.
(2) The debt renewal seems not that good to me. Annual interest will be around over $10m/year for now which is maybe $3m more than old terms. The bottom EBITDA for 2016 is still around $25m. The covenant is still very tight.
July 11, 2016
Q1 2016 Data
Recent Price $4.10.
(1)Revenue $17.5m. EBIDTA $7.6m. Interest expense $2.5m which includes $250k of debt refinance cost amortization. Debt origination cost $5m will be amortized for $1m/year. Debt gross balance $100m(recorded as $95m in the balance sheet which excluded the $5m refinance cost). Minimum debt repayment seems $1m/quarter. Cash $7m.
(2) Since the $100m debt was refinanced at Feb. 17. Based on Q1 data, annual interest cost should be around $10m excluding the debt refinance cost amortization.
(3) There is minimum TTM EBITDA requirement in new debt which is $22.75m at Dec. 2016, $21m at Mar. 2020 and after.
(4) Since I first studied the company at Q2 2014, after 2 years, the net debt reduced from $112m to $93m, plus the $5m prepaid refinance cost, totally $24m cash had been used for debt reduction. It is actually better than I expected.
(5) Previous using of Market Cap/ EBITDA in 2014 was wrong. Should use EV/EBITDA which was ($111+$15)/$29.5=4.3. Current EV/EBITDA is around ($14+$93)/$28m = 3.8 which is cheaper.
(6) Assume it can hold the EBIDTA at above $25m until 2020. Using $27m as average number, it can pay down $7m debt/year, then interest expense will decrease by at least $0.7m each year, which will save another 0.7+1.4+2.1+2.8=$7m, then at 2020 its gross debt will be $58m($100-$42), then its EBITDA covenant at 2020 should be $58/3.25 = $18m. Assume 2020 EBITDA is $25m, using 4x EV/EBITDA valuation, then the stock will worth $25m*4-($58-$7)=$49m. Roughly 3x today's market cap.
(7) Assume it can pay down $5m debt/year. Interest expense decrease $0.5m/year. Then at 2020, its gross debt should be $70m($100-$30). Then EBIDTA covenant at 2020 should be $70/3.25 = $17.8m. Assume 2020 EBITDA is $23m, using 4x EV/EBITDA valuation, then the stock will worth $23m*4-($70-$7)=$29m. Roughly 2x today's market cap.
(8) If it can only pay down $4m debt/year and interest expense decrease by $0.4m/year. Then at 2020 gross debt should $76m. covenant minimum EBITDA should be $76/3.25=$23.4m. If at 2020 EBITDA is only $21m, then it might fail the covenant requirement. On valuation, it might worth $21m*4-($76-7) = $15m.
(9) I think currently its share price still integrates the risk for bankruptcy. However, after two years, its EBITDA is more stable than expected. It is more likely to be able to maintain an stable EBITDA in the future.
(10) There is another risk buried inside is that there is the same management who totally wiped out the previous notes from the share holder. Now if there is another chance, they probably will do the same thing.
(11)Overall, although the new loan is worse, if the company can maintain relatively stable EBIDTA above $25m in next 2 to 3 years, then it is actually a good investment at the current price.
Nov. 05, 2016
Q3 2016, Current Price $4.9
(1) After two quarters since last update, its net debt decreased by $1.5m to $98.5m, Cash increased by $2m to $9m. Q3 EBIDTA $6.7m, First 3Q EBIDTA totals $21m.
(2) It seems to be able to achieve $28m EBIDTA and pay down $7m in debt this year.
Mar. 08, 2017 Q4 2016
Current Price $6.35.
(1) Full year 2016 EBITDA is $28.1m, Interest expense $9.2m. Debt $97m(including $4m refinancing cost). Cash $10.5m which is close to $3.7m higher than 2015.
It will pay down $3.1m debt at Q1 2016 to bring debt down to $94m. CapX close $7m.
(2) After pay down the $3.1m debt. The cash will be roughly the same as 2015. In 2016 totally is has been able to use ($100-$94)+$4=$10m in debt payment. Interest Expense+CapX+Tax=$20m, but there is $2m deferred tax, so $28m EBITDA -$18m will generate $10m cash for debt repayment.
(3)The deferred tax are $28m which was just $22m at 2013 that I am kind of ignored. Those money could be used to pay down debt if it continue to grow.
(4) The company accepted FCC's A-CAM offer which will increase its funding from government for $1.5m/year for 2017.
(5) Later 2016 the company is looking for strategic options which I think the many cause for the stock price raise. It is possible looking for an acquisition or debt refinancing.
(6) I was skeptical when the company refinanced the debt at high rate. However, currently the company is in a much better situation. 1) It is possible to target an acquisition. 2) It is possible to refinance debt at lower rate(6%-7% I think) by paying 2.5% penalty after Feb. 2017. 3) It is very likely to continue pay down at least $7m/year debt until 2020 given the $1.5m more funding from the government. 4)The A-CAM is a win-win for the company since it helps the company to increase the internet speed for its user, also it indicates it don't need to increase CapX in 2017.
(7) Overall once the debt issue is solved the company is well worth $50m at 2020 which I estimated previously.
Aug. 01, 2017
Q2 2017 Date Current Price: $7.00
(1) For the first half of 2017, EBITDA is almost the same as last year at $14m. Total debt 92.6m(includes 3.4m debt issuance cost). Cash $11.3m. Net debt down over $4m. It indicated another $3m pay down after Q2 end. By year end total debt should be around $87.5m.
(2) CapX $3.8m. Net interest for 6m around $4.5m which already $1m lower that $10m/year estimate.
(3) Overall interest + tax + CapX might still around $20m. If it can maintain $28m EBITDA, it can still pay down $8m in debt.
(4) I hope it can refinance the debt but there seems something blocking it. Overall it performed quite as expected or little better.
Nov. 07, 2017
Q3 2017 Data, Price: $10.5. Shares 3.45m, Cap: $35m.
(1) The company refinanced its $87m debt with reduced interest from 10% to around 6%. Interest saving for 2018 is around $3.5m. Also, the new facility gives it much more freedom to pay down earlier, paying dividends, buyback shares etc.
(2) Currently debt $88m, Cash $8m. Net debt around $80m. EBITDA is around $7m, for the first 3Q is around $21m. It is quite stable at $28m/year. CapX is around $6m for the first 3Q. $2m higher compare to last year because the A-CAM requirement I think.
(3) Overall the refinance is a very positive event for the company. It makes the company much safer than before. The interest saving will generate over $2m/year after tax income which can be used for more debt repayment or dividend payment.
(4) Since there is $2m debt prepayment penalty, plus new facility cost. I assume by end of 2017 its net debt still will be $80m. Assuming EBITDA stays for $28m for next 3 years. Interest expense will be $5.5m, $5m, $4.5m. Assuming $6m CapX, $4m Tax. It actually can pay down as much as $11-$13m in debt each year. If it does that, the net debt by 2020 would be around $40m-$45m.
(5)From income view, at 2018 it can generate ($28-$6-$5.5)*0.65=$10.75m in net income, which is $3/share. Using 10 time P/E, it gives a $30/share fair price.
(6) I think the market will gradually realize the value of the company. Of course, it still has the risk of not been able to keep the $28m/year EBITDA. But even the number drop to $20m by 2020, I think it can still comply with the debt/EBITDA 3.25:1 covenant by then.
Apr. 12, 2018
Q4 2017 Data, Price: $16.75. Shares 3.45m. Cap: $57m.
(1) Debt $86m. Net debt $82.5m. CapX $8.5m. EBITDA $27.4m. Tax paid: $1.8m. Assuming $27m, $26.5m, $26m EBITDA for the next 3 years, $5.5m, $5m, $4.5m for interest, $7m CapX. $3m tax. Its real income could be $10m to $12m each year. By 2020, the total debt could be around $50m.
(2) The company did a little bit worse than I expected actually. Mainly because of the higher CapX and also the close to $4m in refinancing cost. Still, it should be able to pay down at least $10m debt each year for the next 3 years. However, interest expense will be down much slower. Also, it might start to pay a dividend again sometime.
Mar. 04, 2019
Q4 2018 Data, Price: $16.95, Shares 3.45m Cap: $57m.
(1) Debt $74.6m Net debt $70m. CapX $8m. EBITDA $25.7m Interest paid $5.4m. Tax paid ($0.5m). For 2018, it paid down $11.3m in debt which is pretty good.
(2) 2019 CapX will be $9m. Assuming $25m EBITDA, $5m interest, $2m tax, the actual cash it generates may be only $9m.
(3) Full-year 2018 EBIDTA is $1.7m less than 2017 which is quite less than I expected. Currently, the company is implementing fiber internet which might bring new revenue. It is hard to estimate how it gonna do in the future. However, the debt should be less an issue after 2020. It is just whether the company can stop the current EBITDA downturn trend.
