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What did you think of the call Wood?
Any thoughts on the latest attempt by Anshu to create value (i.e. CBD)?
I've done a lot of work on industrial hemp for other business reasons, so I'll reserve judgment. I will say that obtaining bank financing for these types of businesses is very difficult. Not sure how Anshu and Cutchens can pull this off, but we shall see.
Somebody should ask how the CBD biz will be funded
It's not easy to obtain financing for this type of business.
How's the growth going to be financed Anshu?
Hope he's finally considering cost of capital in his decision making.
Yeah, just like Nutribrands
Is the hype justified? We'll find out soon.
Where will the share count be?
That's one of the key variables to account for. Do you believe the dilution is done? Assuming that since Anshu took over has been a terrible mistake.
I came up with similar numbers
The arithmetic is simple, the challenge is determining the right multiple and time required to ramp to the max production of 1500 units. Obviously, if they do produce 1500 units/week, that leads to some very big numbers in terms of revenue and profit (and they would likely generate greater than 25% net margin assuming some operating leverage). The margins on filters are likely to be significantly above the purifier units, but I don't believe they've provided guidance.
I think a 15 PE multiple is too low, but not trying to argue that point as you made an assumption. I would argue for a higher multiple based on the anticipated growth rate AND the opportunity to sell filters. This creates a long-tailed revenue stream of recurring revenue, which reduces risk (risk is another key variable in determining PE multiples).
All boils down to execution now from what I can tell. I think selling part of the business to a better capitalized third party makes sense at this juncture to ensure adequate funding to grow. I anticipate that the share price will settle somewhere in the range you outlined. It likely overshoots initially and then settles back.
Thanks for sharing your thoughts.
What would cause you to buy more?
If it hit your downside price target, would it be compelling?
I do agree that focusing on GCC is a good move as the spray and pray approach to deal making hasn't worked. The results have been disastrous from a shareholder value perspective. Could BLF pay off in the long run? I suppose it could, but I've always asked myself if slapping sports logos on candies were such a great idea, why haven't Mars, Haribo and others procured a license and done so? The whole premise is questionable to me, but at least at the outset, the deal was structured favorably. Unfortunately, the focus shifted to BLF and capital and time were invested in an opportunity with a questionable long-term payoff. The Verus Cares deal was just a desperate attempt at a hail mary to offset the exit of the Nutribrands deal. At least the price paid was low, but I guess you get what you pay for, which in this case isn't much.
Now we're left with the GCC business, which is a low margin, but fairly fast turns opportunity. He should be able to throw off some cash there and maybe fix the capital structure in the process. It's basically a distribution business, so it merits a lower multiple. The revenue growth is misleading as the vast majority of the revenue (we have to assume since there's no product line disclosure) is still coming from the original beef deal. Perhaps he can keep signing similar deals, which would support a bull case.
I know Anshu wanted to create an exciting growth story to accompany the GCC business, but it hasn't worked. My advice would be to slow growth down, generate cash, fix your balance sheet and think about becoming a dividend payer to promote a higher valuation. I think all shareholders would benefit from such an approach.
Just another case of over promising and under delivering
At least the stock price shouldn't have much downside from here assuming Anshu doesn't dilute it much further (not a good assumption I would say).
Wouldn't count on it
Perhaps you missed this from the PR:
We now have adequate gown and mask supply in place and are reassessing the sales strategy to stimulate better results.
Not a good 10-Q Wood
Revenue growth decelerated sharply to 58% and that's all from the GCC. Gross margin % was basically flat and exhibited no leverage. Opex escalated dramatically, but there's obviously some charges in there for Anshu's exorbitant comp package. Cash flows were weak. If I'm missing something positive other than the $24k in US revenue (tongue in cheek), let me know.
So what's the upside potential?
Any thoughts on upside valuation and the justification for that target?
Thanks.
Took down a fair bit of Friday's volume
The risk/reward here is amazingly favorable. I have no idea what TDS is worth and how that translates to CLHI shareholders, but at the current market cap, buying CLHI should be a multi-bagger.
Not sure why anyone is selling here, but we all have our reasons. The volume has been low and the float is small. I hope that TDS gives us some substantive information soon other than the cryptic tweets, but I understand there are steps that need to be taken to complete the process.
I own over 1mm shares. Will update my thoughts once we get some financial information.
Lot of hype for that PR
Hate to say it, but it smacks of a pump job to boost the stock and ultimately raise capital, probably by VCD. Company has no cash, so they'll need working capital to jump start the UV business.
I think the stock could be interesting, but it will pull back quite a bit. Waiting for clarity on how they're going to finance growth.
Was a good trade for me, but like all OTC, you have to keep your guard up.
Do we have any idea what TDS generates in revenue?
I know the client list is impressive and the industry is obviously viewed very favorably by the markets. I've been searching for information, but I couldn't find a database of private market companies in the UK like we have in the US.
The valuation is so paltry that at this point, the stock should do very well regardless of my question. Just trying to assess upside.
I'm surprised that the stock hasn't traded higher, but it's been beneficial for me to accumulate.
Have to agree on overhead resistance Wood
The share structure and the Garnock overhang (huge block of shares that can be freely traded) will make it very difficult for the stock to trade above $0.01. It would take several moves by management that I would be very surprised to see happen- not impossible, but improbable at this point.
If they do the right things to increase shareholder value, there's plenty of time and opportunity to accumulate after the catalysts emerge. There is going to be a lot of skepticism and overhead resistance to overcome.
You say you're neutral on the stock. Not exactly sure what that means, but what do you think needs to happen for the stock to re-rate appreciably higher?
Share reduction
Any recent updates on the share count reduction? I haven't seen any PRs about it nor any tweets, but I know some communicate with Robinson via email.
Any help is much appreciated.
What is the core business?
I'm not sure I know what it is at this point. Judging it based purely on revenue is misleading as most of the incremental capital being deployed is seemingly going into BLF (and I suppose Verus Cares now). The GCC business hasn't evolved beyond the french fry deal to the best of our knowledge. There was lots of hype around beverages, but that fizzled (no pun intended) very quickly. I think that's symptomatic of another problem with the company. Anshu hypes opportunities and then fails to deliver. It's happened repeatedly and the "market" is looking for some evidence of execution. Talking about revenue growth, which Mark is apt to do, is misleading as it's basically all coming from the original beef deal signed 3 1/2 years ago!
With respect to valuation, US investors typically apply discounts to holding company structures, particularly ones where the businesses have limited to no synergies. That is certainly the case here. My point was that the universe of investors that would find this appealing is reduced dramatically when the complexity increases. That's been proven repeatedly.
Lots of problems other than comps Wood
Valuing VRUS on a relative basis is a complex exercise that most institutional investors, if there are any that look at something this small, won't bother doing. Collection of businesses that don't have any meaningful synergies between them either due to geography or more importantly, product lines. In my view, the story devolved into a holding company strategy that is more akin to a PE/VC fund than the operating company that those of us that got in back in 2017 (or earlier) were attracted to (fortunately I've been out for a while). The problem with looking at it on a PE/VC basis is that it's being funded with costly VCD to this point. Anshu hasn't demonstrated an appreciation for cost of capital, just growth at all costs. That's resulted in massive shareholder value destruction (stock down 90% since his first earnings call in early 2017) with the share count up over 10x.
Part of the problem is that Anshu's incentive package is largely based on revenue growth, not share price appreciation. He's being rewarded for doing deals and adding revenue without regard for the cost of capital. It's one of the reasons that I ultimately sold as the corporate governance is terrible and his incentives need to be adjusted towards being shareholder friendly. It's also mind boggling that two Board directors own ZERO shares, but I guess they've been the smart ones so far.
That said, every stock has its price where it becomes attractive, but this is the OTC. Much better off waiting for the catalysts to emerge and be reactionary versus anticipatory in the vast majority of cases. I think a few things need to happen to get the stock price moving in the right direction:
1. Fix the capital structure. Put in a meaningful credit facility that can take care of working capital requirements. This could be tough given the current funding backdrop for smaller companies, but perhaps they got some funds from the EIDL (they applied for $2mm). They also need to fix the share structure (and stop dilution at such awful prices)- I've harped on that one for a while so I'll leave it at that.
2. Demonstrate growth beyond the original beef distribution deal. I'm not a fan of the BLF biz, but if you are, you need to see that start to pick up and they need to disclose metrics surrounding this (not just tweets and vague PR statements). Perhaps this Verus Cares opportunity will work for them too. I'm not a fan of that either as there are a lot of companies that have jumped into PPE production so competition could be intense, but we shall see.
3. Change Anshu's incentive package towards being more shareholder friendly. I'm all for him being rewarded for his efforts IF they create shareholder value. The current package wasn't shareholder friendly in my view (shares struck well below the share price at the time). I think the salary levels are out of whack too for a company this size. Not holding out any hope that the company will put in more favorable corporate governance and incentive packages, but dare to dream I suppose.
As I said, I have no shares and am not a disgruntled shareholder. I sold at very profitable prices (though less than I envisioned) despite having to average down due to Anshu's persistent dilution. I have been watching the stock and trying to figure out a price target, but it's hard to do that without stability in the share count and more information on revenue growth rates by product line. Trying to be constructive and I hope Garnock's stock sale acts as the wakeup call that it was supposedly intended to be. Good luck.
Fair question
I would ask Kent as well, but from what he told me, there were some end of life projects (particularly in QCA and to a lesser extent, APF) that had lower margins. I haven't confirmed this, but I think they wanted to get these projects done so that 2020 would have higher margin projects (in anticipation of the road show, which has been delayed). He should have addressed this better and I've communicated that to him.
They need to do a better job communicating how the pieces all fit together, the cost synergies of the recently acquired companies (ie. Excel and Deluxe) and fix APF, which is underperforming. On the positive side, the PPP really helps a lot and should boost other income in Q2 or Q3 when most or all of the debt is forgiven. I don't think the current market cap reflects that benefit adequately.
Just one territory
Granted, CA is probably the biggest market for this type of device, but not hard to envision $50-$100mm in run-rate revenue in the next couple of years.
$0.03-$0.05 stock price seems possible. Will be interesting to watch.
Buy the rumor, sell the news
There were a lot of other names that traded very well today and ALPP was a source of liquidity IMO. The 10K was fine, it had some question marks for sure, but the numbers were so stale that they don't matter as much at this point. The company's balance sheet gets a huge benefit from the $3.8mm in PPP money (almost all of it will be forgiven), but the benefit is hard for some to appreciate.
ALPP isn't great at IR and needs to improve. I'm really glad they abandoned the plan to uplist as there's work to be done to better prepare for the eventual move.
This stock will be just fine, but it is still subject to the vagaries of the OTC.
$3.8 million in PPP funding
Current market cap is only $9.5mm.
Key points from 10-K in my view
Obviously messy given the non-cash adjustments tied to VCD extinguishment and refinancing.
1. EBITDA positive for the full year after adjustments. If you read Kent's explanation, they did $1.65mm of EBITDA.
2. Perhaps the most important point is that they received almost $3.8mm in PPP (most of which will be forgiven and recognized as profit in Q2 or Q3).
In April and May 2020 the Company received five loans under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act totaling $3,761,866. The loans have terms of 24 months and accrue interest at 1% per annum. The Company expects some or all of these loans to be forgiven as provided by in the CARES Act.
So they got almost 40% of the market cap in cash from PPP. Keep in mind, they were still generating revenue during Covid, unlike many other companies.
With any news, the stock probably goes to $0.05-$0.10 at least
Dorwart hasn't said anything in almost a year and a half. I certainly hope he's working on some sort of reverse merger. The corporate structure is still relatively clean.
Good video
Worth watching even if you know the company well. He did miss some of the finer points, like the composition of debt (i.e. capital leases), but he did a good job highlighting most of the key points.
I did like the distinction he drew between ALPP and the vast majority of OTC stocks that are dilution scams. Should be rewarded with a much higher valuation.
I agree
The revenue line from 2019 will be missing Excel and only includes Deluxe for about 2 months. That's why I based my projection on Kent's guidance with what I think were reasonable caveats. I think it's quite possible that we're talking about $50-$60 million in revenue again, at least on a run-rate basis by Q4.
I think it's important for Kent to drive the gross margins to the high 20s and low 30s- that will enable a lot of value creation. He has levers to pull to make that happen independent of the macro backdrop.
He still hasn't disclosed the amount of PPP funding received. That will help Q2 a lot in terms of pretax income assuming the entire amount if forgivable, which I believe it will be.
Some thoughts
Like everyone else, hope we get the 10-K soon, but the numbers will be a stale at this point. That said, it will provide some insight as to the earnings potential of the company once the economy stabilizes and recoups some of the lost output in Q2. Q1 will be more interesting, but the 10q is dependent on the 10-k, but fortunately doesn't require an audit, so we should get that shortly afterwards (I hope).
Some back of the envelope math on the earnings potential of the company:
- Assume $39mm in revenue as Kent guided to. I think this will prove conservative as he came up with it before the lockdowns started to be unwound. I know the admin has talked about stimulating more manufacturing activity in the US (ie. bringing it back from China). I believe there will be bipartisan support to do this and it's a long-term trend. This should inure to the benefit of companies like ALPP.
- Gross margin. I'm assuming 30% gross margin, which is reasonable given price increases last year, cost synergies from Excel, Deluxe and MSM (Kent has said there were at least $1.4mm of low hanging cost savings).
- $7mm of SG*A. This includes some benefit from PPP and cost savings from removing duplicative overhead from Deluxe and Excel.
- $2.5mm of interest expense (could be high, works out to about 7% interest rate assuming $35mm of total debt, but almost half of that is related to capital lease obligations).
- Leaves you with $2.2mm of pretax income. Company has NOLs so it won't be a tax payer for a while, so that means $2.2mm of net income.
- $0.02 of EPS for 2020. Put a 20x multiple on this and you get a $0.40 stock. Momentum can obviously take the stock higher and I'm not factoring in additional acquisitions or synergies. This should be a target rich environment for Kent to do deals given balance sheet stresses for many mid-market companies.
These are base case projections, which I believe will prove conservative. For example, if Kent can book some additional fast-turns business, $50mm in revenue could be achievable. The incremental margins should be very high as there should be very little additional overhead to produce $10-$20mm of additional revenue IMO.
This is a fundamental view and there's a lot of information that we need from the company to properly assess valuation, but I think the current price is a fraction of intrinsic value provided Kent executes and drives profit improvement.
My thoughts on current events
1. Value of company ultimately isn't affected. Obviously there is some loss of confidence and certain traders exit. That will prove to be an opportunity if you have a view longer than a month, but some don't. Can't do much about that as it's a fact of life in the financial markets, particularly the OTC.
2. The 10-Q will be delayed too. Accept that fact as it can't be filed until after the 10-K. This shouldn't be a surprise or an incremental concern.
3. Auditing a company like ALPP involves examinations of all the various subsidiaries. That takes time in a normal year and is only exacerbated by current work and travel restrictions. That said, this delay does show the need to get Spectrum eBOS implemented and functioning to speed up audit times and get financials done on time. This needs to be completed before an uplist is conceivable.
I am modestly disappointed that the company didn't get the filing done even with the initial extension, but the impact on the share price will be short-term. Anyone with a time horizon longer than a few days should view the decline as an opportunity in my view as the fair value, using modest multiples, is at least $0.30-$0.40 IMO based on the guidance of $39mm in 2020 revenue. I believe that number will prove conservative based on additional organic new business wins and there is upside to the price target if Kent and the team can drive margin improvement (and ignoring the beneficial impact of whatever PPP funding the company received).
Some thoughts and questions
I did some research on this one yesterday. Obviously a messy situation with the debt issue, but there is also a lot of value in the hospital network (particularly in current times).
1. Debt. The relatively modest debt impairment by ADCB is encouraging, but the total amount of debt outstanding seems to be the key issue here. Keep in mind, ADCB just made an estimate of its potential loan losses and it could prove conservative (ie. the actual impairment or loss could be much less or even non-existent).
From what I've read, the actual debt could be in the $6-$7bn range versus the $2-$3bn range. Assuming EBITDA is in the $600-$700mm range, it's obviously highly levered. For the equity to still have meaningful value, there will need to be some sort of equity (straight common or convertible preferred) infusion or asset sale to delever the balance sheet. I wouldn't be surprised if the UAE government steps in provide some sort of funding, but I'm sure they'll require substantial oversight.
2. Accounting. If the accounting issues merely pertain to hidden debt, then I'd be even more encouraged at the possibility of the stock price recovering. If the accounting issues are more widespread, it becomes a much more challenging scenario.
3. Trading. Given that the stock was delisted on the LSE, is it trading anywhere else in the UK or just on the OTC here in the US?
Took a small position on Friday and will keep doing work on it.
My thoughts on the update
I do appreciate Kent attempting to provide guidance, but I think it would have been perfectly acceptable to hold off until after Q2- this is what almost every company I follow is doing. That said, given Q2 GDP is going to be down anywhere from 20-40%, the fact that ALPP's revenues are expected to be up 35% this year (admittedly including two acquisitions) is a strong testament to the demand for the company's various services. I anticipated that QCA and APF would have some difficulties, but I'd keep in mind that demand for those companies' products (particularly QCA) can snap back quite quickly in the second half as lockdowns are lifted and additional stimulus (almost certain) is provided. A few other thoughts:
1. The PPP will almost certainly turn into a grant, which is "free" money. Even if part of it becomes a loan, it's at 1% interest. I am trying to ascertain the dollar amount that has been provided to this point.
2. The updated guidance, from what I can tell, does not assume new business wins. As confidence in the economy improves, I would expect at least some of the projects that were deferred will be approved and move forward again. I would also expect additional Covid-19 isolation room projects as hospitals prepare for a possible second wave in the fall and winter (and avoid the need for lockdowns again).
3. Valuation. I have no idea how the stock will trade, but even at $40mm in revenue, the stock is still extremely undervalued. Assuming a 1-1.5x revenue multiple, not a rich multiple by any means, the stock should be trading at $0.36-$0.54. I view the current revenue guidance as conservative with a lot of room for upside, but time will tell.
In short, the guidance, IMO, was conservative and prudent at this point. Keep in mind that there's a lot of opportunity for revenues to surpass this level (and hit levels previously anticipated). Finally, the valuation is dirt cheap at this point given revenues that are still growing rapidly. Other than Covid-19 "pure-plays" or some "stay at home" stocks (that almost certainly trade at very rich multiples), I'd challenge anyone to find a company with 35%+ revenue growth (with room for meaningful upside) and breakeven to positive EBIT margins trading at 0.2x price-to-sales. It's still an absurd price.
Valuation frame of reference
In the early part of 2017, ALPP's stock price ranged from $4-$14. The share count at that time was roughly 21-22mm shares, which implied a market cap of $84-$300mm. The revenue run-rate at that time (Q1 2017 annualized) was ~$10mm.
The current run-rate, off of a quarter that included unprecedented economic uncertainty, is ~$33mm. Keep in mind that Q1 2020 didn't include the full impact of Covid-19 business nor the acquisition of Excel. Indeed, full year 2020 revenues should be at least $50-$60mm based on previously provided guidance (shareholder meeting in Q4 2019), the addition of Excel, the previously announced organic new business wins and some macro weakness that is affecting virtually all companies.
The current market cap? $9mm.
A $1-$2 price target is by no means a stretch given the current revenue base and let's not forget Spectrum lurks in the wings for release in 2021. That would imply a market cap of ~$110-220mm versus the prior levels reached when the company was generating a fraction of its current revenue.
What did LPC do to cause the "demise" of those companies?
I think you're confusing cause and effect. If a company failed, I highly doubt it was due to LPC's investment. It's almost always due to management incompetence. If LPC happened to be an investor, well it's due to them trafficking in micro and nano cap companies, which are inherently high-risk. 8 or 9 out of 10 startup companies fail and die and that's true for OTC as well (except they typically use toxic notes to keep themselves alive longer than they should). I think Kent has shown that he's building something far superior to the vast majority of junk trading on OTC.
In short, LPC has no board seats and no management control. Just a provider of capital and one that Kent probably won't tap for some time and only when he deems necessary.
This company have an aversion to PRs?
Not very good at playing the OTC game. CODX$ had a fraction of the revenue going into CV and yet its current market cap is significantly (to put it mildly) higher. Thoughts?
One other thing on LPC
Not sure if this was covered in the prior posts, which were informative and hit almost all of the key points, but LPC got a commitment fee of ~2.275mm shares for entering into the ELOC. So if anyone is wondering why the deal seems so skewed in ALPP's favor, LPC got compensated with shares. More than fair and justified.
Personally, I don't think Kent will tap into this equity unless 1) he needs it to finance an acquisition (unlikely in the next few months) 2) ALPP's stock is significantly higher and it helps delever the balance sheet and free up debt capacity for growth.
Kent has told us that he's applying for funding through the PPP and SBA programs. I think we'll hear about funds received from those sources in the next month or so. That's effectively free or very low cost money to support payroll and growth.
We're also going to hear about government initiatives to bring back supply chains to the US from China and infrastructure. Kent has already indicated to me that they're seeing requests for new business because of this. In short, the fundamental backdrop for ALPP is actually improving despite the overall difficult economic backdrop.
It's time for the share price to reflect that by re-rating a lot higher.
The uplist isn't time dependent
As you suggest. It's market cap dependent. There was an overhang because retail traders are easily manipulated and still mistakenly thought a R/S was feasible at the low price level. It never was, but management had to forcefully come out and eliminate the possibility. They did and the stock is being rewarded, as it should be. The fair value is well north of here.
The better question is what's changed since the last time the stock was in the $0.40s. Two subsidiaries have been added (and north of $20mm of revenue), over $7mm in announced new contracts, and a lot of Covid-19 business with more to come. Moreover, the company should get basically free or very low interest money from the government that can be used to accelerate growth. In short, the true value should be well above the 52 week high given the incremental value creation that's taken place.
Not sure they'll need to tap that, but nice to have in their back pocket
Why bother when they'll get effectively free money from the government through the PPP (and other Cares Act/SBA lending programs)?
Best part is that ALPP can tap those programs not to meet payroll like other non essential companies, but to instead satisfy growth opportunities like the Covid-19 isolation rooms.
Totally agree
$1 per share should be the target at a minimum. Focus on growth and generating a consistent operating profit.
Uplist can be considered around the same time as Spectrum is about to be commercially launched. Would help improve the interest in the company IMO.
Smart move by Kent
Listened to shareholders and did the right thing by suspending the uplist effort. Need to get the stock well above a $50mm market cap, where it belongs, first and then revisit later.
It will get to the NYSE eventually, but it's time to execute and differentiate.
Alex bailed instead
Not sure if that matters since he didn't do much, but he probably couldn't last any longer without a salary. At least he didn't resort to toxic debt to pay himself. Give him some props for that.
Perhaps they can sell the company and recoup something now?
Fantastic 8-k...my thoughts
Even with an unprecedented backdrop where business has ground to halt for much of America, ALPP's resilient businesses are doing extremely well. Great job by Kent and his team.
A few points:
1. Accessing the SBA programs for funds is great news. This is extremely low interest capital that in some cases will be forgiven (effectively free money) if employees stay on the payroll through June. Shouldn't be a problem for ALPP.
2. A4 Construction businesses (MSM, Deluxe, Excel) all deemed essential services and gaining new business in healthcare (we knew about this) and food (Excel). I fully expect a stimulus package to be announced in the next couple of months and this unit should continue to gain significant new business.
3. QCA was my main worry, but being deemed an essential service is a big positive. The business is seasonally weak in Q1, which was likely exacerbated some by Covid-19 disruptions, but I expect nice sequential upticks the rest of the year.
4. Valuation and financials. Delivered a solid Q1 under very difficult circumstances and Q2 should should see a nice uptick in A4 Construction at the very least from all of the hospital work. This stock should be at least trading at $0.40 in my view on a relative basis. There is room for significant increases above that as we get better clarity on the backlog (hospitals, food) and progress on margins. I'm giving ZERO credit for Spectrum too, which obviously has value and can contribute to further upside. In short, the stock is absurdly cheap, which is unwarranted.