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If they want to reduce the reverse split ratio
They need to pump the stock up to $0.10-$0.15 at least. That means they will likely provide more granular guidance or some positive business development PRs soon.
My guess is they want the stock in the range I mentioned to do a 1-30 reverse split. Then they'll hope the thin float will spark buying interest and they can do an equity raise in the high single digits to enable an uplisting to the NYSE.
I agree
I am constantly puzzled why the volume is so low for a company with over 240mm shares outstanding. The only explanation that I can come up with is that the holders are all waiting for the R/S in expectation that the price will rise a lot.
It would be nice if they gave net income guidance for the year, but I get that it's complicated given they haven't spun off the real estate business yet.
I still believe that they have more announcements coming regarding the food business and will try to get the stock higher before the R/S.
Doing the right things
I have a few thoughts.
1. It's good that the first shipment of beef went out on schedule and the Verus business is progressing well. I would like them to give some guidance on margins.
2. While I'm annoyed the R/S is taking so long, I think they made the right decision to reduce the ratio. My guess is that they do a 1:100 split so the stock price is over $1 to meet listing requirements and there's double the share count at that point. Clearly they would like the stock price to be much higher prior to the R/S, so we may get some more press releases on new business wins. Personally, I'm shocked that the stock isn't at $0.10 or above. At $0.10, they could do a 1:30 split and the share count would be ~8mm shares, which would be desirable.
RBIZ the new company
I don't have an attachment to the real estate business, but I understand your frustration. I got involved because of the food business and its growth prospects. The CEO seems knowledgeable about the market and the marketing hire seems top notch to me. Investing in a company with the potential to do $100mm in revenue at a market cap of only ~$6mm seems like a great proposition to me. I think post split, the stock should trade up to $30-$40. I'm assuming a 3-4% net margin on FY2018 to get to that valuation.
I am puzzled as to why it's taking so long for the reverse split to be approved. It might have something to do with what appears to be a reverse merger (and the real estate business is going to be spun off too). That said, I'm not sure why FINRA should care about that.
Convertible Note is only for $78.5k
It's a tiny amount for a company that is going to exit the year at $100mm in revenue. It also doesn't convert until late August at the earliest. The R/S will be done by then and the converted shares will be for a low share amount.
It's a really small amount of working capital until they can get a credit facility established. I don't view this as a big deal.
Valuation problem
Not sure what the share count is at this point, but let's assume it's 400mm for argument's sake. They just sold off $11mm in revenues for only $4mm, so that's an implied revenue multiple of 0.36x. Assuming they did $80mm in revenue including the recently sold business, that equates to an enterprise value of only $29mm.
Let's assume that the price received was a distressed valuation and the company should ultimately trade for 1x revenue. That would value the remaining portion of the business at $69mm. Subtract out about $40mm in debt and that leaves only $29mm of equity value. $29mm of equity value over 400mm shares gets you about $0.07 of value. Still a decent return from here, but again, that assumes a 1x revenue multiple.
I'd like to see it pull back below $0.02 to have a better margin of safety. This math is all predicated on the share count...the great mystery that needs clarification.
Stock should rerate a lot higher
There may be some initial selling pressure from longtime holders and guys that owned preferreds that converted to common. That said the float will be small and the pro forma market cap only ~$7mm. With FY 18 (Oct) revenue approaching $100mm, and more distribution deals coming, I think a $40-$50mm market is very much justified. That would be a high $30s stock price. The valuation could be higher, but we're all still in the dark when it comes to margins.
Looking forward to the reverse split...time to move forward here.
So when's a good time to buy?
On earnings day?
It's not a scam. Silly post
Company is going to do over $100mm in revenue and margins expanding after divesting Chinese manufacturing operations. Products sold at such places as Warren Buffett's Nebraska Furniture Mart. Distributes IKEA products in China too.
Yeah, it's a scam...such posts are comical.
Stock has persistently traded below cash value
I know revenue growth has been poor, but the company is profitable, cash flow positive and has over $13 in net cash per share.
I have emailed the CFO some thoughts on how to increase shareholder value (ie. the stock price). If you have some, I'd suggest emailing her as well. I believe they should launch a tender offer for the stock at the cash value (ie. slightly over $13/share).
The halt was nonsensical
The SEC is a bunch of clowns..should be going after Economou and all of the trouble he's caused his shareholders, not a company trading well below cash value per share.
Should take off after the R/S
Not sure when that's going to happen, but my understanding is it could happen any day given the approval from shareholders already took place.
Latest share count estimate?
still 240mm shares? any reputable sources to support?
Where did you get 292mm shares OS?
All sorts of numbers floating around, but the company, to the best of my knowledge, hasn't given a figure since it's last 10Q.
I think 1x enterprise value/revenue is possible (equates to about a $30mm market cap). That's ~$0.15/share of equity value. I don't think the downside is that great from here given EBITDA should be $5-$10mm in 2017 (hopefully more), but the upside is impossible to gauge without an accurate share count.
My guess is we won't hear anything substantive from the Company, other than these contract announcements, until they're ready to file the 10-K. I personally don't think they will file the 10-K until late March. Figuring out the accounting implications of all of these debt conversions is time consuming. They also have to figure out tax implications, which will require a lot of input from their accountants.
A reverse split at this level would be 200-1 minimum in my view to make sense. That could precipitate a squeeze, but there's a lot of variables up in the air.
KBSF- A well received RS
This stock might sell off, but it's got a great balance sheet despite deteriorating revenues. I care less about this stock and more about the implications for RBIZ. I think the RS will be very well received, particularly if the CEO provides additional information on contracts or more detailed EBITDA guidance.
I personally think a food company with strong growth should trade at least aat 0.5x sales during its growth phase. The multiple could be higher depending on whether the operating margins end up being closer to a food company or distributor. Either way, the valuation should rerate a lot higher from here.
5% shareholders and insiders
I went through the last proxy filed in November 2016. 5% shareholders and management own about 1/3rd of the total shares outstanding (assuming conversion of the preferred). That's still a lot of stock out there for float, but the bid/ask spread and volumes do seem to indicate that the float could be a lot smaller.
This could get very interesting after the reverse split and name change. I would expect the CEO to have a lot of news announcements lined up too. He seems savvy when it comes to needing a higher stock price to help finance growth. He also owns a lot of stock per his employment agreement, so his incentives are aligned.
RBIZ low float
It's amazing to me that a company with over 200mm shares outstanding could have a low float, but the trading volumes are so low that you may be right. If true, then after the reverse split, there will truly be a minuscule float, which could set up some fireworks if they can announce new contracts.
Reverse split
There are many examples where it's helped stocks. I see the imperative to get it done as they need a higher share price to list on Nasdaq and get some institutional interest. I just hope that they let the stock percolate up some before issuing shares. It sounded like the CEO and CFO had a good plan in place to raise equity on a measure basis.
For a company with over 200mm shares outstanding, the stock doesn't trade that much at all. I'd be curious to see a list of shareholders.
Hopefully this will be like the initial DRYS run back in November or ETRM's in January after their reverse splits. I think the fundamentals here are much better than those two.
profitability
The CEO suggested they'd breakeven at $5mm in revenue. He anticipates getting to a $100mm revenue run rate by Q4. I have a hard time believing that the net margin will only be 1.5%. Moreover, they will have a mix of distribution and product revenue, so the margins will likely be much higher than you suggested.
0.5x sales would equate to a $50mm market cap and revenues in FY 2018 could be higher than $100mm judging by some of the initial contracts. That would mean at least a $0.20/share pre reverse split price.
Where did you see 197mm OS?
I haven't seen a number that high before. Was there a filing?
IDXG isn't alone with offerings
Check out PULM (second offering in a week) and MYOS...looks like the investment banks have convinced these types of issuers to raise as much capital as possible now for whatever reason.
I think PULM did a better job (no warrants, higher prices), but fact remains, there is some sort of rush to raise capital now for some reason.
It's easy to get emotional
and lose objectivity when management does things like this. Trust me, I get that. But I've found, more often than not, that selling into that impulse is the wrong thing to do. That's particularly true when the fundamentals seem so good and the balance sheet is improving.
Unfortunately, the upside gets curtailed with each successive offering unless they can significantly expand their markets either geographically or through product line expansion.
As the Oracle of Omaha said, the stock market is a mechanism for transferring money from the impatient to the patient (or something to that effect). Of course, WB wouldn't invest in a company like this, but such is my predicament.
Perhaps I am
But I see a company with 30-50% y/y revenue growth, expanding gross margins, narrowing operating losses and approaching cash flow breakeven. Perhaps I am missing something, but like I said, I could rationalize the prior three offerings. This most recent one perplexes me and the only explanation I have is that there is an M&A opportunity that they need to act on in short order.
I could rationalize the first three
The most recent one makes no sense to me. The question I have is whether Roth was hired to act as an adviser in anticipation of an acquisition.
You were right to be concerned
Have to admit when I'm wrong. I don't understand why they're raising more capital at such a terrible price, but they have. I can only hope that they're anticipating a big uptick in business and felt the need to have more working capital. That said, they should grow the business first and exhaust other non-dilutive sources of capital. The goal should be to maximize valuation not dollars raised. This company seems to have it in reverse at this point.
I emailed my strong concerns this morning to a Board Member. Kind of moot at this point, but I just couldn't let my frustration continue. Fortunately, I sold half my position in the past few days to buy some other stocks. I will look to buy this back (I suppose fortunately at a lower price) as I still believe in the growth outlook. That said, management has zero credibility at this point and must generate revenue growth as reactions to PRs, save for a possible deal with another large insurer or expansion into Europe, won't be met with much enthusiasm.
I'm not sure this is a good thing, but they did add Roth as a financial advisor. Perhaps that means that Roth will launch coverage or maybe there are M&A opportunities that they are considering. Time will tell.
Share count
Is it really 178mm? The fully diluted share count from the last 10-Q was 101.7mm, so I'm wondering where the incremental shares came from?
Pro forma debt and shares o/s
Anyone know what the pro forma debt and shares outstanding are assuming the converts are all converted to equity? I've heard that there's 180mm shares outstanding now, but if that's right, what's the new debt balance?
Modest rebuttal
I won't rehash my views on the capital raises. I thought they were poorly executed, but I understand the necessity. In that regard,I disagree with your recent posts. I also disagree with your share math, which I believe is off. That said, the CEO needs to stick to his statements regarding the company having sufficient capital for the foreseeable future. If he does, and the business improves as I expect, this will be a multi bagger (up 5-10x). Let's not forget, prior to all the positive announcements including Aetna, the company was growing revenues 30-50% y/y. It does take cash to maintain that growth and now they should have that. If they sign a distribution deal in Europe, I would expect them to have to raise more capital. That said, it should be at a materially higher valuation.
With institutions on board now, I believe the company will be more careful on how it raises capital. Moreover, the company needs to generate a return for those shareholders to ensure future access to the capital markets.
I think the downside from here is very small. The upside is $10-$15 under reasonable assumptions and more with further insurance coverage in the US, more tests and geographic expansion.
The share count, including warrants, is still less than 5mm. If you include the cash from warrant exercise, the company will have almost $2.50 per share in cash. Cash burn should be fairly low too at this point given the current revenue run rate.
I sympathize with your frustration, but I think the risk reward is skewed strongly in favor of longs.
Modest rebuttal
I won't rehash my views on the capital raises. I thought they were poorly executed, but I understand the necessity. In that regard,I disagree with your recent posts. I also disagree with your share math, which I believe is off. That said, the CEO needs to stick to his statements regarding the company having sufficient capital for the foreseeable future. If he does, and the business improves as I expect, this will be a multi bagger (up 5-10x). Let's not forget, prior to all the positive announcements including Aetna, the company was growing revenues 30-50% y/y. It does take cash to maintain that growth and now they should have that. If they sign a distribution deal in Europe, I would expect them to have to raise more capital. That said, it should be at a materially higher valuation.
With institutions on board now, I believe the company will be more careful on how it raises capital. Moreover, the company needs to generate a return for those shareholders to ensure future access to the capital markets.
I think the downside from here is very small. The upside is $10-$15 under reasonable assumptions and more with further insurance coverage in the US, more tests and geographic expansion.
The share count, including warrants, is still less than 5mm. If you include the cash from warrant exercise, the company will have almost $2.50 per share in cash. Cash burn should be fairly low too at this point given the current revenue run rate.
I sympathize with your frustration, but I think the risk reward is skewed strongly in favor of longs.
Replay of RedChip presentation
There is a replay up on the RedChip website.
http://www.redchip.com/company/health-care/IDXG/352/idxg#videos
I agree
Lots of room to appreciate. Might take a few weeks to give investors comfort that there will be no more offerings near term, but it's got potential to rise $5-$10 very quickly.
Thanks Getitgogone
That certainly was the key part of the discussion for those of us that know the business well.
Link to Audio
If anyone has a link to a recording of the call yesterday, please post.
Link to audio from yesterday's call
Warrants
The warrants have an exercise price of $4.69 so the company would net approximately $3.7mm in cash from the exercise (includes an 8% fee to Maxim). So that's more cash on the balance sheet.
The warrants also have limitations on their exercise.
Just the final prospectus
They filed the final prospectus last night. That's all it was. The key page to look at, if you care, is page 22. That's where you find the pro forma numbers for both offerings done this month. The key numbers on that table, in my opinion, are the cash balance, now almost $11 million, and the equity account, which is almost $7.8mm. Keep in mind that the cash balance does not take into account the payments to RedPath and settlement of the severance liability. That results in a downward adjustment in cash of approximately $2.4mm and offsetting upward adjustments to equity.
Bottom line, the equity account, excluding whatever happened in Q4 as we don't have the results yet, should be well over $9mm and the cash balance approximately $8.6mm.
Looking forward, it would be nice for them to say that offerings are done for the foreseeable future as they have enough cash to run the business and settle the RedPath note obligation on April 1st.
Mgmt get out of the way!
I think, or perhaps hope, that the company is done with offerings as per one of my prior posts. I do think it's interesting to consider the cumulative effect of all the announcements since Aetna. The company was already growing revenues 30-50% y/y prior to Aetna.
Keep in mind that they can't claim to have cured the minimum equity requirement until they file financials for the first quarter. The first offering in January, which would have cured the equity deficiency, didn't close until after December quarter end. This is why they can only say that they will file a plan with the exchange showing them that they have cured the deficiency through that offering. The exchange will see that the pro forma equity account is well above the minimum threshold and I assume that the company will provide an estimate of first quarter profit/loss that won't alter the claim that the deficiency has been cured.
I called RedChip late on Friday, but hope to speak to them today. These outsourced IR firms are generally useless for the reason you stated. I think a simple PR that states the current cash balance and some idea on the cash requirements for the business would be very helpful. I will also convey that's poor form to do an offering immediately after releasing positive news.
With all that said, I do see a lot of upside in the stock and very little downside. I think the existing tests and the US market can support a $20-$30 stock price with current insurers. If they add more insurers and expand internationally, it could multiples higher (over time obviously).
I agree with you. I will try to convey this through investor relations. I have also tried to reach out to the CEO.
Summary of the recent offerings
I am not a fan of the way the company has raised capital in the last two offerings, but I understand the necessity. The first offering (ie. the one in early January) was intended to cure the Nasdaq minimum equity requirement in my opinion. In fact, pro forma for that offering, the equity balance was over $4mm (needs to be over $2.5mm) and the cash balance was over $7mm (that's prior to the Redpath payment of $1.3mm at the end of December). In my opinion, and I'm attempting to verify this but the company sent me over to Redchip Investor relations to get my questions answered (still waiting to hear back), they wanted to cure both the stock price and shareholders' equity issues close to simultaneously. That said, I thought it was amateurish to halt the stock minutes before the end of trading when they could have allowed the stock to rise some after the BCBS news and probably sold stock in the double digits. I'm sure Maxim Group gave them bad advice that they had to give institutions a huge concession to buy the stock. I would have told them (I have over 20 years experience in the capital markets as an investment banker and securities analyst) to use an ATM with a set number of shares to be issued. Use the volatility to your advantage. In my opinion, the institutions that buy in these offerings are merely one step above day traders, but I hope I'm wrong in this case.
The second offering was clearly to address the severance liability. While I don't like them doing an offering on the same day that positive news is released (can they give the stock a chance to reflect the information!), the rationale behind the offering is actually quite sound. They took care of an overhanging liability for only 35% of carrying value. If you're familiar with basic accounting, this means that they can book a gain on on the extinguishment of the liability. Now the book equity should be over $8mm even assuming some losses in Q4.
What they should have done, assuming they knew that the Israeli deal was close to signing, was let the stock price reflect the BCBS and Best Med deals. In my opinion, the stock would have settled in the mid teens (went to almost $20, split adjusted, after the Aetna deal) and then raised equity in the low double digits. Moreover, shops like Maxim always seem to make companies offer warrants in these deals. Presumably it's to increase institutional ownership further, but they should have just done an ATM offering in my opinion. Take advantage of the volatility of the stock price to capture the capital required at less dilution.
That all being said, we're still talking about a company with less than 4mm shares outstanding and now likely over $8mm in cash. Moreover, they shouldn't have to raise more equity for quite a while (can even cover the next RedPath payment in early April).
I think and intend to communicate via RedChip that they should put out a press release stating the current cash position (that doesn't require closing the books) and perhaps an outlook given recent developments. At the very least, tell the market that they have sufficient cash to cover obligations for the next few months (which they do).
If you really care, I would send IR an email and call RedChip Investor relations. Jack Stover is also on LinkedIn...