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Yes, Platinum controls Implant's future. I do believe Platinum is close to selling the company for the reasons I mentioned previously. As to the amount, I didn't run an exacting spread sheet to come up with a number, like $100 million or 25 cents or whatever. I shouldn't have even suggested a number, because my point wasn't to be that specific. My point is, the numbers board members expect/hope for are so out of line as to be illogical, even absurd. The stock is in the mid-50 cent range at the moment, meaning the market values the company at $100 million, or 2x assumed FY16 revenue of $50 million. I find that rich, but not absurd. What I find absurd is Perry's estimate of $550 million, which is 11x revenue. Even 4x, which values the company at $200 million, is far beyond what I believe is reasonable to expect, given Smiths paid 2x revenue for Morpho. But we shall see. For myself, I somehow found myself in a food fight debating numbers with board participants when all I wanted to do is give a heads up as I saw it. The debate is over. I may make one more contribution to the board detailing the legal problems that have engulfed Platinum Partners, but that's it. I think we're all comfortable with our respective positions. We'll know very soon who was right.
No, no no. I assume you are interpreting McGann's comments in the quarterly conference call, but you are interpreting incorrectly. He said "we're talking to five or six" people. He did not say Implant or he were negotiating with five or six companies. Talking is very different from negotiating. I think he made that comment on the first Q conference call (correct me if I'm wrong), but he never mentioned numbers after it. In fact he made a point to avoid talking about details of the "strategic initiative" in subsequent conference calls.
Another mistake people on the board make relates to the "victory lap." Most of the board interpreted that as meaning we were in the clear with a big pay day ahead. I have the conference call transcript in front of me, and "victory lap" was related to him thanking his team for getting production up to a high level due to their work. Here's the quote: "But I really do want to be brief today and open up for questions, but again sort of as a last (indiscernable) of victory lap, I want to personally thank my team..." It's the usual CEO "I couldn't have done it without my employees..." Nothing significant needs to be read into it. CEO Talk.
No one -- least of all me, said IMSC is going to close its doors. It's going to be sold. Better it was two years from now, when it had a track record and was actually making money and perhaps even paying off some of its debt. That probably was the plan, because under those circumstances, it would be attractive. But Platinum's hand is forced, immediately, suddenly, because a judge in a trial told them to raise cash. I'm sure Platinum fought like hell to get the most value for its Implant Sciences asset. But put yourself in the shoes of a buyer. The guy on the other side of the table HAS to sell. Now. So who's 's going to blink? Who's going to go to his CEO and tell him that he just got the company the bargain of the century? I understand no one on this board wants to hear it, but that's reality. Platinum didn't decide in the spring to sell a wounded but potentially valuable company a few years down the road. They HAVE to sell, and today, as opposed to the future, there is not much value there.
Ted, I understood why an acquiring company would want Implant to flesh out their screening line -- I'm not ignoring the question. It has to do with the premium you believe an acquiring company would pay. You see it, I don't. Let's assume that L-3 is the party interested in buying Implant primarily because of its ETD capabilities. L-3 is a $10.5 billion company (2015 revenue) with 38,000 employees, 3 business segments and perhaps a hundred divisions. Most of its work is related to defense. EDS/ETD screening is and will remain a small -- very small -- part of its business. In fact, a small part of a small division (I looked up where I thought IMSC would fit). The M&A people will not go to the CEO and tell him they recommend a substantial premium for a very small company (never mind it's unprofitable and loaded with debt)that fits into a tiny portion of a small division in one of three large business segments. That's not how it works. The CEO would throw them out of the room. So with all due respect, I think expecting a nice premium is misguided. As someone else said on the board recently, Platinum, which effectively owns Implant, has lost its leverage with its announced need to unravel its Value Arbitrage Fund. Platinum needs cash, and it needs it now. M&A guys are not known as the most charitable people in the world. Rather than a premium, I see a fire sale, with a potential acquirer holding all of the cards.
Zeynoc, I understand what you are saying. I believe Implant has value, in particular its technology and its relationship with the TSA. Our debate if we want to call it that is how one looks at the pros I just mentioned and compares them to the cons -- enormous debt, compressed margins, a history of losing money. L-3 and others looking to grow through acquisitions have sophisticated, highly experienced M&A experts doing deep due diligence supported by bankers and other specialists. They aren't charities, they are cold bloodied businesspeople who will only buy at what they consider the right price. I believe someone on the board said that L-3's CEO in a recent conference call said the company was looking to make a few acquisitions in the $100-200 million range. One of the items any M&A function looks at is pricing of recent transactions in the industries in which they might make an acquisition. They'll look at Smiths acquisition of Morpho, OSI Systems acquisition of Ameican Science and Engineering and Harris Corp's sale of its aerostructures business to Albany International (I mention Harris because someone on the broad mentioned it recently) Smiths paid 2x revenue for Morpho. OSI Systems paid 2.5x revenue for AS&E. Harris sold its aerostructures business to Albany International for 2.7x revenue. The companies purchased were basically debt free and offered the acquirer a range of complementary products. Each had pros, each had cons, just like Implant. We can't spotlight, say, Morpho's cons and ignore Implant's. They're part of the formula M&A people look at. Now as I understand it, you and other board members believe that L-3 or whoever buys IMSC will pay from 5x revenue to 11x revenue (Percy's number). Meaning anywhere from $250 to $550 million. My question is, why? That's more than double at the bottom end what Smiths paid for Morpho. Yes, Morpho has warts. Implant too. Our fundamental disagreement lies here, my difficulty in seeing why any company would pay SUCH a premium for a debt burdened, money losing enterprise, despite its pluses, including the fact it's right now the best known independent ETD company standing. It makes no sense in my view. I don't want to get into it here, but a new negative factor has just surfaced over the last week which works against such a high value, Platinum Partners brush with the law. It merits a separate message. Bottom line, we disagree on value. We disagree on the process typical M&A experts use to value a possible acquisition. We don't disagree on the fact that Implant is for sale. I expect a sale will occur this week, since Platinum's agreement runs out on Thursday as I understand it. I I think it will be sold for under 25 cents a share, and those bidding the price up will be badly hurt. We shall see, and good luck to all Implant shareholders.
It certainly wouldn't hurt.
I don't have any idea why Morpho didn't win. I don't have any idea why Smiths didn't win. I don't have any idea why Implant won. If I had to guess, I'd say it was the same reason Implant won the TSA business -- it gave the units away. I suspect, but don't know, that the Canadian TSA insisted on pricing comparable to U. S. TSA pricing, meaning there is little to no margin in the deal. Still, better to have little or no margin than suffer the embarrassment of losing a highly visible neighbor's contract to a non-neighbor. I think it's great we won the contract, but let's not get carried away. The units will be delivered over a two year period, so the income will hardly move the IMSC needle. Still, congrats to the team.
So a couple of years removed from losing the TSA bidding, you'd shout from the rooftop about having fixed the problem, thereby alerting everyone who forgot about it or didn't know that, hmmm, maybe they ought to focus on that, not all the positives. Yes, we'd handle it differently.
Look, we're spending too much time on a nit. There are huge issues Implant faces relating to its existence. Thinking too much about Morpho is a distraction from the disaster stockholders will face in the very near future (financing runs out in three days!).
Let's do another victory lap. We had a sale, we had a sale!
Yes, and if I had wings, I could fly!
IF, so many IFs on this board. Of course if Implant could eliminate its debt it, too, would fly. But debt IS the issue, and wishing it away doesn't work. More magical thinking.
Ted, I have no idea to what extent, if any, Morpho improved its technology after losing the TSA tender because of "false positives." I do know that the TSA competition between Implant, Smiths and Morpho began in June of 2014, and that Morpho introduced its new 4DX months later, and started winning tenders under ECAC guidelines in Europe. I also don't know if, as you suggest, Morpho won those contracts because they were "in the bag all along", but if so, it must have been a big bag, including as it does Germany, Spain, Italy, Switzerland, Denmark, Austria Portugal and the UK. What I DO know is, if I were running Morpho Detection and I couldn't even compete for the large, prestigious TSA contract, I'd have R&D working on fixing the issue 24x7. And when I did fix matters, I wouldn't spotlight an old problem.
Morpho's technology may still be inferior to Implant's. I don't know. What I do know is, Morpho's new 4DX sniffer has won lots of business in Europe, business that I assume Implant competed for. As I've said in the past, technology isn't the only factor when companies select a supplier. Other critical factors include distribution, manufacturing capacity, quality, turnaround time, service capabilities, pricing and others. I think we delude ourselves by constantly saying to each other, "we've got the best technology, we've got the best technology, we've got the best technology..." It a form of magical thinking. We've been told by McGann and other within the company that we're the best, but we sure as hell haven't won all, perhaps even most, ECAC contracts. In fact, we haven't won much of anything lately.
Basher, It appears that the Morpho contracts you asked about are contracts won as part of ECAC requirements. Morpho launched its non-radioactive passenger screener, the 4DX, in November of 2014 and earned ECAC approval in mid-December, 2014, some months later than Implant’s B-220. Once certified, it proceeded to win a series of ECAC-related tenders: for example a sale to Spain of 290 of its 4DX detectors on Dec. 17 of last year, and 160 4DX systems to German airports in October of last year. In a press release dated Dec. 1, 2015, Morpho claimed that more than 50 airports in Europe have installed the 4DX, stating that the system was “the most selected ETD system by airports to meet EU legislation for enhanced passenger screening effective September 2015.” I can’t vouch for the veracity of that statement; in any event it’s marketing BS. I understand that Darryl Jones said that Implant has won 70 percent of the European tenders, but he said that a long time ago, and haven’t heard it since. Maybe that was marketing hype too.
Board participants, or some of them, have made too much of Morpho’s inability to compete effectively for the TSA contract. It’s as if that loss proved Morpho simply couldn’t compete with Implant ever, anywhere. Clearly the Morpho wins in Europe suggest they have improved their technology. Some on the board also make a point that Morpho was the low cost bidder for the TSA contract and still IMSC won. Morpho was, indeed, the low cost bidder, but that was irrelevant, as the government's report made clear. Only Implant and Smiths were judged by the TSA to have the technology capability at the time that met strict agency standards, and therefore were the only two companies eligible to compete for the contract. Of the two equally ranked and therefore potential winners, Implant’s pricing won the day. Morpho protested, delayed the awarding of the contract, and apparently used the time to fix its technology.
Hope that answers your question.
At 2x revenue, same as Morpho.
Ted, I don't believe McGann is a liar. Or Bolduc. They are true believers, in the company, in the technology, in the people they work with every day. I liken their attitude and public voice to a quarterback. A quarterback doesn't go into a huddle and say: "Man, I hope this play works. That defense there is vicious and outweighs us by 100 lbs a man, my arm is so darn sore and let's face it, there no way in hell we're going to win..."
NO, a QB's mission, among others, is to inspire, to will the team to victory, to do whatever it takes to prevail, and to incorporate those qualities into his psychy and his teammates.
So I understand the 10 years of optimistic pronouncements. I just don't believe them anymore, for the reasons I enumerated in other posts.
45 days ago I was still in the delusional camp. Then I focused on what companies in the same industry space went for within the past 60 days, companies much healthier than IMSC. And asked myself, if they went for 2x revenue and were healthy, what will Implant go for when sick?
Also, there is a critical issue that has just raised its head and has had what appears to be having a profound effect on Implant and its future. That would be the announcement that one of the owners of Platinum Partners being indited for bribery of a union head for investing in PP, and the follow on PP announcement that in response it was unwinding its Value Arbitrage Fund, the fund where much if not most of Implant assets owned by PP dwells. Nordlicht (I probably butchered the spelling), who's he main owner of PP and has NOT been indicted or implicated in the scheme, has said that there would be no "fire sale" of the Arbitrage Fund's assets, but that's what one would expect him to say. If Implant is truly for sale, and I think it is, there will be no mercy shown if PP must sell, and it seems that it must.
This is a stunning development, and I'll do some more due diligence and prepare a message for tomorrow or Tuesday if I can carve out some time. Then I go dark, having been the Paul Revere of the IMSC iHib board. Remember: NEVER FALL IN LOVE WITH A STOCK.
Pricing inconsequential? Really? How so? I understand technology is critical, but I'll repeat (no doubt ad nauseum), Smiths technology and Implant's technology for all PRACTICAL purpose are equal. Implant's "excellent" technology beat out Smiths "excellent" technology when Implant cut its price by well more than half.
Winters1983/ki2002rom and other board contributors:
I understand I dropped a bomshell when I, a long time IMSC investor, turned highly negative on the stock. I explained why, and naturally received push back, all of it respectful, which I appreciate. I can't respond to each person who disagreed with me. I don't have the time. More importantly, each one of us has to look at the facts and make a decision to buy or hold. Whatever board members do has no impact on me. I wish all good luck, and sincerely hope I am wrong.
Since I dropped the bombshell and received responses, I think it fair to responders to clarify some of my statements. I will do so in a number of messages, hopefully today. After that, I won't respond anymore, as we'll go around in circles.
I am responding first to Winters and ki2000, as it is the latest message on the IMSC board. The suggestion in the message is that Morpho Detection is an inconsequential competitor because it was knocked out of the TSA ETD competition because its systems had too many false positives. I know that, because I read the GAO document concerning the dismissal of their protest, as well as Government Security News coverage.
But, win some, lose some. Morpho has won more ETD contracts with European airports than IMSC, 50 airports to be exact. It earned the same ECAC approval as IMSC, though somewhat later, but then proceeded to clean up. It won the UK, Austria, Denmark, Italy, Portugal, Switzerland. It sold 290 Itemizer 4DX units to Spain alone, and 160 to Germany. The Itemizer is a non-rad solution, just like the B-220. Just like Smiths' ETD product. Implant Sciences may have the very best technology, but as they say in the automobile industry, good enough is good enough. There are many other factor that go into winning contracts, including price, delivery, personal relationships, financing terms, etc., etc. Morpho may have lost TSA, but it's a 1.9 billion Euro company with 8700 employees and a well funded R&D function. They are formidable, despite the TSA misstep.
And by the way, I never could understand why a majority of Board contributors did not know what IMSC's bid for the TSA business was. It was $23,332,925. It's right there in black and white on the GAO document. next to the technical rating of the bidders: Smiths: Outstanding;
ISC: Outstanding. Morpho Good.
Regarding point 1, Smiths ETD products also are TSA certified. Its technology is equal to Implant's in the eyes of the TSA. Smiths has won European airport contracts, as has Morpho.
IMSC was selected by the TSA over Smiths because it's B-220 was priced less than Smiths equally certified system. Implant HAD to have that contract, and sold 1170 units for around $25 million. The TSA liked the price; the technology was all the same to them.
Smiths is now a much more formidable competitor. Morpho helps fill out its security product line. Morpho's ETD capabilities may not be as good as IMSC's (it isn't), but Smiths R&D foks will no doubt fix that. Worse, Smiths will offer a complete, integrated line of EDS/ETD systems that will enable buyers to select whole, not in parts. And buyers like to make things easy on themselves.
Regarding point 2, it's typical future, future, future stuff. Look, the competition is not going to stand around and do nothing. Talk has always been cheap with Implant Sciences, going back to when Glenn Bolduc was romancing the investor class. The company was losing money then. The company is losing money now. The company was making promises then. The company is making promises now. Don't you get it? (Took me way too long.)
See my reply to KIJFISH. I don't think management will walk away from its options. They will have no choice. The buyer sets the price.
Projections, guesses. Typical. Hope you are right.
I assume Implant does have recurring revenue -- service and supplies. Don't know how much, but it's got to be something, and growing as sales grow. On the downside, given that most of the company's sales are to government, and governments demand rock bottom prices, wonder if margins are as bad as margins on the machines.
Kijfish, I'll respond briefly to your message, as you list most of the factors that are on our minds as IMSC shareholders. You ask: "Which announcement are you referring to" then list them:
Buyout. There is no buyout. We anticipate a buyout, but there are no guarantees.
Refinancing: There is no refinancing. Potential financiers who could have replaced Platinum over the years obviously passed. Yes, sales have improved dramatically over the past year, but still, no one stepped up and bought out Platinum's position. What do sophisticated investors with large due diligence staffs see that we don't?
CATSA: This is nice, but small potatoes. It's $2 million. TSA and other government agencies hand them out frequently. In this case the grant apparently is for the long talked of new handheld. Long talked of, but non-existent.
Licensing agreement: Sorry, I missed that one. Who has licensed Implant's technology (L-3's Australia B-220 demo doesn't count as licensing.)?
New Product Launch: I missed that one too. If you mean software upgrades to the B-220, that's a plus, but standard practice and doesn't qualify as a new product.
Another multi-million dollar order or two: Missed those too. Implant had some good orders in Europe nine months ago, and a great one in France (500+ units). But lately? Don't hear much. I also suspect, looking at the last few quarterly financial reports, that they were barely profitable, if that.
A bomb threat stopped by B-220: Missed that, but wonderful if it happened, and was effectively publicized (which I doubt).
TSA Delivery: Here's where I think of the old joke "We lose money on every unit we sell, but we're making it up on volume." It's amazing to me that so many on the board ignore the fact that IMSC is an organization that does not and never has made a penney, fabulous intellectual property or not. It's as though we ignore the basic law of business -- profit or die.
Profitable quarter: Missed another one. The company lost almost a million dollars in Q3. The report was for "adjusted EBITDA", which is a very questionable number when interest is probably the company's biggest expense. Huh?!
New government grant for R&D: Isn't that Catsa? If not, I'm unaware of it.
Another Patent: There was a patent announced a year or so ago as I recall, It may be a good patent, but it's a patent, not a product -- every company has patents, tons of them. Some become products, some remain patents, some are licenced. It's nice IMSC has something like 17 patents, but really, what's the significance? I'm not downplaying them, just wondering what they mean in the real world.
Biggest drug bust in history thanks to IMSC tech: I missed another story, and I read the Times, the Journal and Security publications. Please enlighten me and tell me where the story appeared and who read it.
Kijfish, I am not trying to break your balls. I just find that instead of rigorous analysis of Implant's situation -- unprofitable literally forever, huge debt growing each quarter, margins thin and shrinking, no interest from alternative investors, larger, better capitalized competitors, basically a niche player in an important but niche market, etc. --we get sound bites (intellectual property; don't give this company away; your list of "announcements.") I mean, some people on the board live in a fantasy world: Percy's $550 million valuation, for example, is insane (and where is Percy these days?) As I said in my original post, if companies much healthier than IMSC -- American Science & Engineering, Morpho Detection -- with significantly higher sales and revenue, more patents, better infrastructure, higher margins, minimum debt etc. -- -- command 2x or a little more in an acquisition, why would any company, with tough M&A experts doing due diligence -- pay 2x revenue for crippled Implant? They won't. And please, don't start the incantations -- intellectual property, intellectual property, IP. All companies, including the ones just mentioned, have valued intellectual property. It's important, but a factor, along with many others when considering an acquisition. I believe Implant will, as I said, be fortunate to be sold for 1x revenue, for all the reasons I enumerated. You can continue hoping it will be 4x or 6x or Percy's 11x, but as I learned, Hope is not a Plan.
KI.....I've seen your posts over the recent past, with all that buying and felt the need to try and temper expectations, cause despite half a decade of living and breathing IMSC, I'm just worried that some folks might be over their heads if things don't happen the way some are imagining. Anyone on this board knows I've been pro IMSC for that entire five years, though, with reservations about how they ran/marketed the company. Now I'm worried that we are about to wake up one day soon and that five years will be a total waste. (And this from someone who bought a lot of shares in the high 20s and 30s) Here's my, I realize, grim view now.
Most pro IMSC folks here believe that Implant stock will be purchased anywhere from $1.40 to $5.50 per share based on the attraction of IMSC’s superior technology to McGann’s alleged “victory lap” and statement that Implant was talking to five or six companies as it goes through its “strategic alternatives.” IMSC’s technology IS superior, but that’s just for openers. The rest of the board’s pricing rationale seems lately to be based on hope, not logic, nor on the real world conditions that affect pricing.
Smiths bought Morpho for 2x revenue. Morpho had annual revenue of approximately $350 million, low or no debt, had positive cash flow, and had products – more than one – that complemented Smiths. American Science and Engineering, right down the road from Implant, was sold just last month to OSI Systems for $269 million, approximately 2.5x revenue. ASEI was struggling, but it was cash flow positive, had no onerous debt and even paid a dividend of 5.4 percent.
--- Companies sell for 1x to 2 x revenue more often than not, unless they are a wildly innovate biotech or technology start up in an industry that generates revenue in the billions of dollars, and much of those purchases are paid in stock, not cash.
Why would any company pay even 2x Implant revenue when the company loses large sums every quarter, has dwindling margins and doesn’t even hint at its cash flow situation? Yes, it’s generating much more revenue than in the past, but it still bleeds money. The company lost almost $1 million in Q3. The average unit sales price of the B-220 decreased 38.6 percent. Gross margin was only 29.6 percent, and declining.
But let’s say for the sake of argument that L-3 or someone does pay 2x projected FY16 revenue of $50 million, or $100 million: The per share price would work out to 56 cents a share. BUT some $80 million of that $100 million would immediately go into PP’s pocket, leaving $20 million to be split between remaining shareholders MINUS all costs such as attorneys, investment advisors, etc. (legal fees alone in Q3 were $263,000.)
I don't think IMSC will be sold for 2x revenue. It would be lucky to be sold for 1x revenue given its financial performance, it’s debt and the fact that Platinum, is in a very tenuous position in the courts.
This might be the reality, and no matter the urge to “hold on”, “no BK,” “any day now,” “I’ve been in in too long to sell now” and other rationale, we might have held onto losing lottery ticket too long. (believe me it's painful to even write that)
I think we find out which way IMSC will go in the next week. I really hope that I'm wrong about the outcome, but have planned for worst case because I/we have been burned way to often with this company. My opinion now, sadly....feel free to ignore it.
PS....I've left a small core of shares just in case Implant does exactly the opposite of what I expect....always the case with this damn nightmare stock.
Who is CSTI exactly...market maker on the behalf of whom? Long...long strange trip....
Anyone listening to the call? On a plane and wondering if it started?
Wonder who's it was?
Absolutely Pat. Wish some had the cajones enough to admit it. Instead....we get constant drivel based on which side of a trade they are on in a given week.
Meima...most have been here for over 5 years..relax...enjoy the holidays.
Go shopping for Gods sake! You can drop the price 10% for about 80 bucks....there is zero interest right now other than the doomers. Let's see what 2016 brings. There is life other than IMSC....stop looking at the price every hour of every day.
I'll take that bet for some more....doubt they are doing all that hiring with the added expense without a very good reason.
I've never seen more than three or four on their website....that's quite the hiring spree!!
BOB ON cnbc
Huge untapped market for IMSC.
I would think stadium owners/event organizers will have to get in front of the curve when folks are gonna have to start worrying about bombings at these large venues, they might just choose TV.
I assume he didn't actually mention IMSC?
Awesome!!
As in..its done....the price is the price. Nothing can change it....its what the company does down the road that matters.
Price per unit is a non-story as they needed the TSA to survive. Marketing the company is essential. Not worth arguing about.
Doesn't take away anything from the CC...it's a simple and free way to let others know about the company. Why anyone would not be all for marketing a company that no one knows about and is sitting at 63 cents...is beyond me, but I'll go with your sentiment..whatever.
Amen....