Xponential Inc (fka XPOI)

[mrpanick]

The main issue on the balance sheet for XPOI is the 3.4 mil liability as of Dec 2010 due for the redemption of the pref A stock plus deferred interest. They were supposed to redeem the pref A shares a couple of years ago but didn't have the cash. It's not a hard default or they would be in bankruptcy, but it's something that needs to be dealt with for the common stock to really take off.

They just raised more than 700K for selling part of the CPFH stake (see my prior posts on that). The remaining stake in CPFH is worth close to 1.5 mil and Pawn Mart opertating earnings are just hitting an inflection point where it has grown large enough in terms of revenues and operating earnings so that the company should be generating cash insted of using cash.

I think Pawn Mart could do close to 35 mil in revenues for the year ahead. EZPW is trading at 2X sales and that's not a bad valuation for XPOI as pawn shops are a high margin business. If the chain sold for 1.5X forward sales of 35 mil that would be close to 50 MIL. All the liabilities are about 33 mil including the pref stock, so that would leave considerable equity for the common. Even a sale at 1X revenues values the common at close to $1 per share.

I don't think Pawn Mart is up for sale though. A more likely scenario is that they keep deferring dividends and the redemption of the pref A stock for a couple more years and keep putting cash into Pawn Mart. Cash from the 700K CPFH transaction, deferred pref interest plus profits means more working capital for Pawn Mart. Pawn Mart can use the extra working capital for high margin pawn loans. I think management's plan is to keep building up Pawn Mart. Then at some point they can refinance based on higher operating earnings and take care of the pref A issue that way at the same time that the bonds and bank credit line are refinanced.

Obviously the key factor for a refinancing is for Pawn Mart to keep showing revenue and operating earnings growth as they have done recently.