ElieRosenberg

  Internet Patents Corporation (PTNT) is a patent licensing company formed out of the remaining assets of Insweb (INSW). Insweb ran an insurance brokerage website, which Bankrate.com bought for $65 million in October 2011. That left a pile of cash, NOLs, and six e-commerce patents as INSW’s remaining assets. INSW decided to reorganize as an IP company, hoping to monetize their patents through licensing.   PTNT decided to pay out $39 million of the sale proceeds as a special dividend. That leaves PTNT with $34.5 million in cash against $930 thousand in total liabilities, for a net cash balance of $33.6 million. The current market cap with the stock at $3.87 is about $30 million. So PTNT is trading at a discount to net cash. Of course, that is probably justified given that PTNT has not yet produced any revenue from its IP licensing strategy. There a few points that might make PTNT an interesting speculation: In their Q1 press release, the company announced that they would look at issuing a second special dividend in 2013. PTNT also guided to between $600 thousand and $700 thosuand in quarterly opex cash burn, or $2.4 to $2.8 million per year. The current
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Assisted Living Concepts (ALC) operates 211 senior assisted living residences in the US with 9,325 units. ALC’s facilities contain 40-60 units and are typically located in middle class suburban towns of 40-50 thousand people.  ALC was spun off from the Canadian company Extendicare at the end of 2006. As a newly independent company, ALC made the strategic decision to shift away from Medicaid pay residents towards a higher percentage of private pay residents. In the past year, private pay accounted for 99% of revenues. While private pay rates are some 30-50% higher than Medicaid rates, the drawback for ALC has been dramatically reduced occupancy. The total occupancy rate has declined from 85% in 2006 to 64% in 2011. ALC has managed to keep revenues roughly flat in the $230 million range since 2007 due to the higher private pay rates. Gross margins have risen from 34% to 42% over the period due to the higher rates as well as cost cutting. ALC has also leveraged their SG&A expense well, and adjusted EBITDAR margins have risen from 28.2% in 2007 to 36.5% in 2011. The net result is EBITDA of $67.8 million and EBITDAR of $85.5 million in 2011 versus EBITDA
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SRI Surgical (STRC) reprocesses reusable surgical linens and instruments for healthcare providers through their ten regional facilities located across the US. STRC delivers both reusable and disposable surgical products to the healthcare provider, picks them up after use, reprocesses the reusable items, and then repeats the cycle. STRC aims to enable healthcare providers to reduce operating costs through outsourcing supply management and to reduce their environmental footprint through waste reduction.  As can be seen from the financials below, STRC has not been profitable for a number of years: Revenues have grown steadily, but very slowly. Gross margins have held up around 30% and SG&A has come down slightly, but the business has not been able to scale enough to generate profitability. Depreciation has averaged around $9 million the last five years, while cash capex has averaged $6 million so the company has on average been minimally free cash flow positive. At the current price of $3.75 a share STRC has a market cap of $24.4 million and an enterprise value of $35.4 million. STRC is trading at .6X book value of $38 million. Book value consists mainly of A/R, inventory, and the network of processing plants (and no intangibles or
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TheStreet.com (TST) has more than its market cap in cash and no debt. Is there value here?   TheStreet is an internet financial media company, probably still best known for its association with founder Jim Cramer. TST breaks revenues into premium services (2/3 of revenues) and marketing services (1/3 of revenues). Premium services consist primarily of selling subscriptions to investment commentary. It also includes subscription revenue from RateWatch, which is a database of bank rate and fee data, and license revenue from TheStreet ratings, which ranks stocks and mutual funds. Marketing services consist of selling ads on The Street’s network of websites. This segment also included Promotions.com, which is a marketing website that runs promotional contests on behalf of advertisers. TST bought this business in 2007 and sold it in 2009. Here is a summary of the income statement from the past few years: The major problem with the business is that there is no top line growth, while selling expense keeps growing. Backing out the Promotions.com business, revenues have been fairly stable around $57 million for several years. I was actually surprised how stable their revenues have been given the explosion of competition in the online finance vertical that has
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Trident Microsystems (TRIDQ) is a recent bankruptcy where there might actually be a substantial recovery for the equity. There appears to be a. downside protection in the form of substantial value to the equity in a liquidation scenario, b. upside in a reorganization of the company as a going concern, and c. a party that will go to bat for the interest of the equity holders. Background Trident designs and markets microchips. They started off in PC graphic design chips in the 90s. As that market consolidated they sold off the PC graphics business in 2000 and started making video controllers for digital TVs. They did well in that business until 2008 when the market shifted to an integrated video and audio chip and Trident was left behind. Trident acquired several small business lines from Micronas in 2009  for $17 million in stock. In February 2010 Trident purchased the digital TV (DTV) and set top box (STB) business lines from NXP Semiconductor for 60% of TRID stock. The DTV and STB lines are now their primary markets, and they sell to customers like Samsung and Sony. The operating results since acquiring the DTV and STB lines from NXP have been terrible to
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Xerium Technologies (XRM) makes consumable products for paper manufacturers. They sell two broad types of products: paper machine clothing (2/3 of revenues) and paper machine roll covers (1/3 of revenues). Paper machine clothing is a specialty woven textile that helps guide the paper fibers through the paper machine while allowing water to drain out. Roll covers are generally rubber or polyurethane and cover the metal paper machine rolls that roll the paper fibers through the machine. Paper machine clothing has to be replaced every few months, while roll covers are replaced every 1-2 years. Xerium is an industry leader in a consolidated, mature market. With 15% market share they are the number two player in paper machine clothing behind Albany International (AIN). They are the largest producer of roll covers with 33% market share. XRM sales are tied to the level of global paper production. While the paper market is highly cyclical and also undergoing structural changes, in the big picture paper production should be a steady slow grower in line with global GDP. As a global maker of products that can be fitted to any paper machine, XRM is not tied to a specific geography or segment of the paper
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Mac-Gray (TUC) is an operator of laundry rooms in multi-unit housing facilities such as apartment buildings and colleges. They are the second largest company in the space with 86,000 rooms in 43 states.   Business Model TUC contracts with facilities owners for the rights to manage the laundry room in their buildings. TUC supplies the coin or smart-card operated laundry machines and services the laundry room. In return, TUC pays a portion of revenues (ranging from 38%-60%) from the laundry services to the facility owner, and sometimes pays an upfront fee as well. The management contracts average seven years, after which time the parties can renegotiate the deal and typically new equipment is installed upon contract renewal. They also have a small segment (5% of revenues) that distributes laundry equipment to commercial buyers. The business has some attractive features: Stable recurring revenue- people will always need to do laundry Somewhat captive target market- it is easiest to do laundry where one lives Long term contracts Ability to deploy capital into an easily scalable business model Recent History and Earnings Power In the 05-08 period, TUC pursued an aggressive acquisition strategy with the typical end result of overpaying and overleveraging the company. In the
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Companies with activists involved are always an interesting place to look for investment ideas. Here are a two companies with activist activity I have come across recently- Wausau Paper (WPP) and Information Services Group (III). Wausau Paper (WPP) Wausau is a producer of paper and tissue. In the tissue segment, WPP makes tissue for the away-from-home market (for bathrooms in offices etc.). In the paper segment, WPP makes specialty papers for food processing and industrial uses. In the past few months Wausau has sold off their printing and writing paper assets as well as their remaining timberland assets. WPP has spent the past several years restructuring their operations to focus on the tissue business and divest non-core assets. They reorganized the printing paper and specialty paper units into separate manufacturing plants with the plan to eventually exit the declining printing paper business. WPP could not find a buyer for the printing paper plant and on December 7th they announced they would be shutting down the plant and selling the brand names to Neenah Paper. They expect to net $20 million after plant closure expenses from the brand name sales and liquidation of working capital. On December 16th, WPP announced they would
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Hudson Technologies (HDSN) is a distributor and recycler of refrigerant gases. The company is poised to benefit from an EPA mandated phase out of virgin gas production of the leading refrigerant that will boost market pricing and volumes of reclaimed refrigerant where Hudson is the dominant player. Hudson stock remains depressed due to investor fatigue with the slow to develop shift in market dynamics and a general lack of Street recognition. The stock trades at 2-3X projected earnings when the market shifts, while the EPA is set to finalize substantially reduced virgin gas production quotas in the coming months. In the meantime, the company has expanded market share and is substantially profitable.   HDSN operates three business lines: aftermarket refrigerant distribution, reclaimed refrigerant sales, and refrigerant services. The only breakout by segment that HDSN provides in their filings is refrigerant sales (combined distribution and reclamation) versus service revenues. In the trailing twelve months refrigerant sales contributed 90% of revenues or $40.1 million, with service revenues at 10% or $4.5 million. Reclamation is currently a small piece of refrigerant revenues, probably somewhere in the $7 million range. Aftermarket Refrigerant Distribution Refrigerant gasses are used in air conditioning and refrigeration units. They
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Elie Rosenberg is a value investor based out of Dallas, Texas. He is the founder and editor of Value Slant . Top Image Systems (TISA) is a NADSDAQ-listed Israeli enterprise software company. TISA makes automated data capture solutions to control the flow of document based data through an enterprise. In a simple example, their software can extract data from from a scanned invoice and feed that data into the company’s accounts in their enterprise software system.   TISA has undergone a turnaround in the last three years. Founder Izhak Nakar returned to an active role in TISA in 2009 when he purchased 20% of the company from a large institutional holder. Since then he has been acting as “Active Chairman” in a CEO-like role along with CEO Ido Schechter. Their turnaround strategy has moved TISA away from low margin hardware and third party software to focus on their core eFlow software platform. They have also focused on realigning the cost structure by closing non profitable offices and ramping up utilization of third party distributors. The strategy has succeeded. In 2008, TISA did $32 million in revenue with 53% gross margin and negative operating income margin. For 2011, TISA is on track for $28.5 million in revenue with 61% gross
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Global Education & Technology Group (GEDU) is a Chinese ADR that offers English language training in China. It has become embroiled in an insider trading scandal surrounding its pending acquisition by Pearson (PSO), the large British media and education company. Pearson announced on November 21st that they would acquire GEDU for $11.006 in cash per ADR. That represented a 105% premium to the prior closing price and a whopping 214% to the 30-days prior average trading price. On December 5th the SEC filed an emergency court order to freeze the US brokerage accounts of four Chinese citizens accused of engaging in trading in GEDU on material non-public information in the days leading up to the announcement of the transaction. One of those accused had her brokerage account funded by an entity controlled by GEDU’s Chairwoman (and wife of the CEO). On December 14th the SEC filed an amended complaint which also implicated Yonghui Zhang, an employee of GEDU and the brother of GEDU’s CEO. The question now is whether Pearson will call off or at least postpone the closing of the deal in light of the accusations. GEDU closed at $5.29 the day before the deal announcement and at $3.62 just two days
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