The CEO owns about 25m shares, worth $7m, so there's definitely some degree of alignment. What gives me more confidence are the new Board members (FAX Capital owns a meaningful stake) and the change in direction (refocusing on the core consulting business).
Thanks for the idea. And I appreciate that as a Quick Pitch you aren’t claiming to have done all the work!
1. The $27m pref: is the entity to which Quisitive can Put good for the money? If not, this investment could still be a zero. It can’t be deducted from EV without a mighty discount without understanding that. What are the other terms of the pref please, eg does it pay cash interest? There is reference in a slide footnote to the $27m being adjustable.
2. How can we roughly get remainco “ebitda” into something real. Little capex one hopes, but maybe they are capitalising some development; how much of the SBC is real and ought to be deducted; there’s nearly $2m depreciation but that includes the payments businesses, etc.
1. The Pref pays a 4% PIK coupon. I think the pushback on haircutting this a bit is fair.
2. So on the 3rd quarter call, mgmt said that the run-rate CAPEX for the consulting biz was $1-$1.5m. So, if you start from $20m in EBITDA, you get about ~$10m in FCF (call it, $1.2m in CAPEX, $2m in SBC, $3m in interest exp, and $4m in taxes). Gets you to about 50% fcf conversion from EBITDA.
Anything on the management's incentives and skin in the game?
The CEO owns about 25m shares, worth $7m, so there's definitely some degree of alignment. What gives me more confidence are the new Board members (FAX Capital owns a meaningful stake) and the change in direction (refocusing on the core consulting business).
Thank you.
I think the management's incentives and skin in the game analysis should be included in each write up (unless super short term).
Also, how do you think about sizing each of your actionable ideas? How do you size them ?
Thanks, DK, that is a good suggestion.
I usually think of a starter position at 3-5% and full positions closer to 10%. I aim to add when the thesis is starting to play out.
Thanks for the idea. And I appreciate that as a Quick Pitch you aren’t claiming to have done all the work!
1. The $27m pref: is the entity to which Quisitive can Put good for the money? If not, this investment could still be a zero. It can’t be deducted from EV without a mighty discount without understanding that. What are the other terms of the pref please, eg does it pay cash interest? There is reference in a slide footnote to the $27m being adjustable.
2. How can we roughly get remainco “ebitda” into something real. Little capex one hopes, but maybe they are capitalising some development; how much of the SBC is real and ought to be deducted; there’s nearly $2m depreciation but that includes the payments businesses, etc.
Thanks, Ex-Locust. Appreciate the comments.
1. The Pref pays a 4% PIK coupon. I think the pushback on haircutting this a bit is fair.
2. So on the 3rd quarter call, mgmt said that the run-rate CAPEX for the consulting biz was $1-$1.5m. So, if you start from $20m in EBITDA, you get about ~$10m in FCF (call it, $1.2m in CAPEX, $2m in SBC, $3m in interest exp, and $4m in taxes). Gets you to about 50% fcf conversion from EBITDA.