|Shares Out. (in M):||31||P/E||0.0x||0.0x|
|Market Cap (in $M):||40||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||-10||EBIT||0||0|
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TIXC Corp. (TIXC), whose core business is selling last minute discount tickets to shows in Las Vegas, appears to be a money losing company. However, a closer review indicates that excluding certain non-cash items and non-recurring items, the company is highly profitable and generates significant free cash flow. In 2009, the company reported a net income loss of $0.5 million. However, this loss includes a non-cash, non-recurring $2.6mm write-off. Furthermore, excluding this and other non-cash items (d&a, which is significantly higher than maintenance capex, and non-cash stock comp), the company appears highly undervalued, trading at and 4.9x EV/2009 Adjusted EBITDA (which gives no credit to its $18 million NOL) and 5.3x EV/ 2009 free cash flow. Net cash represents 15% of TIXC's market capitalization. Furthermore, TIXC's results should be even stronger in 2010, making the valuation even more attractive with the stock currently trading at 3.8x 2010 Adjusted EBITDA. Considering the company's undervaluation, over capitalization and size, we would not be surprised to see an activist get involved and encourage the company to create shareholder value with stock buybacks, asset sales, reduction of the $5.6 million in annual corporate overhead and perhaps the sale of the entire company.
The company operates 3 segments, with the largest and most profitable being Ticket Services. Ticket Services ($7.7 million 2009 EBITDA) sells last minute, discounted tickets in Las Vegas to approximately 85 shows including Cirque du Soleil, Phantom of the Opera and Jersey Boys. This business, which operates 13 leased locations (including 2 opened in late 2009 and 5 acquired in March 2010) under the Tix4Tonight name, is similar to the TKTS booth in NYC. This 40% EBIT margin business carries no inventory risk. Management expects this segment's revenue and profitability to increase by over 25% in 2010 and has given gross ticket revenue guidance of $100 million for 2010, up 28%. TIXC records its net revenue based on its commission which is approximately 20% of the gross...in other words, the segment's revenue in 2010 should be approximately $20 million. This growth, which may prove to be conservative, is based on a combination of (i) a full year inclusion of units opened in late 2009 and (ii) contributions from recently acquired 5 units, largely because TIXC can put its shows in their locations.
TIXC's 2 other smaller segments have questionable strategic value.
TIXC's second segment, Exhibit Merchandising ($1.2 million LTM EBITDA) provides retail specialty stores with branded merchandise for touring museum exhibitions. Most of its revenues come from the sale of merchandise related to touring exhibits of "Tutankhamun and The Golden Age of the Pharaohs." There are 2 touring exhibits which move cities each year. One of the exhibits just opened in NYC and the other moved to Denver (from San Fran and Toronto, respectively). 2010's results should improve over 2009's because the exhibits will be in better cities and because consumer spending in general should increase. In addition, the company will benefit from the launch in June 2010 of an additional show called Cleopatra, which makes its worldwide debut in Philadelphia. Finally, 2010 results should also benefit from a full years benefit of a new royalty agreement which should result in $360k in annual savings.
TIXC's third segment, Live Entertainments ($1.0 million 2009 EBITDA), operates Broadway shows in 2nd tier cities such as Salt Lake, Akron and Colorado Springs. Most of the shows are well known, reliable shows such as Grease, Riverdance and Jesus Christ Superstar. However, in a departure from its usual business practice, in 2009 the company invested a few million dollars to develop a traveling musical of 101 Dalmatians. The show was disappointing and in 2009 the company took a $2.6 million non-cash write off (below the EBITDA line) for this investment. Management has learned from this mistake and will not make such "risky" investments in the future. 2010 results should improve as the company introduces the popular new show Wicked and from an overall increase in consumer spending.
Stock Price $1.27
Shares outstanding 31.1mm
Equity Cap $39.5mm
Enterprise value $29.6mm
The above does not reflect the March 2010 $2.5 ($1.5 cash + $1.0 note ) million acquisition of 5 ticket locations discussed above.
As mentioned, the Company's 2009 reported financials are misleading due to significant non-cash charges.
Reported EBITDA includes a meaningful non-cash, stock compensation expense, so we value the company on an Adjusted EBITDA basis.
Operating income $1.8
Reported EBITDA $4.3
+Stock compensation $1.7
Adjusted EBITDA $6.0
In addition, reported net income was distorted by a non-cash, non-recurring $2.6 million write-off for 101 Dalmatians.
Two other issues to consider are (i) the company's D&A ($2.5 million) is significantly higher than maintenance capex ($0.4 million), and (ii) the Company has Federal NOL carry forwards of $17.8 million expiring in varying amounts through 2027. As a result, the company pays little cash taxes and will continue to do so for a few years.
As a result of the above, perhaps the best way to analyze the company's profitability is to review the company's free cash flow.
+Stock comp 1.7
-Interest (assumes 0% interest on cash) 0.0
-maintenance capex (0.4)
=Free cash flow $5.5
Enterprise Value/ 2009 free cash flow 5.3x
Equity Cap/2009 free cash flow 7.1x
Besides the above mentioned gross ticket revenue guidance, the company has not given any formal guidance about 2010, so below is our conservative estimate of 2010 results.
$1.8 mm 2009 EBIT
$1.8 mm Incremental Ticket Services EBIT (based on $100mm gross rev)
$0.5 mm Incremental Exhibition EBIT (lower royalty, better Tut and Cleopatra)
$0.0 mm Incremental Live Entertainment EBIT
$4.1 mm 2010 reported EBIT
$2.7 mm 2010 D&A
$6.8 mm 2010 Reported EBITDA
$1.7 mm 2010 Stock compensation
$ 8.5 mm 2010 Adjusted EBITDA
Assuming $0 taxes, $0 interest income and $0.4 of capex, 2010 free cash flow would be $8.1 million. Therefore, 2010 valuation, pro forma for the March acquisition, would be
EV/ 2010 Adjusted EBITDA 3.8x
EV/ 2010 Free Cash Flow 4.0x
Eq Cap/2010 Free Cash Flow 4.9x
-TIXC has Federal NOL carry forwards of $17.8 million expiring in varying amounts through 2027.
-In Q4 2009 TIXC's stock price was crushed as a result of a margin-related liquidation of a 10+% shareholder (Ashraf Iqbal) who had no role in management. We believe the liquidation sales have been completed.
-The company has an on-going buyback program and in Q42009 repurchased 1.3 million shares at on average $1.55 per share (which is above current levels).
-Insiders own ~40% of the company's shares and are thus highly incentivized to create shareholder value.
-Management's investor relations efforts are very weak. Their investor presentation is inadequate, they don't have a good i.r. firm and they lack a proactive i.r. effort. Management is aware of this problem and intends to improve it.
-The company recently replaced its CFO. This was purely an effort to upgrade its CFO rather than any concern over accounting issues, etc.
-The company has a patent which covers ticket distribution. Management believes it may be able to collect damages from other companies who may be violating this patent. If management decides to pursue damages (its still unclear if they legally can), they will not incur significant legal expenses and instead will use a contingency based lawyer
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