|Shares Out. (in M):||28||P/E||0.0x||0.0x|
|Market Cap (in $M):||48||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||-5||EBIT||8||0|
Sign up for free guest access to view investment idea with a 45 days delay.
Q: When might a company's reported EBITDA not be a good reflection of its true profitability?
A: When its CEO is secretly attempting a management lead buyout and thus may be motivated to downplay reported results.
In its recent earning release, Tix Corp. (TIXC) reported 2010 EBITDA of $3.8 million. Its been alleged that the company's CEO had been secretly attempting a management lead buyout (read the April 4th letter from Baker Street). If this is true, it might explain why in the earnings release TIXC failed to add back or even mention several one-time items that significantly depressed and distorted 2010 EBITDA (note: in earlier quarters the company had highlighted such items in their earnings releases). As illustrated below, we conservatively believe Pro Forma EBITDA is really closer to $8.0 million and should be even higher in 2011. Based on $8.0 million of EBITDA, TIXC trades at 5.4x EBITDA, requires minimal capex (but has high d&a), has a strong competitive position, minimal inventory or a/r risk, an $18 million NOL that minimizes cash taxes, is unlevered, and recently got a takeover bid of at least $2.10 per share (which we consider to be too low).
TIXC has 2 simple businesses that are described well on its website and in SEC filings. The largest business, which represents a vast majority of total EBITDA, is Ticketing Services which operates 11 stores in Las Vegas that sell discounted (25%-50% of face), day of tickets to shows (such as Cirque du Soleil) and other events. It is similar to TKTS in NYC. This is a great business because it has no inventory risk, maintains a very strong market presence with minimal direct competition, and will continue to benefit from an increasingly cost consciousness consumer (who is increasingly willing to spend time standing in TIXC's lines to save significant amounts of money). As discussed below, we believe this business could also further increase its pricing, which would have a significant impact on profitability. The second and much smaller business is Exhibit Merchandising which provides retail specialty stores with branded merchandise for touring museum exhibitions such as "Tutankhamun and The Golden Age of the Pharaohs." This business has few synergies with the ticket business and we believe eventually will be sold.
Over the past year, the company has bought back a significant amount of stock, sold a non-core business (Live Entertainment) and settled a major lawsuit.
Below reflects our estimate of the current capitalization:
Stock Price $1.72
Shares Outstanding 24.8
Options/warrants 3.0 includes in the $ outstanding options/warrants
Total Shares 27.8
Equity Market Cap 47.8
Cash (12/31/10) 8.8
Live Ent. Receivable 0.5 See PR on Nov. 22, 2010
Vegas.com Settlement -2.0 See PR Feb. 24, 2011
Options/warrants Proceeds 3.8
Pro Forma Cash 11.1
Buyback Obligation 4.0 Payable thru January 2013. See PR on Nov. 22, 2010
Vegas.com Payment 2.0 Payable over 8 years. See PR on Feb. 24, 2011
Pro Forma Debt 6.0
Enterprise Value 42.7
Note: we conservatively hit the company for a $4 million Vegas.com settlement that was agreed to at the end of February, but did not give the company credit for cash TIXC likely generated thru February.
Below is our analysis of 2010 EBITDA:
Reported EBITDA 3.8
Non-recurring legal expense (a) 1.0
Non-recurring bad debt expense (b) 0.9
Non-cash warrant compensation (c) 0.5
Non-recurring consulting fee (d) 0.2
Vegas.com contribution (e) 0.5
Egypt startup expense (f) 0.5
Adjusted EBITDA 7.4
Incr. delisting/deregister saving (g) 0.6
Pro Forma EBITDA 8.0
The above EBITDA analysis does not give any credit to the:
So what is to prevent the CEO from continuing to downplay the company's results and this stock being a value trap?
Anyone interested in additional background on the situation should read the complete letter issued by Baker Street on April 4 and various letters issued by Echo Lake Capital. This will provide insight into the stock's underperformance, poor management and Board performance, and opportunities to create shareholder value.
The company is no longer required to file a 10k, but its annual report can be found on its website at http://www.ir-site.com/tixcorp/annual.asp .
Stock Ownership: Baker Street owns approximately 5.4 million shares, the CEO owns 3.6 million shares and other insiders own 1.2 million shares. We believe a significant number of shares are owned by other parties who would not be supportive of the CEO but would be supportive of various value enhancing ideas (proxy fight, new management, buyback, dividend, etc). Importantly, we believe the table on page 12 of the annual report is deceiving and may not accurately reflect the current ownership structure because it gives management "control" over 6.2 million shares that they may not legally be allowed to vote.
|show sort by|
Are you sure you want to close this position TIX CORP?
By closing position, I’m notifying VIC Members that at today’s market price, I no longer am recommending this position.
Are you sure you want to Flag this idea TIX CORP for removal?
Flagging an idea indicates that the idea does not meet the standards of the club and you believe it should be removed from the site. Once a threshold has been reached the idea will be removed.
You currently do not have message posting privilages, there are 1 way you can get the privilage.
Apply for or reactivate your full membership
You can apply for full membership by submitting an investment idea of your own. Or if you are in reactivation status, you need to reactivate your full membership.
What is wrong with message, "".