November 04, 2017 - 3:21pm EST by
2017 2018
Price: 0.45 EPS .09 .09
Shares Out. (in M): 17 P/E 5 5
Market Cap (in $M): 8 P/FCF 0 0
Net Debt (in $M): -5 EBIT 2 2
TEV ($): 3 TEV/EBIT 2 2

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This is another tiny one, suitable for PAs only. Sometime in the future I'll do one for a real company, but these are more fun to write up sometimes. Also, this is really small ($3.5 mil float) and speculative so I'll keep it short.

TIXC has been written up several times in the past, the last time by me in mid-2014. Tix Corp owns a discount ticketing business in Las Vegas. They have a fair amount of leverage over the shows in Vegas because they operate all of the physical booths in Vegas that cheapskates go to to wait in line for half price tickets. The shows get to price discriminate, filling otherwise empty seats while not cannibalizing their full price customers. Tix takes a significant slice for themselves - they move about $100 mil a year in tickets and their take is about $20 mil before expenses. Annual profits have been in the $4-$6 mil range annually over the last 3 years (pre-tax, excluding a bit of stock comp and non-cash amortization which you'll see aren't economic factors here). They have an NOL that will shield the next $25 mil of profits, so we can just treat pre-tax and after-tax the same (I don't know that they'll produce more than $25 mil of income over the rest of their life, and if they do, well, the current enterprise value is $3 mil, so, that would be a pleasant outcome for investors).

So I wrote it up a few years ago, they started a fat dividend, stock price went up, all was good for a few years, just out there printing money, then this year we started to see some weakness. Tix has had competitors in the past that have tried to encroach on their territory, and they would beat them and buy them out on the cheap. This year, MGM started their own network of 5 ticket booths (todtix.com), which is clearly more of a threat. It looks like they're competing by being the only discount provider for Cirque du Soleil, and being more convenient for buyers (reserved seats, more convenient system that doesn't involve vouchers). The question is if the extra convenience cannibalizes full price buyers too much, and whether they lose too much revenue by limiting access to some of their own shows from Tix to get this off the ground (Tix still has a ton of foot traffic, and any ticket not sold (even at half price) is a direct hit to the bottom line). I don't pretend to know the answer by any means, which is why I say this is speculative.

Anyway, Tix has a market cap of $7.8 mil and net cash of $4.8 mil, and they're still profitable. So far this year (through June) rev is down 15% y/y, operating income went from $1.5 mil to $400k. They had a bloated SG&A line in the past (exec comp was combined over $1 mil alone), and they announced voluntary exec comp reductions. They will have to dig in and fight.

One option on the table, given the circumstances, is selling the company. That wasn't a real option in the past because of the potential impairment to the NOL, but with profits down, the impact would be much worse. It's all the rage these days for tech companies (giants and VC-backed startups alike) to have a strategy where they integrate a physical presence, and it's hard to see having a discount ticket business without one (again, otherwise you defeat the purpose). Physical locations have in the past been a huge part of Stubhub's strategy - nowadays most teams cooperate by having mobile tickets, but for example when the Yankees tried to shut Stubhub out by banning them from mobile ticketing, Stubhub had a well staffed operation down the street so they could distribute physical tickets fairly easily, and eventually the Yankees came back and cut a deal with Stubhub. (Also, that was a lesson that show owners / sports teams have much less leverage with distributors than you think - the economics of losing any ticket sales at all by limiting distribution are absolutely brutal in the entertainment industry, because all of your costs are fixed).

Today, you have Stubhub, you have startups like TodayTix, if they want to make a move in Vegas, here's this company that moves $100 million a year in tickets and has a ton of foot traffic already, has a market cap of $8 million and an enterprise value of $3 million, is still profitable, you probably can cut a ton of overhead costs, and if you're a startup, you can shield whatever income there is from taxes with your own losses so you don't even have to worry about losing the NOL. Insiders (10%+ owners and execs) own 55% of the company, so if they don't have the stomach for the fight, they will be willing to bargain.

Downside is, MGM squashes them like a bug, maybe. Hey, nothing in life is without risk.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


They sell the company, or MGM backs down.

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