Wednesday, March 31, 2010

3/31/10 Midafternoon Report: Market ignores job losses, prefers to think about the good old days

The market is surprisingly flattish today considering that macro news was more lackluster than a republican fundraiser (umm, maybe that is a bad example) and earnings reports were few and far between.  The big news was that ADP's employment data came out today and showed companies cut ~23k jobs last month which is much worse than the expectations that 40k jobs would be created.  The drop in payrolls was a surprise to economists but then again they were also surprised by the sun continuing to come up every morning, Ricky Martin's sexuality, and the end of the movie the Blind Side.  It's great that the market is up 70% from its bottom, but that has yet to do much for unemployed workers whose skills diminsh by the day.  Until there is some uptick in employment, the market will have more downside risk than hand feeding a wild bear, playing russian roulette, or sleeping with Paris Hilton and refusing to use protection.  In other macro news, the Chicago Purchasing Managers Index fell today below the guesses of economists and below the 5 year high from last month.  The ISM said the index fell to 58.5 from 62.6, but remember anything above 50 is still expansion and anything hot and above 50 is on the MILF/GMILF borderline.

Internationally, Greece is planning a dollar bond sale in their attempt to ruin every currency.  Greek bonds fell for a third consecutive day as the spread to the safer German bonds continues to rise.  Also, Moody's downgraded their credit ratings of five Greek banks from "negative" to "look out below."  If anyone gave a shit about what Moody's had to say, this may be relevant but after missing the downturn and being paid by the companies they are supposed to objectively rate, Moody's has less credibility than an Alan Greenspan economics lecture, a Jennifer Love Hewitt book on relationships (and no joke, she actually just wrote one), or a Donald Rumsfeld war plan.

In stock news, Baker Hughes got closer to approval in their attempt to swallow up BJ Services.  They'll have to spit out some assets to do so, but don't think the deal will be blown.  Rite Aid, announced their quarter and it was down due to weak customer demand and a weaker cough, cold and flu season from last year.  In order to remedy it, the company now plans to have "Syrup Sippin'" Tuesdays at local high schools.  The company lost $.24 per share, $.05 per share worse than analyst guesses and $.24 per share worse than not totally sucking.  Their sales and earnings guidance also disappointed like the edited for TV version of Wild Things.

In small cap news, KITD had their earnings call yesterday and Money McBags promised to break it down for all of you today.  But before we get to the results, KITD eschewed the traditional call and had a video conference that looked like it was made in CEO Kaleil Isaza Tuzman's mom's basement.  I mean really, the production quality was somewhere between scat film and late night public access TV show.  The whole thing was more awkward than a Wilford Brimley/Betty White love scene and gave Money McBags 30 minutes of douche chills.  And that's not even to mention President Gavin Campion's  infomercial where at the end he even said this "summarizes my VX-one advertisement."  Seriously, Money McBags was waiting for him to come back and say "and if you buy one share of KITD now, we'll throw in a SlapChop and a Flowbee for free."  While Money McBags applauds the effort, next time please either hire actors to play the management team or have the video shot in front of a green screen so the background can be changed (perhaps to a scene from the local Prague Rick's Cabaret) to distract viewers from the yellow and green high school auditorium debate club backdrop they used (and really, that's the best you could do?  Your operating expenses are ~$34MM a year and you couldn't spend $200 on something better than a table covered with a black sheet, a little KITD sign, and a miscolored curtain for the background?  Money McBags has seen lemonade stands with more effort).  And for fucksake, if you're going to make up people like VP of Marketing and Communications Daniel Goodfellow, at least either make their names believable (because no one is named Goodfellow) or go all out and just call him Dick Longfellow or Harry Balzac.  Anyway, Money McBags will stop pointing out the awkardness of the video conference and make like it simply never happened (like Pages From a Cold Island or Punky Brewster's breast reduction surgery).

As for the actual quarter, it was slightly better than expectations and loyal readers know that Money McBags has almost as much of a stiffy for KITD as he has for Kate Bosworth.  Their revenue was $16.1MM and their operating EBITDA was $3.2MM which yielded a 19.5% EBITDA margin (and remember their guidance only calls for 17.5%+ EBITDA margins for this year, so they are already on track to beat it unless the Multicast acquisition with lower ARPUs brings that 19.5% down).  Intersting comments from the call include:

1.  They are now referring to their service as VAMs which stands for Video Asset Management and is simply a change in nomenclature and not a strategy shift (as an aside, Money McBags uses the not safe for work and probably not safe for home for his video asset management).

2.  They will be shifting away from operating EBITDA as a metric they relay to the Street to go to a pro-forma eps type number over the next few quarters by separating out restructuring charges.  This should give better visibility into the business's actual performance but more importantly, if Money McBags were running a company that could put up $2.00 in EPS in 2011 and was trading at 6x that, he'd sure as fuck want to promote EPS as well.  Along with going to a pro-forma eps, they are buying back ~$4MM in warrants to clean up their shittastic balance sheet which yielded a $1.50 GAAP eps loss this quarter which to the uninformed investor was more deceiving than Machiavelli's final run for office.

3.  They are keeping their policy of giving guidance only once a year as estabilished by their independent board of directors but CEO Tuzman could not have winked harder about their upcoming beat.  We know guidance does not include the Multicast acquisition, but with 19.5% EBITDA margins in the Q, it's not just revenue that will likely be too low. Tuzman said "They feel good about where they sit" so either they are sitting on Hannah Hilton's lap or things are going very well.

4.  They don't consider themselves a roll up story (though RuPaul doesn't consider itself a man and Robin Williams doesn't consider himself an unfunny douche, so whatever) but they did say that over the past two years 65% of their growth has been organic and they expect it to stay that way.  That said, they are currently working on an Asian acquisition and Money McBags will applaud them if it is Gong LI or Kiana Kim.

5.  Most interestingly, they addressed their DSOs which were down to 98 at the end of the Q from 158 at the end of Q3 and were inline with last year's Q4.  You all remember Money McBags broke down some SocGen analyst's sell report on KITD the other week and one of the issues the analyst brought up was their receivables growth.  The company said they are now inline with historical averages (which are more like 60-70 DSO in the middle of the Q due to the billing cycle).  It's good to hear them bring this up of their own volition and address a potential concern.  The company seems to be doing their best to be transparent and Money McBags applauds that.

So a good Q by KITD and the stock is basically unchanged.  Money McBags is looking to add more, especially if it sells off.


Taimur Ali said...

What is going on with MLNK today? Is it still a hold?

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