KJP Posted November 4, 2015 Share Posted November 4, 2015 That's a good point. $56M of cash gone implies they've spent a lot. Maybe I misunderstand the business, but it seems like something that should have significant direct costs (repairs/reconditioning) but require pretty minimal overhead. Where's the overhead required? I don't know how the prior VC owners were running it, but it does look like you're right that they were burning cash pretty quick. The overhead relates to maintaining the website and other information systems, marketing, and have a logistics/warehouse operation to deal with the devices they are selling. To illustrate the point, Gazelle has corporate headquarters in Boston and an operations center in Kentucky. There's alot of fixed costs that need to be covered. Link to comment Share on other sites More sharing options...
JayGatsby Posted November 4, 2015 Share Posted November 4, 2015 That sounds pretty excessive. There's a lot of people running this business out of their apartments with no overhead buying and selling on eBay. They should be able to cut out the Boston cost center. Link to comment Share on other sites More sharing options...
AzCactus Posted November 4, 2015 Share Posted November 4, 2015 That sounds pretty excessive. There's a lot of people running this business out of their apartments with no overhead buying and selling on eBay. They should be able to cut out the Boston cost center. That's kinda what I'm thinking. There has to be overhead (facilities, personnel or maybe both) that can be cut out of the equation. Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 4, 2015 Share Posted November 4, 2015 That sounds pretty excessive. There's a lot of people running this business out of their apartments with no overhead buying and selling on eBay. They should be able to cut out the Boston cost center. That's kinda what I'm thinking. There has to be overhead (facilities, personnel or maybe both) that can be cut out of the equation. I don't see why they wouldn't consolidate the two companies' headquarters unless if there just isn't enough room after the reduction in sq. ft. that went into place at OUTR. Link to comment Share on other sites More sharing options...
KJP Posted November 4, 2015 Share Posted November 4, 2015 That sounds pretty excessive. There's a lot of people running this business out of their apartments with no overhead buying and selling on eBay. They should be able to cut out the Boston cost center. You're talking about a business that buys, inspects, certifies and then resells several hundred thousand items per year, and they want to do more. It's not some guy selling a few phones on EBay. As for the Boston operations, I suspect that's where all the IT and marketing happens. That's what makes this business run. If you eliminate marketing, how is Gazelle going to sell anything? In any event, we've probably spent enough time talking about this small piece of the business. I only brought it up because I'm very skeptical of any claim that vertical integration will solve the problems of two money losing businesses in competitive markets. It usually doesn't make economic sense and rarely works. Here's McKinsey's take: http://www.mckinsey.com/insights/strategy/when_and_when_not_to_vertically_integrate Link to comment Share on other sites More sharing options...
AzCactus Posted November 4, 2015 Share Posted November 4, 2015 I think it's most logical to give this CEO time to prove that things will work rather than assuming they won't...It's not like we have a CEO who has a long track record who has a spotty of poor acquisitions. Link to comment Share on other sites More sharing options...
KJP Posted November 4, 2015 Share Posted November 4, 2015 I think it's most logical to give this CEO time to prove that things will work rather than assuming they won't...It's not like we have a CEO who has a long track record who has a spotty of poor acquisitions. I'm not "assuming" it won't work. I'm trying to work through the economics of the businesses to assess whether vertical integration will solve EcoATM's problems. I could very well be wrong, but why is doing no analysis or thinking of your own and just seeing what happens the "most logical" thing to do? Link to comment Share on other sites More sharing options...
ratiman Posted November 4, 2015 Share Posted November 4, 2015 Buying and selling is the same process. Grain merchants buy and sell grain. Gazelle and ecoATM are middlemen. The front page of Gazelle lists the options "buy" and "sell." Link to comment Share on other sites More sharing options...
JayGatsby Posted November 4, 2015 Share Posted November 4, 2015 You're talking about a business that buys, inspects, certifies and then resells several hundred thousand items per year, and they want to do more. It's not some guy selling a few phones on EBay. As for the Boston operations, I suspect that's where all the IT and marketing happens. That's what makes this business run. If you eliminate marketing, how is Gazelle going to sell anything? In any event, we've probably spent enough time talking about this small piece of the business. I only brought it up because I'm very skeptical of any claim that vertical integration will solve the problems of two money losing businesses in competitive markets. It usually doesn't make economic sense and rarely works. Here's McKinsey's take: http://www.mckinsey.com/insights/strategy/when_and_when_not_to_vertically_integrate The people who handle the phones would be direct costs, not overhead. My point is if one person can be profitable with the business model something must be wrong operationally with the way they scaled it. I think having an expensive headquarters in Boston with a negative ROI marketing team and away from the operations was probably part of the problem. If there was no ROI on that marketing they should be fine without it. Maybe revenue goes down in the process, but cash flow goes up. Again, all I'm saying is I'm curious to see how the experiment works and I think there's a chance that it becomes worth more than $0. I wouldn't rush out to invest in ecoATM but for the first time in a long time I'm happy to have it for free. If it doesn't work they lost $18M, which hopefully they structured correctly for taxes this time around. Link to comment Share on other sites More sharing options...
thefatbaboon Posted November 4, 2015 Share Posted November 4, 2015 Anyone on here shorting outerwall? Link to comment Share on other sites More sharing options...
Libs Posted November 9, 2015 Share Posted November 9, 2015 <I think Q4 will be very telling> CEO said in the latest CC that a lot of the movies were pushed to Q4, so they won't help until Q1 2016. He expects a difficult Q4. FYI. Link to comment Share on other sites More sharing options...
BTShine Posted November 18, 2015 Share Posted November 18, 2015 Does anyone else think it's mind-boggling that 45% of the OUTR shares are short? I see 7.76 million shares short and 17.25 million shares outstanding. And this company is hugely cash flow positive right now. Link to comment Share on other sites More sharing options...
Libs Posted November 18, 2015 Share Posted November 18, 2015 It is amazing. But our interests are alligned - I hope they drive the stock down, for obvious reasons. Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 18, 2015 Share Posted November 18, 2015 Does anyone else think it's mind-boggling that 45% of the OUTR shares are short? I see 7.76 million shares short and 17.25 million shares outstanding. And this company is hugely cash flow positive right now. What's even more mind boggling is that there are that money short as the company is reducing the float by 2-5% every quarter. The short positions, as a percentage of float, grows with the massive share repurchases and increases the likelihood of a meaningful short-squeeze. Can you imagine what good results in Q4 or Q1 would do if 50% of the float was sold short? Link to comment Share on other sites More sharing options...
thefatbaboon Posted November 18, 2015 Share Posted November 18, 2015 I asked if anyone was short a few days ago. Exactly like you can't wrap my head around how anyone could short into this cash flow and share shrink. It must be like standing in front of an old, retirement-age, cantankerous bull who's charging rather unsteadily towards you and hoping that he'll keel over and die before he tramples over your head. It's interesting to think of the Eco disaster in this context. If Eco hadn't happened outr would have had 500m more free cash over the last few years. And 500 more fcf applied to share repo would have left 100% of the shares sold short! In other words, I'm pretty sure without the Eco disaster these shorts would have all been toast already. Link to comment Share on other sites More sharing options...
JayGatsby Posted November 19, 2015 Share Posted November 19, 2015 lol. Hope we're right! In some other corner of the internet there's a group of people asking who in their right mind is long DVD dispensers and coin counters ;) Their last press release was pretty direct that "We remain on track to uphold our commitment of returning 75 to 100 percent of annual free cash flow to shareholders directly through share repurchases and quarterly cash dividends." They define FCF as Op Cash Flow - Capex, so Gazelle shouldn't impact it. YTD they're at 68%. If you assume $65M of FCF in Q4 (within guidance; YTD quarterly average is $69) and they follow through, that would imply between $60M and $125M of repurchases (or between 5 and 10% of shares) this quarter. Hopefully as the new CEO gets settled into the business he sees something that causes him to go a little bit crazy. Hopefully have a clean quarter for the EPS crowd; depreciation has started to come down meaninfully. Arlington holds something like 1M shares so I doubt those trade much. I'm willing to be a long-term shareholder, but a bird in the hand... Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 19, 2015 Share Posted November 19, 2015 lol. Hope we're right! In some other corner of the internet there's a group of people asking who in their right mind is long DVD dispensers and coin counters ;) Their last press release was pretty direct that "We remain on track to uphold our commitment of returning 75 to 100 percent of annual free cash flow to shareholders directly through share repurchases and quarterly cash dividends." They define FCF as Op Cash Flow - Capex, so Gazelle shouldn't impact it. YTD they're at 68%. If you assume $65M of FCF in Q4 (within guidance; YTD quarterly average is $69) and they follow through, that would imply between $60M and $125M of repurchases (or between 5 and 10% of shares) this quarter. Hopefully as the new CEO gets settled into the business he sees something that causes him to go a little bit crazy. Hopefully have a clean quarter for the EPS crowd; depreciation has started to come down meaninfully. Arlington holds something like 1M shares so I doubt those trade much. I'm willing to be a long-term shareholder, but a bird in the hand... Yea. I can't say that I'm a long-term holder though. I definitely view this as a trading stock just because so much of my terminal value actually hinges on the price they're able to do buybacks at. If the price were to skyrocket to $100-$110 in a short squeeze, I'd have to sell the majority of my holdings on the way up simply because that price threatens the outcome of the terminal value remaining to shareholders at the end - especially if management continued to buy-back at those levels. Basically, I buy this stock when it trades at a large discount to my estimation of it's underlying value and reduce it as it makes it's way towards that value. Generally I hold stocks until they get within 10% of my estimation of fair value and then begin selling. Outerwall sees me selling much sooner than that - maybe 20-25% away from fair value because each step towards fair value reduces the likelihood of achieving fair value. It's a fine line to walk so I prefer to scale my position accordingly. I personally need to seem them acquire another large chunk of the company (20-25%) at prices sub-70s for me to feel real comfortable about the terminal value of the shares post red-box. Realistically, one of the best things that has happened to redbox was the surprise departure of the last CEO. That cratering in price gave the company an opportunity to buy all shares this year at prices significantly below what it was trading at prior to that announcement. That little gift from heaven put us on the right track for incredible residual value. Link to comment Share on other sites More sharing options...
siddharth18 Posted November 19, 2015 Share Posted November 19, 2015 I'd say I'm shocked but OUTR has had a huge short interest for YEARS now...It kinda reminds me of EBIX - which has almost a third of its float sold short AFTER the share price has almost quadrupled (from the low of $9 to $37 right now)... Link to comment Share on other sites More sharing options...
BTShine Posted November 19, 2015 Share Posted November 19, 2015 They've basically promised to buy back a million shares this quarter (at these prices) if not more. They believe FCF will be about $270 million this year and plan to use 75%-100% of that for dividends and stock repurchase. This means $200-270 will be paid out. Dividends will be $20 million. So, buybacks will be $180-$250 million. To date (Q3) buybacks are $123 million, so we've between $57 and $127 million in buybacks coming this quarter. Or one to two million shares. Link to comment Share on other sites More sharing options...
thefatbaboon Posted December 2, 2015 Share Posted December 2, 2015 I guess they did the same strange buyback they did last quarter where they did it all in the middle month. Link to comment Share on other sites More sharing options...
ritrading Posted December 2, 2015 Author Share Posted December 2, 2015 I guess they did the same strange buyback they did last quarter where they did it all in the middle month. How do you know it all happened in the middle month? Link to comment Share on other sites More sharing options...
LongTermView Posted December 2, 2015 Share Posted December 2, 2015 lol. Hope we're right! In some other corner of the internet there's a group of people asking who in their right mind is long DVD dispensers and coin counters ;) Yeah, it's scary. Arlington's track record is awesome and they were still long at least through the September 30th filing. This is in the too hard pile for me right now. Link to comment Share on other sites More sharing options...
thefatbaboon Posted December 2, 2015 Share Posted December 2, 2015 Ritrading, End of the 10q, page 65 Of the 940k bought back in q3 863k were done in the middle month. Link to comment Share on other sites More sharing options...
siddharth18 Posted December 2, 2015 Share Posted December 2, 2015 Even with a massive buyback so far this year and further indications of continuing buyback, this stock is down ~22% YTD. Where would be in terms of price in the absence of buyback? Link to comment Share on other sites More sharing options...
AzCactus Posted December 2, 2015 Share Posted December 2, 2015 Even with a massive buyback so far this year and further indications of continuing buyback, this stock is down ~22% YTD. Where would be in terms of price in the absence of buyback? Why or how is this relevant? The stock trades at where it trades at. The only question that should be asked is does this present a good value at the present time based on all knowledge available. Link to comment Share on other sites More sharing options...
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