CLRO - Clearone Inc.

[AchilliesValue]

One of my favorite places to look for ideas is companies that are buying their shares back like crazy.  That's how I found Clearone. Basically they have a market cap of ~$60 mil and an enterprise value of ~$45 mil.  On January 16th they announced that the results of an arbitration with UBS involving auction rate securities in which UBS was ordered to pay $45 mil to Clearone.  The payment is subject to a 15% fee for legal council meaning that Clearwire will receive $38.25 mil.  Following the ruling the board increased the share buyback program from $3 mil to $10 mil.  The original $3 mil program has around $2.5 mil left on it as of the last filing. 

 

If I'm doing my math right they just received ~$38mil in cash, they had ~$14 million in cash in their last filing, and no debt.  So even with the share run-up when the 10-k comes out the new enterprise value should be ~$8 mil for a company that did ~$5.4 million in FCF in 2011 and has TTM FCF of $6.2 mil (yahoo finance).

 

However, I have little to no experience with arbitration proceedings is there a risk of appeal here?  Also the operating business itself seems pretty decent as they are the market leader in video conference services and have consistently been growing FCF.

 

[Hielko]

Might be an interesting idea, but two comments:

 

* Don't forget taxes, probably 35%, so $38 million will be ~$25 million

* Company is small and not very liquid: it's going to take them probably a long time to buyback $10 mil in shares

[AchilliesValue]

Conference call and earnings release today. 

 

Positives

Cash on the balance sheet is $55.5 mil with a market cap of $60.85 mil and no debt leaving enterprise value of $5.35 mil.  This leaves EV / Adjusted EBITDA at 1.87.

Adjusted EBITDA and FCF positive and growing

Increased buyback to $10 mil

 

Negatives

Management seems keen to use the money for acquisitions rather than pay a dividend

Buyback wasn't able to happen in Q4 due to blackout from legal settlement

Flat Revenue

 

Probably not a long term buy and hold still as soon as the 10K is filed its gonna start popping up on everyones value screens as a FCF Positive company with an EV near zero.

 

Disclosure: long

[17thstcapital]

 

Cash on the balance sheet is $55.5 mil with a market cap of $60.85 mil and no debt leaving enterprise value of $5.35 mil. 

 

Just a slight clarification - as mgmt mentioned on the CC, cash after taxes paid will be ~$40.7mm

[Packer16]

If the management is going to do acquisitions in this space I would be leery.  I valued recurring revenue for a competitor and the value was low due to low retention rates from lower overhead competition.  A number of firms we performed valuations for went into BK as the service they provided was high cost due to overhead versus mom and pop type firms.  From the 10-K I cannot tell what portion of the business is recurring service in nature.  Even though they have generated positive FCF, 2011 numbers include a one-time litigation award.  The hardware end of the business is also difficult and dominated by Polycom and Tanberg in the DIY side of the business.

 

Packer