VISI - Volt Information Sciences

[APG12]

Does anyone else have a position in this interesting special situation? Here's a link to the VIC write up (and I've attached it in PDF form for the unregistered): http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/99576

 

There's also a Cooper Creek write up floating around that has essentially the same information. I did my own analysis and came to the same conclusion as the VIC write-up, although my estimated tangible book value is in the $8-9 range as opposed to their estimate of $13. It just doesn't make sense for a staffing firm to trade below book value and so I think the TBV provides solid down-side protection. The biggest risk to the thesis, in my opinion, is the rising level of debt. However, if the company finishes their restatements within the next year or so, the debt shouldn't be much of a problem.

 

Also, former CEO Steven Shaw just resigned from the board and I'm not sure what to make of the news.

VISI_VIC_Writeup.pdf

[APG12]

Well there doesn't seem to be much interest on here for this idea, but if anyone is going to get interested, now's the time.

 

Check out this line from the financial update released this morning (emphasis mine):

 

During the first nine months of fiscal 2013, the Company disbursed approximately $35 million in connection with the restatement and related investigations (with substantially all such costs now disbursed), generated approximately $13 million from all other operating activities, used approximately $7 million for capital expenditures, and increased borrowings under the short-term financing program by approximately $20 million.

 

It looks like they've finally started wrapping up the financial restatements. Considering this massive overhang that's been depressing the stock for 4 years is finally being resolved, one would think the stock would trade a bit higher today. This looks like a good opportunity to pick up some shares.  8)

[17thstcapital]

Thanks for posting. Question - what is the current EBITDA run rate and how can you bridge it to base case in the writeup?  I tried but given the cryptic disclosure, wasn't able to do it. If they can get to $45-50mm level, stock's probably a bargain. 

 

I also don't see any downside in waiting for a Q or two to get more comfortable with the turnaround - might miss the bottom but given the upside potential here, there should still be plenty of money to be made.

[APG12]

Thanks for posting. Question - what is the current EBITDA run rate and how can you bridge it to base case in the writeup?  I tried but given the cryptic disclosure, wasn't able to do it. If they can get to $45-50mm level, stock's probably a bargain. 

 

I also don't see any downside in waiting for a Q or two to get more comfortable with the turnaround - might miss the bottom but given the upside potential here, there should still be plenty of money to be made.

 

My estimated annual EBITDA over the last 5 years is $35mm. YTD cash from ops before interest and taxes (my proxy for EBITDA) is about $25 million. Obviously cash numbers fluctuate so I take that with a grain of salt. Also, the company is exiting unprofitable business lines so they're probably going to start earning an above average amount of cash as they unlock their working capital. As far as waiting a quarter or two, that may be a good strategy but I decided not to wait. They may well release the completed financials within the next quarter or two. Of course, the stock didn't really react when they released the 2010 financials. Who knows? With the restatement likely being completely wrapped up within 12 months, I don't want to bother trying to time it down to the quarter. I always buy too early anyway so why stop now?  ???

 

Their announcement today is the first indication of completing the restatements that they've given. I think the lack of stock price activity today is evidence of the fact that this isn't on anyone's radar. It doesn't make sense for two very similar staffing companies to trade at identical enterprise valuations yet one actually has about twice the revenue of the other as well as other business lines possibly worth a significant chunk of EV.

 

With respect to their debt level, it's high. I think that with the working capital from downsizing, peripheral businesses, reduced restatement costs going forward, and the ~40 million or so they have tied up in their west region headquarters building, there is a margin of safety- although it's lessening every quarter this restatement goes on.

[APG12]

Welp, the stock is up 20% today on no news. Could be a delayed reaction to their filing. I would have expected this jump on the 10th but I guess that was the buying opportunity. Hopefully some of you got in then!

[APG12]

Volt released their 10K and is now up to date through 2012: http://www.sec.gov/Archives/edgar/data/103872/000119312513444053/d576658d10k.htm

 

2012 EBITDA was less than my estimates. The 30% rise in share price and addition of net debt has resulted in EV multiple expansion. At $10 I think the easy money has been made. It's too bad no one else was interested in this, it didn't take very long to work out! Anyways, I'm out of the stock now and not going to be following the situation regularly. OK I can stop talking to myself now.  :P

[usdtor05]

Not sure if anyone is following but very interesting security.

 

$15M buyback announced today and earnings coming tomorrow AH.

[usdtor05]

Anyone following this turnaround situation?

 

New Board and CEO: Activist investor revamped the incumbent family-dominated board. New CEO, Michael Dean, used to work for Michael Eisner and Bog Iger at ABC/Disney. He's turned around companies before and sold them.

 

Sale of Non-core Assets: In the last year, the company has sold its Computer Systems business and its Uruguay publishing business (why the hell they had this I don't know) which were both money losing businesses and the Computer Systems business was the source of the multi-year audit restatement. This leaves Maintech as the only remaining "non-core" business in the Other segment. This business is profitable and likely does $3-4M per year. On the last conference call, mgmt alluded to the idea that this business could be on the sell block as well. (maybe worth $30-40M?).

 

Substantial Balance Sheet Improvement: Company has $40-50M building in Orange County it is in the process of selling which will free up substantial liquidity on its balance sheet. Additionally, the company has a $17M tax receivable it should be getting in the next 6 months and >$20M of insurance deposits it is working to get back from the insurance company and replace with a letter of credit. Maybe they will restart the buyback or do a tender after the building is sold?

 

Business Turnaround: We have yet to see revenues really stabilize, but the company does business with many Fortune 50 companies and I don't think the core business is broken, it has been badly managed for years. New CEO has started a number of initiatives to stabilize revenue and get it growing again. His goal is to get to 2-4% operating margins on the entire business (inclusive of corporate). It is likely going to take 6-9 months before it really shows up in the numbers, but he is making the right moves to get this business going again (investing in new technology to win custoomer RFPs, investing in the sales team, bringing in people with more staffing experience, driving a change in culture, etc.).

 

Valuation: A stable to growing staffing business here with 3% margins is probably worth at least $350M. With the building likely bringing in net proceeds of $35-40M, and Maintech value of $30-40M, this should provide a minimum of 50% upside to the equity.

 

This situation is definitely getting better not worse but you couldn't tell from the stock price.