Category Archives: Company Analysis

Richardson Electronics – $RELL

I noticed that Richardson Electronics was listed on the Grahamian Value site here.

I thought that since that I couldn’t find any write-ups, it would be a good opportunity to share some unbiased thoughts.

Overview

Market cap almost 60mil and EV under 20mil.

Background – from the website

Richardson Electronics, Ltd. is a leading global provider of engineered solutions, power grid and microwave tubes and related consumables; power conversion and RF and microwave components; high value flat panel detector solutions, replacement parts, tubes and service training for diagnostic imaging equipment; and customized display solutions. We serve customers in the alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. The Company’s strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair through its global infrastructure.

The company is bumping around break even and has been that way since 2011.

They sold a part of the business in 2011 (RFPD) for close to 240mil.

Business Segments

There are 3 distinct business segments. PMT is by far the largest.

PMT

Power and Microwave Technologies Group (“PMT”) combines our core engineered solutions capabilities, power grid and microwave tube business with new RF, Wireless and Power disruptive technologies. As a designer, manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair—all through our existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.

This part of the business has been quite consistent. They consistently generate stable gross margins and revenue has slowly risen over time.

Canvys

Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer long term availability and proven custom display solutions that include touch screens, protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages and certification services. Our volume commitments are lower than the large display manufacturers, making us the ideal choice for companies with very specific design requirements. We partner with both private label manufacturing companies and leading branded hardware vendors to offer the highest quality display and touch solutions and customized computing platforms.

They have worked hard to grow this part of the business since 16/17. Revenue is up and gross margin is heading in the right direction.

Healthcare

Healthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes; CT service training; MRI coils, cold heads and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we believe we can help our customers improve efficiency and deliver better clinical outcomes while lowering the cost of healthcare delivery.

This is the smallest and least profitable part of the business. On the last conference call it was made clear that this part of the business will run operating losses while the invest in growing the business. They are looking to grow their presence in CT and MRI tubes. They expect to lose 4-5 mil per year for the next year or two.

Balance Sheet – Current Assets

When you look at these net-nets it’s important for me to take a look at the make-up of the current assets. I want to make sure the business isn’t just building inventory or accounts receivable that won’t be converted into cash eventually.

Cash has come down substantially since 2012.

You can see that the cash has slowly dwindled over the years after the sale of RFPD.

Share structure

They have 17mil common and 3mil B shares approved. There are 11.1mil and 2.1mil currently outstanding. B shares hold 10 votes and get 90% of the dividend of the common stock.

The CEO owns all the B shares and controls voting outcomes.

CEO & Compensation

The compensation does not seem very high relative to the amount of revenue. The CEO gets a little over a 1mil per year on a business that does 150mil annually in revenue.

The CEO (Edward Richardson) is 78 and has been CEO for over 40 years.

He is also the Chairman of the Board.

Per Share Numbers

When looking at these asset based valuations, it’s important to make sure that the asset base is not falling dramatically. As you can see, we have seen the NCAV has gone from over $10/share to $7.28 currently.

You can see the drop in revenue per share after the sale of RFPD/

5 Year Summary

When looking for some mean reversion in sentiment (and the business performance) I think it’s important to take a look back over a reasonable timeframe to see how the business has performed.

  • Bus Perf fiscal 2016-20
    • Divis – 15.5mil
    • EBIT – (-)11.5mil
    • EBITDA – 3.2mil
    • CFFO – 6.6mil
    • FCF – (-)14.4mil
    • WC change – 20mil removed

On the most recent conference call it was made clear that there will be no large buyback or special dividend.

Conclusion

Many proponents of net-net investing will reference back-tests showing how well the strategy works. I can tell you that I am drawn to buying cheap business and have a natural contrarian streak. Having said that, I have to be honest with myself. I don’t think I would be able to hold RELL for another 12-24 months while it continues to lose money and eat into the cash balance in the hopes of a turnaround.

Anyone else look at RELL before?

Thanks,

Dean

*the author has no position in RELL

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Sylogist Ltd. – $SYZ.v

It’s been a minute since I posted. Been busy moving and setting up school/childcare during covid. Here is a company I have been following for about a year.

Head over to TIKR Terminal. It’s where I get many of the charts I insert that aren’t excel based. Their financial data has been correct so far (and that’s rare for small Canadian companies).

https://app.tikr.com/register?ref=smob7c

Background

  • Price: $10.81
  • Shares (diluted): 23.771 mil
  • Market Cap: 257mil
  • EV: 215mil
  • P/S: 6.9
  • EV/S: 5.8
  • P/EBIT: 17.8
  • EV/EVIT: 14.9
  • P/FCF: 17
  • EV/FCF: 14.3
  • Yield: 4.6%

Sylogist Ltd., a software company, provides enterprise resource planning (ERP) solutions to local governments, non-profit and non-governmental organizations, education boards, and Districts and Defense and safety contractors in Canada, the United States, the United Kingdom, and internationally. It offers Serenic Navigator solutions that comprises accounting and financial management, award and budget management, payroll and human resources, analytics and decision support, reporting, deposits and loans, and field connect products. The company also provides NaviPayroll, an integrated payroll management and human resources solution; NaviTrak, a manufacturing and distribution solution; and NaviView terminal, a touch-screen terminal that runs various application. In addition, it offers NaviNet that captures data from various shop floor systems and data collection devices, and distributes processed data to a multitude of systems, including ERP and enterprise systems; and NaviBridge, a suite of integration and administration tool to setup, integrate, monitor, and manage data transfers between ERP and legacy systems, distributed mobile systems, and Web-based applications. Sylogist Ltd. was incorporated in 1993 and is headquartered in Calgary, Canada.

Business History

The company has found a niche with several different options for non-profit, education and government. The majority of contracts roll over and there is little customer churn. The business has grown consistently with strong gross margins. There has been some volatility in operating expenses. These have come from acquisition integration, employee compensation, and (to a lesser extent) foreign exchange.

As you can see the subscription amount has been consistently rising.

Pivot in Strategy

In July they announced a new credit facility for 40mil. Couple this with the 40mil in net cash and you get about 80mil in available capital for acquisitions to grow the business.

Along with the CEO retiring, they have announced new board members to replace two members who stepped down. Both have experience with the fast growing SaaS businesses and structured deals.

At the AGM in August, it was mentioned a few times that the intent is to grow this business via acquisition. The business is stable and generates consistent cash each year. They managed to execute an acquisition during covid lockdowns. That is no easy task. To me this shows the focus on growth at the moment.

Compensation

I’ve chatted with a few investors about this name and why it doesn’t get any attention. The first thing mentioned was the compensation paid to the (now retired CEO) and Exec VP. Below is from the MIC, emphasis mine.

Overall expenses net of interest income for the first quarter of fiscal 2020 of $15.6 million were $10.8 million higher than the same period in fiscal 2019. The increase was mainly driven by a one-time $12 million buyout of the historic executive compensation arrangements. Effective October 15, 2019, the new compensation arrangements for the Company’s Chief Executive Officer and Executive Vice President provides for annual incentive bonuses based solely on strategic value improvements in the Company going forward, including incremental improvements, if any, in consolidated revenue and Adjusted EBITDA for the current period or subsequent higher performance levels in ensuing fiscal years such bonuses not to exceed 150% of base salary in a given year. In addition, in consideration of moving forward under new arrangements, the executives agreed to reduce their change of control compensation, calculated as a percentage of the Company’s fully diluted market capitalization, (i) by 50% and (ii) to a total collective limit of $15 million (such limit being achieved should the market capitalization at the time of a change of control exceed $500 million). Cost of sales of $2 million was 10% lower than the same period of prior year due mainly to cost reductions associated with the Company’s workforce efficiency initiative that was conducted in the third quarter of fiscal 2019. General and administrative expenses of $893 thousand were 16% lower than the same period last year due mainly to fewer office leases and the departure of the Company’s Vice President, Corporate Development and Investor Relations at the end of fiscal 2019. Executive bonuses of $102 thousand, reflected bonuses up until the change to the Company’s executive compensation arrangements, were 84% lower, as compared to $628 thousand in the same period in the prior year. Professional fees increased to $138 thousand compared to $94 thousand in the same period in the prior year. Sales and marketing of $176 thousand decreased by 69% compared to the same period of the prior year due mainly to the Company holding a major conference the first quarter of fiscal 2019 and no comparable conferences in the first quarter of 2020, as well as fewer sales and marketing personnel. Product research increased by $56 thousand or 15% compared to the same period in the prior year.

This is no small sum of money for a company this size. They have taken steps to eliminate this going forward. This is something a shareholder will have to get comfortable with regardless.

Subsequent to its fiscal 2019 year end, Sylogist announced certain changes to its executive compensation arrangements effective October 15, 2019. These new arrangements provide for annual incentive bonuses based solely on strategic value improvements in the Company going forward, including incremental improvements, if any, in consolidated revenue and Adjusted EBITDA for the current period or subsequent higher performance levels in ensuing fiscal years (high water mark), such bonuses not to exceed 150% of base salary in a given year.

For fiscal 2019, the Company reported Adjusted EBITDA of $17.6 million, which included executive bonuses of $3 million. With those bonuses eliminated, fiscal 2019 Adjusted EBITDA would have been approximately $3 million, or 17%, higher for total Adjusted EBITDA in that period of $20.6 million, or $0.91 per share, the new high water mark for executive bonus calculations going forward.

These new arrangements are anticipated to effectively increase Adjusted EBITDA by a minimum of $3 million dollars annually as the Company’s performance improves. As previously announced, to facilitate this change and for the Company to realize significantly enhanced Adjusted EBITDA into the future, the Company paid executives a total of $12 million, or less than 4 times the total 2019 earned executive bonuses. The Sylogist board views the new executive agreements as highly accretive to shareholder interests.

Given the new CEO has not been announced yet, I wouldn’t be surprised if they don’t quite hit the high water mark. The MD&A states that acquisition integration can take 18-24 months. So one could paint a picture that in late 2020 and 2021 we could see the start of more acquisitions.

Risks

  • searching for a new CEO
  • covid (and resulting lockdowns/restrictions)
  • they could fumble potential acquisitions
  • the company has traded cheaper before, so there could be a “re-rating” to the downside

Conclusion

A fair bit of capital to play with. Reasonable valuation. Recurring cash generation. Yield gets you paid to wait.

Anyone else follow this company?

 

Thanks,

Dean

*the author is long (a very small amount of) SYZ.v at time of writing

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Buy and Hold Quality Forever? Viemed $VMD.to

Congrats. You did it. You found a company (thanks to Chip for pointing it out) that no one was really looking at and put a decent amount of money to work when it mattered. You held onto it through ups and downs all along the way there were doubters to the story. You may have trimmed along the way, but it’s still a larger part of your portfolio than you would like and no longer a cheap company.

We will take a look at my real life example in Viemed – $VMD.to.  It’s less a profile of a company and more of a place to store my thoughts and look for feedback from others. This will be a quick one.

Backstory

Viemed was originally split from a Healthcare roll-up darling in Canada Patient Home Monitoring. It was purchased by Patient Home Monitoring in 2015 and eventually traded on the Venture in Dec 2017 after the split. PHM has a colorful history that was part of the reason the opportunity presented itself.

Viemed Healthcare, Inc., through its subsidiaries, provides in-home durable medical equipment and health care solutions to patients in the United States. The company offers respiratory services and related equipment, including non-invasive ventilators; bi-level, continuous, and automatic continuous positive airway pressure (PAP) machines; and oxygen units, as well as services of respiratory therapists; and respiratory disease management, neuromuscular care, and oxygen therapy services. It also provides in-home sleep apnea testing services to determine the existence of sleep apnea at home. In addition, the company leases non-invasive and invasive ventilators, PAP machines, percussion vests, oxygen concentrator units, and respiratory equipment, as well as sells medical equipment and/or patient medical services. Further, it provides therapy and counseling to patients in their homes using its technology. The company was founded in 2006 and is headquartered in Lafayette, Louisiana.

The company has a high touch service model that send Respiratory Therapists into the home, mostly for the proper use and monitoring of non-invasive ventilators (NIVs). This high service model helps the company separate itself from local and larger competitors.

Their service of treating patients in the home has proven to extent life and reduce hospital re-admission. This is a win for the patient’s quality of life as well as reducing costs to treat patients.

High Growth with lots of TAM

They have been specifically focused on stage 4 COPD that are candidates for their therapy. We all know the demographic profile of the US is a tailwind for this type of service. Despite the growth in recent years, they estimate to have about a 5% NIV market penetration.

There are opportunities to increase presence in existing states, expand into new states, expand product offerings, as well support patients that aren’t quite as severe as stage 4 COPD.

Management & Execution

Casey Hoyt (CEO) and Todd Zehnder (CFO) stayed on after the split from Patient Home to run the business. Both have proven to be excellent operators. Below is a list of accomplishments since early 2018.

  • surveys to educate their stakeholders on the value of their service – I’m refering to a KPMG and Harvard Medical School study
  • investor calls early on to tell the story
  • investing heavily to support patients remotely
  • Veterans Affairs contract win
  • growing in existing states and expanding into new ones
  • have growth in other products
  • providing PPE products during pandemic – this shows how quickly they can respond and is a nice bonus for shareholders
  • actively diversifying payor base and reducing their risk from a Medicare reimbursement cut
  • US listing

You can see they have been busy in just a few years.

Conclusion

This is all great, but with a market cap of over 500 mil and many institutional eyes on this, my edge of dealing with small illiquid companies has eroded. I will have to pivot my thinking if I continue to hold shares.

For me, VMD still warrants a position, albeit smaller. I have trimmed to where it is a less meaningful part of my portfolio. They want to be the largest respirator company in the US long term. That’s quite ambitious, but does provide some context to the long term plan for the business. They seem to have the runway and the strong leadership. I will be curious to see how they manage acquisitions if they do go down that road. There are risks to the business for sure.

In the past I have tried to model out the future with a couple of different scenarios. Those models never seem to work for me. I’ve posted it below for entertainment purposes. This model doesn’t include any (temporary) sales of PPE made during the pandemic.

At the end of the day, this is a business with a long runway and a solid management team. Valuation is not cheap, but I think with a long enough time horizon it’s worth having a position.

Anyone else own Viemed?

Thanks,

Dean

*the author is long shares of Viemed at time of writing

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