RE:To MeetooWhat happened to change my opinion is that the company's reported cash flow is dropping precipitously. In the last quarterly before I wrote that comment, they were showing approximately $350,000,000 annualized cash flow. This was enough to service the secured debt with some left over. As of the most recent report, that number was reduced to approximately $284,000,000 annualized, which is not enough to service even the secured debt, let alone anything else. But, more important, management is predicting that revenue and EBITDA, and therefore cash flow, will continue to drop, without anything to really stem the freefall until new products are released. Those new products are not expected to start producing revenue for at least a year, and no material revenue before three to five years.
The problem is that this company is not really in control of its own destiny. It has nothing proprietary and is getting hammered by competition, which is why I think that the CMA investigations will lead to nothing. But that is small consolation for what is happening to them.
I believe that all of my previous financial analysis was sound, but it was based upon information from management that, while perhaps technically correct at any given point in time, did not really reflect the severity of the thumping that the company is taking in the marketplace. In my opinion, the story of this company over the last couple of years is just one continuing accounting fraud, which makes the company essentially uninvestible. You basically cannot rely upon anything management says, except for its prediction that the down trend is not expected to ease in this fiscal year.
Based on the last quarterly report, I do not believe that even the senior secured creditors are likely to ever receive 100 cents on the dollar. They will have to take over the company and do whatever they can to maximize their return over many years.
I hate to be so negative, but I cannot see it any other way -- at least in light of the quarterly report of March 8, which I expected to be whole lot better than it was.