RE:RE:RE:RE:It’s time for a turnaround!jdsd0517 wrote: That's just plain wrong!
When looking at operating cash flows, you MUST include working capital changes, especially those related to growing a business like AR. These reflect cash that is consumed in that growth, and in many cases are a permanent use of cash. This cash frees up only with improvement in working capital ratios. If you want to exclude working capital changes, use EBITDA.
Secondly, they have pre-announced a REVENUE run rate of >$100mn, they have not provided a specific EBITDA forecast, just a few metrics. Don't confuse those two metrics!
Stock still looks expensive, Assuming the following:
- opening operating CF of $32million (LQA)
- operating CF growth of 50% per year for 10 years (organic and inorganic)
- operating CF growth of 10% per year thereafter in perpetuity
- annual equity increase of 10% per year
- a required rate of return of 25% per year
This thing is worth $4-5 today. So bottom line, it is fairly valued.
If you want to challenge the assumptions, feel free. But note that I have been very generous on the equity increase assumption.
For, you're just not looking at the right information... Straight from their Q3 release:
"
WELL expects to end the calendar year with proforma annualized revenue run-rate approaching $450 million and Adjusted EBITDA(2) run-rate approaching $100 million." My numbers were correct... The more recent news release likely point out to higher run-rates than those forecast in Q3. I would also point out that annual EBITDA minus taxes and interests is a pretty good proxy for cash flows that is likely more accurate than projecting one quarter going forward where you'll get some artefacts mixed in, especially for a growth business. That would mean a projected $100M in cash minus around $15M in interests, or $85M in cash flows as a run-rate. Keeping that same run-rate next year would mean stable ARs, so unless you want to inflate that $85M with growth, working capital would be stable since it doesn't include any growth.
Any growth will grow that cash flow run rate further, although while they grow you get one time hit as both ARs and APs go up. If you assume 20% organical growth straight up on those numbers, you'd have $540M in refvenues, $120M in EBITDA and an increase in working capital around $5M. Resulting cash flows for next year would be $100M ($120M - $15M for interests - $5M changes in working capital). However, if organical growth was to stop afterwards, it would bump cash flows up to $105M as changes in working capital are the equivalent of one time items while growing or shrinking.
Going back to changes in working capital, you'll have to notice that they were (10,731) for Q3 while being (4,460) for nine months in the last quarter. Also, APs were lower instead of higher. Add this to the one time nature of ARs/APs: they only increase/decrease for the "growth" part and then they don't for all future quarters... and this can lead to serious miscalculations either underevaluating or overevaluating cash flows. So, I'll still disagree with you about including working capital cash flows.