What a crazy couple of weeks

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It’s been a while since I’ve posted but I’ve got a kick-ass excuse…trust me.

First off, let’s set the stage. I’m 34 years old. Five foot ten inches tall and 190 pounds. I could stand to lose a few pounds (well, more like 20 of them) although I eat pretty healthy. Two areas I could improve on would be less sweets and smaller portion sizes at dinner. My overall cholesterol is 240 (right on the cusp of being high).

A few weeks ago I had a heart attack. I won’t rehash the story (for what seems to be the 100th time) but it was the classic “intense chest pressure, pain shooting down my left arm” type of attack. One of my coronary arteries was 95% blocked so the doctor put a stent in and now I’m on the road to recovery.

Now…go back and read the first paragraph. I’M FREAKING 34 and in relatively good health!!!! So what now? It’s time to kick it up a notch. I’m going from 34 and in relative good health to: 34 and in amazing health. Obviously it’s not an overnight change. Reversing a couple decades of habits doesn’t happen overnight. The first step: have a plan.

The Plan from 30,000 feet

To maximize my chances of reducing artery plaque buildup I need a four pronged approach of diet, exercise, medication and mental focus. Obviously, the medication part is pretty easy: just keep doing what my doctor prescribes. The diet, exercise and mental part is on me. I could write quite a long post about these three topics but I’ll save some of these topics for down the road. In short, my credo is as follows:

Measure Everything and Laugh Often.

 

More on those two later. Happy Friday everyone!

 

iGo – A Little Good. A Little Bad. A Little Ugly.

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Disclaimer: What I’m doing in this post is not a recommendation to buy or sell stocks. It’s simply what I’m doing with my own personal portfolio. I’m not a stock broker, financial planner or psychic so reader beware!

 

The iGo conference call was a whopping 16 minutes long but I’ve got a page full of notes to go over. DJ…kick it from the top….

Total quarterly rev. $8.6 M vs $13M prior year
   - Drop in sales was due to lower sales in N. America power division
$5.7M loss for the Q which included a 2.3M impairment charge
Revenue breakdown (year over year):
  • Power: $5.7M vs $11.5M
  • Audio: $1.5M vs $640K
  • Accesories: $566K vs $1.1M
  • Batteries $897K vs 0
7.9% gross margins vs 33% – pricing pressure to blame
   - Going forward they are expecting gross margin in the low to mid 20′s
4.1M SG&A down from 5M
  • 1.6M sales & marketing
  • 510K R&D
  • 1.5M – General & administrative
  • 373K in equity comp (good to see they at least aren’t totally pillaging the company coffers while things are going south)

Balance sheet

$15.2M in cash & cash equiv, no debt.
To address the declines in the power sales:
  • New Chargers in a broader range of products slated back half of 2012
  •   – Improved gross margins on these products
And just when we thought everything was doom and gloom…Heil throws us a bone:
Radio shack is discontinuing private label for laptop charger and going back to iGo although sales will not be at the same level as 3 years ago (more on this later)
Medim-lights (neither high now lows IMO)
  • Toys R Us picked up for audio and will continue to sell
  • Larger retailers showing interest in battery and are testing – 2012 of steady growth
  • Chip – Development complete in Q3 (at this point, I’m not factoring this in…it’s merely a bonus)

Q & A session

Timing of radio shack move: will see revenues show up in Q3 and Q4…maybe a tad in Q2
Growth in deferred revenue due to new distribution channels and not recognizing revenue until later in the sales
Caller: “This is embarrasing what you’re doing to this company.”
Heil: “Your comment stands on its own”. Followed up with a comment that they expect to be profitable in 2012

Great…so what next?

A few things to address. First, since iGo started as a value investment let’s approach it from that angle (all data taken from the 8-K SEC filing)

Assets:

  • Cash & Short Term Investments: $15,180
  • Accounts Receivable: $5,813 (we’ll use a liquidation value of 75% - 4,359.75)
  • Inventories: $11,177 (liquidation value of 25% - 2,794.25)
Liabilities excluding deferred revenue: $5,106
Liquidation book value: $17.228M
Current Market Cap at $0.69/share – $23.24M
So we’re not at a net-net *yet* but we’re only 26% away from it. At $0.52 we’re there…and given the tone of today’s call who knows what happens tomorrow.
Next up: Management
Heil is blowing this one. In tonight’s call he sounded flat, unenthusiastic, and really didn’t offer any details other than what was necessary. He could have gone into more detail about Texas Instruments, expected sales from Radio Shack, how things are going with Wal-Mart, what types of product lines they’re getting into for 2H 2012 but no, he just said that Radio Shack is coming back. Not really much to chew on and he also provided no goals or objectives. What are we to measure success by if there is no measuring stick?
The curve ball here comes with Heil’s purchase of $80K worth of shares back at the start of December. The company, one month later, announced that it was going to postpone its earnings release due to the impairment evaluation process. Heil obviously knew about it during the time of the purchase…so: did he buy ~$0.75/share as a token purchase or does he think there’s more to come with the RadioShack deal?
RadioShack
I busted open last year’s quarterly reports and here’s how RadioShack sales came in:
  • Q3: 1,520
  • Q2: 1,035
  • Q1: 505
Back in the FY 2011 Q4 report there was a yearly breakdown of revenues from RadioShack. Clearly the trend wasn’t in iGo’s favor :)
  • 2010: 14.7M
  • 2009: 21.2M
  • 2008: 25.6M
We don’t have Q4 numbers from RadioShack yet but given the performance of the quarter I’d put it below 500K. That leaves us with 2012 revenue in the ballpark of $3.5M. NOTE: Heil said RadioShack is discontinuing private label laptop chargers. That doesn’t mean the batteries or portable device chargers will be in play so we’re not going to assume that. Given that we don’t know the breakdown within the power product line (laptop chargers vs. mobile chargers, etc…) it’s tough to put a potential revenue number on Q3 and Q4 RadioShack sales. Clearly, it’ll be more than 0! Even if we say it gets back to $1.5M / Q in Q3 and Q4 that’s a solid start.
NASDAQ listing status
NASDAQ gave notice to iGo that it has until August 21, 2012 to get its stock price above a buck for at least 10 days in a row. That’s a long way off so I’m not too worried about it for now.
The Verdict and My Plan of Attack
I think this is the low-point for iGo with the caveat that Q1 might come in flat with Q4 or slightly down (depending on if there are residual RadioShack sales in Q4). The audio line continues to grow at a modest pace, the battery line is growing as well and with the return of RadioShack the power line will get back to contributing the lions share of revenues. As I stated in the previous post, if the audio or battery lines faltered it would be foolish to hang around in the hopes that the chip or power division comes to the rescue.
I’m already down pretty significantly from when I re-entered iGo after taking some profits in the crazy run-up to $4. I look at $0.52 as a nice buffer (along with the $15M in cash) assuming Heil isn’t lying through his teeth when he says iGo will be profitable in 2012. We have to take everything he says with a grain of salt since he has set forth no clear deliverable from the company or the management team. Should the stock take a trip into the $0.50′s tomorrow I’ll pick some up. If that $15M cash pile starts to get close to only $10M in cash and management doesn’t set forth a plan…it’ll be time to cut the line and incur a hefty loss.
I’m also looking at some gains with other positions such as FXCM and KRO so a partial sale to offset those gains in FY2012 may be in order as well. Note that I’ll be pouring over the 10K once it becomes available…and shouldn’t we be getting Q1 numbers in a relatively short time as well? What are the expectations there?
Good luck to everyone!

March Update

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Hello World! Lots has been going on over the last month and a half, most of it related to my latest venture. Aside from coding and marketing during nights and weekends I’ve been keeping half an eye on my portfolio, playing some very early season golf and surviving life in the cube farm.

PhotoMonkee

The end of February marked the official launch of the product. While it was an important culmination of 7 months worth of coding it really was just the beginning. After launch comes the tougher work: support, marketing and updates. Thankfully my wife and family are MORE than supportive as I’ve been essentially working this project during nights and weekends. Last night the first customer stepped up and bought a copy. I won’t lie, that felt pretty damn good but again, it’s just the first step. Watching 100 orders a week come in would be more then gratifying…it would be life changing!

Stock Portfolio

While I haven’t had much time to blog about current holdings they are faring quite well with the exception of iGo who’s flopping around in shallow water waiting for Texas Instruments to fill the tank with good news. Tonight is iGo’s (delayed) conference call and I fully expect them to lay out mediocre news on the current sales front but offer very detailed information regarding the chip sales. I’ll be looking closely at battery and audio sales as those two categories could make up for any losses in the power segment…assuming management can figure out how to market them.

ETrade is still underwater but only by 10% or so. I’ve been long ETrade since Oct. of 2008 and honestly I thought their loan portfolio would be a little farther along by now. It’s making great progress but I’m anxious for the loan run-offs to finish so they can get back to raking in brokerage cash. Q4 Con-call notes are below:

  • 13.2B loan portfolio for the year
  • 42% increase in financial consultants for long-term investor division
  • $6M loss
  • $46M charge for 3rd part loan originator
  • $10.8M charge for class action
  • Net interest spread hit this Q’s results
  • Spread compress will continue through FY 2012
  • 15% decline in DARTS QoQ
  • up 5% YoY
  • record low account attrition
  • cautiously optimistic that customer activity will increase in 2012
  • 600-650M / quarter decrease in loan portfolio

HHC – what else can you say? This undervalued beast is back in action as big guns like Tilson are jumping on the bandwagon and publicly touting the virtues of this little spinoff. 2012 should continue to be excellent for this little guy.

KRO – TIo2 is still in short supply. Companies keep buying it. Kronos keeps raising prices. Sounds like a recipe for profits to me! Debating shedding this position in the next couple of months at a nice profit and rolling the cash into our debt reduction plan. Waiting to see what the macro picture looks like first though. Q4 Con-call notes:

  • Q4 demand down (seasonally weak for demand)
  • revenue was triple YoY
  • $157M up from ~70 EBITDA

FXCM – The little broker that could keeps on chugging despite a spathe of bad press from bloggers and other financial media. It’s the same story that’s been around since their IPO. FXCM, the evil broker, is robbing its customers because novice clients are losing money hand over fist. Funny…but I’m pretty sure there are swaths of equities and commodities traders that are losing money in the same fashion when margin calls come to roost. I continue to ignore these baseless reports and focus on FXCM’s business execution. They continue to make great acquisitions at solid terms and expand the white label offerings. The ETrade forex partnership could yield a home run but even a ground-rule double would be a big win. Q4 Con-call notes:

  • 2011 Decrease in volumes in various markets due to new leverage requirements
  • Expecting more white label partnerships in 2012.
  • Expecting to announce a major white label in Europe too
  • Home Run scenario w/ ETrade: if 1.5% of client equity (2.7B) in client equity moved to forex: 400M in trading revenue split between ETFC and FXCM
  • in 2H of 2011 used $23m to purchase 2.1M shares at average of 11.20
  • Regarding shares:
    • Common class A shares: 14,899,391 shares
    • FXCM LLC shares: (exchangable to class A): 57,981,000
    • Total shares: 72,880,391
  • Feb 2012:
  • 16.5B in average daily trading volume: 3rd highest
  • Marketing spend will be down to mid 20′s for the full year.
  • FXCM is estimating ~38M revenue hit due to margin requirement adjustments
  • Potential scale in other two white label deals vs ETFC: same size in terms of potential. Game changer to FXCM.
  • More focused on acquisitions for 1H of 2012 than stock repurchases

Golf

An unseasonably warm March has brought an early start to the golf season. I posted an even par, 71 for my first official round which validated the swing changes I made this off season. One of the big changes included cutting an inch and a half off of my 2008 Taylor Made Burner driver which has yielded straighter drives with no loss of distance.

The first tournament for the season is 6 weeks away. This season I’m going to use periodization to be better prepared for the “major” events. Fitness, practice and mental preparation are the focus areas for the entire season with the overall goal of being in contention for the events rather than just hoping to make the cut.

Next week marks the start of The Masters. Arguably the best week in golf. In case you weren’t aware they broadcast some fantastic coverage live on their website. I’m not proposing you slack off at work…but…yeah what the hell….slack off at work, enjoy the beauty of Augusta National and the games finest players. Your boss won’t mind. He’s too busy watching it as well.

The Cube Farm

My 9-5 job has been interesting over the last couple of months. I don’t think I’m quite at liberty to discuss details but suffice it to say the uncertainty around the office is quite a drain on everybody. I really look forward to the day when I’m self-employed and calling the shots. Having no input into the creative process is maddening.

That’s it for now. I’ll try to put up a little blurb after the iGo con-call tonight. Hope everyone out there is doing well and living life to the fullest!

 

Oh, JOE!

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Becoming a better investor doesn’t mean reflecting on what went right but more importantly, what went wrong. The St. Joe company is a mixed bag of success and failure in my investment approach. I originally picked up Jan 2012 call options ($9.80) last January and promptly sold them roughly a month later for a tidy 21% gain. A few days after selling the options dropped to below my first buy price to ($7.70 and then $6.60). I picked up even more calls than I did in the original purchase. Twice as many. The investment pitch was that David Einhorn was dead wrong, Bruce Berkowitz was right and JOE would come out smelling like a rose.

The problem? Putting a time limit on that success. If things didn’t play out as anticipated before January 2012 the entire idea was null and void. I still think St. Joe is in a sweet position but the whole Eurozone thing and continued bad press about the real estate market and drum beating by pundits ultimately kept the stock price down. Needless to say the options expired worthless. I couldn’t even sell them at the end of December to make use of the capital loss in this years taxes – nobody wanted to buy them!

So what’s the take-away from this rather pricey lesson? A thesis is a trusty aid in picking an investment but when you force yourself into a time constraint you’re bringing a LOT of external factors into the equation that ultimately leave you at the mercy of Mr. Market. Unless the data is truly solid (think earnings numbers) and I’m purposefully looking for a company-driven event to move the stock (earnings release) then I’ll be avoiding options as a value investment instrument and leave them to satisfy my speculative investment needs.

 

Thoughts on iGo

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Yesterday, iGo pre-announced some preliminary numbers for Q4. Let’s take the items of information point by point:

The Company expects total revenue to range between $8.5-$8.8 million for the fourth quarter of 2011

Down from $9.6M in Q3. This ties into the whole “competitive pricing” point that Heil mentions later in the release. Obviously the power segment took yet another hit in sales. The big question I have is if the power and audio segments saw traction or declines.

The Company is currently in the process of evaluating its goodwill and other intangible assets for possible impairment.

 

When I evaluate a companies financial health, goodwill and intangibles aren’t even a factor. These are just accounting games and as such isn’t much of a deal as compared to the sales issues. If the final EPS number is something crazy because of an intangible write-down I’m not terribly concerned. Besides…iGo told us they were going to do this in the last 10-Q. You did read that, right? ;)

The Company expects to report cash, cash equivalents and short-term investments of approximately $15.2 million and no debt as of December 31, 2011.

 

Cash is king. They’re obviously moving inventory to keep cash levels up. Last quarter cash and short term investments was $14.1M. So, they added a million in cash (not bad for a company posting a loss!) Remember, back in Q2 they told us in the con-call that they spent $5M to build up inventories. How much inventory is left will be something to note in the earnings report/con-call.

Rob’s Q4 Napkin math: 

Cash & Equiv:  15.1M
A/R: (est) 5M  (we'll take 3/4 of that in our calc: 3.75M)
Inventories (est) 10M (we'll take 1/2 of that in our calc: 5M)
Tangible Asset Value: $23.85M
Liabilities (est) $4.5M

TBV: $19.35M
Friday's after hours market cap: $21.9M

“We continue to experience highly competitive pricing in the power product market, which negatively impacted our sales and gross margin in the fourth quarter.”

This is a red flag. The power market is iGo’s bread and butter. It’s also the reason we got into this name to begin with. Unless the audio and battery segments start showing signs of steady growth I’m concerned that the original thesis no longer holds. In that case we’re either speculating on the chip (as it appears many are already doing) or betting that the battery/audio lines will be winners. I’m completely throwing Adapt-Mobile out the window as being a contributor to iGo.

 

“We continue to be optimistic about the possibilities for the iGo Green chip, particularly in light of new standards for battery chargers adopted by the California Energy Commission (CEC) last week. The CEC’s new standards, which will go into effect on February 1, 2013, will require battery chargers for devices such as mobile phones and laptops to consume less energy while providing the same performance.”

Keep riding that chip pony. This is another red flag. Heil’s asking us to speculate that the company will be wildly successful after missing the Q1 target. Furthermore, there was no mention of the battery and audio business performance. Which, if they were highlights, would have nicely offset the bad news in this report. My guess (emphasis on guess) is that those businesses were flat. Here’s the sales breakout from last quarter:

 

 

 

Conclusion

iGo is my largest holding so the question here is (to quote the CNBC talking heads): “would you put more capital to work here?”. Clearly at $0.65 / share iGo is a candidate for a value play but that’s on the assumption its losses don’t continue. I don’t think Heil will run the company into the ground but he’s not a consumer product genius either. As previously stated, I’m more focused on debt reduction so I’m not jumping (deeper) into iGo unless the valuation goes bat-shit crazy (think sub fifty cents). Holding tight with what I’ve got and eagerly awaiting the business segment breakout when the company reports.

And please Mr. Heil…let’s tout solid company performance in the next press release, not hopes and dreams of what might come someday…maybe.

Lots of reasons to sell…

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In 2012 I’ll be selling some positions and parts of positions. I kicked off the sell-fest yesterday by dumping my BAC position. No, I don’t think the market will tank in 2012 but rather my wife and I are going to try and eliminate some debt to free up cash flow on a month-to-month basis. As of now I don’t have any other reason for selling my positions than “personal reasons”.

Why then, do people freak out when a CEO or some other officer of a company sells their shares for “personal reasons”? As long as there isn’t a massive pillaging of shareholders (ala Salesforce.com) insider sales aren’t the end of the world. We need to look at insider sales in the context of what other officers in the company are doing, recent company events and the health of the business.

How about the other side of the spectrum? How often does an officer of a company buy their own shares for something like tax planning purposes? They’re buying the shares for one simple reason – they think the price will go up. That doesn’t mean a company officer has some kind of crystal ball and can predict with 100% certainty. They do, however, have reason to be more certain of their optimism than we do as company outsiders.

Of course, a holding of mine has seen some pretty hefty insider buying over the last 6 months with close to $10 million in purchases. That’s quite a vote of confidence and something worth paying attention to.

“I should have….”

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A stock you own goes up 30% and you remark: “I should have bought more!”. A stock you own goes down 30% and you remark: “I should have sold it”. Hindsight is a bitch, isn’t it? When you catch yourself remarking what you should have done, take a moment to reflect. Did you even consider selling or purchasing shares back when you “should have” done so? If not, what did you miss? If you did consider making the transaction, why did you pass on it? In both cases, take a hard look and evaluate if you made the right decision at the time. Unlike Biff Tannen and Doc Brown, you don’t have the luxury of a Delorian.

The more interesting scenario is when you miss a piece of information that was available to you but wasn’t part of your decision. Now’s an opportunity to evaluate your sources of information, expand them and make sure your bases are covered.

If you had the information but simply neglected to act on it, or actually evaluated it incorrectly you can chalk one up for the other team, you simply were wrong. Don’t worry, it happens. Of course, this is all predicated on the assumption that you are wrong and the market is reacting to the information in the correct behavior. Case in point, you’re short a company on the thesis it’s a dying business but the company has a good quarter due to unusually high holiday ordering. You might still be right in the long term…don’t mix up short term signals with a long term thesis.

Some households have the “bad word” cookie jar, filled with quarters from violations of using some choice words. “Should have”, and its variants, are $1 cookie jar items for the value investor. Next time you, or someone you know, reflects negatively about the transaction that wasn’t made, take a moment to reflect.

 

An interesting nugget from the iGo 10Q

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I’m reading through the iGo 10Q for a second time (trying to find a reason NOT to buy more shares down at this level) when I noticed this nugget:

“We also have initiatives to expand our distribution beyond consumer retail with the intent to sell products into the enterprise, government and education channels.”

I like this strategy a whole lot more than trying to beg the big-box stores to let their products rot on their shelves. It’s nice having Wal-Mart as a partner but realistically, I’d rather see direct sales to organizations than a retailer. Probably better margins too…

Just something to consider.

What’s up?

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Not the stock market, that’s for sure. I’ve been sitting on the sidelines, doing lots of reading and watching the media driven pandemonium get everyone in a ruckus. Over the last couple of days I read The Little Book of Currency Trading, not to get back into forex but rather to find out how someone who’s successful at it pulls it off. The quick takeaway: it’s got to fit your personality. Clearly the author enjoys looking at charts all day, staying very connected to the market and enjoys the thrill of trading. While I do enjoy the feeling of seeing an investment/trade going in my favor (who doesn’t?) I really can’t look at a chart all day and have the patience to wait. To me that’s like sitting at a craps table and watching the action while you wait for some magical setup to occur. Know what you’re capable of, and excel at it.

Scott Grannis has been pumping out tons of fantastic content that paints a more accurate picture of what’s going on with the good ole USA that completely laughs in the face of a recession. Combined with excellent numbers coming in from railfax, the ASA index and weekly claims holding their ground, I’m happy to watch prices dip as fundamentals improve. I’m keeping an eye on iGo and ETrade to add to my positions as they dip throughout the “crisis” (seriously, calling it that seems so silly).

In other news:

I’ve been continuing to code feverishly on a side project that I’m pretty excited about. I’ve been showing it off to friends and family and have received some positive feedback thus far. It’s still a solid month and a half (I’m targeting end of this year) away from being feature rich enough to sell but I’m working feverishly to that goal. Sticking with the theme from “know what you’re capable of” I’ve solicited a good friend of mine to take on the marketing and sales effort so that I can do what I do best: create a great product.

The golf season is winding down. This weekend will probably be the final round and I’ll get the pleasure of playing it with my son and brother. Should be a super fun afternoon. This off season will be filled with plenty of putting and chipping practice in my basement with the occasional trip to hit balls at an outdoor heated range nearby.

What’s more fun that playing video games? Playing video games with your kids!  finally canned my WoW account after it was locked out due to some credit card fraud. I’ve been playing it for something like 5 years now and it’s definitely become stale. Since canning WoW I’ve been playing Dungeon Defenders with my son. It’s been a lot of fun and for $15, how can you go wrong? The replayability is huge, it’s got seamless drop-in/drop-out coop. Pick it up on Steam and enjoy.

Viva Le Video Games!

Regaining Copmosure

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Fourteenth hole of a scramble tournament. Pretty strong downwind, right-to-left, wind on a long par 4. Our group had two ladies, another gentlemen and myself. I watched the first tee ball sail out of bounds, which meant mine needed to find the fairway and be long. I hoisted the tee shot up into the air, right down the middle….and then the wind hit it. At the top of the arc the ball took a sharp right turn and headed for out of bounds, which happens to be the entrance road to the course.

Smash.

Right into the windshield of an unsuspecting Prius driver who was on her way out of the premises. After making sure she was OK, apologizing profusely and exchanging information I scampered back to my group. One of the ladies had managed to get her drive about 150 yards into the left rough with some low hanging limbs in front of us. The other three players in the group had already hit with the best shot still 150 yards from the green….we needed a par to keep the bogey-free round going.

As I was walking away from the scene of the errant tee shot the kind woman said to me “now go hit a great shot!” (seriously, the woman was gracious beyond words considering what my tee ball had just done to her car!). I don’t know how but I managed to thread a 4-iron under the tree limbs, up the hill and right to the front edge of the green. Maybe the best shot I had all day. I honestly think everyone expected to watch me hit the ball 15 feet with what just happened.

I’m humbled admitting I damaged someone’s property with a golf ball but I took away the confidence of knowing I can regain my composure and execute a clutch shot.

Oh – and I’ll never underestimate cross winds again.