Aren't they still bleeding cash? It's hard to see the track record of buying profitable businesses beneath all the red ink. What am I missing here? Thank you so much.
Thank you for your question Smaug, here are my thoughts:
If you look at the trailing 9-months operating cash-flow less capital and intangible investments, you get +$6.0M. If you subtract ($8.7M) in interest payments you get ($2.7M). However, this doesn't factor in any of the following: (1) $7.7M in non-recurring costs incurred in the last 9 months related to project costs, severance, and going public (profit next year should be higher by these amounts); (2) the full reduction in salary expense related to the staff reductions; (3) the expected reduction in interest expense due to recent debt pay-down.
So I don't agree they are bleeding cash and, after you factor in the above, I believe they are likely to be cash generative going forward. That's why I've been a buyer recently.
This is really great, I am new to using financial statements and wanted to ask if you had any resources, tips or books to get better at recognizing stuff like the above? Thank you so much for the thoughtful reply.
Analysing financial statements is maybe the only thing I didn't teach myself -> my career is as a designated accountant so I have worked 10+ years, preparing, auditing, and analysing financial statements and data.
I think you need to establish a solid base and then practice a lot -> reading quarterly and annual reports.
Aswath Damodaran is a professor at NYU that shares a lot of his classes & content for free. He has an accounting 101 series that is fairly short, linked below. I haven't watched these particular videos, but I have watched a lot of his content in the past.
Also, sorry follow-up question: for annual reports are you lining two of them next to one another and looking for differences or changes? Like a new footnote, or how do you approach reading these huge documents?
I'm not doing much side-by-side comparison between two annual reports because they have YoY financial comparisons in the financials.
If you're new to reviewing reports you probably want to read the entire thing, especially for a company that is new to you. There is a lot of good info in them and it will build your knowledge of where the important info is and where it isn't. Once you've read a few reports on a company it is easier to skim subsequent reports, as a lot of the info is the same YoY.
Some of the important stuff (off the top of my head) are the financials (financial health, profitability, cash generation excl capital purchases and capitalized intangibles); commentary on YoY variances; subsequent events; notes describing what is in certain balances i.e. debt, property plant and equipment; customer concentration; CEO messages; what makes up different types of revenue (segments); business description.
Often the risk sections you can skim through as you should know what the risks are based on the business model and customer concentration.
The concept you have clearly elaborated here is that of cloning as encouraged by Mohnish. Andrew and Chris appear to be good capital allocators and I agree with you, Tiny looks like a good LT compounder. Great analysis and good read as always Curious Investor :)
Aren't they still bleeding cash? It's hard to see the track record of buying profitable businesses beneath all the red ink. What am I missing here? Thank you so much.
Thank you for your question Smaug, here are my thoughts:
If you look at the trailing 9-months operating cash-flow less capital and intangible investments, you get +$6.0M. If you subtract ($8.7M) in interest payments you get ($2.7M). However, this doesn't factor in any of the following: (1) $7.7M in non-recurring costs incurred in the last 9 months related to project costs, severance, and going public (profit next year should be higher by these amounts); (2) the full reduction in salary expense related to the staff reductions; (3) the expected reduction in interest expense due to recent debt pay-down.
So I don't agree they are bleeding cash and, after you factor in the above, I believe they are likely to be cash generative going forward. That's why I've been a buyer recently.
I also called out in a tweet that I think their Digital Services segment may be near cyclical lows. You can read the tweet and details here if you're curious: https://x.com/stephendebeir/status/1867566778832105820
This is really great, I am new to using financial statements and wanted to ask if you had any resources, tips or books to get better at recognizing stuff like the above? Thank you so much for the thoughtful reply.
Analysing financial statements is maybe the only thing I didn't teach myself -> my career is as a designated accountant so I have worked 10+ years, preparing, auditing, and analysing financial statements and data.
I think you need to establish a solid base and then practice a lot -> reading quarterly and annual reports.
Aswath Damodaran is a professor at NYU that shares a lot of his classes & content for free. He has an accounting 101 series that is fairly short, linked below. I haven't watched these particular videos, but I have watched a lot of his content in the past.
https://www.youtube.com/playlist?list=PLUkh9m2BorqmKaLrNBjKtFDhpdFdi8f7C
This is awesome, thank you so much. I just subscribed. Also, I see your profile picture has a baby, congratulations on your spinoff. :)
Also, sorry follow-up question: for annual reports are you lining two of them next to one another and looking for differences or changes? Like a new footnote, or how do you approach reading these huge documents?
I'm not doing much side-by-side comparison between two annual reports because they have YoY financial comparisons in the financials.
If you're new to reviewing reports you probably want to read the entire thing, especially for a company that is new to you. There is a lot of good info in them and it will build your knowledge of where the important info is and where it isn't. Once you've read a few reports on a company it is easier to skim subsequent reports, as a lot of the info is the same YoY.
Some of the important stuff (off the top of my head) are the financials (financial health, profitability, cash generation excl capital purchases and capitalized intangibles); commentary on YoY variances; subsequent events; notes describing what is in certain balances i.e. debt, property plant and equipment; customer concentration; CEO messages; what makes up different types of revenue (segments); business description.
Often the risk sections you can skim through as you should know what the risks are based on the business model and customer concentration.
But it depends company by company.
Loved this concise analysis of Tiny.
The concept you have clearly elaborated here is that of cloning as encouraged by Mohnish. Andrew and Chris appear to be good capital allocators and I agree with you, Tiny looks like a good LT compounder. Great analysis and good read as always Curious Investor :)