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7/28/2019 Multi Band Corp 20130408
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Multiband Corporation (MBND)
April 2013 / Confidential
7/28/2019 Multi Band Corp 20130408
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Luzich Partners LLC April 2013/
MultiBand Corporation
Ticker: Nasdaq: MBND
Recent stock price: $2.12 (1)
Multiband Corporation (Multiband, MBND or the Company)provides contract installation services for Pay TV services and act asa master service operator for DIRECT TV customers at certain multidwelling apartment units.Company operates in three segment: (i) field services; (ii) multi-
dwelling unit; and (iii) Engineering, energy, and construction
Equity market capitalization of ~$40 million
Enterprise valuation of ~$72 million
(1) Based on stock price as of April 8, 2013.
Overview
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Situation OverviewActivist Investor Importance of DirecTV
Cannell Capital owns ~ 13% of the Companys shares
On Dec 17, 2012, Cannell started its activist campaignby writing a letter with two proposals to MBNDsmanagement: (1) hire an advisor to sell the Company;(2) cut costs and focus on generating cash to strengthenthe balance sheet
Valuation Valuation seems fully priced based on a 7.0x 2012
EBITDA and 6.4x EBITDAR multiple
Based off a current earnings figure that might be
depressed; however, management believes DirecTVinstallation revenue will be flat next year as well
The acquisition firepower of a strategic competitor likeUnitek Global is limited due to Uniteks high net debtbalance
DirecTV is the most significant customer for the
Company, in both its Field Services segment and itsMulti Development Unit segment
In total, DirecTV generates ~87% of the Companysrevenue
Company has been trying to diversify its customerbase by working with cable providers and ViaSat
Recent customer acquisition strategy changes from
DirecTV negatively impacted Companys important FSbusiness segment
New Financing Increases Leverage In March and April 2013 , the Company obtained
new financing ($40 mm term loan and $15 mmrevolver) from Fifth Third Bank
New funds will be used to repay existing debt andfor acquisitions/expansions purposes
Pro Forma leverage at 4.8x 2012 EBITDA
Source: SEC filings, Company filings.
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Recent debt financing increases the Companys enterprise value such that the Company is fully valued at 7.0x EBITDA or 6.4x 2012EBITDAR
While MBNDs multiple is based off a low EBITDA figure, its competitor Unitek is currently trading at 4.7x EBITDA/EBITDAR
A portion of debt proceeds will be used for the acquisition of MDU Communication International (no more than $28 mm, as stated inthe commitment letter with Fifth Third Bank)
DirecTVs conservative customer acquisition strategy will not generate growth for the Companys Field Services segment (Company expects2013 fulfillment volumes to be flat/slightly higher than 2012)
Companys expansion into satellite and cable fulfillment diversifies revenue customer concentration, but based on financials, thesebusinesses seem to be less profitable than DirecTV
In the FS segment, 2012 EBIT margins of 2% vs. 2011 EBIT margins of 8.5%
While the involvement of activist investor Cannell Capital serves as a catalyst, the acquisition firepower of the Companys largest strategiccompetitor, Unitek Global, is limited with a net debt balance of $180 mm and a leverage ratio of 3.8x
A sale to a financial investor is possible
Companys MDU segment became profitable in 2012, achieving an operating margin of 3.2% on $28 mm of revenue
Acquisition of MDU Communication will double the revenue
Non-Investment Highlights
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MBND Historical Balance Sheet($Millions)
2010 2011 2012
Cash 1$ 19$ 18$
AR 18 28 20
Inventories 11 14 11Costs in excess of billings 0 1 2
Prepaid Expenses 2 1 1
Income Tax receivable 3 0 1
DTA 8 7 7
Total Current Assets 43 71 60
PP&E 7 6 12
Goodwill 38 38 38
Intangibles 17 15 11
Restricted Cash 0 - 2
Insurance Collateral 4 8 11
Other Assets 2 2 2
DTA - 1 5
Total Assets 112 141 140
ST Debt 1 6 19
Accounts Payable 27 32 24
Billings in excess of costs 0 0
Accrued liabilities 23 24 21
Deferred service obligations 2 2 0
Total Current Liabilities 53 64 65
Accrued Liabilities 4 5 7LT Debt & Capital Lease 35 30 22
Total Liabilities 91 99 94
Preferred Stock 15 3 3
Common Stock 87 115 117
Accumulated Deficit (82) (75) (73)
Total Equity 20$ 43$ 47$
Source: Company filings.
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MBND Historical Income Statement and Cash Flow Statement($Millions)
2010 2011 2012Revenue 266$ 300$ 306$
COGS (186) (215) (225)
SG&A (57) (64) (70)
D&A (8) (7) (7)EBIT 14 15 3
Impairement of Assets (0) (0) (1)
Interest Expense (4) (4) (4)
Other 0 (0) (0)
EBT 10 11 (1)
Taxes 5 (4) 4
Net Income 15$ 7$ 3$
EBITDA 22$ 22$ 10$
Operating Vehicle Lease 8 9 16
EBITDAR 30$ 31$ 26$
EBITDAR Margins 11% 10% 9%
Capex / Acquisitions (1) (5) (5)
2010 2011 2012Cash From Operations 12 21 10Capex (1) (2) (4)
Purchase of Customers (0) (1) (1)
Acquisition (2)
Other
Cash from Investing (1) (7) (5 )Cash from Financing (11) 3 (5 )Change in Cash (1)$ 17$ (0)$
Source: Company filings.
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Field Services Segment The Companys Field Services (FS) business segment generates 87% of the Companys total revenue ($267 million in 2012)
DirecTVs customer acquisition strategy shift negatively affects the Company DirecTV has indicated a shift in customer acquisition strategy, which negatively impacts MBND
DirecTV will not be acquiring stores of subscribers since its too expensive for DirecTV
To reduce its reliance on DirecTV, the Company has focused on diversifying its revenue stream by working with ViaSat and cableproviders
However, ViaSat and Cable fulfillment business are less profitable than the DirecTV installation business
Source: Company filings.
ViaSat3%
Cable4%
DirecTV93%
2010 2011 2012FS - Revenue 243$ 272$ 267$
FS - Operating Income 21 23 6Margin 8.5% 8.5% 2.1%
2012 FS Revenue
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Multi-Dwelling Unit Segment Companys Multi-Dwelling unit (MDU) segment revolves around being a master service operator for DIRECTV
MBND bills subscribers as the owner/operator and receives net cash payments for managing video subscribers
Company utilizes its own support center and billing platform
Market demand drivers for MDU services come from property owners due to the simple one-stop nature and the more aesthetically pleasing setup, as compared to multiple individual satellites
From DIRECTVs perspective, utilizing a MDU service agreement with companies like MBND is a low-cost method to expand its customer breach(similar to franchising)
Pending acquisition of MDU Communications meant to expand Companys MDU business
Source: Company filings and investor presentation.
2010 2011 2012MDU - Revenue 22$ 21$ 28$
MDU - Operating Income (3) (3) 1
Margin (11. 8%) (13. 5%) 3. 2%
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Capital StructureDebt In March 2013, the Company announced a significant financing
Company obtained a $20 million term loan and a $10 mm revolver from Fifth Third Bank
Proceeds were used to finance all pre-existing debt
Terms include (i) upfront fee of 2% on facility; (ii) $50,000 commitment fee; (iii) free cash flow sweep of 50% for additionalprincipal amortization
Revolver availability based on 80% of eligible AR plus 50% of inventory
In April 2013, Company and Fifth Third Bank agreed to an amended commitment of a $55 mm financing ($40 mm of term loansand $15 mm in a revolver facility, increased from the amounts above) to be structured and syndicated by Fifth Third Bank
Additional proceeds to be used for acquisition and expansion purposes
Source: Estimated from Companys 8-K filings.
Est. PF Est.Cap Structure Amount Maturity Interest Rate Leverage
Drawn Revolver 10.0$ 4/31/2018 L + 550 1.0x
2013 Term Loan 40.0 4/31/2018 L + 550 4.8x
Total PF Debt 50.0$
Revolver Availability 5.0 4/31/2018 L + 550
Total Availability 5.0$
Est. Cash Balance 29.3$
2012 EBITDA 10.4$
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Capital Structure Preferred StockPreferred Stock
Based on current share price, the Companys convertible preferred shares will be redeemed rather than converted
Source: Website.
Class of Converted Into Conversion Value
Preferred Stock # of Shares Redemption Price # of Shares @ Stock Price
A 12,696 133,308$ 1.0 26,916$ Redemption
C 109,000 1,090,000 0.4 92,432 RedemptionF 150,000 1,500,000 1.0 318,000 Redemption
G 10,000 100,000 1.3 26,500 Redemption
2,823,308$
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Valuation SummaryMarket Valuation
Source: Company filings.(1) Debt and cash estimated as per recent news release regarding new debt facilities.
Market Price 2.1$
Common Shares Outstanding 21.8
Market Cap of Common Equity 46.2Cash (29.3)Debt & Capital Lease Obligations (1) 52.5
Redeemable Preferred Stock 2.8
EV 72.2Capitalized Operating Vehicle Lease @ 6.0x 94.3
Adj . EV 166.52012 EBITDA 10.4$
2012 EBITDAR 26.1$
EV / EBITDA 7.0x
Adj. EV / EBITDAR 6.4x
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Unitek Globals Acquisition Firepower is Limited Unitek Global, which attempted to acquire MBND in June 2011 for $4.50 per share, currently has a limited balance sheet
Net debt of $182 mm at a 3.8x leverage ratio
Uniteks financial covenant include a maximum leverage ratio of 4.75x and a fixed charge ratio of 1.2x
Hence, Unitek is unlikely to acquire MBND in its current financial position
Source: Company filings and investor presentation.
Capital Structure Amount Maturity Interest Rate LeverageRevolving Loan 35.2 2016 L + 276 0.7x
Term Loan 129.8 2018 L + 900 3.4x
Total Financial Debt 165.0$
Capital Lease Obligations 18.0 3.8x
Cash 0.5$
Net Debt 182.4$
2012 LTM EBITDA 48.0$
Unitek Market SummaryUnitek Market Price 2.0$
Shares Outstanding 21.8
Market cap 43.6$
Cash (0.5)
Debt 182.9
EV 226.0$
EBITDA 48.0$EV / EBITDA 4.7x
Debt / EBITDA 3.8x
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Growth via Acquisition
Source: Company filings.
Timeline Target Description2008-2009 DirecTECH (DTHC) Company purchased DTHC for $50 million to increase its market share of
installing video services in single family homes
9/1/2011 WPCS International Company purchase WPCS International, a design, engineering andconstruction firm for $2 million
2012 (closing date TBD) MDU CommunicationInternational (MDUC)
In December 2012, the Company announced the acquisition of MDUC for
$12.9 mm in convertible preferred shares (conversion price at $4.00,dividend coupon of 6.25%)
In April 2013, the Company announced a financing commitment letterwith Fifth Third bank, which limited the acquisition price to a cashconsideration not to exceed $28 mm
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