It seems like the $33 million run rate Ochre has in his numbers is pretty optismistic, unless our math is off (we are new to the name, so let us know if we are missing
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<p>It seems like the $33 million run rate Ochre has in his numbers is pretty optismistic, unless our math is off (we are new to the name, so let us know if we are missing anything).</p>
<p>Here is how we are looking at it:</p>
<p>Q1 H&W: $7089</p>
<p>Q2 H&W: $6679</p>
<p>Q3 H&W: $7875</p>
<p>Through 3 quarters we have $21,643. They said Q4/Q3 would have flat screening volume, and looking back at history there is a normal -5% Q3/Q4 seasonal ARPU (We went back to 2010 using H&W revenues/transactions). Even if you assume flat ARPU and flat volumes, which would be a bit optimistic given guidance/seasonality, you get a Q4 number of $7875 again, which puts 2014 at a hair under $30 million. Is there a reason to think ARPU might be higher? Is management low balling the screenings number?</p>
<p>So that would be a 10% miss on revenues relative to Ochre's assumed number, and would lower his sum of parts value by 4 million.</p>
<p>It would put back half of the year growth at 16%, not the 50% for the quarter. I would assume this would also impact the implied value of the NOLs in the longer term DCF...personally we would be hesitant to assume any value in the NOLs in a base case analysis, given the company is not profitable.</p>
<p>There are two important variables for 2015 in our view, in addition to revenue growth. What is the "normalized" cash SG&A? And what is the normalized gross margin? We were confused that, with an all time high ARPU and volume of screenings, they had a gross margin of 23.5%, well below their stated goal of 25-35%.</p>
<p>By our math, given customer concentration, if things only go OK in 2015 they will continue to burn cash (assuming 27% gross margin, 15% revenue growth, and $2750 SG&A+capex-depreciation)...if they were to lose a major customer there could be renewed bankruptcy risk, given they have already pulled some "cash generation" levers by selling off their headquarters and other segments.</p>
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