Targeted Strategies for Today's Evolving Markets

AdCare, a provider of senior living and healthcare facility management and owner/manager of long-term care facilities and retirement communities, is allegedly lined up to receive a tender offer from the Brogdon Family LLC, who in April said it intends to make an offer to acquire a 55-75 percent stake in AdCare at $8 per share, a more than 86 percent premium to the average stock price. The Brogdon Family, controlled by Christopher F. Brogdon, the former chief acquisition officer of AdCare and a current director, currently owns 12 percent of the company.

Interesting timing, considering AdCare’s stock turned down a rocky road in mid-March when the company delayed its Q4 earnings release, citing errors in 2012 financial statements. Roughly a month later, on April 15, 2013, Adcare CFO Martin D. Brew bowed out, resigning from the company while an audit committee reported finding material weaknesses and further delayed the restatement. A day later, the Brogdon Family issued a press release outlining its intent for a tender offer of the company.

Despite the hurdles, the market cap of AdCare has risen by more than 30 percent in the past month. But what’s more perplexing is the fact that the Brogdon Family has set the offer price at $8 per share, though AdCare stock has never topped $5.78 – ever. Following the mayhem in March, it’s hard to imagine this stock making new all-time highs any time soon.

Let’s take another approach and look at another angle. Compared to its peer group (Ensign Group (ENSG), National Healthcare (NHC), and Skilled Healthcare (SKH), Adcare is trading at 25x EBITDA vs. 8.5x for the group. The $8 per share offer equates to buying AdCare for 29x EBITDA. That’s more than a marginal difference.

Briefly noting the peculiarity that the Brogdon Family announced their “intention” to submit a tender offer vs. making the actual offer, why is the Brogdon Family only interested in a stake of 55 percent – 75 percent of the shares outstanding? The huge premium, again, is a high note compared to AdCare’s peer group and considering the Q4 earnings fiasco – so if it’s such a great investment, why not the whole thing vs. dropping the tender offer to a more seemingly reasonable premium and gobbling up 100 percent for full ownership?

According to SEC documents and a little dirt digging, the Brogdon Family has yet to position its financing for the deal, and it hasn’t appeared to have retained an investment bank to help facilitate the process despite taking publicly announcing its intentions with a press release on www.cnbc.com.

AdCare today issued a press release announcing that it will not meet the extended deadline to file its Q1 report by May 20 and released preliminary data for the quarter, repeating its message that previously issued financial statements for Q1 are not reliable due to the errors in connection with the audit for FY 2012. New CFO Ronald W. Fleming has his hands full.

AdCare said it anticipates Q1 revenues in the range of $56.0 million to $59.0 million – analysts peg revenues for the quarter at $68.5 million. Net income is expected to range from $1.1 million to $2.2 million, excluding costs associated with the restatement process. The company anticipates these costs in the range of $1.2 million to $1.5 million.

Shares are down 5% at $5.50 mid-day Friday following the release … $8, hmm?

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Turnaround efforts continue for the electronics retail giant, Best Buy. CEO Hubert Joly’s attempts to stop the company’s slow decline have yielded some results but the questionable future remains. With newly implemented policy changes, market cuts and strategic partnerships, Best Buy won’t be going down without a fight.

Attempts to Hold On:

Best Buy recently changed their return policy, cutting the allotted time to return an item from 30 days to 15 days. Michael McCarthy, the managing director of QualityStocks, found this out by surprise when he tried to return a faulty cable modem 17 days after the purchase date. The customer service representative allowed an exception, but this was clearly a red flag; especially considering that employees aren’t informing customers of the new policy during the checkout process.

The return policy change has caused uproar among consumers and certainly seems to be a step backwards at a time when the retailer is struggling. Knowing there must be something going on internally as none of the other retailers have made dramatic adjustments to their return policies, we did some digging through SEC filings and found that the company’s cash position is down significantly. In just eight months, the company’s cash and cash equivalents dropped from $1.2 billion to $309 million. It’s clear to us that the return policy was changed to help conserve cash.

In another company-wide change, Best Buy recently turned its Price Matching Guarantee holiday program into a permanent policy in hopes for costumer retention. The positive move is an attempt to address the problem of showrooming, the practice of using storefronts to browse through and test products before going home and purchasing online at a cheaper price. Abram Brown, a Forbes markets reporter, stated that, “the price-match guarantee may have come too late to save the company. But, there also may be signs of hope as sales recently increased for the first time since 2010.”

Partnering with Samsung, Best Buy will also soon set up “Samsung Experience” shops staffed with trained Samsung employees. The Samsung shops will be installed inside around 1,400 Best Buy stores. A number of these convenient in-house stores are currently already in existence.

Helpful Numbers:

Last month Best Buy sold its 50% holding stake in Best Buy Europe, a joint venture with Carphone Warehouse Group (CPW), Europe’s largest independent mobile phone retailer. The deal will mark the end of Best Buy’s presence in Europe. Best Buy Europe in the ongoing fiscal year was expected to be in the range of $5.5 to $5.6 billion. Therefore with a 50% holding stake, the deal will help fund turnaround efforts for the giant, although still at a loss on investment given that Best Buy sold its 50% interest in Carphone Warehouse back to them for about $775 million. The original buy-in almost five years ago was $2.15 billion.

In 2011, Best Buy’s stock lost 40% of its value. Fast-forward to 2013 and Best Buy reported a 0.9% Fourth Quarter Domestic Comparable Store Sales Increase for the 13-week fourth quarter. In its March earnings report Best Buy managed to post sales of $16.71 billion to squeeze a weak gain above the $16.67 posted a year ago.

Ending Thoughts:

Critics claim Best Buy stores are nothing but showrooms for online retailers like Amazon.com. With a need for a strong digital presence, Best Buy is currently planning to invest around $750 million on company improvements, including a digital facelift. Best Buy will also cut more than $400 million in overall costs. There may be life left in this sleepy retail giant but the future looks uncertain. Best Buy may still be generating signs of life, but the e-commerce versus brick-and-mortar battle continues onward.

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Phoenix-based specialty retailer and loyalty marketplace preferred partner SkyMall has merged into a subsidiary of leading digital marketing and advertising solutions provider Xhibit. Together, the companies will concentrate on the next-generation interactive platform to provide a comprehensive and enhanced client experience to SkyMall’s 650 million viewers and to more than 135 million loyalty division members.

“We are excited to bring these two companies together,” said Xhibit Founder Chris Richarde , who will now serve as president of Xhibit Corp. “At Xhibit’s core, we have focused on building communities that link consumers with product and service providers while enhancing the purchasing process. We believe that our platform will enhance the shopping experience for SkyMall’s suppliers, customers and members.”

Xhibit’s large digital media distribution network will combine with SkyMall’s increasing merchants and customer reach to create a world-class consumer merchandising and relationship platform. SkyMall’s catalog is currently accessible to 80 percent of domestic travelers in the United States, and SkyMall is additionally the preferred loyalty partner provider to iconic enterprises in finance, gaming, and hospitality verticals.

Najafi Companies – the owners of SkyMall prior to the merger – will continue as a major shareholder of Xhibit Corp. Xhibit has acquired all outstanding capital stock of the SkyMall parent for newly issued shares of Xhibit common stock, which represents around 40 % of the total outstanding shares of Xhibit capital stock. Structured as a merger of a newly formed Xhibit subsidiary into the SkyMall parent, the transaction was unanimously approved by the Xhibit and SkyMall parent boards of directors and by the shareholders of the SkyMall parent.

For more information, visit www.xhibitcorp.com

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Liberator Medical Holdings reported its financial results for the second fiscal quarter and six months ended March 31, 2013, reflecting revenue and earnings growth for both periods.

Sales for second quarter of 2013 increased 14.1 percent to $16.7 million, as compared with sales of $14.6 million for the same three months of 2012. Sales for the six months ended March 31, 2013, increased by 16.4 percent to $34.2 million, as compared with sales of $29.4 million for the six months ended March 31, 2012.

Net income was $1.4 million, or $0.03 diluted earnings per share, compared with net income of $0.7 million, or $0.01 per share, for the second quarter last year. For the first six months of 2013, net income was $2.7 million, or $0.05 per share, compared to $1.1 million, or $0.02 per share, reported for the first six months of 2012.

Second-quarter income from operations increased 107.2 percent to $2.3 million, as compared to $1.1 million in the prior year period. For the first six months of 2013, income from operations increased to $4.6 million, as compared to $1.9 million in the first six months of 2012.

Net income for the second quarter of 2013 increased 112 percent to $1.4 million, as compared to $670,000 for the comparable three months of 2012. Net income for the six-month period increased 147 percent to $2.7 million, as compared to $1.1 million for the comparable six months ended March 31, 2012.

As of March 31, 2013, Liberty Medical had $7.0 million of cash and $4.3 million available from its credit line facility.

“We continue to manage the level of our direct response advertising spend to maximize profitability and cash flows for fiscal year 2013. During the first half of fiscal year 2013, we increased our sales by 16 percent, improved our operating margins to 13.4 percent of sales, and generated $4.1 million in operating cash flows for the first six months of fiscal year 2013 compared with the first six months of fiscal year 2012,” Mark Libratore, Liberator Medical’s president and CEO, stated in the press release. “We expect to continue to increase our operating margins and cash flows during the second half of fiscal year 2013 compared with fiscal year 2012.”

On April 3, 2013, the company’s board of directors approved a cash dividend of $0.02 per common share to its shareholders.

For more information, visit www.liberatormedical.com

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On May 16, eFuture Information Technology announced that it would be providing SCA China Holding Co. with cloud services, in the form of its Data Link products. eFuture’s cloud services launched in May of 2012, and is available with no added hardware via a monthly subscription fee.

eFuture is focused on providing software and services to China’s retail and consumer goods industries, as well as providing software and services to manufacturers, distributors, wholesalers, logistics companies, and retailers in China’s front-end supply chain market.

The company’s products include Salesforce Automation, a sales management application allowing manufacturers and their distributors to manage sales force efficiency. Data Link products, such as the products specified in the SCA agreement, are distributor relationship management applications that allow manufacturers and distributors to access supply chain data.

eFuture’s Data Link services will allow SCA to access real-time sales, inventory, and replenishment information directly from their distributors.

For more information, visit www.e-future.com.cn

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Leading technology and management consulting company Dynamics Research Corp. (DRC) has announced that the Department of Veterans Affairs (VA), through the General Services Administration, has exercised the third year option of the Veterans Relationship Management Portfolio Monitoring and Coordination contract, extending the period of performance until May 10, 2014. The contract was awarded in May 2010 to High Performance Technologies, Inc., the company’s wholly owned subsidiary, and has a five-year performance period through May 2015 and a total contract value of $125.5 million.

A multi-year initiative, Veterans Relationship Management restarts previously troubled programs with the end goal of providing veterans, service members, and eligible beneficiaries with fast, accurate, and easily accessible healthcare information and benefits. DRC delivers the next generation of IT solutions geared for veterans, providing a full range of program and portfolio management services across more than 30 projects. The company’s solutions include identity management, advanced voice-recognition tools, enhanced Web self-services tools, and integrated desktop interfaces.

DRC is engaged in providing program architecture, program planning and management, requirements analysis, IV&V, and life cycle engineering to create an IT system that provides veterans with access to the VA through various methods, enables them to access information about VA benefits and services through a uniform interface, and allows them to complete multiple business processes within the VA without the necessity of reentering identifying information.

For more information, visit www.drc.com

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A global provider of advanced communications and mobile broadband services, iTalk has announced the appointment of Clive Raines as Director of Australasia and Europe Operations. With high voice quality and the lowest prices, iTalk Mobile is currently pushing the market for an industry alternative to traditional cellular coverage. Raines, whose resume includes extensive experience in better business practices in Australasia and Europe, will be welcomed to the team for his strong background in sales, marketing, strategic product development, and distribution.

David F. Levy, Chief Executive Officer of iTalk, commented, “The Australasia and Europe region is poised for the same explosive growth in new communication devices and services that iTalk is currently offering to the US marketplace.” Continuing on Levy stated, “Clive is an excellent addition to our growing team and his 25 years of international communications, product development and distribution experience in Australasia and European countries, will allow iTalk to utilize his unique skills and knowledge to expand our global footprint and make our products the most competitive in the region.”

With extensive international experience establishing and developing next generation telecom companies for IP based services, Raines brings a strong background of management. The man’s resume includes senior management roles, management consulting, marketing, international project management, technical project management, CRM, as well as business development.
Raines previously sat as President of International Operations for TheGlobe.com, a VoIP provider and currently one of the most successful dot-com IPOs in NASDAQ’s long history. With an impressive resume in telecommunications, Raines has received extensive technical management, certifications, and product training with numerous international technology and telecommunications companies.

A mobile communications company, iTalk uses innovative technologies to offer consumers a high quality cellular alternative while severely undercutting all major national carriers. Through iTalks’ extensive network, consumers will have access to offers that include nationwide voice and data coverage to about 280 million people in over 12,900 cities.

To learn more, visit www.italkmobility.com

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