Reminiscences of a Stockblogger

Evolent Update

It is not a lot of fun writing updates when things aren’t going well.  So, let’s get this over with.

There have been 3 unforeseen events that have befallen my portfolio in the last month.  Hopefully the old saying holds true.

In all honesty I don’t know if I’ve had a string of luck like this before. I’ve had lots of bad calls of course, it just goes with the territory, but to have 3 event driven moves, all of which your could argue were on the low side of probabilities, in such a short time, well I think that is a new one for me.

The first event, which I have already talked about at length, is the Nuvectra bankruptcy.  I won’t discuss this one much except to say that of the three events, this was easily the most predictable.

I knew there was a chance that Nuvectra wouldn’t make it.  They were losing lots of money and they needed a buyer.  I thought that the probabilities were in my favor that they would find a buyer given all I had read about the products and potential, but it wasn’t really all that unlikely that they wouldn’t.

The other two events were less likely.  The Evolent Passport renewal and the Mission Ready TLS inclusion.

I’ll leave the Mission Ready discussion for another time.  Suffice to say that at least for now, I do not see a positive way to look at this.  Sometimes you just have to admit defeat and move on.

Evolent, on the other hand, is more nuanced.  Like Nuvectra, the negative event can be construed as an opportunity, albeit a risky one.

What happened was straightforward enough: Evolent’s subsidiary Passport Health Plan didn’t get renewed by the state of Kentucky as a Medicaid provider for the upcoming 5-year term.

Based on all the work I had done, heading into the renewal this seemed like a pretty unlikely event.  Passport had been a provider for 20+ years.  They had a reasonably good track-record with patients.  They weren’t even ranked at the bottom of the 5 existing providers (Humana was, and fwiw they were renewed, while Anthem, I better ranked plan, was not).

What’s more, since Evolent took Passport over, their financial performance had done a 180.  Passport had gone from loss-making to profit making.  Their operating margins had met Evolent’s 1-2% target as of the fourth quarter.

To think that the state of Kentucky would disrupt their Medicaid citizens by pulling the plug on Passport seemed unlikely.

Yet that is what happened.

Of course, we don’t know the reasons, but I really suspect that politics are in play here.  I also think this is the unusual case where there is a good probability that the ruling is overturned.

Consider the following

1. The administration that made the decision (the Bevins administration) had an ongoing beef with Passport
2. Passport actually sued the Bevins administration earlier this year before Evolent got involved
3. The Bevins administration lost the election and is out of power on December 10^th, which means they made this decision with 11 days left in their term

Now consider these comments from members of the incoming Beshear administration and other Kentucky politicians.

From this article:

“I am very hopeful that as soon as he (Beshear) takes office, he will look into this situation and try to adjust accordingly to affect the lives of the citizens of Jefferson County, because this is really a slap in the face to the citizens of Jefferson County,” said Metro Council President David James.

“Awarding $8 billion in contracts with just 11 days left in this administration is concerning,” wrote J. Michael Brown, incoming executive cabinet secretary and chair of the Beshear transition team. “As we move through the transition and ultimately the change of the administration, we will be taking a close look at this action.”

From this article:

Louisville Metro Council President David James said in a statement that Passport’s 20 years of providing health care to “people who would not otherwise be able to afford health care” is necessary for the community.

“Now at the beginning of the holiday season, Gov. Bevin has decided to take away this security for those members of Passport not only for themselves but their families,” James said. “It is a cold, callous decision done purely for political reasons.”

From this article, comments from Republican Jason Nemes, which gives a bi-partisan flavor to the pro-Passport side:

“While I have great respect for the current administration … it concerns me that 8 billion dollars in contracts were awarded in the last days of the current administration,” Nemes wrote.

“Of more concern to me is that two incumbents with a proven track record in Kentucky were ousted. Passport, in particular, has been serving the Commonwealth for 22 years. Passport supports many community agencies that help people in need and many of these individuals improve their health outcomes and quality of life because of that.”

From this article:

Beshear, who takes office on Dec. 10, said it would be “premature” to discuss his administration’s options to address the Passport situation, citing the legal formalities involved with awarding state contracts.

“There’s a lot of rules and regulations that will be in play, but my commitment is to do the right thing once we have all the information,” Beshear said in an interview with WDRB’s Lawrence Smith.

The incoming governor added that it was “concerning” that the Bevin administration decided to award “$8 billion in contracts with 11 days to go” in office.

Beshear also said he is “committed” to getting Passport’s stalled construction project for a headquarters building in west Louisville back on track, “whether it is through this project or another.”

“That building symbolizes so much hope, but we can’t let it become false hope,” Beshear said. “… It is time to bring real jobs and real economic progress to west Louisville.”

What is particularly interesting about the last quote is that Beshear won’t say what he is going to do with Passport because of “legal formalities” but he’s committed to getting Passport’s headquarters built?

There is a lot I don’t know here but I’ll tell you one thing I know for sure – if Passport doesn’t get renewed that headquarters doesn’t get built – because Passport isn’t going to exist.

What’s more, Evolent reiterated on their post-announcement conference call that if Passport doesn’t get renewed, the wind down that would occur in the second half of the year would return cash to Evolent that would pay off their investment.  So, its not a total disaster for the company.

The last data point is this.  On Thursday there were two insider buys.  The first by Frank Williams, the CEO, and the second by Seth Blackley, the President.

These aren’t token insider purchases.   they were six-figure buys – $225,000 in the case of Robinson.  They show confidence by the management team and, maybe more importantly, they imply that the company won’t be raising cheap equity to pay for Passport, which is something a few analysts have worried about.

The Evolent story is even more complicated now then when I first bought the stock.  But apart from the Passport debacle, the company has been moving in the right direction.

This is on of those cases where my gut reaction was to sell the stock on the Passport news, which I did.  But after understanding the details I described above, I decided to buy it back and then some.

Note: I wrote this on the weekend and last night this came out, which further cements my expectations.

Another Nuvectra Update

Nuvectra is not even close to being my largest position.  It is however BY FAR my largest loss right now.

Be that as it may.  The past is the past.  Another less dubious distinction that Nuvectra holds is that right now it is the most interesting position I have.  This is why I am devoting more space on this blog to it today.

The situation with Nuvectra is fascinating to me.  It is the starkness of the outcomes.  I am pretty sure the two most likely end game scenarios are A. lose it all or B. make a lot.

Nuvectra started trading on the over-the-counter market today.  The stock has a “Q” on the end and is no longer part of the Nasdaq.  It likely won’t be changed on your brokerage account for a day or two.

One of the things I researched in the last week is how bankruptcy stocks trade.  What I have learned is that they fluctuate wildly.

Nuvectra could go down to 5c and it means nothing.  It could go up to 50c and mean nothing.  In fact, today Nuvectra briefly touched 8c first thing in the morning.  It closed over 20c.

Bankruptcy stocks trade with insane volatility.  You basically have to place your bet, accept the possibility of a 100% loss, and stop looking at it.

With that said, let’s move on to the news and recap what has happened since I last wrote.

A Barrage of Filings

The company has submitted a slew of bankruptcy filings.  Most of them are pretty boring and the legalese is painful to read.  But there are some details that have been disclosed that give us an idea of where we stand.

First of all, Nuvectra had to provide a cash forecast as part of the cash collateral requirements.  That plan shows the company’s cash and liquidity through the bankruptcy process.

What we see is that Nuvectra has paid off the majority of the term loan that was outstanding.  $35 million was paid down.  There is $10 million of the term loan left, against about $7 million of cash as of last week.  The year-end number for cash (I’ll explain why the year end date appears is important shortly) is about $7.6 million.

Next, Nuvectra clarified their intent.  In a Chapter 11 bankruptcy you can either have your debts cleaned up and continue operating as a business or you can try to sell everything and dissolve the company.  Nuvectra is doing the latter:

I mentioned in my last post that my suspicion was that this bankruptcy was precipitated by the existing manufacturing contract that they have with their former parent, Integer.

To re-cap the history, when Nuvectra was spun-off they were saddled with a 5-year deal whereby Integer would be the sole manufacturer of Nuvectra’s Algovita systems.

This contract was less than ideal for Nuvectra.  Gross margins for Algovita have been around 50%.  Yet I don’t see any reason they should be less than 70%.  There is a case to be made that they should be even higher.

My guess has been that any buyer of Algovita balked at the manufacturing contract.  The only way out of the manufacturing contract was via bankruptcy.  So that is the direction Nuvectra went.

Nuvectra alluded to this in one of their bankruptcy filings.

One of the big questions marks for me has been whether Nuvectra is on the hook for the manufacturing contract now that they are in bankruptcy.

As part of the Integer contract there were minimum volumes specified that totaled a little over $20 million for the rest of 2019 and for 2020.

Some sleuthing from @fbuschek has been really helpful in this regard (big h/t for all the help).  It appears that when you go through Chapter 11 such contracts, and minimum requirements, can be rejected by the debtor.

And from this source:

What is so significant about executory contracts in a bankruptcy proceeding is that the Bankruptcy Code authorizes a bankruptcy trustee, and in the case of a Chapter 11 proceeding the debtor-in-possession, to reject any executory contract or lease where it is in the best business judgment of the trustee or debtor-in-possession to do so. Provisions in executory contracts and leases that prohibit or restrict such rejections are unenforceable

If we are correct and the minimum volume contract is no longer applicable, the debts of Nuvectra consist only of the secured and unsecured creditors.

Let’s look at those creditors.  We received information about both.  First, the secured creditors.  In a filing late this week we learned that secured claims were around $16 million.

The largest of these secured claims is the $10 million they still owe on the term loan.

The other $6 million?  An earlier filing listed a number of claims that Nuvectra was petitioning to fulfill.  This was stuff like salaries, commissions, insurance, warranties, etc.  I’m a little uncertain about how I should be including the insurance and warranty amounts, so those might be off, but I am heartened that the numbers provided in the filing totalled around the amount of remaining secured debt that Nuvectra had outstanding after you remove the term loan.

After secured debt we come to unsecured debt, which was totaled for us in an earlier filing.

This filing actually shows the 20 largest unsecured creditors.  After #20 the amounts are small enough that they can be ignored.  In total it appears that there is a little over $5 million due to unsecured creditors.

Its worth pointing out that the two largest unsecured creditors are their suppliers: Greatbatch (now Integer) and Minnetronix.

I mentioned earlier that I would explain the significance of year end.  Here is an excerpt from another filing, released earlier this week, that stipulated details about the cash collateral agreement.

The key clause is that the cash collateral date goes until the earliest of a unspecified termination date or December 31 2019.

Here’s a question: why limit your cash collateral agreement to December 31^st?  Why not come up with some terms that take you out into next year, so you have a nice long runway and don’t have to go back and extend if need be?

It sounds to me like they expect to have this thing wrapped up quickly.

Another point that came out literally minutes before I wrote this.  Nuvectra put out an 8-K announcing 89 employees are being let go.  Nuvectra had about 200 employees in mid-June.  They already had 25% layoffs in August.  So this move takes the headcount down to ~50-60 people.

Adding it up: Where are we?

It looks like there are $21 million to $22 million in creditors to pay off.  There is $7 million of cash.  The company had inventory of $8 million at the end of the second quarter accounts receivable were $9.4 million.

Property, plant and equipment, net of depreciation, was $5.2 million at year end 2018.  Nuvectra owns their research and development facility in Blaine Minnesota.   They lease their other facilities (interestingly, from Integer).

You can discount these amounts as much as you want.  I am not going to try to figure out what the cash value is because I haven’t gone through near enough bankruptcies to know what these kind of assets can fetch and the information we have is largely circumstantial or analogies.

The bigger question, also fraught with uncertainty, is going to be this: what are Algovita and Virtis worth to a bidder in bankruptcy court?

Algovita has ramped to be a $50 million revenue product.  Obviously, it is not a profitable product, but that is largely due to the dead-weight manufacturing agreement that lets Integer take way too much margin.

What is Algovita worth now that it is unencumbered by that manufacturing contract?

While Nuvectra is letting a lot of their people go (so you would essentially be buying the IP and maybe (???) retaining a few key lead personnel) it still strikes me that this IP should be worth quite a bit.

Once you buy Algovita, in particular if you are big company like Stryker, you can set up a cheap outsourced manufacturing agreement (maybe even negotiate a better one with Integer) and use your existing sales team to sell it.  I would expect profitability to follow shortly.

There was a time, not long ago in fact (like 6 months prior), when brokerages were valuing Algovita as a $300 to $400 million product.

As for Virtis, I don’t have a lot of data to work with, and the product is still awaiting approval from the FDA (expected mid-next year).  JMP described the opportunity with Virtis earlier this year:

We also continue to expect a decision from the FDA regarding the approval of Nuvectra’s VIRTIS SNS (sacral nerve stimulation) product, an indication with only one competitor today on the market and an ~$750 mln TAM.

Virtis has had their approval delayed by the FDA multiple times with requests for more information.  It’s been 3-years since Nuvectra filed with the FDA.  Earlier this year Virtis was expected to be approved in the second half of this year but that now has been pushed out.

Meanwhile a competitor in the space has gotten approval.  Axonics has a device targeting the sacral neuromodulation (SNM), the same as Virtis.  The Axonics device was approved for fecal incontinence in September and urinary symptoms in November.

The Axonics device is the second to market.  The incumbent is a Medtronics device called InterStim.

The big disadvantage of InterStim is that it has to be pulled out every 5 years or so, meaning you need to have multiple surgeries.  Both the Virtis and Axonics devices use rechargeable batteries and so their life is 15 year plus.

Nuvectra gave this direct comparison of the devices earlier this year.

The following is a note from Wells Fargo.  It describes the Axonics submission, clarifies the the “paper” pathway and identifies some of the device differences between it and Virtis.  It seems the Axonics device has some advantages.

Average analyst estimates for Axonics next year are $80 million of revenue and negative $45 million of EBITDA.

The market is giving Axionics a “Nuvectra-like” market capitalization for top line growth and bottom line losses at $600 million.

The delays to FDA approval have obviously hurt Nuvectra a lot.  The FDA could just be being cautious on approval given that Nuvectra chose to go the “paper” route – they did not do trials and instead relied on literature for their submission.

I get the sense that the Axonics device may have a few advantages, while Virtis has others (it has current steering which is basically like a dimmer switch, 2 leads with more channels and the leads are stretchable) but overall the devices seem quite similar.  If Virtis is approved you would think it would have value.

It would not surprise me if, assuming this plays out positively, Nuvectra kept Virtis until there is FDA approval.  I don’t know if that would happen in bankruptcy or outside of it.  But it would seem to me that Virtis would have a lot of value once approved

What will shareholders get paid?

I am not going to try to do math on the above figures.  Any set of numbers that I try to use could be easily shot down.  What is PP&E worth?  What is the end cash position? Most importantly, what will Algovita and Virtis sell for?

All I will say is this.  I think there is a reasonable chance that the combination of value from these sources greatly exceeds debt and leaves shareholders with significant value.

Keep in mind, at 20 cents Nuvectra is worth $3.4 million net.

What are the chances that assets exceed liabilities by substantially more than that?

I would say it is non-zero.  In fact, I think it is significantly higher than zero.  So I have continued to add to my position.

Some things I have learned about Nuvectra

So first of all, on Tuesday night Nuvectra announced they are entering Chapter 11 bankruptcy.  My portfolio took a bath.

Second, most companies entering Chapter 11 bankruptcy see their stocks go to zero.  That is a probable scenario here, at least from past experience you are betting against the odds, so do not take this post as anything other than information.  As my blog is private, it will won’t be read by many, which is probably for the best.  I actually find it a little embarrassing writing about this, but if I am going to track my follies, I felt I should be up to date.

I think that the company went into bankruptcy to get out of the contract they have with Integer for manufacturing Algovita devices.  The Integer (formerly GreatBatch, also the company they spun off of) manufacturing contract has always seemed out of whack to me.   Nuvectra should have higher gross margins than they do (they are only around 50%) and the reason they don’t is because of the manufacturing deal they have with Integer.  Some comments today from the Medtechy board, which seems to be populated with employees and former employees of the company (as they refer to staff by first name and with a familiarity no one else would have), would back this up:

Margins have to be high for another company or investor to take on this market… Integer spun Nuvectra off as a standalone, saddled with a high cost of production and low probability of profitability…. Simply put, Integer’s contract doomed Nuvectra…Chapter 11 was the only way out of it… Selling the product wasn’t the problem…. Making a profit with the high cost of production was the issue…

The manufacturing agreement was part of the spin-off of Nuvectra from Integer.  There are other comments on the medtechy board saying everyone knew this deal was taking too much margin away from Nuvectra.

There was a rumor that Chapter 11 was forced by a prospective acquirer.  If that is true, I would bet any prospective acquirer wanted to get out of the manufacturing contract first.

Also, based on Linkedin posts I am fairly sure that Nuvectra laid off most or all of the sales staff yesterday.  For example:

Finally, the bankruptcy report released showed only a little over $5 million of unsecured creditors and almost all of that are due to the two manufacturers, Integer/Greatbatch and Minnetronix.

I have very little idea of whether this means there will be leftovers for shareholders.  We don’t know the current cash position.  I can only guess about what the plan is.

It was a bit odd that in the bankruptcy announcement 8-K filing they said they were filing for a default on $10 million, which is less than the debt they had outstanding from Silicon Bank and Oxford (which is about $40 million) and not equal to any of the individual tranches of that debt.

The filing of the Bankruptcy Petition constituted an event of default under the Company’s Loan and Security Agreement, dated as of March 18, 2016, as amended, with Oxford Finance LLC and Silicon Valley Bank (the “Loan Agreement”), resulting in the acceleration of the Company’s obligations under the Loan Agreement. Thus, all outstanding debt under the Loan Agreement (among other obligations) is in default and accelerated, but subject to stay under the Bankruptcy Code. The outstanding principal amount of such debt is currently $10.0 million.

One interesting and maybe irrelevant point is that Michael Burry took a position in Nuvectra in the third quarter.  It’s at least nice to know I have been wrong in good company.  Burry was famous for his bankruptcy picks, so it would be interesting to know what he is doing now.

My guess (this is a total guess and could simply be dissonance), is that a complicated 3-way deal needs to happen between a potential acquirer, Integer and Nuvectra.  These parties have to come to an arrangement that lets the acquirer out of the manufacturing contract and compensates Integer in some way for it.  I would also guess that getting to an agreement was not going to be fast outside of bankruptcy.   It may have even been clear it would drag on and Nuvectra would continue to hemorrhage cash.   So the board said lets let the courts help us figure this out.

Supporting my view that the company has chosen bankruptcy to complete the 3-way deal is that they announced they are still exploring a sale in the press release, saying they “are exploring a range of options, including a sale of the Company as a whole, of the Algovita Spinal Cord Stimulation System (“Algovita”), of Virtis^® or of specified assets.”

With that said, I held my shares and even added to my position in Nuvectra yesterday.  I am fully aware that I could lose the rest of my investment in the stock and I have reconciled myself with a 100% loss if it occurs (fwiw most of that loss already has occurred).  While it is quite possible I am displaying some form of dissonance, there are too many things that don’t add up to me here, and I am inclined to believe, at least on the evidence I have, that there is more than $4 million of value in this company once all the debts are paid.

Also, if you have nothing to comment on but snark or to tell me why you didn’t buy the stock and how smart you are because of it, please don’t bother.  I won’t post it anyway.

CUI Global – A Bet on Management not Blowing It

I seem to be in the midst of a series of retro posts.  First it was Identiv and now CUI Global.  Both of these are stocks I’ve owned in the past and am now revisiting.  I’ll look at Pacific Ethanol shortly (kidding).

Unlike Identiv, I did not do well on my previous endeavours into CUI Global.

I bought the stock in the past on the promise that their GasPT technology might make inroads into its very large addressable market.  That never happened (still hasn’t) and the stock fell and fell and fell.

I bought the stock again yesterday but this time I am coming at it from a different angle.  The stock is trading at a negative enterprise value and my bet is that management doesn’t do anything to screw that up.

A negative EV sounds like a deal! But…

There is always a but.  In this case it is complicated by a pivot and prospective acquisitions.

Let me take you through the valuation and recent history of CUI Global to explain the “but” here.

First the valuation.

CUI got to a negative EV by selling itself off.  They have announced the sale of two of their businesses in the last month or so.

The first was the sale of their electromechanical components business.   The business was sold for $4.7 million of cash, the assumption of a $5.3 million note, and a $5 million earn-out.

The second sale happened yesterday.  CUI sold their power business to Bel Fuse for $32 million.

What is left is CUI’s energy division.  This consists of the GasPT product and their engineering services.  CUI also has a 20% interest in Virtual Power Systems (VPS).

What’s Left

The GasPT business is why I was involved in CUI Global a few years ago.  The company has a better product for measuring gas composition.  The market for this product is potentially very large.  But getting traction with large utilities has been a challenge.

The company has been engaged with Snam Rete, the large Italian energy provider, for years now and while there are always signs that the big deal is around the corner, so far that hasn’t materialized.  You can say the same for Engie, the French gas provider they are engaged with, and for their other engagements (China, TransCanada, and the UK regulator).

That is not to say there isn’t progress.  They had an order from their distributor Samson in April.  They had a $900,000 order from a UK Gas Network operator in July.  In August they had an order for their VE probe and analyzer from a large gas network operator in the United States.

There are orders.  But these aren’t to the scale of the promise of the device, which has yet to materialize.

The company also has an engineering services business.  That business has fared better.  The vast majority of the ~$12 million of revenue the energy segment generated in the last six months came from this business.

CUI is the largest integrator of natural gas systems in the U.K.  They provide contract engineering to “gas utilities, power generation, emissions, manufacturing and automotive industries”.  They opened a Houston facility in 2015 and it seems like they have generated some growth from this expansion.

Its Complicated

If this was the whole story it would be a pretty simple decision – are these businesses (there is the 20% VPS ownership as well), worth more than negative $7.5 million?

The complicating matter is that CUI Global is in the middle of a pivot.  In May they announced that they had made 4 non-binding offers for private companies that together would have transformed the company into a much larger entity – one with $40 million of EBITDA and $350 million of revenue.

The goal seems to become a broad energy infrastructure provider with a focus on the Houston market.

If all of these transactions were still on the table at the terms described back in May (160 million shares, $30 million of cash and a $45 million unsecured note) the share price would be quite cheap at this level.

What complicates matters even further is that since that time CUI has walked away from 3 of the 4 transactions.  The remaining one appears (and I say appears because they have been more than a little vague about details) to be Target 1.

Coming up with a valuation of CUI Global “pro-forma” this transaction is difficult because the company never backed out each transaction individually and we also don’t know if the terms have been adjusted since May.

It’s clear as mud.

New CEO

The other piece to this puzzle is that CUI has taken on a new CEO in October – Jim O’Neil.

O’Neil is the former CEO (from 2008 to 2016) of Quanta Energy Services.  The pivot that CUI is making is centered around O’Neil’s involvement.  He has been with the company in some capacity since at least early this year.  His primary responsibility has been vetting potential acquisitions.

While I don’t know a lot about O’Neil, and I probably should dig into him more, he seems to have a decent background.

Mr. O’Neil had responsibility for various initiatives including: the company’s renewable energy strategy; commercial and industrial operations; internal audit; merger and acquisition initiatives, including overseeing the acquisition and integration of InfraSource, Inc., then the company’s largest acquisition to date; and more. Before joining Quanta, Mr. O’Neil spent 19 years with Halliburton, where he held various positions that encompassed responsibility for its Gulf of Mexico operations; deep-water development; and health, safety and environment.

You Have to Believe

While CUI has not yet delivered on their promised pivot, they did deliver on the divestitures they promised on the second quarter call.   Their electro-mechanical division is now all but gone and they have gotten a decent return for the parts they sold.

I took a position because it seems more likely to me that something goes right with the acquisitions than not.

With that said CUI can still do something stupid and kill the golden goose – more specifically, buy some energy infrastructure business at an exorbitant price and have the negative enterprise value eaten up by that.

On the other hand, if the company completes an acquisition on reasonable terms things could turn out quite well.

There are synergies here, with the primary one being taxes.  One thing about running a shitty business for a long time is that you manage to accumulate a whole lot of net operating losses.

As of December 31, 2018 and 2017, the Company recorded a consolidated valuation allowance of $20.3 million and $17.7 million, respectively. During the years ended December 31, 2018, 2017 and 2016, the Company recorded an increase in valuation allowance of $2.6 million, a decrease in valuation allowance of $5.8 million, and an increase in valuation allowance of $2.7 million, respectively. The Company has provided for a full valuation on existing deferred tax assets in the United States and United Kingdom. Prior to 2018, the valuation allowance was on the deferred tax assets of the United States only. As of December 31, 2018, the Company has available federal, state and foreign net operating loss carry forwards of approximately $67.8 million, $62.8 million, and $2.2 million respectively, which the federal and state net operating loss carry-forwards will expire between 2019 and 2038.

That is over $4 per share in NOLs.

Of course, those NOLs are useless with the existing businesses that CUI operates.  But with the acquisition of a profitable energy infrastructure business, they represent a lot of incremental cash flow.

Anyway, that’s the story here.  You get a couple of businesses with some degree of potential for less than zero and a lotto ticket that an accretive acquisition makes the whole thing a big winner.

There are also earnings and a conference call tonight after the close that might shed some light on how this all plays out.

The downside is that if management screws the pooch all that value could go poof in the night.  That is a distinct possibility.  These guys haven’t exactly delivered over the years.

Nevertheless, a negative EV and all those NOLs at least puts them ahead in the count.

Perfect.