Gotham City Research initiates coverage on Tile Shop Holdings, Inc. Summary of Gotham City Research’s findings:
- Tile Shop’s 2013 LTM earnings are overstated by over 200%. TTS’s actual 2013 LTM EPS is closer to $0.18/share.
- TTS will restate several years’ historical results as a result of the issues covered in this report.
- The company has used its China-based undisclosed related party and improper accounting to overstate profits.
- Gross margins will continue to decline through 2014, as TTS must reverse prior years’ accounting overstatements.
- Tile Shop’s shares are worth no more than $1.54-$3.34/share, implying 84%-93% downside.
- TTS’s creditors will likely restrict additional indebtedness & capital expenditures until TTS’s accounting is corrected.
Summary of the Bases of Opinions:
- TTS’s largest supplier, Beijing Pingxiu, is an undisclosed related company, and accounts for 20-30+% of TTS’s COGs.
- Beijing Pingxiu is secretly controlled by Fumitake Nishi. Mr. Nishi is the CEO’s brother-in-law and a TTS employee.
- Beijing Pingxiu invoices sent to the Tile Shop are directed to Fumitake Nishi. Beijing Pingxiu has no presence in one of its listed addresses, and a minimal presence in another.
- Days sales’ inventory for FY2011 & LTM 2013 exceed 365 days, at 396 & 414 days respectively.
- TTS inventory growth exceeds sales growth by 3x, as of 9/30/2013. Inventory growth has, on average, exceeded sales growth by 2.1x over the last 5 years.
- The CEO believes TTS is worth somewhere between $83.6 and $180.4 million ($1.0-$2.2 million per store).
- Free cash flow has gone negative over the last 9 months.
- Tile Shop has had 3 different auditors in the last 2 years.
- TTS has missed EPS guidance 4 out of the last 5 quarters.
- Color Tile, Inc., the only other national specialty tile retailer in US history, filed for Ch. 11 bankruptcy in 1996. CEO Bob Rucker worked for Color Tile.
- Gotham City Research contacted the Tile Shop on several occasions and did not hear back from the Company.
Link to the full report: 2013 11 14 – TTS FINAL
Based on new information we’ve obtained, Gotham City Research believes:
- Ebix improperly financed $100+ million of acquisitions and stock buybacks, tax free, under the guise of a bogus intercompany asset sale, between Singapore & India.
- Ebix Inc. & its subsidiaries’ filings are materially incorrect. Newly identified accounting irregularities, in sum, exceed 42% of Ebix’s market capitalization ($169+ million in irregularities).
- Swedish pre-tax income is less than %1 of the amounts claimed in the SEC filings, according to Swedish filings.
- BDO Sweden was unable to confirm that any of the dealings between Ebix’s Swedish subsidiary, Ebix Singapore and Ebix Australia, ever actually occurred.
- Ebix meets the requirements for an “Event of Default”, per Article VII (c) of the Credit Agreement.
- Current shareholders are likely to recover little to no value, once the USA & Ebix’s creditors enforce their rightful claims.
Goldman Sachs Group Inc. terminated an agreement to acquire Ebix last night, after the insurance software maker said it was told that federal prosecutors had opened an investigation.
We believe Ebix is worth no more than $8 per share, and likely headed to $0.00 per share. See the below note for more details.
In this follow-up report, we discuss how:
- Ebix Singapore & Ebix Australia’s financial statements for 2009 do not support CEO Robin Raina’s claim that an intercompany loan to Australia was moved to Singapore in 2009.
- The 2010 Singapore long-lived asset numbers are misstated by at least $67 million (94% of 2011 earnings), contrary to Robin Raina’s claim that the “numbers did not change.”
- CEO Raina completely ignored some our more serious claims, e.g. organic growth is negative, Ebix’s tax strategy is a sham, and the Robin Raina Foundation’s IRS filings are full of material accounting irregularities.
- Ebix’s stock should be halted immediately, as (i) the financial statements remain materially unreliable, inaccurate, and incomplete and (ii) Ebix’s CEO appears to be intentionally misleading investors, rather than addressing the issues we and others have identified.
In the report shown below, we discuss why we believe:
- Ebix’s Accounting is Unreliable, Inaccurate, and Incomplete (there’s a large undisclosed related party loan, for starters)
- The Tax Strategy is a Sham in Fact or Sham in Substance
- Ebix’s Stock Deserves to be Halted, until the SEC filings are Reliable, Accurate, and Complete (the 2010 & 2011 10Ks were submitted before the Singapore subsidiary’s 2010 financial statements were signed off)
- Shares are Worth No More Than $5
- The Robin Raina Foundation’s IRS Filings Are Not Reliable, Accurate, or Complete