Investment Thesis: Crocs and its Inconsistencies

No! This post is not about my Crocs Investment Thesis. The company published a 114 pages Presentation on September 30 containing almost everything you need to know about Crocs ($CROX). Like the classic clog, some people will like $CROX as an investment, others will hate it, and most will remain neutral. I included the presentation at the bottom of this post.

This post is about the inconsistencies I uncovered after I attended the Crocs Investor Day. On September 30, $CROX guided revenues lower by $10MM for Q3 due to the impact of $4MM in foreign exchange (FX) erosion and $6MM of shipment holds in China.

On that day, the company announced that it bought back $30MM of stock in Q3 compared to $23MM in Q2. Isn't this a bit aggressive considering management had visibility into a reduced performance throughout the quarter? The FX and China issues didn't arise the morning of the Investor Day.

On August 5th, Greg Ribatt, Crocs' CEO, bought $150,000 of stock, increasing his position to 701,087 shares and on August 24th, Andrew Reese, President and COO, purchased $44,000 of stock, increasing his position to 504,523 shares. Ribatt and Reese have been aggressive buyers of stock throughout the year.

The purchase activities during this coming q4 are worth monitoring. Unfortunately, investors will have visibility into repurchase activities only well into 2016. Management might decide not to buy stock for their own accounts in Q4, in order to remain in stealth mode and let the company take advantage of much lower stock prices following the reduced guidance. This is worth monitoring.

Of Interest: Crocs Investor Day - Spring Summer 2016

Michael Bigger. Follow me on Twitter and StockTwits. I own a large position in Crocs since 2009. Take my opinions about the company with a grain of salt.


Crocs 2015 Investor Day Presentation



Crocs Investor Day - Spring Summer 16 Line 

I attended the Crocs Investor Day held in Boston on September 30, 2015. Here are some images of some of the products that will be introduced by Crocs for Spring Summer 2016.

The stock sold off hard on the announcement that the company reduced revenue guidance for Q4 because of FX headwinds and the hold back of $6MM in orders to some suppliers in China.

According to Piper Jaffray, the stock is now dead money in the short run. As far as we are concerned, we believe in the long term potential of the Crocs brand and we are staying put.

Michael Bigger. Follow me on Twitter and StockTwits.










One of our Readers Rants about COSI (Unedited)

Rant of the Day 
I admire RJ's enthusiasm and passion and would much like him to succeed in a turnaround for Cosi but whether or not they survive is dependent on creating a simple, streamlined and fantastic menu with amazing food. It's not about the store refreshes. Foodies are attracted to great food. If Cosi has the courage to focus and clip the menu by another 50% as well as the culinary ability to create one or two additional phenomenal, home run selling items, the company turns around.  If not, it doesn't.  AUVs will change only if the menu changes drastically and new customers arrive and repeat.
This roll out push for coffee and new Beets Bowls? Seriously, that's the reboot?  Reality check: No one gives a rat's ass about Beets Bowls...the masses certainly don't.  Beets to the average customer are a turnoff.  Beets is a word they'd rather not hear.  
To create amazing food you have to spend the money for the vision. Cosi needs to hire a top tier creative chef from fine dining. Grant them stock to create incredible and addictive food. Chipotle hired Nate Appleman a few years back. It was a great hire.
The Cosi message as it is today: "We're a cafeteria!! We sell everything!"  Salads! Soups! Pizza! Bowls! Coffee! Mac and Cheese! Sandwiches! Chili!  Kitchen Sink! Look at our enormous menu!  We magically do everything amazingly well!"  Great except the menu is so huge any one item gets lost in marketing, so the experience is customer potluck and most of it is mediocre and it all takes away from Cosi being able to establish an identity. Now take another step and imagine being a Cosi employee behind the counter trying to navigate that gigantic logistical menu/employee nightmare. Would that be fun to work with everyday?  Paid minimally to prepare and stay on top of 100 different food item combinations? 
Cosi has an identity problem with its (stuck in the 80s) all over the place menu. Too much of it either looks or tastes like cafeteria food or both.  And Cosi has a brand appeal issue.  First thing out of the gate, everyday, Cosi sells a breakfast sandwich which they call a "Squagel". It's a Cosi brand name and the name is a joke. Does Cosi believe 'happening' millennials or anyone else alive in New York City or Chicago or paid Cosi employees want to say the word "Squagel", read it, hear it or even have it anywhere near in their brains every morning?  "Squagel" is a moronic, made up word with an imaginably poor Q Score and is a failed cutesy attempt at 1980s faux branding. It serves no purpose in 2015. And ANYTIME you walk into ANY Cosi you see the "Squagel" on the menu.  Shoot me now or Kill the "Squagel" name yesterday, it's incredibly unappealing.  But outside of that... Hey, great breakfast sandwich!
Cosi needs five go-to dishes that people customers think about and crave while they're not at Cosi. Focus, market and build around the top 20% of sales and drop the bottom 80%.  Get rid of everything that doesn't have the possibility to be a top five item seller.  
Start with the ovens. They are a great and highly underutilized asset. It is a no-brainer for Cosi to utilize their beautiful, focal point COSI OVENS to actually PREPARE the food and bake other things besides that ONE decades old concept bread. Cosi chefs currently look bored and half the time as just standing around. Give them foods to create. Currently, even when a customer asks for a TBM (great but this too could have a better name) sandwich to be heated up, the helper tosses it into a backroom aluminum oven...Really?  Why?  Where is the ceremony in that? Where is the pride? Where is the fun?  Cosi has gorgeous fire ovens. Why let them sit there? USE THEM. Bake other things. Try out different breads.
It's about THE FOOD and it's about THE STAFF.  That's coming from someone who travels for work and eats all over the country ...expensive restaurants and amazing hole in the wall dives. A little homework for RJ: Travel and see who's doing it amazingly well: go spend an hour at Chipotle's new Pizzeria Locale in Kansas City, sit at the counter and watch the chefs at Curate in Asheville, sit at the bar and watch the oven magic done at Mozza in Los Angeles.  Eat from those kitchens. Witness the branding at those places. Watch, learn and borrow from the best. Look at the menus. Look at what the employees are wearing, listen to how the customers are being treated. For RJ, time spent doing this would reward him a thousand-fold.
Once again, the answer is streamline, deliver hospitality, hire a tier one chef from fine dining and create great food. Give the customers a simple list to choose from, remember, talk about and crave. At the same time, make the employees' job easier and Cosi a better place to work at. That's it.
Chipotle gets this.  KISS.  Keep it simple, Stupid.  They are concentrating on what works.  They make it easy for their customers and their employees.  Simple, clean, brilliant. And they have gigantic loyalty. They are doing the same thing with their Asian and pizza concepts they're launching. They're currently opening 200 stores per year. What they are doing is working.
Steve Ells, the CEO of Chipotle, said something great on their last quarterly conference call, "Our clients know what we serve, we keep it simple, there is no need to add items to the menu just to add items to the menu. New items are also a hassle for our employees."  
The latest Chipotle quarterly conference call is worth a listen for anyone interested in restaurants.  RJ should listen to it as well. It's all delivering great food, hospitality, incredible employee morale and keeping it simple:
PS - Tossing the customer carrots in a little white plastic baggie with black letters? Sure, it's healthy but everything about that makes the customer feel like they're back in grade school opening mommy's bag lunch.  It's not professional and comes across as amateur.
PPS - Michael, take a look at this picture of yours from Twitter- it's the panel wall at the Cosi in Plainview. All those framed photos are a metaphor for Cosi's current clutter problem and it's disservice to  employees.  Look at that wall!  Think about it....Who is going to keep that glass and those frames clean, smudge and dust free everyday?  This is an employee headache. Poor design concept. And name one great restaurant that has photos of their food on their wall. Hate food photos.

COSI’s Investment Thesis Unfolding at a Slower Pace

Two weeks ago COSI reported earnings for 2Q 2015. We remain bullish on the turnaround story, and we have been adding to our long position at current prices. But...

Our thesis, which we started building about a year ago, hinges on the ability of the current CEO and former franchisee RJ Dourney to turn around the aging stores and make the company profitable again. You can read our latest, detailed thesis here. With each earnings report, we get information to assess the progress relative to our targets. Key takeaways are as follows: 

  • Revenues are increasing slowly at existing stores, and costs are showing signs of improvements.

  • The store refresh has begun, with 6 stores complete to date. Another 10-20 are targeted for 2H15, with the balance (55 total stores) scheduled by end of 1Q16.

  • Cash may not be sufficient to guarantee management’s claim that no additional capital is needed in the next 12 months.

  • Management remains positive on the results and the progress to date. 

In the 2Q earnings report and conference call, there were a few key points: 

First, top-line revenues were $24mm, a 20% increase over the prior year period ($20mm). The increase represents $5.3mm contribution from Hearthstone, offset by a $1.7mm decrease in revenues from stores closed since last year, plus an increase in revenues from existing stores of about $0.7mm. Revenues are increasing at existing stores, although the pace is not as rapid as we wanted to see. 

Second, COSI recognized positive cash flow at the store level system-wide. Specifically, stores made an average profit of 1.6% of revenues. Diving deeper, here is a breakdown of costs in 2Q 2015 compared to both 2Q 2014 -also positive cash flow without Hearthstone- and sequentially to 1Q 2015 -a dismal performance. We were expecting a much bigger improvement. 


COSI 2Q 2014



COSI 1Q 2015



COSI 2Q 2015










Food Costs



























Gross Profit









  • We note an increase in food costs as a % of revenues relative to last year. We think this represents an increase in the quality of the food, which we hope will translate to customer loyalty and better pricing power down the road. 

  • We see a fairly significant decrease in labor costs, which the team tells us is due partially to an increase in labor efficiency and partially to a decrease in the cost of medical benefits. Our stated target is 30% of revenues, so there is still plenty of room for improvement. We expect this number to decline as labor efficiencies work their way through the system, although we note the potential for risk in this area if New York passes a minimum wage increase. 

  • Headline occupancy costs are slightly higher, although we are told there was a 1.5% decrease in direct occupancy costs, offset by a larger increase in “other” costs lumped in this bucket (including credit card fees and equipment for the coffee program). Our target here is 20%, but we expect much of the improvement to come from spreading these fixed costs over a larger revenue base. 

Turning now to progress on the refresh. 6 stores have been refreshed to date. On the call, RJ explicitly said he is seeing a 10% increase in sales already in those locations, with 40% flow through at a cost of $20k to $150k per store. The plan is to complete another 10 to 20 units by year end, with all stores slated for refresh done by March ‘16. 

There are a lot of moving parts making the forecasting of financials (already always hard to do) even harder. We have Hearthstone impacting total revenue, store count changing, refreshed stores impacting growth, and “non-refresh” organic growth. Since we want to be able to measure progress on a baseline when the 3Q report comes out, we developed the following baseline 3Q numbers:



$mm or %

2014 3Q Revenue, actual:


+ Hearthstone


- Closed Stores


Base Comparison Revenue




% of stores refreshed (6/78):


Growth on Refresh:


Expected Refresh Growth:




Organic Growth:


Expected Organic Growth:




Total Growth:


Total Revenue:





Target 3Q 2015









Food Costs (fixed in %)




Labor (fixed in %)




Occupancy (fixed in $)








Gross Profit





Essentially, we are looking for COSI to be flat to marginally profitable on a four wall basis in the third quarter.

Finally, we turn to liquidity. Key takeaway is that the cash position is good at $13.9mm, but it may not be sufficient. 

  • $13.9mm as of June 30 plus $5 million in restricted cash.

  • $8.4mm cash burn, 3 quarters at current cash burn rates, until end of March which is when RJ said the refresh would be done

  • $3.7mm to refresh all the remaining 49 stores (55 total - 6 done) at $20k to $150k, $75k average

  • That leaves a budget of just $1.8mm for a marketing campaign and or slippage in those forecasts. Without including restricted cash, it is tight. Which means that unless the refresh is sufficient to drive growth of 10% or more they may need to raise capital.

Management remains extremely positive on the outlook for sales and the results of the refresh. I have yet to meet (thankfully) the management team with a negative attitude, but we are cognizant that RJ and team have access to the numbers for the first month and a half of Q3. At this point, we have confidence that the right team is in place. But that being said, here is a timeline of management’s expectations over the last year and a half and the reality:

Cosi’s Statements

  • Spring 2014: “We know how to fix it, we know what needs to be done.”

  • Spring 2015: “Will be cash flow positive by Q4 2015”

  • Spring 2015: “We will implement new streamlined menu Boards”

  • Spring 2015: “New York City refreshes will be completed by second week of July”

  • Summer 2015: “We will not need to raise capital in the next 12 months.”



  • Q2 earnings should have shown improvement at the unit level without the refreshes and without the Hearthstone contribution based on “We know how to fix it”.

  • On the Q2 Call, it became obvious that Cosi won’t be cashflow positive in Q4.

  • New Menu Boards were introduced in May and June but the were overcrowded and very hard to read. New menu boards have arrived on August 18 and they look much better. Finally!

  • We toured the NYC locations during the second week of July and we were disappointed with the refresh cadence in NYC.

  • There is no certainty and we doubt that the performance improvement will be sufficient to cover the cash needed up to the first half of 2016.

While disappointed, we know that this is the nature of a turnaround. It takes time and it is usually much slower than what is represented by management. It is just the way it is. We are happy to participate in the early part of a turnaround because we view our role as an agent for change and welcome our participation in catalyzing the situation. Early participation gives us a front row seat for learning about how management thinks at time zero which is essential to benchmark progress against our thesis.

Now, the ball is clearly in the management team’s court and they must execute. We need to see propagation of the Hearthstone metrics through the entire system in addition to the benefit of the refreshes. It is that simple.

P.S. We welcome COSI's Directors and management recent stock purchases.

Jennifer Galperin. Follow me on Twitter and Stocktwits.

Michael Bigger. Follow me on Twitter and StockTwits


ProMIS Neurosciences, Inc.

 "Harnessing the power of precision medicine to conquer Alzheimer's disease"


This post was written by Michael Bigger in collaboration with Dr. Greg Kenausis. Kenausis' contribution is highlighted by using italics. 














Ticker: PMN.TO

Stock Price (Private Placement): $.03 CDN

Market Cap: $3.54MM

Enterprise Value: $2MM

Debt: None.

NOLs: $28.5MM

Share Count: 153MM

$ symbol is used for USD unless CDN is stated.


ProMISTM Neurosciences, Inc. (PMN, Toronto Stock Exchange), is a development stage biotech company that discovers and develops precision medicine solutions for early detection and effective treatment of neurodegenerative diseases, in particular Alzheimer’s disease (AD) and amyotrophic lateral sclerosis (ALS). A precision medicine solution includes both a drug and a diagnostic to select patients most likely to respond. The market size for drugs to treat Alzheimer’s alone has been estimated at up to $20 billion per year.

The pre-money valuation of the capital infusion into ProMISTM was executed at levels that could result in returns of up to 10 times or even greater given the company's strategic technology and intellectual property. Never in my life have I seen a situation with such enormous potential and catalysts already at work to realize the potential trade at such low valuation.

In the USA, most tech start-ups get funded at valuations much greater than $2MM pre-money for an idea and a team. ProMISTM at a valuation of $1.6MM pre-money not only has a real intellectual property (IP) meeting a real need in the developed world but also a new management team with the experience and knowledge to take the company with its intellectual portfolio to a commercially viable product.

The Science and Intellectual Property (Source: Company and Dr. Kenausis)

The Company’s scientific foundation is centered on the growing knowledge base relating to diseases characterized by the presence of abnormal, misfolded proteins. Numerous diseases exhibit protein misfolding, among them certain cancers, and several neurodegenerative diseases, such as Alzheimer's disease, amyotrophic lateral sclerosis (ALS) and Parkinson’s disease (PD).

Recent published evidence indicates that for a given misfolded protein there exist multiple prion-like strains, each strain representing a specific target against which therapeutics can be developed. Accordingly, as its primary objective, the Company will focus on the discovery and development of precision therapeutics supported by companion diagnostics directed against the several strains of beta-amyloid (Aβ) in Alzheimer’s.

Historically, Alzheimer’s disease (AD) has been a frustratingly stubborn pathology for modern medicine to tackle. It is already a huge market and demographic trends indicate strong growth ahead for that market. To date, no genuinely effective therapies have been developed. The difficulties start with merely diagnosing that a patient has the disease. Until not too long ago, it was necessary to conduct a post mortem histological examination of brain tissue to confirm for certain whether a patient had AD. Of late, some progress has been made on this front, but physicians still need to conduct an array of evaluations, many of which are inevitably prone to reporting, analysis and interpretation error (e.g. family history, cognitive testing, etc.). Some advances have also been made recently involving the use of MRI and PET for AD diagnosis, but these techniques remain developmental and early-stage. The point is that diagnosing the presence and type of AD remains indirect and tricky.

In AD patients, certain proteins found in brain cells (i.e. beta amyloid and tau proteins) form unusual aggregates, and they have long been known as symptoms and potentially agents of AD. The presence of these malfunctioning proteins is an indicator of AD and would therefore be a useful target for a diagnostic application as well as for therapeutic applications. 

Why is a diagnostic of AD so important for developing successful therapies? 

For one thing, without effective diagnostics of AD, it obviously becomes very difficult to prove any novel treatment approach because ill-defined clinical study patient populations will invariably obfuscate any effect that a therapy may or may not have. Furthermore, AD may turn out to consist of an array of different types of the disease, like cancer, with each type responding optimally to different therapies. In any case, the development of a successful diagnostic would likely greatly facilitate the development an optimal target for potential therapies. 

The pharma industry has been attempting to target these errant proteins in hopes of stopping the disease progression or even reversing it. Big pharmaceutical companies like Roche, Pfizer, Eli Lilly and Johnson and Johnson did their best to come up with treatments based on an immunotherapy approach. That is, they developed antibodies or antibody-like molecules that, once administered, would help to destroy and clear these errant proteins. Until late last year, all clinical trials failed. However, at the end of last year, Biogen finally showed that such a therapeutic approach can produce a sizable benefit to AD patients. 

A gold rush is now underway to develop the most effective antibodies that would target these errant proteins, particularly beta amyloid. This is where ProMISTM Neurosciences with its proprietary ProMISTM technology has a big opportunity. ProMISTM is a statistical thermodynamic algorithm that predicts how proteins degenerate into their diseased (misfolded) forms and thereby provides a model of all the potential target regions of the protein (i.e. epitopes) against which an antibody can be designed and produced. This approach would allow to develop a specific therapeutic antibody and its related companion diagnostic, i.e. a precision medicine solution. 

The ProMISTM technology works and has been validated previously on many cancer types and neurodegenerative diseases such as Creutzfeldt-Jakob disease. Of course, ProMISTM is not the only method of identifying epitopes, and the race to find such AD epitopes is very competitive and includes many pharma companies with formidable resources at their disposal. ProMISTM does however appear to have the advantage of being a theoretical and rational approach to epitope identification while almost all other approaches are more trial-and-error/hit-or-miss. 

Based primarily on the research discoveries in Dr. Cashman’s lab, the Company has exclusive access to critical IP and proprietary know-how in the field. The Company’s patent estate consists of eight patent families issued or pending. ProMISTM utilizes its computational discovery platform, ProMIS, to predict novel targets known as Disease Specific Epitopes (DSEs) on the molecular surface of misfolded proteins. ProMISTM owns the exclusive rights to the Genus patent relating to misfolded SOD1 in ALS, and currently has a preclinical monoclonal antibody therapeutic directed against this target. 

In addition, Dr. Cashman’s lab just received a $1MM CDN grant for new discoveries which could augment the value of ProMISTM intellectual property portfolio without diluting shareholders. 

History, Re-Launch, New Strategic Direction (Source: management) 

ProMISTM was an unfocused company under the tutelage of the last CEO. While building a very valuable portfolio of intellectual property since becoming public in 2008, the company ran out of cash in 2015. 

In July 2015, a new management team came on board, the company successfully raised US $2.0MM, and the Board was reconstituted. 

The three-member senior management team includes Dr. Neil Cashman, the Company’s current Chief Scientific Officer. In addition, two pharmaceutical industry veterans and biotech entrepreneurs, with over 60 years’ cumulative experience in key aspects of drug development and commercialization have joined the team: Eugene Williams as Executive Chairman and Dr. Elliot Goldstein as Chief Executive Officer. 

I had several discussions with the management team and I am very impressed by their candor and their vision for ProMISTM. I furthermore take confidence in the commitment of the Board to represent what is best for shareholders based on the relationship formed through previous experience in similar situations with Director Johannes Minho Roth. 

The Investment Case 

The near term investment case for ProMISTM really relies on the company successfully securing the rights to AD epitopes that it discovers. With such IP, the company or just its epitope related IP would likely be a very desirable and strategically important acquisition target of many big pharma companies. Ideally, a bidding war would erupt driving the valuation to levels orders of magnitude greater than where it stands today. The time frame for this to develop would likely be in the range of one to three years if all goes well. 


ProMISTM is an early stage biotech company. The risk that the company doesn't deliver on its opportunity is highly elevated. The stock could very well trade to zero. 

The company will require a significant amount of capital to cross the finish line. The ProMIS team must achieve significant accomplishments along the way and management must communicate its vision in a narrative that keeps investors excited about the opportunity for further investment. 

Michael Bigger. Follow me on Twitter and StockTwits.

Disclaimer: Bigger Capital and related entities are long 14.3MM shares of PMN. ProMIS is in a re-launch mode and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal. Take our opinions with a grain of salt. If you find yourself relying on our views to make an investment decision it means you definitely did not do your homework about this situation. Please do not rely on our views, instead use the information as a jumping off point to begin your own independent due diligence. 


Amorfix investor acquires 12.27 million company shares

2015-07-07 19:18 ET - News Release

Mr. Michael Bigger reports


Michael Bigger has acquired, through a private placement offering with Amorfix Life Sciences Ltd., beneficial ownership, control and direction over 6,136,250 common shares of Amorfix and control and direction over an additional 6,136,250 common shares of Amorfix, at a price of three cents per acquired share, representing approximately 10.3 per cent of the issued and outstanding common shares, on a partially diluted basis, of Amorfix.

After giving effect to the private placement transaction, Mr. Bigger beneficially owns, controls or directs, directly and indirectly, 12,272,500 common shares of Amorfix, representing approximately 10.3 per cent of the issued and outstanding common shares, on a partially diluted basis, of Amorfix.

The acquired shares were acquired for investment purposes. Mr. Bigger may dispose of his holdings or acquire ownership of, or control or direction over, additional securities of Amorfix, depending on market conditions and in compliance with applicable law. The acquired shares were acquired pursuant to Section 2.3 of National Instrument 45-106 (prospectus exemptions) as the subscribers satisfy the definition of accredited investors under securities legislation.

The issuance of this news release is not an admission that an entity named in this news release owns or controls any described securities or is a joint actor with another named entity. A report with respect to the acquisition of the acquired shares will be electronically filed and will be available for viewing through the Internet at the Canadian System for Electronic Document Analysis and Retrieval.



Bigger Capital Applauds Appointment of Michael Alkin to Phorm's Board

NEW YORKJuly 2, 2015 /PRNewswire/ -- The Bigger Capital Fund, LP, Bachelier, LLC and the Bigger Family (together, "Bigger Capital" or "we"), a significant shareholder of Phorm Corporation Limited (AIM: PHRM) ("Phorm" or the "Company"), owning 20,713,435 ordinary shares, representing approximately 2.5% of the outstanding shares, today announced that it has issued an open letter to Phorm's shareholders and Board of Directors.  The full text of the letter is included below:

July 2, 2015

Dear Fellow Shareholders and Directors of Phorm Corporation:

The Bigger Capital Fund, LP, Bachelier, LLC and the Bigger Family (together, "Bigger Capital" or "we") is a significant shareholder of Phorm Corporation Limited ("Phorm" or the "Company"), owning 20,713,435 ordinary shares, representing approximately 2.5% of the outstanding shares. In April 2015, we participated in the Company's latest fundraising efforts, and while negotiating the terms of our participation, Bigger Capital secured a commitment from Phorm to appoint an independent director recommended by Bigger Capital to the Board of Directors (the "Board"). On July 2, 2015, our recommended candidate, Michael Alkin, was officially appointed to the Board.

We are extremely excited about the appointment of Mr. Alkin to the Board and are pleased to have served as a catalyst for this positive development.  We are confident that Mr. Alkin's addition to the Board will help the Company unlock value for all shareholders. Mr. Alkin, the Chief Investment Officer of Tullamore Capital LP, a private investment partnership, not only brings financial expertise to the Board, but also a strong network of media, ad-tech and finance executives that are already benefitting the Company's management team.

We firmly believe that Phorm has an opportunity to become a strong and profitable company. As the owner of powerful Internet core-centric, behind-the-firewall technologies and intellectual property, coupled with approximately $300 million in net operating losses (NOLs), we believe Phorm is significantly undervalued and is worth a multiple of its current stock price. Furthermore, while the market thinks of Phorm solely as an ad-tech company, it also possesses very promising opportunities in media measurement and data analytics.

It is the duty of the Board, refreshed with its new addition, to take any and all actions needed to achieve sustainable profitability and prove the power of its technology to the market in the ad-tech and media markets.

We look forward towards maintaining a constructive dialogue with Phorm as it evolves into a strong and profitable company.


Michael Bigger

Bigger Capital Fund, LP
Bachelier, LLC



LD Micro Invitational Conference

Many thanks to the team at LD Micro for organizing a great conference!  In particular, Chris Lahiji did an amazing job bringing so many great companies and investors together.  Conrad and Wade organized the 1x1 meetings and dealt with lots of changes to the schedule.  In addition to connecting with companies, I was able to network with a great group of smart investors. 

At the conference, I had the good fortune to connect with about 20 great companies.  Of those, here are the ones I plan to keep on my radar for the near-term: 

Iveda (IVDA): Market Cap $27mm.  

Iveda is in the cloud-based video surveillance market.  Specifically, Iveda generates monthly recurring revenues by offering customers wifi-enabled security cameras marketed through ISP’s.  Initial sales successes have been through telecom companies in the Philipines and Vietnam, with Mexico coming online in the third quarter.  The cameras themselves are somewhat of a commodity product (low-margin) but they are easy to deliver to the end user (drop-ship from the manufacturer) and easy for the end user to set up (wifi-enabled).  The real value and money is in the software to access the video feed (and, for an additional fee, save video for pre-determined lengths of time).  Note that the ISPs provide the hosting and storage, Iveda provides the software to link the cameras to the data and storage.  Iveda has about $2.6mm in cash on the balance sheet, with $1mm of it restricted related to a specific purchase order from a large customer.  Cash burn is currently about $275k / month, with sales successes expected to drive revenues such that cash flow will be positive by year end.  In the first quarter of this year, Iveda closed a $3.1mm Series B convert with investors, including a strategic investor. We are monitoring and might get involved if the company gets a bigger strategic investment or if some US ISP’s express an interest. 

Calpian (CLPI): Market Cap $25mm, Total Debt $19mm

Calpian is in the mobile payments business.  Their largest subsidiary, MoneyOnMobile (72.9% owned by CLPI, with options to buy another 1.1%) operates in India.  Of India’s 1.2 billion people, about half of them have no access to electronic payments or bank accounts.  Calpian is building infrastructure there to enable people with no bank or smartphone to digitize cash for easier payments.  Customers deposit cash at a local bodega and can digitally pay bills including phone, utilities, and TV.  Previously, customers needing to pay bills would need to travel (sometimes quite far) to a centralized location where they might wait hours to pay their bills.  Using MoneyOnMobile’s transaction-based bank, customers pay a fee on the order of 1% to 5% but avoid the cost and inconvenience of paying these bills with cash.  MoneyOnMobile currently has about 260,000 retail locations and about 131mm cumulative unique users on the system, with about 4mm “Repeat Active” users as of April 2015.  Monthly average transactions is about 7mm, with about Rs 2Bn (a little over $30mm US) processed in April 2015.  Average transaction volume has been increasing, as well as transactions / user.  MoneyOnMobile reported $57mm in top-line revenues in 2014, with gross margins of about 1%.  We are monitoring the situation. 

Chanticleer Holdings (HOTR): Market Cap $40mm.

Chanticleer is best described as a publicly traded private equity company in the restaurant operations business.  The company primarily focuses on the fast casual arena.  Their flagship holding is the corporate parent company Hooters, although there are discussions around selling this parent company to pay off the debt associated with it.  Chanticleer also owns 14 international Hooters franchises (mostly in South Africa and Australia).  They also own several local high-end burger franchises and chains, including American Burger, BGR, and are under LOI to buy BT’s Burger Joint.  They bought a significant share in Just Fresh out of a distressed situation.  In January Chanticleer raised about $8mm, mostly through friends and family.  The growth strategy involves buying existing restaurants for about 5x or less multiple of EBITDA.  Chanticleer continues to operate portfolio chains under their heritage name, but consolidates some operational line items such as beverage contracts and insurance.  One thing to note is that there are significant warrants outstanding.  We are monitoring the situation. 

Spiral Toys (STOY):  Market Cap $20mm, almost no debt.  

Spiral Toys uses consumer products as a bridge to digital content.  Their first area of focus is CloudPets, which is a stuffed animal that connects using bluetooth to phones to provide digital content.  On this product, they are partnering with Disney, Wal-Mart, NickJr, and Google.  This product launches this fall.  The company only went public in March of this year.  We are monitoring the product launches to see if they gain traction with the consumer. 

Quest Solutions (QUES): Market Cap $10mm.

Quest provides hardware and software solutions for logistics management.  They add value to small and medium-sized businesses by designing and implementing systems to improve efficiency.  An example would be a bakery that provides buns for fast-food chains.  Their hardware and software can allow the bakery to track the usage of the buns to deliver new, fresh product when supply is getting low.  Quest provides hardware (tracking RF chips) and software, so there is upfront revenue as well as ongoing.  The sales cycle is relatively long (6 months or so) but it is very collaborative and the revenue is sticky.  In the last 3 years, only 3 of 90 customers have failed to renew service contracts.  There are about 5 competitors that offer a full suite of products, but all (including QUES) are resellers of hardware.  For example, they may purchase tablets from Dell or Apple and upgrade the case for durability, add a swivel arm or forklift mounting device, or make other modifications.  QUES uses their relationships with hardware manufacturers to improve the economics for both QUES and their customers.  They recently acquired two companies, one in November and another closing soon.  2014 Pro-Forma revenue for both acquisitions was $60mm with $2.2mm EBITDA.  We are monitoring growth as well as integration of the acquisitions. 

IronClad (ICPW): Market Cap $20mm

IronClad designs and sells performance gloves.  Their primary market is workers on oil & gas rigs, although they have lines of gloves for many professional and recreational markets (think everything from home repairs and gardening to snowboarding and motocross).  They sell through distributors like Grainger.  In February 2014 they got a new management team, after the old management team tried and failed at selling the company.  At that time, they moved from CA to TX to be closer to their major customers.  They took 6 of 20 people from that location, and they are building their sales team.  The new CEO ran a $100mm company and wants to grow the business substantially.  They have signed over 300 retail doors such as Dicks Sporting Goods, Ace and True Value and Bunnings Australia.  Revenues are about $24mm with gross margins about 30% to 35%.  The market cap is quite low for the relationships they have, but need to see some catalysts shaping up for us to get interested.

SMTP (SMTP): Market Cap $35mm

SMTP is in the marketing automation business.  The company began as an email delivery company.  In the last six months or so they made 2 significant acquisitions, GraphicMail and SharpSpring.  GraphicMail is basically a competitor to MailChimp, for graphic newsletters and other email campaigns, but with a global sales team (based in 14 countries) that speaks multiple languages.  GraphicMail is relatively stable, cash flow positive business.  SharpSpring is the real growth potential because it is in Marketing Automation, a $3Bn and growing market segment.  Marketing automation is highly competitive, with major competitors Marketo and Hubspot each valued at over $1Bn in market cap and spending about $100mm / year in sales & marketing.  Sharpspring has some unique features such as call tracking and CRM integration which appeal to customers.  In addition, SMTP is employing a unique marketing strategy.  They target marketing agencies (rather than end users directly) to quickly expand its reach to end-users.  In addition, SMTP believes SharpSpring will benefit from the huge marketing spend of competition to drive awareness of the sector.  Marketing Automation is “sticky” with only about 2% attrition so far on average, since customers get comfortable with the interface and can access historical information.  Competition has higher attrition rates, but SMTP believes most users leave for a lower-cost solution (such as SharpSpring).  SharpSpring sits in a unique place within marketing automation since it is priced at significantly less than major competitors while including additional features such as CRM and call tracking.  For this reason, it can appeal to a larger number of companies who can’t afford the standalone solutions or the salaries of employees to manage these solutions.  SMTP has a clean balance sheet with no debt and about $13mm in revenue, $1.3mm EBITDA in fiscal 2014.  Need to see significant traction with agencies with consistent low attrition rates for us to get involved.   

LiquidMetal Technologies (LQMT): Market Cap $60mm

Liquidmetal manufactures small, complex injection-molded metal parts with 3D precision that resist corrosion and are extremely strong. These products are desirable for several industries including consumer electronics, watches, and medical devices.  For several years, Apple paid upfront several years ago for a non-royalty license to use the technology in Consumer Electronics. In addition, Swatch has a royalty license to use it for watches.  The company recently hired Paul Hauck as VP of Sales & Marketing with experience in injection-molded metals.  Paul is building and training a commission-based sales team with extensive experience in medical devices.  The sales cycle can be quite long (6-9 months).  In addition, the company completed construction of a manufacturing facility in CA back in October 2014.  LQMT has relationships with feedstock suppliers and manufacturers of the injection molding equipment necessary to manufacture parts using LQMT’s technology.  The company has $8.2mm in cash with $3.9mm in liabilities.  In addition, they have a $30mm undrawn equity line of credit with Aspire Capital with a floor of $0.10 on the stock.  Need to see traction (sales) in medical devices for us to get involved. 

Telenav (TNAV): Market Cap $350mm.

Telenav makes navigation software.  They have been working with Ford since 2010, and just acquired GM as a customer.  The 2017 requirement that all new cars have backup cameras will be a tailwind for them because the option to install navigation software will be partially offset by the mandatory presence of a color screen.  In 2014 they did about $150mm in top-line at about 60% gross margins.  It has almost doubled in the last year, and we think upside potential is 2x at most.  At this market cap, this company is too rich for our blood. 

Microvision (MVIS): Market Cap $150mm.

Microvision makes tiny laser projecting hardware components.  They sell to consumer electronics companies who package the components into a product with a power supply, speakers, controls, etc.  The projector doesn’t need to be focused and can project small to large format fairly easily.  They have about $18mm in orders to date with SONY and are working with an OEM to fit their product into a smartphone.  Currently manufacturing at negative margins, but if they can get sales from $4mm to $50mm they forecast break-even on a gross basis.  Current cash position is $16.7mm with a burn of about $1mm / month.   

S&W Seed Company (SANW): Market Cap $65mm.

S&W Seed Co is a breeder and grower of two main crops, Alfalfa and Stevia.  Alfalfa is the 4th largest (by volume) crop in the world, primarily as a feed crop for animals.  SANW has about 20% market share in this crop and this is the stable, slow-growth business.  Stevia is somewhat new to the market and has a huge growth potential, although unclear which companies will benefit tremendously from its growth.  In the Stevia market, SANW is focused on upstream breeding, and has 2 patents on stevia seeds.  

Of interest: RMG Networks (RMGN) Investment Thesis

Jennifer Galperin. Follow me on Twitter and Stocktwits.

Michael Bigger. Follow me on Twitter and StockTwits

Disclaimer: We have no position in any of the companies mentioned in this article as of 6/12/2015. 


PLUG PowerTrip Notes

On May 19, PLUG hosted the first of six presentations on it's PowerTrip tour.  The focus of this presentation was on sales growth and margin improvements.

CEO Andy Marsh announced a new big box retail customer with 1 site (177 GenDrive units) fully deployed as of early May.  This customer has over 100 distribution centers in the US, and could easily become a regular customer.  Andy reiterated confidence in 2015 guidance, which stands at $100mm in revenue and $200mm in bookings.  To get to $200mm in bookings: 

  • $46mm already booked as of the end of the first quarter.  
  • $113mm in business from existing customers at > 90% probability, including about 8-10 WMT sites in 2015.  
  • $208mm in near-term opportunities, of which they only need to convert about 25% to meet plan. 

Andy then discussed his medium-term plan, which I found very interesting.  Andy sees an addressable market for PLUG of about $5bn annually.  He sees $500mm in annual revenues as the goal for 3-5 years out, broken out as follows: 

  • $260mm from GenDrive units sold to present customers.
  • $100mm from selling H2, infrastructure, and service sold to present customers.
  • $80mm from new accounts. (this sounds low to me, but conservative is good)
  • $60mm in international sales.

Critical to PLUG's success is the infrastructure to deliver H2 where it is needed.  Currently, each site has a liquid storage tank for H2 which receives deliveries about once a week.  This tank supplies the refilling stations located inside the center.  Given the high cost of the H2 storage tank and related equipment (about $1mm give or take), the change to PLUG GenDrive from lead-acid batteries only makes sense for "larger" distribution centers (>about 50 trucks).  For smaller centers, H2 would need to be more accessible without on-site storage and infrastructure.  Similarly, applications that require significantly more H2 (such as refrigeration TRUs) would require better infrastructure to avoid daily (or more often) refilling of the liquid tanks.  So Andy is very focused on H2 not only as a potential product, but as a way to make PLUG products more accessible to a wider range of customers and applications. 

After Andy gave the update, COO Keith Schmid spoke in depth about goals for gross margins for the balance of 2015 and beyond.

Keith targets about 29% gross margins by the fourth quarter of 2015 for the GenDrive product (the cornerstone of the GenKey product suite).  He plans to achieve this goal with several key initiatives:

1.  Design improvements.  Each generation of GenDrive products includes improvements in functionality as well as reductions in cost to manufacture.  By replacing costly parts (or those parts that take extensive time to install), manufacturing costs can be reduced.  The next major design changes will hit market during the third quarter of this year.

2.  Volume.  With increasing sales, obviously PLUG can spread fixed costs over a larger number of units.  In addition, though, PLUG gains leverage with suppliers for longer runs and better pricing.  In addition, PLUG gains flexibility to use custom-made parts previously unavailable for smaller volumes.  All in all, higher volumes have tremendous effects on reducing costs and improving gross margins.

For the rest of the product suite, which includes GenFuel and GenCare, Keith and team plan for positive gross margins by the end of the year.  To get there, volume is critical to achieve economies of scale.  In addition, drastic improvements in diagnostic software mean technicans can get units back up and running quickly, with minimal need to escalate issues.

On a long-term basis, Keith thinks 30% + gross margins are possible across the board, with SG&A at around 20% of sales, for a net EBITDA margin number of 10% to approaching 20%.  

If we put Andy's $500mm 3-5 year plan together with Keith's 10% + EBITDA targets, here is where we see valuation:

$500mm revenue

$100mm EBITDA

$1Bn EV at 10x EV / EBITDA

$131mm cash on the B/S as of 3/2015, with $0 debt

Potential Market Cap: $1,131mm, or $6.54 / share.  

Of interest: Plug Power Site Visit

Jennifer Galperin. Follow me on Twitter and Stocktwits.

Michael Bigger. Follow me on Twitter and StockTwits

Disclaimer: Plug Power has never made any money. Take our opinions with a grain of salt.


COSI Conference Call Notes 5/14/2015

Some notes from the call: 

  • Refreshes will be completed by 2016 Q1.
  • 3 components to refreshes: Physical, efficiencies, Hearthstone leverage.
  • Early indication...double digit comp growth after a full refresh.
  • Hearthstone merger will contribute $2.4mm in incremental cash flow to COSI in 2015.
  • They will remodel 55 of the 64 stores.
  • Cash flow + target in Q4 2014 intact.
  • Fully diluted # shares 47.805399mm shares.
  • No more capital raise needed.
  • Menu refresh should be complete by end of May. 
  • Menu count should drop by 25%.
  • From that base they will experiment with new additions and substractions.
  • New entrants into fast casual space not causing real concerns because fast casual is such a small piece of the overall pie however it makes acquiring real estate much harder.
  • Both traffic and average check size increased in the first quarter.
  • All three cost categories (food, labor, and occupancy) went up in the first quarter.  This is disappointing.  We have written about the need to cut labor and occupancy costs, and we are looking for signs that these costs are turning.  RJ indicated that this is happening in Q2.
  • RJ is getting things in place that have been long neglected: Management team, technology.

Of interest: Cosi Investment Thesis

Jennifer Galperin. Follow me on Twitter and Stocktwits.

Michael Bigger. Follow me on Twitter and StockTwits