American Apparel Distribution Center Issues Resolved?

I just ordered a pair of Slim Slacks directly from American Apparel ($APP) via Amazon.com ($AMZN). I ordered the pants at 11:12am this morning and got confirmation that they shipped at 3:16pm . This could be an indication that the American Apparel distibution centers issues have been resolved. When I receive the package in a few days, I will report on the exact location of its origin. If the origin is La Mirada, then this would confirm American Apparel CFO John Lutrell's optimism that the issues will be fixed by the end of the third quarter.

 Written by Michael Bigger. Follow me on Twitter and StockTwits. 

Spiky Plug Power Catalyst

The Business Review's Barbara Pinckney wrote an interesting article about Plug Power ($PLUG) titled "5 Questions for a Happy Andy Marsh".

The article ends with Marsh saying "I would be watching sales over the coming months. Watch where sales are coming from."

A critical piece to our $PLUG investment thesis is the impressive client list.  Well-known companies like $WMT, $KO, $SYY, $PG, and others are buying Gen-Drive units to power forklifts at distribution and assembly centers.  For the most part, conversion to $PLUG powered centers has been on a limited or test basis.  We find it interesting that $WMT has eliminated its battery room in its latest deployment of $PLUG's solution. If this was an experiment, it would have most likely kept its battery room. 

Andy's comment leaves open the possibility that a big customer may be rolling out hydrogen-powered forklifts at multiple centers on a more widespread basis.  Let's use $WMT as an example, although we could use any of the above listed customers here.  Currently, $PLUG is in just a handfull (less than 5) of $WMT's 168 nationwide distribution centers.  If $WMT were to announce a multi sites deal with $PLUG, it would mean significant revenues.  On average, each of $WMT's 168 centers have more than 100 forklifts. Assuming $PLUG sells its solution for $18,000 a unit, this business has at least $300 million of revenue potential.  In addition to direct revenue, this kind of buy-in from a company like $WMT would be a "proof of concept" as to the benefits of the $PLUG product.  These two factors, in our opinion, would serve to move the stock much higher.

Of course, we have no direct evidence that $WMT (or any customer, for that matter) is signing up for $300 million of GenDrive units this year.  We are merely pointing out the potential opportunity here, should a customer increase the pace of $PLUG solution deployment.

Here is what Marsh said during the first quarter earnings conference call:

We are also quite excited to announce that the Wal-Mart Washington Courthouse Ohio Distribution Center completed deployment of over 250 GenDrive units powering their forklift truck fleet and have removed their battery room. 3 or 4 of our largest customers discussing multiple distribution centers, up to 5 in some case, where they're looking to migrate to fuel cells, where they're working through their expansion plans internally. (Source www.seekingalpha.com)

All it takes for a spiky catalyst is one or more clients going in for multi site solutions.  Can you visualize the catalyst?

Written by Michael Bigger. Follow me on Twitter and StockTwits. 

Disclaimer: Bigger Capital, LLC, Bigger Capital Fund, LP, Bachelier, LLC and the Bigger family hold about 3% of Plug Power. We intend to increase our position if the company's results track our benchmark.

Plug Power is a highly distressed situation and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal. 

Plug Power Funded to Success

Last night Plug Power ($PLUG) announced a $10mm public offering. We decided to participate in the offering and if all goes well, our stake will increase meaningfully if we get the allocation we expect. There is no guarantee that this will happen until the offering closes.

Back in May of this year, PLUG received rescue capital to continue operations.  However the overhang on the stock persisted due to the financing gap.  This deal essentially closes the gap, as management plans to use this capital to carry the company until EBITDA breakeven sometime next year.  Of course, there is risk to management's plans.  But we feel strongly that management's assumptions are reasonable.  

We are very excited about this transaction. We believe $PLUG is now funded for success. It is exhilarating to discover distressed situations with tons of potential. It gets even better when you can use your capital to help tip the needle towards success.

One of the things we pay close attention to in most of our investments is the activities of insiders.  Officers and directors tend to be bullish in terms of what they say.  Using personal capital to add to positions in distressed situations is an action that speaks volumes about the potential of the investment.

Certain of our officers, directors and existing stockholders, including certain holders of five percent or more of our voting securities and stockholders who are affiliated with certain of our directors, have indicated an interest in purchasing shares of our common stock in this offering at the public offering price. Plug Power Filing

Our investment thesis about $PLUG can be found here. 

Written by Michael Bigger. Follow me on Twitter and StockTwits. 

and by Jennifer Galperin.  Follow me on Twitter and StockTwits.

Disclaimer: Bigger Capital, LLC, Bigger Capital Fund, LP, Bachelier, LLC and the Bigger family hold about 3% of Plug Power. We intend to increase our position if the company's results track our benchmark.

Plug Power is a highly distressed situation and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal. 

The Future is Messy

That is How You Make Money! is one of the best post Howard Lindzon ever wrote. May be the post resonates with me because I made a ton of money buying Amazon.com ($AMZN) below $10 on its way to $3 in 2001.

Young investors/traders out there should be way more active in the markets when the shit hits the fan. Bear markets are messy, American Apparel ($APP) is messy,,, Oh Plug Power ($PLUG) that is Miss Crappola Universe. Get your hands dirty, blue skies will never make you rich. In a world of perfect and free information linear investment thesis are worthless.  

And if you want to get real messy...Experiment. Experiments are real mess. Never stop experimenting.

Written by Michael Bigger. Follow me on Twitter and StockTwits. 

Hate-Look

I came across this tweet yesterday: 

@TheGreekPhenom If you own $CROX, you should honestly go kill yourself. | 1) No comment on their shoes 2) Their stock can't even go up 3) No dividend

 

I have this thought I keep in the back of my mind whenever I see information like this: Whenever you see brand hate, you should investigate the brand further. I have made most of my money by investing in very polarizing situations.

  

In a world of near free and perfect information, getting talked about and being polarizing are tremendous assets as it becomes harder to gain attention.

  

Never underestimate the power of Hate.

 

 

Written by Michael Bigger. Follow me on Twitter and StockTwits. 

Plug Power Opportunity Gets Better Every Day

Our thesis on Plug Power ($PLUG) is that the company has tremendous opportunity for sales on proven technology in the forklift market.  Their current Fortune 500 client list including Wal-Mart, Coca-Cola, and Mercedes illustrates the power of the product.  

In the last few days we have learned more information about the company that makes us even more excited about the company. 

First, the company reported customer success with lower-cost hydrogen production systems.  One of the barriers to conversion of a distribution center to a hydrogen-powered fleet is the cost to set up hydrogen infrastructure. These lower-cost systems will expand the market for Plug Power GenDrive fuel cells into smaller distribution centers, opening up an additional $1bn in opportunity for $PLUG. In addition of expanding the market, it confirms the superiority of the technology over lead-acid batteries. It also gets $PLUG closer to its goal of providing hydrogen solution for customers with only a few forklifts (Think local Walmart store as an example).

Second, we get this report from FuelCell2000 containing all kind of interesting information. I want to highlight here that Europe is about to get going with hydrogen solutions in a major way. $PLUG with its partnership with Air Liquide is well positionned to capitalize on this market allowing the company to surpass its treshold of selling 3,000 GenDrive units which puts the company in an EBITDA break-even position.

Fuel Cell Forklifts Gain Ground with permission from Jennifer Gangi.

What are your thoughts on Plug Power?

Disclaimer: Bigger Capital, LLC, Bigger Capital Fund, LP, Bachelier, LLC and the Bigger family hold about 3% of Plug Power. We intend to increase our position if the company's results confirm our thesis through time. 

Plug Power is a highly distressed situation and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal. We have been wrong on many of our thesis before.  Please do your own research before investing.

Posted by Michael Bigger. Follow me on Twitter and StockTwits. 

Mark Asks a Question about Plug Power

Mr. Bigger

I have been reading/following your blog for about 6 months and enjoy its
content.  My question involves what you believe to be PLUGs potential price
targets if their funding as well as other developments go positively.  You have
given ideas of where you think stocks like CROX and APP could eventually go and
where you'd be a seller, my question is what do you think this 'option' in PLUG
could potentially return?  Also, I have noticed via your disclaimers that you
have been building a position and am curious where/when you started buying?

The way we look at Plug Power ($PLUG) is that in the short term its success depends on securing a $10 million equity round of funding and generating more sales so that the company can reach EBITDA break even in 2014. We started buying $PLUG after the Air Liquide deal was announced. We added a lot more when we visited the company shortly thereafter. We realized then that we would be incapable of building a $PLUG operation from scratch even if you gave us $200 million. On average, the price we paid is very close to the strike of the Air Liquide deal. 

If the market detects that this next $10 million in equity financing is about to happen, there are reasons to believe that $PLUG stock price could reach $1. Some investors might look at a move to $1 as a price target to exit the stock. I think it could actually be a good entry point.

At a price of $1 with sufficient capitalization, the market will start to focus on the company and its potential. Once people look at $PLUG they will begin to see the tremendous opportunity this company has. Investors will start to look at the company, the market it is in, it's competitive advantages versus traditional lead acid batteries and other alternative providers.  Investors and research analysts will begin to look at $PLUG's impressive, growing list of Fortune 500 clients. Walmart ($WMT), a Plug customer, has 158 distribution centers in the USA. Assuming each distribution center has 75 forklifts in operation, the Walmart total opportunity for $PLUG is about $175 million. Investors will start to ask more questions about the $20 billion addressable material handling market the company can exploit with its current product line, and the size of the adjacent markets $PLUG could potentially exploit over the long run.

If all of this happens, there is no upside in setting a price target for the company. Our strategy is to track the performance of the company in relation to our operating benchmark over the long term. Short-term our plan is to sit tight and do nothing.

American Apparel ($APP) and Crocs ($CROX) are different in the sense that our thesis for these two stocks have been based on earnings power. Yes, we have an idea of the value of both companies in relations to their earnings power but it does not mean we would sell at these levels. The price target gives you a beacon when you make an investment that you feel the company is worth substantially more than your purchase price. An actual selling strategy depends on our assessment of the growth story at that point.

Does that make sense?

Disclaimer: Bigger Capital, LLC, Bigger Capital Fund, LP, Bachelier, LLC and the Bigger family hold about 3% of Plug Power. We intend to increase our position if the company's results confirm our thesis through time. 

Plug Power is a highly distressed situation and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal. We have been wrong on many of our thesis before.  Please do your own research before investing.

We also have substantial positions in $APP and $CROX.  Please see our more detailed investment thesis for each company and do your own research prior to investing in either of those companies.

Written by Michael Bigger. Follow me on Twitter and StockTwits. 

American Apparel Shareholders Meeting Notes

I attended the American Apparel shareholders meeting yesterday in New York City. The formal meeting was pretty uneventful except that observing the crowd made me realize the positive energy in the room. 

When Glenn Weinman, American Apparel's General Counsel, called for Q&A, I was the only one to stand up. I had only one question in my back pocket...actually, more an observation than a question.

I commended the company for its recent operational and financial improvements. I stated that I was a big fan of the company and that I was one of the largest shareholders of the company in the USA.

But I thought I could add more value to the company by sharing with the Board one of the issues I see.

My issue with the company relates to the recent compensation of management given the stock performance since the company came public. More specifically, I was disappointed that the Board extended the maturity of the $3.25, $4.25, and $5.25 strike options by one year. The objective for the grant of the $3.25 options expiring in early 2012 was not met and the attitude should be "There is no Game 8 in the Stanley Cup Final". Just deal with it. By extending the maturity of these options, the Board is basically moving the hockey net over the puck and shouting GOAL! It should not work that way.

I told the Board that it is great how the company focuses on treating all its stakeholders very well but now it's time to give the shareholders some loving. From the Board Members body language it felt that they heard me loud and clear. If they haven't I am happy to repeat the message in a more formal manner.

Dov Charney, CEO, came to me at the end of the meeting to explain that for him it's not about the money. For him it is about retaining control of the company so that his big visions behind American Apparel (such as Made in the USA and the different social causes) are continued to be realized.  He believes that a different management would most likely change the course and discontinue the legacy of American Apparel. I totally agree with this point of view. But I think this objective could be realized without diluting the current shareholders so aggressively by letting Dov vote the proxies of current shareholders. It is up to Dov and the Board to sell this idea to all owners to stop dilution while keeping control.

I sensed from Dov that he is fully committed to giving loving to American Apparel shareholders. Let's see what happens. Show me the MONEY!

If not, I can always shout louder.  Moving the net is gloves off.

Written by Michael Bigger. Follow me on Twitter and StockTwits.  

How I Think About Plug Power NOLs

Plug Power ($PLUG) has 3/4 of a billion in net operating losses (NOLs) it has accumulated over the last 15 years. I am trying to find out the worth of these NOLs for a potential acquirer in a tax free transaction. I am assuming for this exercise that the capital structure is composed only of common equity. In addition, to keep the arithmetic simple, I assume the acquirer would pay $100 million in stock for the company. $PLUG trades at a fraction of this number and therefore this assumption is unrealistic.

The following method has been derived with the help of our accountant.

The amount of annual NOL the acquiring company gets to offset income with is calculated by a statutory formula since there will be more than a 50% change in ownership in the company being acquired. 

The value immediately before the acquisition of the loss company being acquired multiplied by the long term tax exempt bond rate (currently about 3.5%) = the amount of annual NOL deduction allowed by the acquiring company.  NOLs have an expiration date, generally 20 years.  So, the value of Plug Power corp. as well as the years in which its NOLs were generated are key factors in determining how much of the NOL will actually be used.  

For example, if the acquirer pays $100 million for 100% ownership in Plug Power today, the formula to determine the acquirer annual allowable NOL deduction is as follows: 

$100 million multiplied by the long term tax exempt bond rate of about 3.5%=$3,500,000 allowable annual NOL deduction.  (Plug Power’s total $750 Million NOL may never be fully absorbed depending on the years Plug Power’s NOLswere generated & the value of Plug Power immediately before the tax free exchange.) 

Plug Power has generated cumulative NOLs of $750Million over the last 15 years.  This means some of the older NOLs are going to expire shortly…the older NOLs should be absorbed first. 

The cumulative value of the allowable annual NOL deduction is about $70 million over a 20 year period for a $100 million investment. The net investment would be about $30 million when taking into account the allowable deduction.

I think going through this exercise is helpful to understand the value structure of $PLUG.

Disclaimer: Bigger Capital, LLC, Bigger Capital Fund, LP, Bachelier, LLC and the Bigger family hold about 3% of Plug Power. We intend to increase our position if the company's results confirm our thesis through time. 

Plug Power is a highly distressed situation and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal. We have been wrong on many of our thesis before.

Written by Michael Bigger. Follow me on Twitter and StockTwits.  

The Business Case for Fuel Cells

Twitter user @jl4th shared with me this wonderful report about the Fuel Cells industry. It is a must read for anyone interested in our Plug Power investment thesis.

Fuel Cells Business Case 2012  (with permission from Jennifer Gangi)