About Me

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Avram Fisher, Founder & Portfolio Manager of Long Cast Advisers, is a former equity analyst at CSFB and BMO covering industrials and business services. He has prior experience in private equity; as a corporate governance analyst; as a writer; reporter and private investigator; and as a lifeguard and busboy (I still clear plates when my kids don't). This blog is an open book of ideas about patient investing and about starting up a small-cap focused RIA. It is part decision-diary, part investment observations and part general musings. Nothing on this blog is a solicitation for business nor a recommendation to buy or sell securities. It is simply a way to organize and share thoughts with an expanding audience of independent, patient and talented small cap investors. www.longcastadvisers.com

Thursday, November 22, 2018

On thanksgiving

I've liked this poem "Desiderata" by Max Ehrmann since I first saw it in college in Baltimore. I know it's a bit sentimental and cliched, and I realize it wasn't really discovered in a church but whatever, most origin stories are BS. It doesn't take anything away from the experience.

Another sentimental cliche is that this is the time of year when family gets together and fight. We seem to do that everyday in our household. But I've never had the seemingly most cliched Thanksgiving experience of arguing radical politics or having the "crazy uncle" thing. I adore my uncles, though sadly I lost one this year. Even then, I'm grateful that I knew him. He was an outlier in many ways. At his funeral my aunt, herself a published author, read something from his journal about a simple question frequently asked in his younger days "could we ... ? " evolving with time and experience to "should we ... ?"

It seems relevant to reflect on this question in an era of fast paced technological change (crspr, AI, self driving cars, drones and weaponry, etc.). Should we have left fire in the domain of nature? Of course not. I think we should ... as responsibly as possible ... understanding that there's a learning curve and we're likely to burn ourselves early on.

***

I write here not about technology but with Thanksgiving and "gratitude" in mind. However, it would be disingenuous to honor those virtues without acknowledging the range of other emotions that seep into investing life when expectations aren't met: Anger, impatience and fear.

In thinking about both gratitude and anger, I acknowledge posts I've written here (as well as other "Dear Chairman" letters I haven't) that were written with too much of the latter and not enough of the former. In some cases I regret it and have apologized. In other cases, sharp words can help hold executives accountable to their shareholders when they hide their failures and lies behind silence.

But it would be ridiculous to not acknowledge the gratitude as well. I'm grateful for clients. I'm grateful for the returns. I'm grateful for the executives who manage our companies wisely and with integrity to enable those returns, and those who acknowledge their shortcomings and adapt when they are wrong, because course correction is always an option. I'm even grateful for the mistakes that I've learned from, as humbling as they can be.

Today should be a reminder that a little gratitude can help us all aim more accurately towards equanimity, to help make better decisions, to improve process, to better steward ours' and our clients' capital and to compound the value of investments for the long term. These attributes will enable business longevity and durability, two things I want, along with growing my client base and continuing to compound returns.

As the poem reminds us, "... many fears are born of fatigue." That and days when the indexes are down 500 points or large holdings decline 20%. At the very least we can be grateful to have a place to sleep, so we can wake refreshed and prepared for tomorrow, whatever it brings.

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ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF PRIOR RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.

Thursday, November 15, 2018

QRHC decision tree, b/c making decisions while frustrated is bad

If QRHC had never issued '18 guidance and reported $2M-$2.5M in EBITDA this year, investors would have been happy. B/c let's not forget first and foremost, this company has done a really good job to date turning this business profitable.

However, they did issue guidance and they've fumbled in their own end zone mismanaging "the street". Here's a brief history of guidance ...

11/14/17 (3Q17 report) >> "Based on the aforementioned, we expect revenue growth for 2018 to be between 10% and 15%, driving positive net income with estimated GAAP earnings between $2 million and $3 million, or GAAP earnings per share between $0.13 and $0.20, and estimated non-GAAP Adjusted EBITDA between $6 million and $7 million, or non-GAAP Adjusted EBITDA per share between $0.39 and $0.46.  Per share estimates are based upon the issued and outstanding common shares as of September 30, 2017.  Before the full effect of our strategic shift is reflected commencing in 2018, we anticipate that earnings for the transitional fourth quarter of 2017 will be relatively flat with the third quarter.”

4/2/18 (4Q17 report) >> "Quest currently expects positive net income during 2018 with estimated GAAP earnings between $500,000 and $3 million, or GAAP earnings per share between $0.03 and $0.20, and estimated non-GAAP Adjusted EBITDA between $4 million and $7 million, or non-GAAP Adjusted EBITDA per share between $0.26 and $0.46.  Per share estimates are based upon the issued and outstanding common shares as of December 31, 2017." 

5/13/18 (1Q18 report) >> ""First quarter results were in line with our expectations, and the previously delayed customer implementations are beginning to ramp and contribute to sequential revenue and earnings growth.” said S. Ray Hatch, President and Chief Executive Officer. “We are building a significant pipeline of new business and expect new innovative programs, such as the one we announced with Shell, to provide significant growth opportunities.  We have made progress toward our annual targets and expect to show improvement throughout the year.” ... on the call it was added ... "We're on track to meet our goals for 2018 which I'll remind everyone is an adjusted EBITDA of $4 million to $7 million."

8/14/18 (2Q18 report) >> "In addition, we have built a significant pipeline of new business that we expect will lead to significant incremental growth during the second half of the year. Based on the continuing ramp of business with existing customers, our expanding pipeline of new business, and the earnings leverage in our business, we believe that we are on target to reach $4 million in Adjusted EBITDA for 2018.”

And then on the call ... "Although, it looks like we’ll have a ways to go to meet the lower end of the $4 million EBITDA number on our target, we showed significant progress towards that target in the second quarter, and are definitely moving in the right direction when it comes to showing sustainable improvement in our financial performance ... We’ve also built a significant pipeline during the first half that gives us visibility to continue sequential growth in the second half of 2018 and lays the groundwork for double-digit growth in 2019."

Plus the CFO says ... "I don’t remember ever putting out $3 million on the net income." (??!)

11/13/18 (3Q18 report) >> "We now expect Adjusted EBITDA will be approximately $2.0 million to $2.5 million for the year 2018, which would represent a substantial increase of 150% to 200% over last year and set a new record for annual operating performance." 

... and here we are, frustrated and disappointed, two feelings that generally lead to poor decisions. What information can we derive from this guidance fiasco?

The generous view:
They just don't understand the ebbs / flows of new customer ramps
They aren't experienced as pubco execs and don't understand how to "manage the street"

The less generous view:
They have no visibility into their business b/c their IT platform doesn't enable them to access real time invoice management
Chairman (or some other shareholder) encouraged them to state absurd stupid guidance so they could sell

The least generous view: 
They are liars and will say anything 
They are clueless

I lean most towards the lack of visibility due to weak IT platform, b/c that's what my due diligence tells me, and its reinforced by the fact that halfway through the quarter, they have no sense of whether sequential EBITDA is going to be up or down.

It's not a problem to not know tech, but it's a problem to not fix it. 

You want to succeed in life? Acknowledge your weaknesses and work to fix them. Find people who pay attention who can provide honest critical feedback and then work towards fixing it. Everything is solvable. But if you don't acknowledge what you're bad at, you'll never ever overcome it.

So what do investors do now?

Either you can assume the Chairman who owns a lot of this company wants to make money, is reasonable, will start asking questions and invest in a solution. Properly implemented and utilized, the right tech platform would enable this company to scale significantly and generate fcf with little required re-investment.  

Or you can not waste your time b/c you're not getting water from a rock, especially the one the Chairman lives beneath. 

Regardless of what happens to the stock over the next year, you have to be able to look back and say "I made the right choice with all the information available." 

I'm sure that if they'd never opened their mouths on guidance, we'd never be here and all this speculation would be unnecessary. But here we are, on the clock, mgmt has gnawed it's credibility to zero and this is now a "show don't tell" story. Investors must choose their own adventure.

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ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF PRIOR RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN. 

Wednesday, November 7, 2018

LCA 3Q18 Letter

Returns rebounded in 3Q18. My letter to clients is posted on my website here. It includes thoughts on existing positions and two new ones towards which we've allocated some of the proceeds on the sale of IVTY.

I briefly mentioned towards the end of the letter how helpful it's been for me to re-read Chapter 8 of the Psychology of Intelligence Analysis, by Richards J. Heuer, Jr. That chapter deals with "Analysis of Competing Hypotheses" and lays out such a simple but deep method for assessing such things. The whole book is an amazing read.

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ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF PRIOR RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.