Q4 was in line with expectations. Guidance was ok but was
hoping for slightly larger numbers. That said guidance went against analyst
consensus expectations which expected lower numbers. Things are moving in the
right direction, but it will take about two years to play out IMO. Q4 results and guidance indicate revenue
declines are decelerating toward zero but this will take several years. 2019
saw revenue declines of 1042m. 2020 looks like somewhere around 500m, given the
guidance. The large government contract wins probably will not move the revenue
needle until 2021.
EBITDA is about flat. I see declines in TTM gross margin $
(even though GM% is increasing) offsetting cost reductions. I see GM$ reversing
course as revenue declines decelerate. 2019 GM$ dropped 257m over 2018. I
estimate 2020 GM$ drop in the 150m range, all dependent on the top line.
FCF gains, in addition to A above, should go up with
interest savings but are offset by a bump up in capex, my guess is due to, in
part, preparing to service the government contracts.
All this is a first pass although any changes must fit the guidance
unless there is a mistake of course
The bear case here is some believe the deceleration in
declining revenues is temporary therefore over time EBITDA and FCF will suffer
which is probably why some analyst estimates are at $11 or less. They would
probably argue that they are treading water so to speak in 2019.
The bull case being revenue will continue to decelerate, and
on a TTM basis it has been since 2Q19, so it deserves a higher multiple which
is also reflected by some analyst estimates and my own estimate. The recent DoD
1.6B award and a few other smaller awards (470m with SSA) should accelerate the
positive revenue trend toward zero over time assuming their tech vision starts
bearing more results in the private sector.
JS holds his cards very close, so close in fact it seems to push
some analysts to see more of a bear possibility. Many only see the negative if it’s
left up to them to fill in the blanks, it’s human nature so until JS decides to
clear the fog, target prices will remain all over the place.
I am a little surprised at the integration costs going into
2020. I’ve seen these costs become recurring which is why I look at actual FCF and
Ebitda. I’ve gone through a preliminary analysis and see real FCF at 3.06B vs 2019
3.05B and EBITDA at 8.8B vs 2019 8.77B.
A summary of metrics are at https://www.iiex.club/copy-of-ctl
The interactive model is updated for longer term inputs at https://www.iiex.club/ctl-interactive
The Survey is open for anyone’s target prices now that the guidance
is out. I’ve added a few of the analyst’s updates and the summary tab show
results back to 1Q18. Survey is at https://www.iiex.club/ctl-polls
Other than that, I see no excitement going forward until
minds are changed one way or the other. My bet is on the bull side, just need
more clarity (How many times have I said that to people 😊)