RESEARCH REPORT: ARIS NETWORK SERVICES (ARIS)
Aug24

RESEARCH REPORT: ARIS NETWORK SERVICES (ARIS)

The most recent research report for T11 Capital Management's newest holding ARIS is available below: Download (PDF,...

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BACK IN REAL INDUSTRY (RELY)
Jul12

BACK IN REAL INDUSTRY (RELY)

There is some history here with this company, so let's do a brief review. I originally released the research report on RELY (back then it was SGGH) in October 0f 2014. The company had just made its acquisition of the aluminum recycling subsidiary of Aleris Corporation. Just a short while later, in December 2014, I exited the position due to a number of reasons, including wanting to raise cash to allocate into Impac Mortgage. On Monday, I reinitiated our position in RELY at what is roughly the same price I exited in December 2014. There have been some material improvements taking place at the company that are worthy of mention. Also, the fact that RELY escaped what was a brutal year for commodities (aluminum included) unscathed, marks an important test for management that they passed surprisingly well. For me, this is an example of the market telling a story through price that fundamentals have yet to properly capture. For all intents and purposes, given a depressed commodity market in 2015 and the newly minted, leveraged state of the company, RELY should have suffered much more than it did. The fact that it did not is a clear tell.                           Here are some of the material improvements/catalysts coming into play for RELY: RELY generated $81 million in EBITDA in 2015. One of the best performances for the company during a terrible year for commodities. Issued a "CEO Challenge" in 2015 to reduce costs by 1% ($13.4 million). Managed to cut costs by $15 million. The target for cutting costs in 2016 has been raised to $17 million. Consumption of aluminum is slated to grow by 6% globally in 2016. Additionally, the automobile aluminum supercycle is in its infant stages, with RELY positioned to be a significant supplier in the automobile space. Only 30% of the companies revenues are unhedged. The remaining revenues come from either tolling or are hedged. Free cash flow machine that has allowed for a $50 million reduction in debt in 2015. The company possesses some $900 million in NOLs that haven't been tapped into as of this date. It has been stated that Aleris is not the platform to utilize the NOLs due to significant depreciation expenses. The company is looking for bolt on acquisition candidates, passing on a myriad of deals in 2015 because they did not meet the company's requirements. Management is committed to making accretive future acquisitions while preserving ownership for current equity holders. In other words, very little future dilution. A strong movement taking place in government towards import tariffs...

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RESEARCH REPORT: 1347 PROPERTY INSURANCE (PIH)
Feb23

RESEARCH REPORT: 1347 PROPERTY INSURANCE (PIH)

The most recent research report for T11 Capital Management's newest holding PIH is available...

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PORTFOLIO UPDATE: BACK IN IWSY
Jul28

PORTFOLIO UPDATE: BACK IN IWSY

Earlier today I announced a re-initiation of our position in IWSY on Twitter. I've had a more than two year history with this name, originally profiling the company during the first half of 2013 when the stock was trading below $1. The original research report from March 2013 is available here. The biggest frustration for investors in IWSY has been the lack of tangible earnings coming to fruition despite numerous announcements of partnerships and test pilots with major corporations and government sponsored entities. What investors don't realize are the inner-workings of the software business as it pertains to biometrics. In speaking with two software engineers over the past few months, they told me that product testing cycles for major corporations and especially government organizations is a multi-year endeavor. This becomes all the more stretched out when you are dealing with a new technology, such as biometrics. And add to that the fact that the technology IWSY is developing will protect sensitive personal and government information, you start getting the picture of why any organization involved in a test pilot of their technology would want to make sure everything is 100% effective before launching an actual program. Once the programs launch, whether in the case of Deutsche Bahn, the major retailer in Mexico (rumored to be Wal-Mart), or the newly announced partnership with Lockheed Martin, the SaaS model that has been implemented flows almost purely to the bottom line. The monthly user fees from just a single major contract instantly transforms the company into a substantial producer of cash flow. CEO Jim Miller has said the company will be cash flow positive by year end.  The partnerships the company has assembled over the past few years deserve to be noted: Fujitsu, IBM, Deutsche Telecom, CA, General Dynamics, Lockheed, HP, Microsoft, United Technologies to name a handful.  The issues of capitalization to achieve full realization of the company's potential were resolved earlier this year, as the company raised $12 million in a direct convertible preferred offering with largest shareholder Neal Goldman of Goldman Capital Management. Avoiding Wall Street institutions to act as a middle man for the transaction caused a bit of a rebellion by these institutions as they summarily downgraded IWSY following the capital raise.  The recent announcement of the Lockheed Martin contract is a substantial development for the company, acting as a conduit for adapting IWSY's technology into Federal Government projects. Here is the key line from that press release: " Lockheed Martin will offer the identity service to the federal government and other customers through its FedRAMP approved government community cloud – SolaS®." There is also the issue of...

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HIGHLIGHTS FROM IMPAC MORTGAGE CONFERENCE CALL & EARNINGS
Apr01

HIGHLIGHTS FROM IMPAC MORTGAGE CONFERENCE CALL & EARNINGS

For those looking for background on our investment in IMH, please see the research report published in January here. In the final paragraphs of the research report I cited the fact that the CashCall acquisition was a game changing development that allowed IMH to market their Alt-QM product, which is in its infancy, to a vast audience. The good news is that the marketing of the Alt-QM product to the vast number of borrowers who require such flexibility in borrowing hasn't even started yet. IMH's substantial growth is coming from originations of the traditional variety. The growth taking place is at a very early stage given where the company is within its own reformed life-cycle along with where the mortgage industry is as a whole. This was once a $2 billion company in terms of market cap. The current market cap of $125 million is not the end game for management that has been at the helm for 20 years. Why do I say that? Take a look at this commentary from CEO Joe Tomkinson earlier today: "With the addition of CashCall Mortgage, we have a scalable, centralized retail platform that is able to efficiently expand and retract during market fluctuations. By using this marketing to generate leads internally, we expect CashCall to be able to compete with some of the large internet lenders across the nation. In addition, we intend to leverage the same marketing platform to expand the volumes of Impac's new AltQM products as well as its government loan products such as FHA and VA. CashCall Mortgage will also be able to make use of our state licenses to expand its national lending footprint into more than 40 states." Currently, Impac only services 11 states. They are expanding int0 more than 40 states in the next 60 days. Basically, nationwide coverage. Additionally, the fact that the marketing presence of CashCall allows them to push their high margin Alt-QM product means that profitability can soar over the next few years. Deutsche Bank in a recent report on the potential for Alt-QM pegged potential upside growth at $200 billion annually within a mortgage market that sees $1.2 trillion in annual volume. The percentage that Alt-QM can command within the total mortgage market is substantial and IMH is basically the first one to the plate, as they were with Alt-A loans in the mid-90s. "Consistent with our strategy to expand total originations, the company also rolled out its non-QM loan programs last August marketed as the AltQM and we funded its first originations during the third quarter. In the first quarter of 2015 the company's AltQM pipeline was approximately...

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KFS IS BRILLIANCE UNDISCOVERED
Mar14

KFS IS BRILLIANCE UNDISCOVERED

There is no magic in the formula KFS is utilizing to turn what was once a wart infested pariah of a company in the insurance industry into a gleaming, ornate demonstration of success through proper management paired with smart activism on behalf of a majority shareholder. If you haven't already done so, please review the research report I wrote on KFS in April of 2014. You will notice a couple of trends that were taking place at the company a year ago. Namely, debt was in the process of being reduced in dramatic fashion (pg. 6 of research report). Meanwhile, the insurance underwriting sector which nearly torpedoed the company several years ago was near profitability (pg. 5 of research report). Fast forward to the 10K the company released on Friday. Insurance underwriting is now profitable for the first time since pre-2008/2009 crisis. Insurance services remains profitable with a more than 100% increase in operating income year over year. Underwriting segment was the reason for the calamity this company faced years ago. The company has emerged from the calamity with the following: - Underwriting now profitable - Lean, with significantly reduced debt - New operating units with the services segment experiencing steady growth - Management completely revamped and proven to be highly capable, creative financial artists. See former units AFH and PIH that are now public, as examples of their artistry.  - Significant tax benefits in the amount of $14.68 per share that haven't even started to be explored yet The cream on the puff cake here is that debt is planned to be reduced entirely over the next 18 months or so. The company has LROC preferred securities principal due at the end of June for the amount of $13.6 millon. Also, there is the issue of Trups that are in deferred interest status with the 20 month limitation expiring in early 2016. There is $22.7 million in interest due there. The interest on the Trups is accounted for as an accrued expense on balance sheet, which is why it doesn't show in the table below. As you can see, the level of income that will be generated past 2016 will rise dramatically as debt burden will be all but gone at that point. This should coincide with a sweet spot in the growth for both their services and underwriting segment. The sum total of all these events is (1) nearly no observable risk in KFS shares at this point. It is at worst a sideways performer going forward (2) a near guaranteed future date of significant share price appreciation as Wall Street plays catch up with earnings growth that nobody...

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NEWEST RESEARCH REPORT: 15 PAGES ON IMH (IMPAC MORTGAGE)
Jan12

NEWEST RESEARCH REPORT: 15 PAGES ON IMH (IMPAC MORTGAGE)

T11 Capital Management is currently long IMH at prices between 5.50-6.50. Download (PDF, Unknown)...

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PORTFOLIO UPDATE: IT’S ALL IN THE DETAILS
Oct22

PORTFOLIO UPDATE: IT’S ALL IN THE DETAILS

On Monday, I tweeted the following:         SGGH is Signature Group, which was an NOL shell, with approximately $900 million in NOLs. The NOL part is great, but it's not the reason I bought into the company here.  On Friday, the company announced their first acquisition, paying $525 million for the world's largest independent aluminum recycler.  Before getting into the micro view of the SGGH, let's talk about the timing of this announcement. I don't think they could have timed the announcement of the acquisition at a worse time for fetching any kind of premium or gaining any kind of new interest from investors. In other words, the 20%+ reaction on the first day that has now been reduced to about a 10% upside premium for the shares post-announcement does not reflect the new reality, capabilities or potential for this company going forward. The market of Q3 and Q4 2014 is incapable of factoring in premiums to anything with a market cap below $500 million. Invariably, a pessimistic view has been given to small companies unless they present clear, straightforward data that requires very little in the way of analytic interpretation. This is what occurs during negative cycles in the micro/small-cap space. Nobody cares. And that is exactly where the opportunity for 200, 300, 500 or even 1000 percent upside in names resides. The simple act of Wall Street being in a drunken, depressive malaise that creates a black hole for proper pricing of tangible, positive fundamental changes in these companies is where the opportunity lies.  So let's look at SGGH and the new form they have taken with this acquisition: First point: Recycled aluminum is a growth industry not because individuals are going to be increasing their consumption of Dr. Pepper, but rather, automobile manufacturers are being held to a higher standard of fuel efficiency. As such, they need a lighter material that doesn't compromise strength or safety. Tesla uses aluminum frames. The new Ford F-150 is the first Ford model to use an aluminum frame. Toyota is increasing use of aluminum in their automobiles. You get the picture. It is a sustainable trend in automobile manufacturing.  Recycled aluminum is preferred as aluminum can be recycled without compromising quality. There is no need to have "virgin" material.  Aluminum sheet deliveries to auto makers are forecast to rise from 504 million pounds in 2014 to 2.7 billion pounds by 2018.  Second point: SGGH is paying $525 million for a company with approximately $75 million in EBITDA in 2014. The high point of their EBITDA was $105 million in 2011 on revenues of approximately $1.6 billion. This...

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NEWEST RESEARCH REPORT: 11 PAGES ON KFS (KINGSWAY FINANCIAL)
Apr21

NEWEST RESEARCH REPORT: 11 PAGES ON KFS (KINGSWAY FINANCIAL)

T11 Capital Management is currently long KFS at an average cost in the mid-4 range. Please see disclaimer at end of research report.  Download (PDF,...

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NEWEST RESEARCH REPORT: 18 PAGES ON HH (HOOPER HOLMES)
Feb18

NEWEST RESEARCH REPORT: 18 PAGES ON HH (HOOPER HOLMES)

T11 Capital Management is currently long HH at an average cost in the low .50 range. Please see disclaimer at end of research report.  You can also view the full PDF by clicking...

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