Velocity Composites Share Discussion Threads

[matt123d] 12/5/2011 22:41

$19 in afterhours trade after results.

[battlebus2] 28/4/2011 17:35

Held tight will take my chances with the Nasdaq listing GLA.

[matt123d] 28/4/2011 15:52

$19 - nice!

[pro_better] 27/4/2011 15:50

well i sold but i guess yankees value better such companies...on top of that vel could be a takeover candidate...

[battlebus2] 26/4/2011 22:34

Can't decide what to do as tomorrow is the last day to sell on AIM or to wait and keep them on Nasdaq as the potential for growth is limitless IMV. Am i right in saying if i keep they they will trade at the much higher U.S. price.

[matt123d] 26/4/2011 19:52

There we go then £10!!

[matt123d] 20/4/2011 21:43

Closed just under $16 on Nasdaq - 975p!

[pro_better] 20/4/2011 20:39

looks like it is going to break the 1000p mark...

[simon cawkwell] 19/4/2011 18:59

Gentlemen,

I have been forwarded the following notes on Velti:

REVENUE
Reported revenue was down 13% y-o-y in Q4 10. Q4 10 included revenue of USD 5.9m from Mobclix, which was acquired at the end of September 2010. The acquisition of Ad Infuse in June 2010 also contributed USD 0.6m revenue in 2010. Organic revenue growth (excl. FX effects) was therefore -22% in Q4 10.

For 2010 as a whole organic revenue growth (excl. FX effects) was approximately 20%. Velti have guided for y-o-y revenue growth of about 60-65% in Q1 11.

Velti has made a focus on the US a strategic priority. In 2010 the US accounted for less than 8% of Velti revenue. Excluding revenue from the acquisitions of Media Cannon and Mobclix made in 2010, Velti's US revenue declined organically by one third from USD 4.0m in 2009 to USD 2.7m in 2010.



UNDERLYING PROFIT

In 2009 and 2010 capex and capitalised expenses were significantly above depreciation and amortisation. In 2010 the P/L charge was USD 12.1m compared to cash flow of negative 21.7m. For 2009 the figures were USD 9.4 and 20.0m respectively. The difference is principally due to capitalised development expenses being significantly higher than the related P/L charge.

Velti's reported EBIT was USD 15.6m in Q4 10 (excl. USD 5.4m of acquisition related costs), down from 32.4m in Q4 09. Adjusting for capitalised costs EBIT in Q4 10 would have been USD 13.6m.

For 2010 as a whole Velti's reported EBIT was USD 6.9m (excl. USD 5.4m of acquisition related costs), down from 11.3m in 2009. Adjusting for capitalised costs EBIT would have been USD -2.7m, down from 0.7m.

Velti have guided for adjusted EBITDA (which excludes stock option expenses) at breakeven in Q1 11, which implies a significantly worse operating result than the EBIT of USD 3.0m reported for Q1 10, despite expected revenue growth of 60-65% y-o-y.



WORKING CAPITAL

As at 31st December 2010 broad working capital was about USD 32m (27% of trailing 12 month revenue). The comparable year earlier figures were about USD 22m and 24% respectively. However working capital as reported by Velti, declined over the period from USD 22.8m to negative USD 3.8m. The main factor in this discrepancy appears to be the large increase in other current receivables, which are seemingly not included in the company's working capital calculation. Other current receivables at the end of 2010 consisted of USD 15.5m in post dated checks from customers, USD 10.8m in government grants and USD 2.0m in other receivables. The respective numbers for the end of 2009 were USD 0.3m, USD 4.5m and USD 0.5m.

Velti state that they invested about USD 23m invested in working capital in Q1 11. Given that Q4 accounted for about half of 2010 revenue and Q1 less than 15%, and that Velti are forecasting Q1 11 revenue at about half the level of Q4 10, it is difficult to explain why working capital should have increased so dramatically in Q1 11. The increase may be explained by post dated checks being reclassified from other receivables to trade receivables. Alternatively a large proportion of accrued liabilities, which increased from USD 1.6m at the end of 2009 to 27.5m at the end of 2010 may have been payable in Q1 11. Either way, the fact that a large working capital inflow has apparently not occurred in Q1 11 may be a serious concern given the continued increase in DSO in Q4 11 (see below).



Velti states that DSO improved from 131 days at the end of 2009 to 121 days at the end of 2009. This calculation excludes accrued contract receivables (where Velti say the revenue has been earned and recognised in the P/L but not billed). Including these DSO actually increased from 194 to 228 days. The calculation also excludes other current receivables (principally post dated cheques from customers) and adding in these (but excluding government grants classified under other current receivables) DSO actually increased from about 200 days at the end of 2009 to about 280 days at the end of 2010.



Provision for doubtful accounts at the end of both 2009 and 2010 was only USD 135,000, or 0.35% of trade receivables at the latter date (and only 0.15% if you include accrued contract receivables and post dated cheques received). This seems extraordinarily low especially given the geographic exposure of Velti with, for example, Greece and Russia each accounting for about 10% of revenue and, based on the tax data given, the Ukraine, Bulgaria and India also possibly being important markets.

By comparison mobile marketing peer InternetQ, which also operates primarily in eastern Europe (principally Poland, Greece and Turkey), had a provision of GBP 400,000 at the end June 2010, representing 6.7% of trade receivables at that time.



The amount of receivables factored by Velti at the end of each of the last 3 years was:

2008 2.9m

2009 7.6m

2010 10.7m



FINANCING

January 28th share sale on Nasdaq raised USD150m gross, USD 135m net of fees i.e. cost of 10%. As at 31st March 2011 USD 51.1m had been used to pay down debt, USD 8.5m was paid to Mobclix vendors and USD 23m was invested in working capital – leaving cash of USD 52.3m.



As at 31st December 2010 Velti remained in breach of a covenant related to its borrowings from related party Thor Luxembourg. This covenant was waived by Thor and the borrowings were repaid with proceeds from the sale of shares in the US in Q1 11.

As at 31st December 2010 Velti was also in breach of a covenant related to its borrowings from Black Sea Trade and Development Bank. This loan was only taken out in September 2010. Subsequent to the equity sale in the US in Q1 11 Velti is no longer in breach of this covenant and it was waived until June 2011.



Velti has a contingent liability relating to its acquisition of Mobclix in September 2010. This earn out is based on the 2011 financial performance (gross profit and EBITDA) and is payable in cash or shares at Velti's discretion on 1st March 2012. The earn out is a minimum of USD 2m and a maximum of USD 43m, less payments made upfront. Upfront payments were USD 1.1m in cash and 150,220 shares to former Mobclix stockholders and creditors and USD 9.2m paid in cash to the vendors in Q1 11. The maximum liability remaining is therefore approximately USD 32m. This liability was valued on Velti's balance sheet at USD 5.1m at the time of acquisition, being their probability adjusted assessment of the likely amount payable discounted at 27.5% (the weighted average cost of capital for the Mobclix acquisition). As at 31st December 2010 this liability had increased to USD 9.1m. In Q4 10 Mobclix performed "well above plan" and it may therefore be likely that Velti will be required to pay the remaining earn out in full (i.e. c.USD 30m) in Q1 12.



MANAGEMENT

With respect to fiscal years 2007-2009 Velti identified several material weaknesses in their internal control over financial reporting. Two of these material weaknesses related to the period end financial statement close process resulting from controls over the use of spreadsheets and controls over analysis of significant estimates. As a result of these material weaknesses, together with deficiencies in treasury management processes, Velti was required to restate past financial results in 2010. The other two material weaknesses related revenue recognition process (specifically management review of key revenue arrangements in order to determine proper accounting treatment and knowledge of our finance staff regarding accounting standards governing revenue recognition) and a significant deficiency in the administration of employee equity awards relating to the documentation and administration of these awards.

Velti was also required to restate financial statements in 2010. On 23rd July 2010 Velti issued a trading statement stating they expected to report revenue "in excess of USD 40m for the first six months of 2010". On 30th September 2010 Velti in fact reported H1 10 revenue of USD 38m. On 19th October 2010 Velti also restated its balance sheet as at the end of H1 10.

In its IPO Prospectus published on 28th January 2011 (i.e. after the 2010 financial year had already ended) Velti stated that they expected DSO to decline from the end of Q3 10 to the end of Q4 10. In fact DSO, even on the narrow definition used by the company, increased in Q4 10 from 110 days to 121 days. Including accrued contract receivables the increase was very significant. The fact that even a month after the end of the year Velti was unaware of this increase suggests internal controls over cashflow remain an issue.

A City of London Police investigation into a procurement contract in the EMEA area is ongoing.

[jakleeds] 23/3/2011 22:22

May I suggest Cupid as the next great ride to get onto, still some seats available:

[pro_better] 22/3/2011 12:35

i have sold out guys. it was a fantastic ride (10x).

all the best to the ones still riding it.

[bellymonster] 18/3/2011 09:21

I see Velti are to delist from AIM in April.

I hold my shares in a nominee account that can only trade on UK markets - anyone got any idea how what will happen to my holding at the point of delisting?

I want to keep hold of them as I think they have further to go, but I don't want to keep them if it's going to be a headache to trade them.

[matt123d] 09/3/2011 15:50

Indications of being a possible acquisition target too for the likes of Google, Apple and Microsoft. According to Jefferies analyst Peter Misek.

[pro_better] 09/3/2011 15:09

and when i was thinking to bank this ones.....blimey i shall wait for a 20bagger then :)

[matt123d] 09/3/2011 15:07

Several upgrades today.

RBC Capital, Jefferies and Canaccord - ranging from $16.50 to $18 target.

[nellie1973] 09/3/2011 14:55

broker upgrade

[matt123d] 01/3/2011 16:47

Very nice.

[m.t.glass] 21/2/2011 13:14

matt - I agree. I was looking for a one-day downbet. The lower liquidity on its UK listing will presumably worsen day by day, over the coming few weeks.

[matt123d] 21/2/2011 09:25

Risky to short this on the London listing, the main liquidity and direction comes from the Nasdaq, movements prior to the Nasdaq opening are meaningless.

[m.t.glass] 21/2/2011 09:02

Any upward pull that might have been exerted on Verti's US stock is not going to happen today as the US market is shut till tomorrow. So the negative effect of that Midas 'sell now' tip may well prevail today. I tried opening a downbet this morning but IG cannot obtain stock to do so. But upbets can be closed and presumably some will be for now.

[jakleeds] 20/2/2011 20:42

Ah good point I didn't see that. Sell your shares and put the money into something more accessible. :-)

[johnyee 7] 20/2/2011 18:50

but it says they will cease trading on aim in april,confused, I am.

Last summer, Moukas and Kaskavelis, chief executive and chief operating officer respectively, said they planned to list on America's Nasdaq technology market.

The new shares finally started trading on January 27. US investors snapped them up and the London share price rose in parallel. Now Velti plans to cancel its Aim membership and shares will cease trading here some time in April.

Existing investors have two options. They can either transfer their shares to America or sell them in the market.

Midas verdict: Swapping British shares for US ones is a logistical headache. Velti shares may continue to do well but investors who bought at 150p have been richly rewarded and are advised to sell now and put the money into something more accessible.

[jakleeds] 20/2/2011 17:20

No it means they have a dual listing - ie they are listed in both the US and on AIM.

[johnyee 7] 20/2/2011 15:18

according to this article vel will delist and move shares to America.is this correct?