A tale of two companies: GVI and Mace

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11/17/2009
3Q results for both GVI and Mace were released yesterday, and I couldn't help thinking that the two companies are more than a little comparable, and that Mace could maybe look to GVI's success as instructive. When I first started covering GVI, newly installed management team of Steve Walin and Joe Restivo came to the company swimming in debt and in a somewhat desperate search for funding. Coming off a $4.5 million quarterly loss, "This has led to a situation where the company has just $1.8 million in cash and a working capital deficit of $3.6 million." As in, yikes! However, the company issued a billion shares, raised $4.75 million, and got itself back on track by cutting all non-core business operations, focusing on the Samsung brand and product line, and running a top-notch operation in terms of service and dealer support. Now, even in an economy that continues to lag, especially for those depending on the construction market, GVI is reporting its 11th straight profitable quarter, just as it moves into the private sector, escaping a million bucks a year in money spent to be compliant with government regulations. It's barely profitable, of course: "[N]et income was approximately $84,000 or $0.00 per diluted share, as compared to net income of approximately $254,000, or $0.01 per diluted share, in the quarter ended September 30, 2008." But if you can report profit in this economy, you're pretty happy. Just ask Mace. Despite the efforts of Dennis Raefield, the company continues to struggle. Mace's third quarter results aren't that pretty:
Net loss for the three months ended September 30, 2009 was approximately ($2.4) million, or ($0.15) per share, compared to a net loss of approximately ($2.1) million, or ($0.13) per share, for the three months ended September 30, 2008.
Further, that larger net loss is on smaller revenues: "Total revenues for the third quarter ended September 30, 2009 were $8.2 million, as compared to $10.3 million for the same period in 2008." Raefield is understandably disappointed and sounding frustrated:
“The third quarter was disappointing in that we were not able to achieve the revenue growth we had anticipated. The effects of the economic downturn which began in 2008 were much longer lasting, limiting new building construction, which continues to delay projects requiring our security products, and separately, negatively impacting our Digital Media business through a tightening of credit availability for our customers. Even with continued rising monthly sales in our Security Segment, we were not able to achieve our overall sales and profit goals. We recognize that, while we are recovering, it is still not fast enough.
At this point, even with the CSSS buy, Mace may very well find itself right where GVI was three years back:
The Company’s net book value was $35.8 million, or $2.23 per share, at September 30, 2009. In addition, Mace had $49.2 million in total assets, including $4.6 million of cash and short-term investments, at September 30, 2009.
Losing $2 million a quarter and just $4.6 million in the bank, will Raefield be seeking funding the same way Walin and Restivo were? Very possible. Is the environment for such a placement far worse now than it was in 2006/2007? Um, yes. Might the best option for Mace be a similar acquisition by a private equity firm, getting rid of those pesky public reporting requirements and getting some of the pressure for instant profit off of Raefield's back so he can build the recurring portion of the business without quarterly reports hanging over his head? That kind of makes sense to me. We'll see what happens.

Comments

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If I was a private equity firm, I'd snap up Mace. The CCTV division has some pretty interesting, easy to use product that's been aggressively priced. They've got some interesting ideas in the pipeline, too. They just have a lot of old baggage to get rid of, though.

The difference between Mace now and GVI "then" is that while GVI was loaded with debt, Mace is loaded with assets. More than 1/2 of Mace's assets are in car washes and digital media businesses that the new mgmt team has said are not core to Mace's future which is to be the security business. 3 car washes alone in Austin TX are under contract for sale for $8MM and their FL warehouse is under contract for sale for another $1.6MM. This is part of the old baggage the previous commenter referred to. Clearly Mace is too small to suffer under the burden of $1mm/yr in public company costs. However, a Mace take private sale triggers a control change, losing a huge $35MM NOL tax asset. Sale of certain assets (brand?) for gain would be tax free and so would be profits. Mace needs to aggressively grow its cash flow via new products and acquisitions and the sooner the better. Once some of that NOL is used up, the company will probably still be too small to have all that public company cost and sale should be implemented. But at least at that time, it should be for much higher value than where on-going losses have Mace right now.