And so it happened — the world shifted

As it is the case for all postings in this blog, my standard disclaimers apply for this posting.  However, since this posting discusses investments, I urge you to review the disclaimers laid out in the About section with extra diligence. Moreover, even if you have already reviewed these disclaimers in the past, you need to review them again, as they are subject to change without notice.  Do it now, and remember that whatever I say in this blog posting is simply my opinion — it is not science, it is not advice, and it is not an attempt to make you act in any way whatsoever.

General excitement

Today may very well be an exciting day. Actually that is an understatement…. Today may be the most exciting day of the year.

I have followed Unitek Global Services and MER Telemanagement Solutions for a long time, fighting the tide most of the time, and it has not been easy. Today, however, the tides may have turned.

Perhaps Winston Churchill’s said it best:

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You ask, What is our policy? I will say; “It is to wage war, by sea, land and air, with all our might and with all the strength that God can give us: to wage war against a monstrous tyranny, never surpassed in the dark lamentable catalogue of human crime. That is our policy.” You ask, What is our aim? I can answer with one word: Victory—victory at all costs, victory in spite of all terror, victory however long and hard the road may be; for without victory there is no survival.

We shall not flag or fail. We shall go on to the end. We shall fight in France, we shall fight on the seas and the oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our island, whatever the cost may be. We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender.

Unitek Global Services

Last night after the close, Unitek Global Services announced that it has received a commitment letter for a $75 million asset-based revolving credit facility.

The commitment letter is great news, I think, in that it directly addresses the refinancing requirement raised by DirecTV as laid out in the Termination Notice Withdrawal Agreement:

The current debt of the Company must be refinanced, by July 31, 2013, to provide liquidity (based on the Company’s and its subsidiaries’ unrestricted cash and cash equivalents, marketable securities and availability under credit facilities) of at least $10 million at the closing of the refinancing; the Company must provide projections, based on reasonable assumptions, indicating that it will maintain such liquidity through the end of 2014 and that the refinancing will provide DirectSat with adequate liquidity to perform its obligations under the HSP agreement and satisfy its other obligations as they become due.

So, once the refinancing of the new credit facility closes (and, of course, the restatement is published,) it looks to me like DirecTV should be able to commit to the business again, and, so, Unitek Global Services will have taken the next steps towards being back on track.

I have written about the potential of Unitek Global Services and its equity’s potential for twofers here. In the posting, I noted that:

From a 70,000 feet perspective this is a simple chronology of what I expect is going to happen with Unitek Global Services: (1) the company will refinance its debt as per the requirements raised by DirecTV, (2) DirecTV will confirm its support of the company, (3) the company will announce its earnings and revenues for fiscal year 2012 and for first quarter of 2013, restating earnings and revenues for 2012 with resulting significant earnings loss, (4) the company will focus on operating its business and bringing down its debt, (5) the purported lawsuits against the company will be settled or otherwise disposed of, and (6) the debt will be paid off, possibly through a secondary offering once the per share price has normalized.

Point 1 refers to the Termination Notice Withdrawal Agreement, an ominous sounding term, which actually covers something very pleasant: An agreement whereby, given certain terms, DirecTV will commit large amount of business to Unitek Global Services.

Clearly the company is now solidly on the road to recovery.

MER Telemanagement Solutions

This morning MER Telemanagement Solutions announced that is had signed a new MVNE customer for a minimum revenue commitment of $1.1 million over a three and a half years period. The customer is DataXoom, an MVNO with focus on 3G CDMA and 4G LTE.

Although the devil is in the detail and the earnings picture may in the short term be negatively impacted by the ramping up costs associated with bringing the new customer live, this win will go a long way towards replacing the revenue stream from the terminating Simple Mobile contract, and, so, this piece of news has the potential for bringing the company’s MTSL equity out of its slump.

I have written about MER Telemanagement Solutions and its equity here:

And, so, the situation is not clear-cut — except that it is clear that the company should do fine (or very good!) in 2013 from both a cash and revenue standpoint with a significant potential for upside, and that the company in 2014 probably should do fine, but exactly how fine is dependent on its ability to secure new orders in 2013, to finish the deployment of the two new contracts in 2013, and to right-size the operations during 2013. Moreover, almost regardless of how 2013 and 2014 plays out, the per share price of $1.56 is incredibly cheap.

What is interesting about this, besides the money, which should go directly to the bottom-line, is that it validates the managed service platform model that was so successful at Simple Mobile. With a floor of $1.1 million there should be good protection against the downside, and if things work well for the MVNO provider, the sky is the limit — as it was the case with Simple Mobile, which ultimately, when the dust settles, will, by my back-of-the-envelope-math, have generated in excess of $9 million in high-margin revenues for MER Telemanagement Solutions (recall that the Simple Mobile contract related revenues grew from sub-$500 thousand per year to over $3.5 million per year over the lifetime of the contract.)

It is quite possible that the $1.56 per share price will be left in the dust after this.

The potential for shift

Both announcements are monumental, having the potential for releasing huge amounts of pent-up value from the companies equities. The companies’ management teams and employees have done their part, now the rest is up to the ever-unpredictable market.

Fingers crossed!

Morning update
The market appears to have generally approved with the development, with both UNTK and MTSL leaping on high volume in morning open trading, +40% and +20%, respectively, before settling in and starting the post-morning-hubla slide that is characteristic of today’s stock market.

Today, July 3rd, 2013, is a half trading day, with the market closing at 1 p.m., Eastern Standard Time. The market will be closed tomorrow, for Indepence Day, so we will have to wait until July 5th to see what happens next.

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