$TLFA More Fun With Models

Financials Are Finally Current. What could Q4 21 look like?

TLFA finally filed its Q3 2021 financials with the SEC. The dreaded double black diamond designation has been removed from the stock at OTC Markets. The company is now official on the Pink shares market and is hoping to uplist back to the NASDAQ.

In my September 22nd post, I ran numerous models to highlight the wide range of potential earnings outcomes were possible with very small changes in assumptions in sales and gross margins. It is time to revisit those assumptions now that we have additional information.

1. Initial revenue assumption of $73-$80M for 2021.

   1. Revenue for 9 months is currently $59.2M

      1. Historically Q4 revenue increases 25-30% from Q3.

      2. Q3 21 revenue was $19.2M (my original estimate was $17M)

         1. If historical seasonal pattern holds the company should generate around $24M-$25M in revenue.

            1. That would also be in line with the 28-30% of total annual sales generated in Q4.

            2. It would assume no change of the pattern of sales growth relative to 2019 from Q3.

               1. Q1 +2%

               2. Q2 +8%

               3. Q3 +17%

               4. Q4E +17%

      3. Total revenue for 2021 would be around $82-$84M.

         1. This is above my base case of $73M and even above my “aggressive” case of $80M

2. Operating Costs

   1. I assumed around $40M in operating expenses for 2021.

   2. With YTD Op Ex ar $32M and $10-$11M quarterly run rate, $42-$43M for the year.

   3. So $11M in Q4 looks reasonable.

      1. It appears all the extra consulting and audit fees are now done.

         1. Q2 had $325K extra expenses called out.

         2. Q3 only had $125K.

3. Gross Margin

   1. Gross margin is the hardest thing to estimate because of all the noise around transportation and input costs.

   2. Honestly I have no idea, but I am going to use the range of 56-58% which seems reasonable.

4. Putting it all together.

   1. Looks like TFLA could earn between $0.20 per share and $0.30 per share on 8.5M shares. Note the company bought back another 212K shares at $5.00 per share on December 8th.

      1. This year the company bought a total of 712K shares at an average cost of around $3.93 per share (8% of shares outstanding).

 

Other thoughts:

• Company as gross PP&E of $28M and net PP&E of $12M on the balance sheet.

  • Before it was terminated due to lack of quarterly filings, the company had a $15M credit facility secured by the company’s owned real estate. This would imply the bank valued the company’s owned real estate at substantially above the $12M net book value. Our guess would be a valuation of somewhere between $20M-$25M. Since the company does not need the money, we do not think the company will attempt to monetize the assets, but it does highlight some hidden value on the balance sheet.

• The company also had a $6M working capital line terminated by the same bank.

• We would expect to see an announcement of a reinstatement of these lines of credit. To the company’s credit, it was able to finance a substantial increase in inventory this year.

• The company historically generates cash in Q4 of approximately $5M. We think the company will generate somewhere around that amount, depending on how much extra inventory the company wants to carry due to supply chain issues.

• We believe that the company has substantially improved management at many levels of the company and for the first time in a long time, the company is being run by highly motivated, highly qualified professionals.

• The consolidation and upgrading of the distribution center will allow higher margins and better service and flexibility for trialing new products online.

We look forward to the eventual re-listing of the company and the ability to re engage management to discuss their new plans.