Free cash flow – Freedominst http://freedominst.org/ Fri, 12 Aug 2022 12:14:50 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 http://freedominst.org/wp-content/uploads/2021/03/cropped-favicon-32x32.png Free cash flow – Freedominst http://freedominst.org/ 32 32 Should retirees be worried about the AT&T dividend? http://freedominst.org/should-retirees-be-worried-about-the-att-dividend/ Fri, 12 Aug 2022 12:01:00 +0000 http://freedominst.org/should-retirees-be-worried-about-the-att-dividend/

American telecommunications company AT&T (T 0.17%) is a popular dividend stock, especially for retirees who look to the company for its utility-like stability and generous dividend that today yields a whopping 7.4%.

But it’s not all rosy: AT&T recently cut its outlook for cash earnings in 2022. Plus, the stock’s colossal yield might have some wondering if the company can afford its dividend.

I took another look at AT&T’s business after this news to see what dividend investors should expect. You don’t want to miss this.

Why is AT&T in trouble?

AT&T management cut expected free cash flow, a measure of a company’s cash earnings, for the full year 2022 in its second-quarter earnings call. While AT&T originally forecast $16 billion in free cash flow for fiscal 2022, the new figure is in the $14 billion range, a reduction of 12.5%.

CEO John Stankey explained that like many other companies, AT&T is seeing rising costs. This could be due to higher worker wages, more expensive equipment, or a combination of these two issues. Stankey also noted that while the company expects consumers to continue paying their bills, those payments may be slower than usual. This projection indicates that the economy is not performing as well as in previous quarters.

These near-term issues, combined with a general caution about the economy’s performance in the second half of 2022, have led management to revise its free cash flow forecast downward. Notably, however, the company’s revenue outlook remained the same, forecasting low single-digit growth. So what’s the problem ?

Good signs hide under bad news

AT&T is not alone in its struggle to digest the highest inflation in decades; many other companies are also facing this new reality of rising costs. The good news is that AT&T’s real business is doing well otherwise. The company added more than 800,000 new phone lines in Q2 2022 and more than 300,000 fiber internet accounts.

Management increase its revenue forecast for its core wireless business in the full 2022 fiscal year. While the company initially forecast growth of 3% in this segment, it now expects growth of between 4.5% and 5% compared to the previous year. Meanwhile, the top contender Verizon has lost retail phone lines since 2022 have started, despite revenue growth of between 8.5% and 9.5% in the wireless sector.

These two companies combine to hold 75% of the US wireless market, so seeing such different operating results suggests that AT&T is taking business from Verizon right now. AT&T may see some short-term issues hurting its financial performance, but if it can keep adding new accounts like it is doing now, the company should be able to stay the course and continue to grow.

Is AT&T’s dividend in trouble?

Investors probably want to know what AT&T’s reduced free cash flow outlook means for its dividend. After all, dividends are cash expenses for a company, and AT&T is trying to pay down its balance sheet, and not increase it by borrowing to finance investors’ income.

Fortunately, these investors can breathe a sigh of relief. AT&T has 7.169 billion shares outstanding, which means AT&T’s $1.11 per share dividend totals an annual cash outlay for the company of $7.96 billion.

The resulting 57% dividend payout ratio leaves enough financial leeway to pay the payout while servicing the debt on the balance sheet. AT&T significantly reduced the dividend when it split from Time Warner, which made the dividend less burdensome for the company.

In other words, this 7.4% dividend yield is no mirage. Retirees and other dividend investors can own the telecom giant with confidence.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

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Lanxess: trades at just 5x EBITDA and yields 10% FCF (OTCMKTS: LNXSF) http://freedominst.org/lanxess-trades-at-just-5x-ebitda-and-yields-10-fcf-otcmkts-lnxsf/ Sat, 30 Apr 2022 15:35:00 +0000 http://freedominst.org/lanxess-trades-at-just-5x-ebitda-and-yields-10-fcf-otcmkts-lnxsf/

Gerd Harder/iStock Editorial via Getty Images

Introduction

Despite relatively strong results in 2021 and a better-than-expected start to 2022, Lanxess (OTCPK:LNXSF) (OTC:LNXSY), a German chemical company, saw its share price drop to rock bottom since the start of COVID. And if you exclude the COVID-dip in 2020, the current share price is even trading at its lowest level in six years, so I was starting to take a closer look at Lanxess to see if the current share price is attractive enough to go long.

Stock price chart

Yahoo finance

Lanxess has its primary listing in Germany where it trades with LXS as its ticker symbol. Average daily volume exceeds 400,000 shares per day. The German listing also offers options, which could be interesting to sell put options with the aim of initiating a long position. The company has approximately 86.3 million shares outstanding, giving a market capitalization of approximately €3.2 billion.

The Lanxess website contains download links only, but interested investors can find all relevant information (including financial results and annual reports) at this link.

2021 has been a good year

Lanxess operates in four major divisions, each with its own focus and targeted customer base. The Advanced Intermediates segment mainly serves the construction industry, the specialty additives division has specialty lubricants and flame retardants in its product segment while it also provides additives to the rubber, plastic and painting. I am also very interested in the Customer Protection division which includes the production of disinfectants and agrochemicals. And finally, Engineering Materials produces high-tech plastics and high-performance composites.

Divisional performances

Lanxess Investor Relations

All four divisions recorded higher turnover in 2021 and the company’s consolidated turnover amounted to almost 7.6 billion euros, an increase of more than 20% compared to to the previous year. Gross margin increased at a rate of just under 20%, confirming some pressure on margins, but fortunately EBIT increased by almost 40% thanks to the company’s ability to control its R&D expenses and G&A. In addition, the total amount of “other” operating expenses decreased, which helped boost EBIT.

income statement

Lanxess Investor Relations

On top of that, net interest expense decreased from €56 million to €51 million, resulting in pre-tax income of €303 million and net income of €267 million. euros. This includes €48 million of discontinued operations and net income from continuing operations attributable to ordinary shareholders of Lanxess was approximately €219 million or €2.52 per share.

Lanxess reported operating cash flow of €439 million from continuing operations, but this includes a net investment of approximately €396 million in the working capital position. Also, the cash flow statement shows that Lanxess only paid about 10 million euros in taxes (against the 84 million euros due), so I would also like to include an adjustment of 74 million euros to reflect the normalized tax bill. There was also just under 50 million euros in lease payments (which I assume are included in “other financial disbursements”) and on an adjusted basis operating cash flow was around €719 million (including €8 million of dividends received and interest payments) .

Balance sheet

Lanxess Investor Relations

Total capex was €479 million, meaning capex + lease payments are in line with amortization and impairment charges, resulting in a free cash flow result of €240 million euros. Spread over the 86.35 million shares, the free cash flow result was approximately EUR 2.77 per share.

At the end of 2021, Lanxess had €643 million in cash and €491 million in cash-like assets (money market funds). The balance sheet also contained €3.5 billion in financial liabilities, which translated to net debt of just under €2.4 billion. Considering that the EBITDA for the 2021 financial year amounted to 1.01 billion euros, the debt ratio of approximately 2.4 times EBITDA is very reasonable. And since EBITDA will increase and net debt will decrease this year, I don’t anticipate any balance sheet concerns.

Moreover, the debt repayment schedule is well structured and after this year no principal debt repayments are due in 2023 or 2024.

Debt repayment

Lanxess Investor Relations

The company also timed its latest bond issue very well. In the fourth quarter of 2021, it raised €600 million in a green bond issue with a coupon of just 0.625% (the coupon will be tied to Lanxess meeting its sustainability targets).

2022 is off to a strong start and has even exceeded the company’s already optimistic forecast

Despite some uncertainty in the markets, Lanxess appeared quite positive when it released its first outlook for 2022. Despite much higher raw material and energy prices, the company was able to pass on these additional costs to its customer base. Therefore, it expected moderate to strong growth across all of its four divisions.

Division Councils 2022

Lanxess Investor Relations

The official guidance was to see an EBITDA “significantly” above the 2021 level (1.01 billion euros), and Lanxess expected a first quarter EBITDA of 280 to 320 million euros and in a put trading update, the company confirmed that its first quarter EBITDA was 320 million. EUR before exceptional items.

Investment thesis

This is an impressive performance in the first quarter and it clearly shows that Lanxess has indeed been able to increase the prices of its products to mitigate the impact of higher energy prices and increased costs. raw material.

I think it’s prudent to expect an annual EBITDA above 1.1 billion euros (which would mean that the company should only generate 800 million euros of EBITDA over the next three quarters ), which should increase the free cash flow result to EUR 320-330m for almost EUR 4 per share. This makes Lanxess relatively cheap while the strong net cash flow and dividend (which will likely cost the company less than €100m) will help reduce net debt.

Trading at an enterprise value of around €5.6 billion, an EBITDA of just over €1.1 billion indicates that the company is trading at an EV/EBITDA ratio of around 5 .

The entire chemical sector is currently trading at low multiples as the market is valuing in a slowing global economy (BASF, Covestro,… are all trading at low valuations meaning Lanxess is not materially or excessively cheaper than these peers). This also pushes option premiums up and a P28 expiring in September can be purchased for an option premium of around EUR 1.25, while a P24 expiring in December can be purchased for a premium of around 1.10 EUR. I think writing put options makes a lot of sense to me trying to initiate a long position on Lanxess.

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IDEX CORP /DE/ Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q) http://freedominst.org/idex-corp-de-managements-discussion-and-analysis-of-financial-condition-and-results-of-operations-form-10-q/ Wed, 27 Apr 2022 17:03:05 +0000 http://freedominst.org/idex-corp-de-managements-discussion-and-analysis-of-financial-condition-and-results-of-operations-form-10-q/
The following discussion and analysis should be read in conjunction with the
Company's Condensed Consolidated Financial Statements and related notes in this
quarterly report. This discussion may contain forward-looking statements based
upon current expectations that involve risks and uncertainties. The Company's
actual results and the timing of selected events could differ materially from
those anticipated in these forward-looking statements as a result of several
factors, including those set forth under Item 1A, "Risk Factors" in the
Company's most recent annual report on Form 10-K and under the heading
"Cautionary Statement Under the Private Securities Litigation Reform Act"
discussed elsewhere in this quarterly report.

This discussion also includes certain non-GAAP financial measures that have been
defined and reconciled to their most directly comparable U.S. GAAP measures
later in this Item under the headings "Non-GAAP Disclosures" and "Free Cash
Flow." This discussion also includes Operating working capital, which has been
defined later in this Item under the heading "Cash Flow Summary." The non-GAAP
financial measures disclosed by the Company should not be considered a
substitute for, or superior to, financial measures prepared in accordance with
U.S. GAAP. The financial results prepared in accordance with U.S. GAAP and the
reconciliations from these results should be carefully evaluated.

Insight


IDEX is an applied solutions company specializing in the manufacture of fluid
and metering technologies, health and science technologies and fire, safety and
other diversified products built to customers' specifications. IDEX's products
are sold in niche markets across a wide range of industries throughout the
world. Accordingly, IDEX's businesses are affected by levels of industrial
activity and economic conditions in the U.S. and in other countries where it
does business and by the relationship of the U.S. dollar to other currencies.
Levels of capacity utilization and capital spending in certain industries and
overall industrial activity are important factors that influence the demand for
IDEX's products.

During the three months ended March 31, 2022, the Company achieved a record
quarter in sales, operating margin and earnings per share driven by robust
demand and strong operating performance. Teams successfully navigated the
challenging economic environment arising primarily from material availability
and logistical challenges and also continued to deliver for customers. The
Company expanded operating margin as its highly differentiated product portfolio
enabled strong price capture amid inflation pressures and its focus on
operational productivity yielded positive results. Finally, the Company deployed
additional capital, both within its existing portfolio and with the acquisition
of Nexsight to the IDEX family of businesses as well as through share
repurchases.

Select key financial results for the three months ended March 31, 2022 compared to the same period of the previous year are as follows:


•Sales of $751.1 million increased 15%; organic sales (which excludes
acquisitions/divestitures and foreign currency translation) were up 12%.
•Operating income of $187.6 million increased 21%. Adjusted operating income
increased 18% to $187.6 million.
•Operating margin of 25.0% was up 110 basis points. Adjusted operating margin
increased 70 basis points to 25.0%.
•Net income attributable to IDEX of $140.0 million increased 24%. Adjusted net
income attributable to IDEX increased 21% to $149.8 million.
•Adjusted EBITDA of $214.7 million was 29% of sales.
•Diluted EPS attributable to IDEX of $1.83 increased $0.35, or 24%. Adjusted EPS
attributable to IDEX of $1.96 increased $0.34, or 21%.
•Cash flows provided by operating activities of $79.7 million were down due to
increases in working capital, partially offset by higher earnings. Free cash
flow of $63.6 million was 42% of adjusted net income attributable to IDEX.

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Results of Operations

The following is a discussion and analysis of the Company’s results of operations for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.


Performance for the Three Months Ended March 31, 2022 Compared with the Same
Period in 2021

                                                      Three Months Ended March 31,                   Change
(Dollars in millions, except per share
amounts)                                                                                     2022              2021                $                 % / bps
Net sales                                                                                 $  751.1          $  652.0          $   99.1                     15   %
Cost of sales                                                                                408.6             359.4              49.2                     14  %
Gross profit                                                                                 342.5             292.6              49.9                     17  %
Gross margin                                                                                  45.6  %           44.9  %               n/a                  70 bps
Selling, general and administrative
expenses                                                                                     154.3             134.9              19.4                     14  %
Restructuring expenses and asset
impairments                                                                                    0.6               2.2              (1.6)                   (73  %)
Operating income                                                                             187.6             155.5              32.1                     21  %
Operating margin                                                                              25.0  %           23.9  %               n/a                 110 bps
Other income - net                                                                            (2.3)             (0.8)             (1.5)                   188  %
Interest expense                                                                               9.5              10.7              (1.2)                   (11  %)
Income before income taxes                                                                   180.4             145.6              34.8                     24  %
Provision for income taxes                                                                    40.5              32.9               7.6                     23  %
Effective tax rate                                                                            22.4  %           22.6  %               n/a                (20) bps
Net income attributable to IDEX                                                           $  140.0          $  112.7          $   27.3                     24  %
Diluted earnings per common share
attributable to IDEX                                                                      $   1.83          $   1.48          $   0.35                     24  %



Sales increased 15%, reflecting a 12% increase in organic sales, a 5% increase
from acquisitions (Airtech - June 2021 and ABEL - March 2021) and a 2%
unfavorable impact from foreign currency translation. Sales increased 26%
domestically and 6% internationally, and sales to customers outside the U.S.
were approximately 50% of total sales in the first quarter of 2022 compared to
54% during the same period in 2021.

Cost of sales increased due to higher sales volume, inflation and acquisitions.
Both gross profit and gross margin increased primarily due to higher volume
leverage and strong operational productivity together with favorable price/cost,
partially offset by higher employee-related costs. Additionally, gross profit
increased as a result of acquisitions.

Selling, general and administrative ("SG&A) expenses increased primarily due to
higher employee-related costs, amortization from acquisitions, discretionary
spending and resource investments compared with the same period in 2021.

Restructuring expenses and asset impairments decreased due to severance benefits
and asset impairments related to the consolidation of certain facilities in 2021
that did not reoccur in 2022.

Operating income increased 21%, reflecting an 18% increase in organic operating
income, a 3% increase from acquisitions (Airtech - June 2021 and ABEL - March
2021) and a 2% favorable impact from lower restructuring costs, partially offset
by a 2% unfavorable impact from foreign currency translation. The increase in
operating income is attributable to the operating margin drivers discussed
below.

Operating margin increased 110 basis points, reflecting a 130 basis point
increase in organic operating margin and a 30 basis point favorable impact from
lower restructuring costs, partially offset by a 40 basis point decrease due to
acquisitions primarily driven by higher amortization and a 10 basis point
unfavorable impact from foreign currency translation. The increase in organic
operating margin is primarily due to the gross margin drivers discussed above,
partially offset by higher discretionary spending and resource investments.

Other income, net – increased primarily due to higher gains on sale of assets, partially offset by a decline in the fair market value of marketable securities.

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Interest expense decreased primarily due to lower interest rates on the
Company's indebtedness, partially offset by an increase in the amount of debt
outstanding compared with 2021.

The Company's provision for income taxes is based upon estimated annual tax
rates for the year applied to federal, state and foreign income. The provision
for income taxes increased compared with the same period in 2021 primarily due
to higher earnings while the effective tax rate slightly decreased compared with
the same period in 2021 due to the mix of global pre-tax income across
jurisdictions.

Reportable business segment results

The Company has three reportable segments: Fluid & Metering Technologies (“FMT”), Health & Science Technologies (“HST”) and Fire & Safety/Diversified Products (“FSDP”).


•The FMT segment designs, produces and distributes positive displacement pumps,
valves, small volume provers, flow meters, injectors and other fluid-handling
pump modules and systems and provides flow monitoring and other services for the
food, chemical, general industrial, water and wastewater, agriculture and energy
industries.
•The HST segment designs, produces and distributes a wide range of precision
fluidics, rotary lobe pumps, centrifugal and positive displacement pumps, roll
compaction and drying systems, pneumatic components and sealing solutions, high
performance molded and extruded sealing components, custom mechanical and shaft
seals, engineered hygienic mixers and valves, biocompatible medical devices and
implantables, air compressors and blowers, optical components and coatings,
laboratory and commercial equipment, precision photonic solutions and precision
gear and peristaltic pump technologies. HST serves a variety of end markets,
including food and beverage, pharmaceutical and biopharmaceutical, cosmetics,
marine, chemical, wastewater and water treatment, life sciences, research and
defense markets.
•The FSDP segment designs, produces and distributes firefighting pumps, valves
and controls, rescue tools, lifting bags, other components and systems for the
fire and rescue industry, engineered stainless steel banding and clamping
devices used in a variety of industrial and commercial applications and
precision equipment for dispensing, metering and mixing colorants and paints
used in a variety of retail and commercial businesses around the world.

Within its three reportable segments, the Company maintains 13 reporting units
where the Company focuses on organic growth and strategic acquisitions.
Management's primary measurements of segment performance are sales, operating
income and operating margin. The table below illustrates the three reportable
segments and the reporting units within each segment.

     FMT                         HST                           FSDP

Pumps            Scientific Fluidics & Optics            Fire & Safety
Water            Sealing Solutions                       Dispensing
Energy           Performance Pneumatic Technologies      BAND-IT
Valves           Material Processing Technologies
Agriculture      Micropump



The table below illustrates the percentages of the share of sales and operating
income contributed by each segment on the basis of total segments (not total
Company) for the three months ended March 31, 2022.

                                         Three Months Ended March 31, 2022
                                                                                 FMT       HST       FSDP      IDEX
Sales                                                                            36  %     42  %     22  %     100  %
Operating Income(1)                                                              39  %     41  %     20  %     100  %


(1) Segment operating income excludes unallocated corporate operating expenses of $16.9 million for the three months ended March 31, 2022.

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Fluid & Metering Technologies Segment

                                       Three Months Ended March 31,                                                              Components of Change
(Dollars in millions)           2022                2021              Change             Organic           Acq/Div(1)            Restructuring            Foreign Currency             Total
Net sales                 $          272.0       $     243.3                 12%               11%                    2%                        -                        (1%)                12%
Operating income                      80.4              62.9                 28%               27%                     -                       2%                        (1%)                28%
Operating margin                   29.5  %           25.8  %             370 bps           380 bps              (40) bps                   30 bps                           -            370 bps


(1) Based on the timing of its acquisition, ABEL’s results for the first two months of 2022 are reflected in the acquisitions/disposals column.


•The change in organic sales was attributed to increases in the Pumps reporting
unit due to strong demand in the industrial and energy markets, in the
Agriculture reporting unit due to favorable commodity prices and global demand
for crops and in the Water reporting unit due to strong demand in the municipal
and industrial water markets as well as water saving growth projects.
•Sales increased 15% domestically and 9% internationally. Sales to customers
outside the U.S. were approximately 45% of total segment sales in the first
quarter of 2022 compared with 46% during the same period in 2021.
•Operating margin of 29.5% increased 370 basis points compared with 25.8% during
the same period in 2021. The change in operating margin was attributed to the
following:
•Organic operating margin increased 380 basis points due to higher volume
leverage and strong operational productivity together with favorable price/cost,
partially offset by increases in employee-related costs and resource
investments. Additionally, the prior year period was unfavorably impacted by
increases in inventory reserves associated with COVID-19 new product development
opportunities not materializing and the fair value inventory step-up charge
related to the ABEL acquisition.
•Lower restructuring costs favorably impacted operating margin by 30 basis
points.
•Acquisitions negatively impacted operating margin by 40 basis points due to:
?Incremental intangible asset amortization from the ABEL acquisition of $0.6
million, which negatively impacted operating margin by 20 basis points; and
?The dilutive impact from the ABEL acquisition on overall FMT operating margin.

Health Technology and Science Sector

                                     Three Months Ended March 31,                                                              Components of Change
(Dollars in millions)          2022                2021             Change             Organic           Acq/Div(1)            Restructuring           Foreign Currency             Total
Net sales                 $         315.2       $    250.4                26%                16%                   11%                       -                        (1%)                26%
Operating income                     83.6             66.6                26%                19%                    7%                      1%                        (1%)                26%
Operating margin                  26.5  %          26.6  %           (10) bps             50 bps              (80) bps                  20 bps                      -                (10) bps


(1) Acquisitions include Airtech in June 2021.



•The change in organic sales was attributed to increases in the Scientific
Fluidics & Optics reporting unit due to strong market demand across analytical
instrumentation, life science and semiconductor markets as well as targeted
growth initiatives tied to next generation sequencing and satellite broadband.
Additionally, increases in the Sealing Solutions reporting unit were driven by
strong demand in the semiconductor and industrial markets and increases in the
Performance Pneumatics Technologies reporting unit were driven by strength in
the industrial market.
•Sales increased 62% domestically and 4% internationally. Sales to customers
outside the U.S. were approximately 52% of total segment sales in the first
quarter of 2022 compared with 63% during the same period in 2021.
•Operating margin of 26.5% decreased 10 basis points compared with 26.6% during
the same period in 2021. The change in operating margin was attributed to the
following:
•Organic operating margin increased 50 basis points due to higher volume
leverage and favorable price/cost which were more than offset by the dilutive
impact of amortization related to Airtech as well as higher employee-related
costs, discretionary spending and resource investments.
•Lower restructuring costs favorably impacted operating margin by 20 basis
points.
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•Acquisitions negatively impacted operating margin by 80 basis points as the
contributions of the Airtech business were more than offset by incremental
intangible asset amortization of $3.9 million, which negatively impacted
operating margin by 130 basis points.

Fire & Security/Diversified Products Segment

                                      Three Months Ended March 31,                                                             Components of Change
(Dollars in millions)          2022                2021             Change              Organic            Acq/Div           Restructuring            Foreign Currency              Total
Net sales                 $         164.7       $    159.5                  3%                  5%                 -                        -                        (2%)                  3%
Operating income                     40.5             44.6                (9%)                 (6)                 -                        -                        (3%)                (9%)
Operating margin                  24.6  %          27.9  %           (330) bps           (320) bps                 -                   10 bps                    (20) bps           (330) bps



•The change in organic sales was driven by an increase in the Dispensing
reporting unit due to North American project volume and strong demand in the
paint market. Additionally, increases in the BAND-IT reporting unit were due to
strong performance in the energy and industrial markets, as the automotive
market continued to be challenged by supply-chain related customer delays.
•Sales increased 1% domestically and 5% internationally. Sales to customers
outside the U.S. were approximately 54% of total segment sales in the first
quarter of 2022 compared with 53% during the same period in 2021.
•Operating margin of 24.6% decreased 330 basis points compared with 27.9% during
the same period in 2021. The change in organic operating margin was attributed
to higher employee-related costs and discretionary spending as well as
compressed price/cost due to long-term original equipment manufacturer
contracts, partially offset by higher volume.

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Liquidity and Capital Resources

Liquidity


Although the COVID-19 pandemic (including the emergence of variant strains) has
impacted and may continue to impact the Company's operating cash flows, based on
management's current expectations and currently available information, the
Company believes current cash, cash from operations and cash available under the
Revolving Facility will be sufficient to meet its operating cash requirements,
planned capital expenditures, interest and principal payments on all borrowings,
pension and postretirement funding requirements, share repurchases and quarterly
dividend payments to holders of the Company's common stock for the foreseeable
future. Additionally, in the event that suitable businesses are available for
acquisition upon acceptable terms, the Company may obtain all or a portion of
the financing for these acquisitions through the incurrence of additional
borrowings.

At March 31, 2022, working capital was $1,213.0 million and the Company's
current ratio was 3.6 to 1. At March 31, 2022, the Company's cash and cash
equivalents totaled $733.2 million, of which $467.7 million was held outside of
the United States. As of March 31, 2022, there was no balance outstanding under
the Revolving Facility and $7.1 million of outstanding letters of credit,
resulting in a net available borrowing capacity under the Revolving Facility of
$792.9 million. The Company believes that additional borrowings through various
financing alternatives remain available, if required.

Cash flow summary


The following table is derived from the Condensed Consolidated Statements of
Cash Flows:

                                                     Three Months Ended March 31,
(In millions)                                             2022                    2021
Net cash flows provided by (used in):
Operating activities                         $         79.7                     $ 109.3
Investing activities                                 (124.4)                     (119.5)
Financing activities                                  (71.3)                      (40.4)



Operating Activities

Cash flow from operating activities decreased $29.6 million for $79.7 millionprimarily due to working capital increases described below, partially offset by higher earnings.


Operating working capital, calculated as accounts receivable plus inventory
minus accounts payable, is used by management as a measurement of operational
results as well as the short-term liquidity of the Company. The following table
details operating working capital as of March 31, 2022 and December 31, 2021:

(In millions)                       March 31, 2022      December 31, 2021
Receivables - net                  $        411.2      $            356.4
Inventories                                   428.5                   370.4
Less: Trade accounts payable                  210.2                   178.8
Operating working capital          $        629.5      $            548.0



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Operating working capital increased $81.5 million to $629.5 million at March 31,
2022, with acquisition, divestiture and foreign currency translation impacts
primarily driving a net $13.0 million of the increase. Excluding these impacts,
accounts receivable increased $45.6 million as a result of higher volume;
inventories increased $46.9 million to support production amid supply chain
difficulties; and trade accounts payable increased $24.0 million due to higher
inventory purchases.

Investing Activities

Cash flow used in investing activities increased $4.9 million for $124.4 millionprimarily due to higher cash outflows for acquisitions with the addition of Nexsight in 2022 compared to ABEL in 2021 and for capital expenditures as the Company continues to expand its China and India
installations, partially offset by higher proceeds from the sale of assets.

Fundraising activities


Cash flows used in financing activities increased by $30.9 million to $71.3
million. During 2022, the Company repurchased 147,500 shares at a cost of $28.3
million, of which $2.0 million did not settle until April, and paid $41.4
million in dividends. During 2021, the Company did not repurchase any shares and
paid $38.1 million in dividends.

Free movement of capital


The Company believes free cash flow, a non-GAAP measure, is an important measure
of performance because it provides a measurement of cash generated from
operations that is available for payment obligations such as planned capital
expenditures, interest and principal payments on all borrowings and quarterly
dividend payments to holders of the Company's common stock as well as for
funding acquisitions. Free cash flow is calculated as cash flows provided by
operating activities less capital expenditures.

The following table reconciles free cash flow to cash flows provided by
operating activities:
                                                                   Three Months Ended March 31,
(Dollars in millions)                                              2022                      2021
Cash flows provided by operating activities                $           79.7           $         109.3
Less: Capital expenditures                                            (16.1)                    (14.6)
Free cash flow                                             $           63.6           $          94.7
Free cash flow as a percent of adjusted net income
attributable to IDEX(1)                                                42.5  %                   76.7  %



(1) Free cash flow as a percent of adjusted net income attributable to IDEX now
reflects the impact of excluding acquisition-related intangible asset
amortization, net of related taxes, from adjusted net income attributable to
IDEX.

The decrease in free cash flow compared to 2021 is due to the increases in working capital discussed above, which more than offset the increase in earnings. Cash needs

Pending Acquisitions


On March 30, 2022, the Company entered into a definitive agreement to acquire
KZValve for cash consideration of $120.0 million. The Company expects to close
the transaction by the end of the second quarter of 2022, subject to regulatory
approval and customary closing conditions.

Capital expenditure


Capital expenditures are generally expenditures for machinery and equipment that
support growth and improved productivity, tooling, business system technology,
replacement of equipment and investments in new facilities. Cash flows from
operations were more than adequate to fund capital expenditures of $16.1 million
and $14.6 million in the first quarters of 2022 and 2021, respectively. The
Company believes it has sufficient operating cash flow to continue to meet
current obligations and invest in planned capital expenditures.

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Share Repurchases

During the three months ended March 31, 2022, the Company repurchased 147,500
shares at a cost of $28.3 million, of which $2.0 million did not settle until
April. There were no share repurchases during the three months ended March 31,
2021. As of March 31, 2022, the amount of share repurchase authorization
remaining was $683.7 million. For additional information regarding the Company's
share repurchase program, refer to   Note 15   in the Notes to Condensed
Consolidated Financial Statements.

After March 31, 2022 and through April 22, 2022the Company bought back 60,362 shares at a price of $11.7 million.

pacts


There are two key financial covenants that the Company is required to maintain
in connection with the Revolving Facility, the 3.20% Senior Notes and the 3.37%
Senior Notes, a minimum interest coverage ratio of 3.0 to 1 and a maximum
leverage ratio of 3.50 to 1. At March 31, 2022, the Company was in compliance
with both of these financial covenants, as the Company's interest coverage ratio
was 21.68 to 1 for covenant calculation purposes and the leverage ratio was 1.46
to 1. There are no financial covenants relating to the 2.625% Senior Notes or
the 3.00% Senior Notes; however, both are subject to cross-default provisions.

Credit ratings

The Company’s credit ratings, which have been independently compiled by the following credit rating agencies, are detailed below:

• S&P Global Ratings affirmed the company’s corporate credit rating of BBB (stable outlook) in June 2021.

• Moody’s Investors Service affirmed the Company’s corporate credit rating at Baa2 (stable outlook) in December 2021.

• Fitch Ratings reaffirmed the Company’s corporate credit rating of BBB+ (stable outlook) in March 2022.


Critical Accounting Estimates

As discussed in the Annual Report on Form 10-K for the year ended December 31,
2021, the preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and judgments that affect the reported
amount of assets and liabilities, disclosure of contingent assets and
liabilities, and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. There have been no
changes to the Company's critical accounting estimates described in the Annual
Report on Form 10-K for the year ended December 31, 2021.

Non-GAAP Information


Set forth below are reconciliations of each of Organic sales, Adjusted gross
profit (and adjusted gross margin), Adjusted operating income (and adjusted
operating margin), Adjusted net income attributable to IDEX, Adjusted diluted
earnings per share ("EPS") attributable to IDEX, Earnings before interest,
income taxes, depreciation and amortization ("EBITDA") and Adjusted EBITDA to
its respective most directly comparable U.S. GAAP measure. Management uses these
metrics to measure performance of the Company since they exclude items that are
not reflective of ongoing operations, such as fair value inventory step-up
charges, restructuring expenses and asset impairments and gains on sales of
assets. Adjusted net income attributable to IDEX and Adjusted diluted EPS
attributable to IDEX also exclude acquisition-related intangible asset
amortization. Management also supplements its U.S. GAAP financial statements
with adjusted information to provide investors with greater insight,
transparency and a more comprehensive understanding of the information used by
management in its financial and operational decision making. The reconciliation
of segment EBITDA and Adjusted segment EBITDA to net income was performed on a
consolidated basis due to the fact that the Company does not allocate
consolidated interest expense or the consolidated provision for income taxes to
its segments.

This report references organic sales and organic operating income, non-GAAP
measures, that exclude (1) the impact of foreign currency translation and
(2) sales and operating income, respectively, from acquired or divested
businesses during the first 12 months of ownership or prior to divestiture. The
portion of sales and operating income attributable to foreign currency
translation is calculated as the difference between (a) the period-to-period
change in organic sales and organic operating
                                       35
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income, respectively, and (b) the period-to-period change in organic sales and
organic operating income, respectively, after applying prior period foreign
exchange rates to the current year period. Management believes that reporting
organic sales and organic operating income provides useful information to
investors by helping to identify underlying growth trends in the Company's
business and facilitating easier comparisons of the Company's revenue and
operating performance with prior and future periods and to its peers. The
Company excludes the effect of foreign currency translation from organic sales
and organic operating income because foreign currency translation is not under
management's control, is subject to volatility and can obscure underlying
business trends. The Company excludes the effect of acquisitions and
divestitures because they can obscure underlying business trends and make
comparisons of long-term performance difficult due to the varying nature, size
and number of transactions from period to period and between the Company and its
peers.

Given the acquisitive nature of the Company, which results in a higher level of
amortization expense from recently acquired businesses, management uses EBITDA
as an internal operating metric to provide another representation of the
businesses' performance across the Company's three segments and for enterprise
valuation purposes. Management believes that EBITDA is useful to investors as an
indicator of the strength and performance of the Company and a way to evaluate
and compare operating performance and value companies within the Company's
industry. Management believes that EBITDA margin is useful for the same reason
as EBITDA. EBITDA is also used to calculate certain financial covenants such as
EBITDA interest coverage, which is EBITDA divided by consolidated interest
expense. In addition, this report presents Adjusted EBITDA, which is EBITDA
adjusted for items that are not reflective of ongoing operations as discussed
above and Adjusted EBITDA interest coverage, which is Adjusted EBITDA divided by
consolidated interest expense. Management believes that Adjusted EBITDA is
useful as a performance indicator of ongoing operations. The Company believes
that Adjusted EBITDA is also useful to some investors as an indicator of the
strength and performance of the Company and its segments' ongoing business
operations and a way to evaluate and compare operating performance and value
companies within the Company's industry. The definition of Adjusted EBITDA used
here may differ from that used by other companies.

This report also references free cash flow. This non-GAAP measure is discussed
and reconciled to its most directly comparable U.S. GAAP measure in the section
above titled "Cash Flow Summary."

Non-GAAP financial measures disclosed by the Company should not be considered a substitute for or superior to financial measures prepared in accordance with the WE GAAP. The financial results prepared in accordance with
WE GAAP and reconciliations of these results should be carefully evaluated.

1. Reconciliations of the change in Net sales organic Net sales

Three months completed March 31, 2022

                                                                 FMT                 HST                FSDP                IDEX
Change in net sales                                                12  %               26  %                3  %               15  %
- Net impact from acquisitions/divestitures                         2  %               11  %                -  %                5  %
- Impact from foreign currency                                     (1  %)              (1  %)              (2  %)              (2  %)
Change in organic net sales                                        11  %               16  %                5  %               12  %


2. Reconciliations of reported and adjusted gross profit and margin

                                                                         Three Months Ended March
                                                                                   31,
                                                                                        2022                 2021
Gross profit                                                                       $        342.5       $        292.6
+ Fair value inventory step-up charge                                                           -                  0.7
Adjusted gross profit                                                              $        342.5       $        293.3

Net sales                                                                          $        751.1       $        652.0

Gross margin                                                                              45.6  %              44.9  %
Adjusted gross margin                                                                     45.6  %              45.0  %




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3. Reconciliations Reported-to-Adjusted Operating Income and Margin

                                                                                                 Three Months Ended March 31,
                                                                2022                                                                                   2021
                               FMT             HST            FSDP            Corporate           IDEX             FMT             HST            FSDP               Corporate              IDEX
Reported operating income
(loss)                      $    80.4       $    83.6       $    40.5       

$(16.9) $187.6 $62.9 $66.6 $44.6 $

            (18.6)       $   155.5
 + Restructuring expenses
and asset impairments               -               -               -                -                  -             0.9             0.6             0.1                       0.6             2.2
 + Fair value inventory
step-up charge                      -               -               -                   -               -             0.7               -               -                         -             0.7

Adjusted operating income
(loss)                      $    80.4       $    83.6       $    40.5       

$(16.9) $187.6 $64.5 $67.2 $44.7 $

            (18.0)       $   158.4

Net sales (eliminations) $272.0 $315.2 $164.7 $(0.8) $751.1 $243.3 $250.4 $159.5 $

             (1.2)       $   652.0

Reported operating margin 29.5% 26.5% 24.6%

n/m 25.0% 25.8% 26.6% 27.9%

                       n/m         23.9  %

Adjusted operating margin 29.5% 26.5% 24.6%

          n/m         25.0  %         26.5  %         26.9  %         28.0  %                       n/m         24.3  %



4. Reconciliations of Reported-to-Adjusted Net Income and Diluted
EPS

                                                                            Three Months Ended
                                                                                March 31,
                                                                                      2022                 2021
Reported net income attributable to IDEX                                    

$140.0 $112.7

 + Restructuring expenses and asset impairments                                            -                  2.2
 + Tax impact on restructuring expenses and asset impairments                              -                 (0.5)
 + Fair value inventory step-up charge                                                     -                  0.7
 + Tax impact on fair value inventory step-up charge                                       -                 (0.2)
 - Gains on sales of assets                                                             (2.7)                   -
 + Tax impact on gains on sales of assets                                                0.6                    -
 + Acquisition-related intangible asset amortization                                    15.3                 11.0

+ Tax impact on the amortization of intangible assets related to the acquisition

             (3.4)                (2.5)
Adjusted net income attributable to IDEX                                         $     149.8          $     123.4


                                                                            Three Months Ended
                                                                                March 31,
                                                                                      2022                 2021
Reported diluted EPS attributable to IDEX                                   

$1.83 $1.48

 + Restructuring expenses and asset impairments                                            -                 0.03
 + Tax impact on restructuring expenses and asset impairments                              -                (0.01)
 + Fair value inventory step-up charge                                                     -                 0.01
 + Tax impact on fair value inventory step-up charge                                       -                    -
 - Gains on sales of assets                                                            (0.03)                   -
 + Tax impact on gains on sales of assets                                               0.01                    -
 + Acquisition-related intangible asset amortization                                    0.20                 0.14

+ Tax impact on the amortization of intangible assets related to the acquisition

            (0.05)               (0.03)
Adjusted diluted EPS attributable to IDEX                                   

$1.96 $1.62


Diluted weighted average shares outstanding                                             76.4                 76.3


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5. Reconciliations of EBITDA to Net Income

                                                                                                                   Three Months Ended March 31,
                                                                               2022                                                                                              2021
                                         FMT                HST              FSDP               Corporate                IDEX             FMT              HST              FSDP               Corporate                IDEX

Reported operating income (loss) $80.4 $83.6 $

    40.5       $             (16.9)       $    187.6       $     62.9       $     66.6       $     44.6       $             (18.6)       $    155.5
+ Other income (expense), net                  1.6              0.2              1.6                      (1.1)              2.3                -              0.4              0.3                        0.1              0.8
+ Depreciation and amortization                7.6             16.0              3.8                        0.1             27.5              7.1             10.5              3.9                        0.1             21.6
EBITDA                                        89.6             99.8 1.0         45.9 2.0                 (17.9)            217.4             70.0             77.5             48.8                     (18.4)            177.9
- Interest expense                                                                                                           9.5                                                                                           10.7
- Provision for income taxes                                                                                                40.5                                                                                           32.9
- Depreciation and amortization                                                                                             27.5                                                                                           21.6
Reported net income                                                                                                   $    139.9                                                                                     $    112.7

Net sales (eliminations)           $         272.0       $    315.2       $    164.7       $              (0.8)       $    751.1       $    243.3       $    250.4       $    159.5       $              (1.2)       $    652.0

Reported operating margin                  29.5  %          26.5  %          24.6  %                        n/m          25.0  %          25.8  %          26.6  %          27.9  %                        n/m          23.9  %
EBITDA margin                              32.9  %          31.7  %          27.9  %                        n/m          28.9  %          28.7  %          31.0  %          30.5  %                        n/m          27.3  %
EBITDA interest coverage                                                                                                    22.9                                                                                           16.5



6. Reconciliations of EBITDA and Adjusted EBITDA

                                                                                                        Three Months Ended March 31,
                                                                       2022                                                                                      2021
                                   FMT             HST            FSDP               Corporate              IDEX             FMT             HST            FSDP               Corporate              IDEX
EBITDA(1)                       $    89.6       $    99.8       $    45.9       $            (17.9)       $   217.4       $    70.0       $    77.5       $    48.8       $            (18.4)       $   177.9
+ Restructuring expenses and
asset impairments                       -               -               -                         -               -             0.9             0.6             0.1                       0.6             2.2
+ Fair value inventory step-up
charge                                  -               -               -                         -               -             0.7               -               -                         -             0.7
- Gains on sales of assets          (1.2)               -           (1.5)                         -           (2.7)               -               -               -                         -               -
Adjusted EBITDA                 $    88.4       $    99.8       $    44.4       $            (17.9)       $   214.7       $    71.6       $    78.1       $    48.9       $            (17.8)       $   180.8

Adjusted EBITDA margin            32.5  %         31.7  %         26.9  %                       n/m         28.6  %         29.4  %         31.2  %         30.6  %                       n/m         27.7  %
Adjusted EBITDA interest
coverage                                                                                                       22.6                                                                                      16.8


(1) EBITDA, a non-GAAP financial measure, is reconciled to net income, its most directly comparable value. WE GAAP financial measure, immediately above in Table 5.

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Cautionary Statement Under the Private Securities Litigation Reform Act

This quarterly report on Form 10-Q, including the "Overview," "Results of
Operations" and "Liquidity and Capital Resources" sections of this Management's
Discussion and Analysis of Financial Condition and Results of Operations,
contains "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995, as amended. These statements may
relate to, among other things, the Company's expected organic sales growth and
expected earnings per share, and the assumptions underlying these expectations,
plant and equipment capacity for future growth and the anticipated timing and
effects of planned facility expansion, the duration of supply chain challenges,
anticipated future acquisition behavior and capital deployment, availability of
cash and financing alternatives, the anticipated timing of the closing of the
Company's acquisition of KZValve and the anticipated benefits of the Company's
acquisitions of Airtech, Nexsight and KZValve, and are indicated by words or
phrases such as "anticipates," "estimates," "plans," "guidance," "expects,"
"projects," "forecasts," "should," "could," "will," "management believes," "the
Company believes," "the Company intends" and similar words or phrases. These
statements are subject to inherent uncertainties and risks that could cause
actual results to differ materially from those anticipated at the date of this
report. The risks and uncertainties include, but are not limited to, the
following: the impact of health epidemics and pandemics, including the COVID-19
pandemic, and the impact of related governmental actions, on the Company's
ability to operate its business and facilities, on its customers, on supply
chains and on the U.S. and global economy generally; economic and political
consequences resulting from terrorist attacks and wars, including Russia's
invasion of Ukraine and the global response to this invasion, which, along with
the ongoing effects of the COVID-19 pandemic, could have an adverse impact on
the Company's business by creating disruptions in the global supply chain and by
potentially having an adverse impact on the global economy; levels of industrial
activity and economic conditions in the U.S. and other countries around the
world; pricing pressures and other competitive factors and levels of capital
spending in certain industries, all of which could have a material impact on
order rates and the Company's results; the Company's ability to make
acquisitions and to integrate and operate acquired businesses on a profitable
basis; the relationship of the U.S. dollar to other currencies and its impact on
pricing and cost competitiveness; political and economic conditions in foreign
countries in which the Company operates; developments with respect to trade
policy and tariffs; interest rates; capacity utilization and the effect this has
on costs; labor markets; supply chain backlogs, including risks affecting
component availability, labor inefficiencies and freight logistical challenges;
market conditions and material costs; and developments with respect to
contingencies, such as litigation and environmental matters. Additional factors
that could cause actual results to differ materially from those reflected in the
forward-looking statements include, but are not limited to, the risks discussed
in the "Risk Factors" section included in the Company's most recent annual
report on Form 10-K and the Company's subsequent quarterly reports filed with
the Securities and Exchange Commission ("SEC") and the other risks discussed in
the Company's filings with the SEC. The forward-looking statements included here
are only made as of the date of this report, and management undertakes no
obligation to publicly update them to reflect subsequent events or
circumstances, except as may be required by law. Investors are cautioned not to
rely unduly on forward-looking statements when evaluating the information
presented here.
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Contents

© Edgar Online, source Previews

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Vitec Software Group (STO:VIT B) has a rock-solid balance sheet http://freedominst.org/vitec-software-group-stovit-b-has-a-rock-solid-balance-sheet/ Sat, 23 Apr 2022 08:02:18 +0000 http://freedominst.org/vitec-software-group-stovit-b-has-a-rock-solid-balance-sheet/

Howard Marks said it well when he said that, rather than worrying about stock price volatility, “the possibility of permanent loss is the risk I worry about…and that every practical investor that I know is worried”. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. Like many other companies Vitec Software Group AB (publisher) (STO:VIT B) uses debt. But the real question is whether this debt makes the business risky.

Why is debt risky?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) event is when a company has to issue shares at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth at high rates of return. When we think about a company’s use of debt, we first look at cash and debt together.

See our latest analysis for Vitec Software Group

What is Vitec Software Group’s debt?

The image below, which you can click on for more details, shows that Vitec Software Group had a debt of 757.4 million kr at the end of December 2021, a reduction from 1.05 billion kr year on year . However, he has 119.9 million kr in cash to offset this, resulting in a net debt of approximately 637.5 million kr.

OM:VIT B Debt to Equity Historical April 23, 2022

How strong is Vitec Software Group’s balance sheet?

According to the latest published balance sheet, Vitec Software Group had liabilities of kr 621.0 million due within 12 months and liabilities of kr 1.14 billion due beyond 12 months. In compensation for these obligations, it had cash of 119.9 million kr as well as receivables valued at 276.7 million kr and payable within 12 months. Thus, its liabilities outweigh the sum of its cash and (short-term) receivables of kr 1.37 billion.

Of course, Vitec Software Group has a market capitalization of 18.9 billion kr, so these liabilities are probably manageable. But there are enough liabilities that we certainly recommend that shareholders continue to monitor the balance sheet in the future.

We use two main ratios to inform us about debt to earnings levels. The first is net debt divided by earnings before interest, taxes, depreciation and amortization (EBITDA), while the second is how often its earnings before interest and taxes (EBIT) covers its interest expense (or its interests, for short). Thus, we consider debt to earnings with and without amortization and depreciation expense.

Vitec Software Group has a low net debt to EBITDA ratio of just 1.4. And its EBIT covers its interest charges 13.6 times. One could therefore say that he is no more threatened by his debt than an elephant is by a mouse. Another good sign, Vitec Software Group was able to increase its EBIT by 28% in twelve months, thus facilitating the repayment of its debt. The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything, that will determine Vitec Software Group’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Finally, while the taxman may love accounting profits, lenders only accept cash. We must therefore clearly examine whether this EBIT generates a corresponding free cash flow. Over the past three years, Vitec Software Group has actually produced more free cash flow than EBIT. This kind of high cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Our point of view

The good news is that Vitec Software Group’s demonstrated ability to cover its interest charges with its EBIT delights us like a fluffy puppy does a toddler. And the good news doesn’t stop there, since its conversion of EBIT into free cash flow also confirms this impression! Overall, we don’t think Vitec Software Group is taking bad risks, as its leverage looks modest. So we are not worried about using a little leverage on the balance sheet. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Example: we have identified 3 warning signs for Vitec Software Group you should be aware.

In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeright now.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Elanders AB (publ) (STO:ELAN B) looks like a good stock, and it will soon be ex-dividend http://freedominst.org/elanders-ab-publ-stoelan-b-looks-like-a-good-stock-and-it-will-soon-be-ex-dividend/ Mon, 18 Apr 2022 04:29:27 +0000 http://freedominst.org/elanders-ab-publ-stoelan-b-looks-like-a-good-stock-and-it-will-soon-be-ex-dividend/

Regular readers will know we love our dividends at Simply Wall St, which is why it’s exciting to see Elanders AB (publisher) (STO:ELAN B) is set to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company’s record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any trade in a share must have settled before the record date to be eligible for a dividend. In other words, investors can buy Elanders shares before April 22 in order to be eligible for the dividend, which will be paid on April 28.

The company’s next dividend payment will be 3.60 kr per share, after last year when the company paid a total of 3.60 kr to shareholders. Based on the value of last year’s payouts, Elanders stock has a yield of around 2.7% on the current share price of SEK 131.8. If you’re buying this company for its dividend, you should have some idea of ​​the reliability and sustainability of Elanders’ dividend. We therefore need to check whether dividend payments are covered and whether profits are increasing.

See our latest analysis for Elanders

If a company pays out more dividends than it has earned, the dividend may become unsustainable – a less than ideal situation. Elanders paid out a comfortable 39% of its profits last year. That said, even very profitable companies can sometimes not generate enough cash to pay the dividend, so we should always check if the dividend is covered by cash flow. The good thing is that dividends have been well covered by free cash flow, with the company paying out 12% of its free cash flow last year.

It is encouraging to see that the dividend is covered by both earnings and cash flow. This generally suggests that the dividend is sustainable, as long as earnings don’t drop precipitously.

Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.

OM:ELAN B Historic Dividend April 18, 2022

Have earnings and dividends increased?

Companies with consistently rising earnings per share tend to create the best dividend-paying stocks because they generally find it easier to increase dividends per share. If business goes into a recession and the dividend is cut, the company could see its value drop precipitously. That’s why it’s a relief to see Elanders’ earnings per share growing 4.4% a year over the past five years. Earnings per share growth of late has not been exceptional. However, companies that are seeing slow growth can often choose to pay out a higher percentage of their profits to shareholders, which could see the dividend continue to rise.

Most investors primarily gauge a company’s dividend prospects by checking the historical rate of dividend growth. Elanders has recorded dividend growth of 22% per year on average over the past 10 years. We are pleased to see dividends rising alongside earnings over several years, which may be a sign that the company intends to share the growth with shareholders.

To summarize

Is Elanders worth buying for its dividend? Earnings per share growth has picked up somewhat, and Elanders is paying out less than half of its earnings and cash flow as dividends. This is interesting for several reasons, as it suggests that management may be reinvesting heavily in the business, but it also offers the possibility of increasing the dividend over time. We’d rather see earnings grow faster, but the best long-term dividend-paying stocks typically combine significant earnings-per-share growth with a low payout ratio, and Elanders is halfway there. It’s a promising combination that should mark this company worthy of attention.

In light of this, although Elanders has an attractive dividend, it is worth knowing the risks associated with this stock. For example, we found 3 warning signs for Elanders which we recommend you consider before investing in the company.

As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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A high-quality ETF under the radar http://freedominst.org/a-high-quality-etf-under-the-radar/ Tue, 04 Jan 2022 16:39:46 +0000 http://freedominst.org/a-high-quality-etf-under-the-radar/
  • Fidelity Quality Factor ETF (FQAL) earns a five-star CFRA rating based on its strong performance, attractive holdings, and moderate expense ratio.
  • The fund takes a sector neutral approach focusing on free cash flow and return on invested capital. Eight of its top 10 recent stocks are undervalued by CFRA equity analysts.
  • The CFRA expects FQAL to outperform its US equity ETF peers over the next nine months.

The CFRA Focus ETF for January is the Fidelity Quality Factor ETF (FQAL). The fund obtains a five-star rating from the CFRA, based on a combination of its risk, return and cost attributes and using portfolio-level and fund-specific analysis. Rather than relying solely on past performance to star rating U.S. equity ETFs, the CFRA also offers a forward-looking view of the stocks within and the costs of the fund. In contrast, the ETF is rated four stars by Morningstar, which is based solely on its past performance.

FQAL’s proprietary index takes a sector neutral approach and focuses on the free cash flow margin to assess whether or not a company has high earnings quality, on the stability of free cash flow to measure consistency and on return on invested capital to assess profitability. This is different from some other quality oriented ETFs which may be overweight in certain sectors and / or focus on leverage. Given the likely slower earnings growth across the industry in 2022, we believe investors will benefit from a diverse basket of higher quality companies.

In the information technology sector (29% of assets), the fund owns Apple (AAPL), Microsoft (MSFT) and NVIDIA (NVDA), all of which are recommended by CFRA Buy or Strong Buy. Healthcare (13%) and consumer discretionary (12%) positions include Pfizer recommended by CFRA Strong Buy (PFE) and UnitedHealth Group (UNH), as well as Lowe’s (LOW) and McDonald’s (MCD) recommended by CFRA Buy . Overall, eight of the fund’s top 10 holdings were rated attractive by CFRA equity fundamental analysts. Meanwhile, nine of the top 10 ETF holdings achieved good earnings quality scores according to CFRA’s forensic analysis.

The index behind FQAL is rebalanced every six months, with the next taking place in mid-February. The recent annual fund turnover rate of 35% confirms that positions can change. For example, the fund added Applied Materials (AMAT) and Merck (MRK) during the August rebalance, while removing Edward Lifesciences (EW) and FLEETCOR Technologies (FLT).

FQAL is an under-the-radar quality ETF that performed well in 2021. FQAL rose 32% in 2021, outperforming the S&P 500 Index’s 29% as well as the returns of some more popular smart-beta ETF peers. The 25 billion dollars and five stars CFRA IShares Edge MSCI USA Quality Factor ETF (QUAL) and the $ 3.6 billion and five stars Invesco S&P 500 Quality ETF (SPHQ) grew 27% and 28%, respectively, in 2021. FQAL ended 2021 with $ 260 million in assets, despite outperforming both QUAL and SPHQ over the past five years (18.2% versus 18.1% and 17.3%, respectively). Although FQAL’s expense ratio of 0.29% is slightly higher than its peers, we believe investors have benefited and will likely continue to benefit in 2022. FQAL has higher reward potential and incurs less risks than its high-quality peers and the broader category of US stocks according to the CFRA star. – rating process. We believe investors should be more aware of FQAL and the larger smart-beta suite that Fidelity offers.

Todd Rosenbluth is Director of ETF and Mutual Fund Research at CFRA.

For more news, information, and strategies, see ETF Trends.

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of CrowdStrike (NASDAQ: CRWD) reasonable valuation given current forecasts http://freedominst.org/of-crowdstrike-nasdaq-crwd-reasonable-valuation-given-current-forecasts/ Tue, 16 Nov 2021 16:30:26 +0000 http://freedominst.org/of-crowdstrike-nasdaq-crwd-reasonable-valuation-given-current-forecasts/

Yesterday’s actions CrowdStrike Holdings, Inc . (NASDAQ: CRWD) fell 10.6% after Morgan Stanley launched a hedge with an underweight stance. The broker spoke of growing competition in the ‘next generation’ cybersecurity space. In September, Goldman Sachs also downgraded the stock’s rating and, more recently, BTIG Research changed its call from To buy To Neutral.

The average profit forecast for CrowdStrike has remained stable over the past 6 months, but if this is the start of a trend, we could see those forecasts start to decline. We have decided to examine the intrinsic value of Crowdstrike on the basis of expected future cash flows as they currently stand.

How much is CrowdStrike worth?

We calculate intrinsic value by taking expected future cash flows and discounting them to their present value. This will be done using the Discounted Cash Flow (DCF) model. There really isn’t much to do, although it might seem quite complex.

We generally believe that the value of a business is the present value of all the cash it will generate in the future. However, a DCF is only one evaluation measure among many, and it is not without its flaws. For those who are passionate about equity analysis, the Simply Wall St analysis template here may be something of interest to you.

See our latest review for CrowdStrike Holdings

Step by step in the calculation

We’re going to use a two-stage DCF model, which, as the name suggests, takes into account two growth stages. The first stage is usually a period of higher growth which stabilizes towards the terminal value, captured in the second period of “steady growth”. To begin with, we need to get cash flow estimates for the next ten years. Where possible, we use analyst estimates, but when these are not available, we extrapolate the previous free cash flow (FCF) from the last estimate or stated value. We assume that companies with decreasing free cash flow will slow their rate of contraction, and companies with increasing free cash flow will see their growth rate slow during this period. We do this to reflect the fact that growth tends to slow down more in the early years than in subsequent years.

In general, we assume that a dollar today is worth more than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today’s dollars:

10-year Free Cash Flow (FCF) estimate

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Levered FCF (millions of $) US $ 369.7 million US $ 546.0 million US $ 747.9 million US $ 1.33 billion US $ 2.09 billion US $ 2.70b US $ 3.26 billion 3.76 billion US dollars US $ 4.18 billion US $ 4.54 billion
Source of estimated growth rate Analyst x16 Analyst x16 Analyst x13 Analyst x2 Analyst x2 East @ 29.07% Est @ 20.94% Is 15.24% Est @ 11.26% Est @ 8.47%
Present value (in millions of dollars) discounted at 6.3% US $ 348 483 USD US $ 623 US $ 1.0k US $ 1.5k US $ 1.9k US $ 2.1k US $ 2.3k $ 2.4,000 US $ 2.5,000

(“East” = FCF growth rate estimated by Simply Wall St)
10-year present value of cash flows (PVCF) = US $ 15 billion

After calculating the present value of future cash flows over the initial 10 year period, we need to calculate the terminal value, which takes into account all future cash flows beyond the first step. The Gordon growth formula is used to calculate the terminal value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.0%. We discount the terminal cash flows to their present value at a cost of equity of 6.3%.

Terminal Value (TV) = FCF 2031 × (1 + g) ÷ (r – g) = US $ 4.5B × (1 + 2.0%) ÷ (6.3% – 2.0%) = US $ 106B

Present value of terminal value (PVTV) = TV / (1 + r) ten = US $ 106b ÷ (1 + 6.3%) ten = 58 billion US dollars

The total value, or equity value, is then the sum of the present value of future cash flows, which in this case is $ 73 billion. In the last step, we divide the equity value by the number of shares outstanding. Current share price of $ 254, the company appears to be slightly undervalued at a 20% discount from the current share price. The assumptions in any calculation have a big impact on the valuation, so it’s best to take this as a rough estimate, not accurate down to the last penny.

NasdaqGS: CRWD Discounted Cash Flow November 16, 2021

The hypotheses

The above calculation is very dependent on two assumptions. One is the discount rate and the other is cash flow. Part of investing is coming up with your own assessment of a company’s future performance, so try the math yourself and check your own assumptions.

Key points to remember:

The good news for shareholders is that CrowdStrike always appears to be trading at a small discount to its estimated value. If the average forecast goes down over the next few months, the fair value estimate will go down, and you can keep track of this by referring to our valuation analysis which is updated daily.

We’ve only looked at one aspect of CrowdStrike here. For a more complete picture, we’ve identified three other issues you might want to know about:

  1. Risks: You should be aware of the 2 warning signs of CrowdStrike Holdings that we have discovered before considering an investment in the business.

  2. Management: Have insiders increased their stocks to take advantage of market sentiment about CRWD’s future prospects? Check out our management and board analysis with information on CEO compensation and governance factors.

  3. Other Strong Businesses: Low debt, high returns on equity, and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid trading fundamentals to see if there are other companies you may not have considered!

PS. The Simply Wall St app performs a daily discounted cash flow assessment for each NASDAQGS share. If you want to find the calculation for other actions, do a search here.

Richard Bowman, analyst at Simply Wall St, and Simply Wall St have no positions in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents.

Do you have any feedback on this item? Are you worried about the content? Contact us directly. You can also send an email to Editorial-team@simplywallst.com

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We keep an eye on Agrimin’s cash consumption rate (ASX: AMN) http://freedominst.org/we-keep-an-eye-on-agrimins-cash-consumption-rate-asx-amn/ http://freedominst.org/we-keep-an-eye-on-agrimins-cash-consumption-rate-asx-amn/#respond Mon, 20 Sep 2021 02:30:17 +0000 http://freedominst.org/we-keep-an-eye-on-agrimins-cash-consumption-rate-asx-amn/

Just because a business isn’t making money doesn’t mean the stock will go down. For example, biotech and mineral exploration companies often lose money for years before they are successful with a new treatment or mineral discovery. Still, only an idiot would ignore the risk that a loss-making company burns its cash too quickly.

So should Agrimin (ASX: AMN) Are shareholders worried about its consumption of cash? In this article, we define cash consumption as its annual (negative) free cash flow, that is, the amount that a company spends each year to finance its growth. First, we will determine its cash trail by comparing its cash consumption with its cash reserves.

Check out our latest review for Agrimin

How long is Agrimin’s treasury track?

You can calculate a company’s cash flow trail by dividing the amount of cash it has by the rate at which it spends that cash. As of December 2020, Agrimin had A $ 7.7 million in cash and no debt. Looking at last year, the company burned A $ 9.1 million. This means it had a cash flow trail of around 10 months as of December 2020. Notably, analysts predict Agrimin will break even (at free cash flow level) in around 4 years. This means that, unless the company quickly reduces its consumption of cash, it may well be looking to raise more cash. Pictured below, you can see how his cash holdings have changed over time.

debt-equity-historical-analysis

How does Agrimin’s money consumption change over time?

While Agrimin recorded statutory turnover of AU $ 233,000 in the past year, he had no income of operations. For us this makes it a pre-income business, so we will look at its cash consumption trajectory as an assessment of its cash consumption situation. Given the length of the cash trail, we would interpret the 37% reduction in cash consumption over twelve months as prudent if not necessary for capital preservation. Obviously, however, the crucial factor is whether the company will expand its business in the future. For this reason, it makes a lot of sense to take a look at our analyst forecast for the company.

Can Agrimin easily raise more money?

Even though it recently reduced its cash consumption, shareholders should still consider how easy it would be for Agrimin to raise more cash in the future. The issuance of new shares or indebtedness are the most common ways for a listed company to raise more money for its activity. Many companies end up issuing new shares to finance their future growth. By looking at one company’s cash consumption relative to its market capitalization, we get an idea of ​​how many shareholders would be diluted if the company needed to raise enough cash to cover another’s cash consumption. year.

Agrimin has a market cap of A $ 98 million and spent A $ 9.1 million last year, or 9.3% of the market value of the company. That’s a small proportion, so we think the company would be able to raise more cash to finance its growth, with a bit of dilution, or even just borrow money.

Is Agrimin’s cash burn a concern?

On this analysis of Agrimin’s cash consumption, we think his cash consumption relative to market cap was reassuring, while his cash trail worries us a bit. Shareholders can be happy that analysts expect it to break even. We don’t think its consumption of cash is particularly problematic, but after looking at the range of factors in this article, we believe shareholders should watch how it evolves over time. Diving deeper, we spotted 7 warning signs for Agrimin you need to be aware, and 3 of them are important.

Sure, you might find a fantastic investment looking elsewhere. So take a look at this free list of interesting companies, and this list of growth stocks (according to analysts’ forecasts)

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.

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We believe that MRV Engenharia e Participações (BVMF: MRVE3) is taking risks with its debt http://freedominst.org/we-believe-that-mrv-engenharia-e-participacoes-bvmf-mrve3-is-taking-risks-with-its-debt/ http://freedominst.org/we-believe-that-mrv-engenharia-e-participacoes-bvmf-mrve3-is-taking-risks-with-its-debt/#respond Wed, 19 May 2021 17:22:11 +0000 http://freedominst.org/we-believe-that-mrv-engenharia-e-participacoes-bvmf-mrve3-is-taking-risks-with-its-debt/

Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu doesn’t care when he says, “The biggest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital ”. So it seems like smart money knows that debt – which is usually linked to bankruptcies – is a very important factor, when you assess the risk level of a business. Like many other companies MRV Engenharia e Participações SA (BVMF: MRVE3) uses debt. But should shareholders be worried about its use of debt?

When is debt dangerous?

Generally speaking, debt only becomes a real problem when a business cannot easily repay it, either by raising capital or with its own cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. When we think of a business’s use of debt, we first look at cash flow and debt together.

See our latest analysis for MRV Engenharia e Participações

What is the debt of MRV Engenharia e Participações?

As you can see below, at the end of March 2021, MRV Engenharia e Participações had a debt of R $ 5.01 billion, up from R $ 4.09 a year ago. Click on the image for more details. However, because it has a cash reserve of R $ 2.27 billion, its net debt is less, at around R $ 2.75 billion.

BOVESPA: Debt / equity history MRVE3 May 19, 2021

How healthy is the balance sheet of MRV Engenharia e Participações?

Zooming in on the latest balance sheet data, we can see that MRV Engenharia e Participações had liabilities of R $ 3.84 billion due within 12 months and liabilities of R $ 8.91 billion due beyond. In contrast, he had R $ 2.27 billion in cash and R $ 2.04 billion in receivables due within one year. Thus, its liabilities total 8.44 billion reais more than the combination of its cash and short-term receivables.

Given that this deficit is actually greater than the company’s market cap of R $ 8.42 billion, we believe shareholders should really watch the debt levels of MRV Engenharia e Participações, like a parent watching his child riding a bicycle for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely that shareholders would suffer significant dilution.

We measure a company’s indebtedness relative to its earning power by looking at its net debt divided by its earnings before interest, taxes, depreciation, and amortization (EBITDA) and calculating the ease with which its earnings before interest and taxes (EBIT ) cover his interests. costs (interest coverage). Thus, we consider debt versus earnings with and without amortization charges.

The net indebtedness of MRV Engenharia e Participacises is 3.1 times its EBITDA, which represents a significant leverage effect but still reasonable. However, its interest coverage of 24.0 is very high, suggesting that interest charges on debt are currently quite low. MRV Engenharia e Participações increased its EBIT by 5.3% last year. Even if it does not have much effect on our socks, it is a positive point in terms of debt. The balance sheet is clearly the area to focus on when analyzing debt. But it is future profits, more than anything, that will determine MRV Engenharia e Participações’ ability to maintain a healthy balance sheet in the future. So if you are focused on the future you can check out this free report showing analysts’ earnings forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits do not reduce it. It is therefore worth checking to what extent this EBIT is supported by free cash flow. Over the past three years, MRV Engenharia e Participações has recorded free cash flow of 24% of its EBIT, which is lower than expected. This low cash conversion makes debt management more difficult.

Our point of view

The total liability level of MRV Engenharia e Participações and the conversion of EBIT to free cash flow certainly weighs on it, in our view. But her coverage of interest tells a very different story and suggests some resilience. Taking into account all of the above factors, we believe that the debt of MRV Engenharia e Participações presents certain risks for the company. While this debt can increase returns, we believe the company now has sufficient leverage. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. For example, we discovered 2 warning signs for MRV Engenharia e Participações (1 is worrying!) Which you should be aware of before investing here.

If you want to invest in companies that can generate profits without the burden of debt, check out this free list of growing companies that have net cash on the balance sheet.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in the mentioned stocks.
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Do you have any comments on this article? Concerned about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.

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Snap just gave investors 5 more reasons to buy its shares http://freedominst.org/snap-just-gave-investors-5-more-reasons-to-buy-its-shares/ http://freedominst.org/snap-just-gave-investors-5-more-reasons-to-buy-its-shares/#respond Tue, 27 Apr 2021 12:25:29 +0000 http://freedominst.org/snap-just-gave-investors-5-more-reasons-to-buy-its-shares/

Breakof (NYSE: SNAP) Shares recently jumped after the company’s first quarter numbers beat analysts’ expectations. The social networking firm’s revenue jumped 66% year-over-year to $ 770 million, beating estimates of $ 28 million and marking its strongest growth in more than three years.

Snap remained unprofitable, but its net loss narrowed year over year, from $ 306 million to $ 287 million on a GAAP basis, and from $ 81 million to just $ 2 million. dollars based on adjusted EBITDA. It also broke even on a non-GAAP BPA basis, which beat analyst estimates by a nickel.

These numbers are impressive, but some investors might be reluctant to buy the stock after its price has nearly quadrupled in the past 12 months. Still, I think Snap could go even higher, for five simple reasons.

Image source: Getty Images.

1. Stable user growth

Snapchat’s Daily Active Users (DAU) grew 22% year-over-year to 280 million in the first quarter, matching its rate of growth in the fourth quarter. He expects his SADs to increase another 22% year-over-year to 290 million in the second quarter.

These consistent growth rates indicate that Snapchat is not losing ground against competitors like Facebookof (NASDAQ: FB) Instagram and ByteDanceis TikTok. They also suggest that Snapchat’s expanding ecosystem of Discover videos, augmented reality lenses, and built-in games are all attracting more users. This ecosystem is sticky since Snap says its DAUs open the app around 30 times a day.

Its average revenue per user (ARPU) also rose 36% year-over-year to $ 2.74, which also accelerated from previous quarters. Its ARPU grew 66% in North America and 36% in Europe, although it fell 7% in the rest of the world due to the impact of its investments abroad.

2. Confident prospects for the future

Snap expects its revenue to grow 81% to 85% year-over-year in the second quarter, thanks to an easy comparison to its slower ad sales at the start of the pandemic it a year ago.

Analysts expect Snap’s revenue to grow 55% to $ 3.9 billion this year. On his Investor Day in February, he predicted he would generate revenue growth of over 50% over the next several years.

Snap believes that the expansion of its ecosystem and its gradual move towards a social commerce platform for online shopping will drive this steady growth.

3. Increase in ad prices

Snap’s eCPM (effective cost per thousand impressions, or the average cost of its ads), jumped 67% year-over-year in the first quarter, accelerating from its 46% growth in the previous quarter.

A smiling woman takes a selfie.

Image source: Getty Images.

Snap attributed this acceleration to a higher mix of high eCPM advertising products such as ads, its growth in higher eCPM regions like North America, and optimization of its auction process.

Snap’s rise in advertising prices indicates that its popularity with younger consumers, especially teens, still makes it a prime target for advertisers. Piper sandlerSnapchat’s recent spring survey once again crowned Snapchat the # 1 social network for American teens, followed by TikTok and Instagram.

4. Lower infrastructure costs

As Snapchat’s DAU, ARPU, and eCPM increased, its infrastructure costs per DAU fell 13% year-over-year to $ 0.62, marking its infrastructure costs by Lowest DAU since its public debut. It attributed these lower costs to better negotiated rates for several of its cloud services.

These lower costs, along with robust revenue growth, pushed Snap’s gross margin up by one percentage point year on year to 47%. Lowering infrastructure costs may also free up more money for Snap to fund Spotlight, a new feature that rewards top content creators with cash prizes; acquire smaller businesses; and to increase its workforce, which grew 19% during the quarter.

5. Positive free cash flow

Snap generated positive Free Cash Flow (FCF) of $ 126 million in the quarter, marking the first time its FCF has turned positive. It generated a negative FCF of $ 4.6 million a year ago.

Snap won’t be making a GAAP profit anytime soon, but its FCF growth should allay some lingering concerns about its liquidity. Its cash and cash equivalents increased 7% year over year to $ 987.5 million in the quarter.

In the second quarter, Snap expects its adjusted EBITDA loss to narrow year-over-year, from $ 96 million to a median loss of $ 10 million. Analysts expect it to generate its first non-GAAP profit for the full year.

Is Snap worth its premium valuation?

Snap’s evolution from an underdog to a niche leader in the social media market is inspiring, but its stock is undeniably expensive at 94 times the forward profits and 23 times the sales this year.

However, I believe Snap’s robust growth rates, improved financial discipline, and confident long-term plans all support these premium valuations. Its stock could remain volatile, but it could also generate much larger gains in the future as it continues to gain new users.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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