Quiksilver’s January 31 Quarter- Sales and Loss Both Grow

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Let’s start with the summary numbers. Sales rose 5.4% to $450 million. The gross profit margin fell from 52.4% to 50.7%. Quik reported an operating loss of $2.5 million compared to operating income of $13 million in the same quarter the previous year.

The net loss grew from $15 million to $21 million. Taxes were $4 million higher, but interest expense fell 48% from $29 million to $15 million.

Okay, so why did it work out this way? We’ll start by looking at results in the three operating segments; Americas, Europe, and Asia/Pacific. You can see Quik’s 10Q filing here.
 
Income Statement Analysis
 
Revenues were up in all three segments. The Americas rose 6% to $205 million. Europe was up 2.2% to $169 million (4% in constant currency), and Asia/Pacific grew 11.3% to $75 million (8% in constant currency).
 
As you already read, overall gross profit margin fell by 1.7%. The decline was from 46.4% to 42.8% in the Americas and from 54.7% to 51.1% in Asia/Pacific. It rose from 58.9% to 60.3% in Europe.
 
Based strictly on grow margin, sales outside of the Americas look most attractive, but let’s take a look at the selling, general and administrative expenses as a percent of sales. In the Americas, it was 43.6%, up from 42.8% in the same quarter last year. In Europe it rose from 48.7% to 51%. In Asia, it fell from 52% to 49.9%. So while the gross margins may be better outside of the Americas, at the moment the cost of doing business is higher. 
 
Quik reported an operating loss in the Americas of $1.6 million compared to an operating profit of $6.5 million in the same quarter last year. The European operating income fell slightly from $16.9 million to $15.7 million. The Asia/Pacific operating loss rose from $12.1 to $17.5 million.
 
Those are the income statement numbers. Let’s see if, as the analysts put it, we can add a little “color” to those numbers.
 
The 10Q reports that, “The increase [in revenues] in the Americas came primarily from Quiksilver and Roxy brand revenues, partially offset by a decrease in DC brand revenues.” It goes on to note that, “The decrease in DC brand revenues was primarily from the footwear product category and, to a lesser extent, the apparel and accessories product categories.” So DC was down across the board in the Americas, but Quik still expects DC to be its highest growing brand on a percentage basis worldwide for the fiscal year.
 
I also want to point out that the Americas include Canada and Central and South America. We don’t know how DC (or any other brand) is doing just in the U.S.
 
In the conference call, CFO Joe Scirocco said they expected growth in all brands for all regions in the fiscal year. The Quiksilver brand is expected to grow in the high single digits, he indicated. Roxy should be up in the mid-single digits and DC in the mid-teens.
 
On the gross margin side, one analyst reminded CFO Scirocco that the company’s prior gross profit margin projection was for a decline of between three quarters and one percent for this year and asked if that would change because of their inventory position (I’ll get to that). CFO Scirocco said, “…as a result of excess winter goods, let’s think about 50 to 100 basis points of additional contraction on gross margin for the year.” He also said they do expect profit growth, but didn’t say how much.     
 
The 4% constant currency growth in European revenues “…was primarily the result of strong growth in DC brand revenues, partially offset by modest declines in our Quiksilver and, to a lesser extent, Roxy brand revenues.” Remember that as reported on the financial statement the growth was 2%.
 
The 8% constant currency growth in Asia/Pacific (11% as reported), “…came primarily from strong growth in Quiksilver and DC brand revenues, partially offset by a slight decline in our Roxy brand revenues.”
 
Here’s how they talk about the change in the gross margin in the three regions:
 
“The decrease in the Americas segment gross profit margin was primarily the result of higher input costs and, to a lesser extent, higher levels of markdowns in our company-owned retail stores and price adjustments in the wholesale channel. Our European segment gross profit margin increased primarily as a result of a higher percentage of retail sales, including e-commerce, versus wholesale sales compared to the prior year. In our Asia/Pacific segment, the gross profit margin decrease was primarily due to additional clearance business in Australia.”
 
Higher costs, markdowns, and a promotional environment seem to be common themes for both brands and retailers.
 
Same store company owned retail grew by 11% in the Americas. It was 9% in Europe and 3% in Asia/Pacific. E-Commerce revenues were around $30 million in 2011, and they are projecting it to more than double in fiscal 2012. They closed “a lot” of underperforming stores and I guess that would tend to improve the comparable store performance. In the U.S. they closed 15 stores in 2011 and opened “a handful.” They expect to close eight to twelve in 2012. 
 
In the U.S. market, we’re told, retail is 17% of total sales. It’s 26% in Europe and 35% to 40% in Asia/Pacific. 
 
The Balance Sheet
 
Quiksilver provides balance sheets in their 10Q for January 31, 2012 and October 31, 2011- the end of the prior quarter. Some of you know that I think it’s more valuable to compare the current balance sheet with one from a year ago, and that’s what I’ll do here.
 
At first look there’s not much change. At 2.53 the current ratio is almost identical to a year ago and total liabilities to equity at 1.90 is up just very slightly from 1.82 a year ago. Cash and cash equivalents, however, is down from $177 million a year ago to $94 million. Inventory rose 33% to $412 million which seems a bit much given the sales increase.
 
Interestingly, in the conference call they talk about the change in inventory compared to a year ago even though the 10Q doesn’t include the balance sheet from a year ago. CFO Scirocco reasonably points to product cost increases as part of the reason the inventory is higher and mentions specifically increases of 10% to 15%. He goes on, “Also, as we said last quarter, we wanted to protect our supply and make sure that we were in stock to meet new orders.” He thinks it would have all worked out fine if winter had started on time.
He estimates they have what he calls excess inventory of $30 to $35 million and expects to sell it through “…normal clearance channels during the course of the fiscal year…”
 
There’s nothing exciting to report in the current liabilities. Long term debt is up about $32 million to $729 million from a year ago, and total liabilities rose 2.7% to $1.13 billion. Equity was down a bit from a year ago, but not enough to worry about. Overall the balance sheet hasn’t improved, but neither has it gotten worse in any meaningful way, though I’d like them to work through that extra inventory.
 
Two Interesting Things
 
Okay, I have no idea what to think about the fact that Quiksilver is marketing boardshorts “…that represent NFL and NBA teams with authentic team colors and logos.” CEO McKnight trumpets the fact that the NFL picked Quiksilver “Because we’re the best of breed.” I believe that.
 
What I’m not quite so sure of is whether these various brand extensions we’re seeing (and not just from Quiksilver to put it mildly) will ultimately be good for brands and their market position. I don’t know enough to be critical in this particular case, but let’s say I have a concern.
 
I noted in an earlier article after the SIA show that everybody who made hard goods was making apparel and everybody who made apparel was making hard goods and I wondered if the brands who resisted that trend might find themselves better positioned. Not every brand extension you are capable of doing is a good idea no matter what your hunger for sales growth is.
 
Then there’s the “adjusted EBITDA,” that Quik uses and you’ll notice I haven’t mentioned until now. Quik says (in footnote one on page 23), “We use Adjusted EBITDA … as a measure of profitability because Adjusted EBITDA helps us to compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax jurisdictions, the impact of our asset base, which can differ depending on the book value of assets, the accounting methods used to compute depreciation and amortization, the existence or timing of asset impairments and the effect of noncash stock-based compensation expense.”
 
There’s some truth to that.
 
But later in the footnote they go on to say, “Adjusted EBITDA has limitations as a profitability measure in that it does not include the interest expense on our debts, our provisions for income taxes, the effect of our expenditures for capital assets and certain intangible assets, the effect of non-cash stock-based compensation expense and the effect of asset impairments.”
 
There’s some truth to that too. Which truth is true? Probably both, and yet there’s a seeming contradiction between them. Just saying.
 
I like most of Quik’s initiatives and I know that strategies take not months or quarters to evolve and succeed, but often years. I’m patient, but I’d sure like to see that bottom line turn positive. I imagine they would too.

 

 

Interesting Stuff from Quiksilver’s 10K Annual Report

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Back in December, Quiksilver released its annual and quarterly earnings and held a conference call. I did the best analysis I could, but bitched and moaned because I didn’t have the complete 10K or the balance sheet. You can see that analysis here. Last week, the company issued its 10K. I’m not going to redo the analysis I did, but there’s a few pieces of interesting additional information I thought you’d want to see.

The Balance Sheet

To put it most simply, the October 31, 2011 balance sheet is almost unchanged from a year ago. The current ratio at 2.62 times is pretty much the same as last year. Total liabilities to equity have risen slightly from 1.74 to 1.83. Long-term debt, excluding the current portion, rose from $701 million to $725 million “…to fund higher working capital levels…” Total equity is up only a couple of million to $623 million.

I had hoped, but not really expected, to see some further balance sheet improvement. Maybe that wasn’t realistic given the economy. But let me remind you that a couple of years ago debt was $1 billion and Quiksilver faced a short term liquidity crisis with principal payments that it, well, couldn’t make. The Rhone deal, and the restructuring of their European bank lines, leaves Quiksilver with a very manageable $11 million in principal payments through the end of 2013. There’s $35 million due in 2014 and $400 million due the next year.
 
Trade receivables rose 8% to $397 million, consistent with sales growth. I think that was in the press release. I pointed out only because I noted that Quik mentioned it was doing some consignment sales in Asia. This is hardly unique to Quiksilver (and not just in Asia.). But in general terms, if consignments and other forms of non-sales sales become more common, one has to wonder how to think about the receivables numbers. As far as I know, consignment sales remain in inventory, and don’t show up as receivables.
 
New Risk Factor
 
I haven’t compared all of last year’s risk factors with this year’s, but I did notice one addition. They’ve added, “If our goodwill becomes impaired, we may be required to record a significant charge to our earnings.”
 
Now, I don’t take these factors all that seriously, because I know the lawyers want to put in anything that could conceivably go wrong. But this one, I thought, was instructive. Lots of companies have impairment charges; especially in a slow economy.  When they tell you about them, they always point out that they are non-cash, which is true. But, as I’ve written before, and not just when I’ve been talking about Quiksilver, these charges represent an anticipated future reduction in cash flow and/or a decline in value. That’s why the impairment charges are required.
 
When I see Quiksilver add this risk factor, I don’t see an imminent problem. I think, rather, that it was an appropriate factor to add and that there must be a reason they chose to add it. I wouldn’t be surprised if we saw it in other company’s filings.
 
Some Sales and Retail Numbers
 
At the end of their fiscal year, Quik had 770 stores and was selling in over 90 countries. 547 of those stores are owned and 223 licensed. Of the owned stores 109 are outlet stores, which is more than I had thought. Here’s a breakdown of the kind of stores they are and where they are located. Note that about 57% are in Europe.
 
The Quiksilver brand represented 41% of revenues for the year. Roxy was 27% and DC 28%. The Hawk plus the Lib Technologies and Gnu brands together totaled 4%. Apparel is 61% of total revenue, down from 64% the previous year. Footwear, at 23%, was up from 21%. Accessories and related products represented 16% of revenue, a 1% increase from the prior year. The United States represented 35% of total revenues. The chart below shows the complete breakdown of revenues by geographic region.
 
 
This next chart shows their distribution channels. I wish we have some information on what kind of retailers they put in which category. I wonder how they characterize outlet stores?
 
 
Random, Interesting Facts
 
At the end of the paragraph discussing the gross profit results in the fiscal year that just ended, Quik made the following comment:
 
“In fiscal 2012, our cost of goods sold is expected to increase by 75 to 100 basis points as a percentage of revenues as a result of the lower value of the euro in comparison to rates that prevailed in fiscal 2011. Our gross profit margin in fiscal 2012 may also be negatively impacted by increased raw materials and labor costs.”
 
They also noted a backlog of $480 million at the end of November, 2011 compared to $478 million a year before.
 
Quiksilver spent $124.3 million on advertising and promotion in the year ended October 31, 2011. $24 million of that amount was athlete sponsorships.
 
Okay, that’s kind of it. No grand conclusion here and no changed opinion from what I wrote based on the press release and conference call.
 
The release comes out, the conference call is held, and everybody sort of forgets there’s more information to come. Hope you find it useful.

Quik’s October 31st Quarter and Full Year

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I’m going to work without my usual net of an SEC filing this time. That’s because year-end 10Ks always take a long time to come out, and I don’t want to wait that long to look at Quik’s results. I’ll review the 10K when it does show up. Right now, we’ll go with the press release and conference call transcript.

Not to be old fashioned here, but I think I’ll avoid proforma adjusted EBITDA numbers and start with the good old fashioned generally accepted accounting principles numbers. I’ll discuss some of the adjustments Quik takes into account in coming up with their presentation.

The Quarter’s Income Statement
 
Quik’s revenues for the quarter rose 10.1% to $545 million from $495 million the same quarter the previous year. Ecommerce revenues grew 69% globally, but they don’t tell us what that means in dollars.
 
The gross profit margin fell from 53.5% to 51.9% largely, as reported in the conference call, due to the cost and price increases all industry companies experienced. Selling, general and administrative expenses rose from $222 million to $248 million. As a percentage of sales, they were up from 44.9% to 45.4%. A chunk of the increase was the cost of the Quik Pro NYC, which we’ve learned today won’t be held next year.
 
The asset impairment charge for the quarter was $11.8 million, up from $8.4 million last year. These, as you probably know and which companies always like to point out to us, are noncash charges associated with changes in long term asset values. 
 
Operating income fell by 31% from $34.3 million to $23.7 million. That is earnings before, interest, taxes, foreign currency loss and discontinued operations. Let’s look at some of those items.
 
Interest expense in the quarter fell $50.6 million to $14.1 million. I think that decline is the result of Rhone converting its debt into equity and some of the restructuring and debt repayment Quik has done over the last year. This is why I really like to have the SEC filing in my hand. It would allow me to be more specific.
 
That’s a hell of a decline in interest expense. But as a shareholder you need to remember that the Rhone conversion that’s largely responsible for the decline resulted in a lot more shares being outstanding, so the value of each share declined, all other things being equal.
 
Foreign currency loss was about $5.8 million compared to $463 million in the same quarter last year. That leaves us with pretax income of $3.9 million compared to a pretax loss of $16.7 million in last year’s quarter.
 
Due to a settlement mostly with the French tax authorities that I guess goes back to the Rossignol deal and Quik’s losses on that deal, there is a one-time $64 million non-cash income tax benefit in this quarter compared to a charge of $5.2 million last year. This leaves Quik with a reported net income for the quarter of $68 million compared to a loss of $22 million in the quarter last year.
 
How do we think about this?
 
Well, every year companies have “one-time events.” So I tend to have a hard time ignoring them on the grounds that they won’t recur, because something always happens to generate a new “one-time event.” But in the case of this French tax credit, it’s so enormous and out of the ordinary we’ve got to ignore it as we consider how Quik is operating. That’s what Quik does in presenting its proforma results.
 
The Complete Year
 
For the year, sales rose 6.3% to $1.95 billion. The gross profit margin was down only very slightly from 52.6% to 52.4%. Operating income fell by 66% from $123 million to $41.5 million. Most of that decline is the result of the asset impairment charges (Non-cash!) that rose from $11.6 million last year to $86.4 million. Interest expense fell from $114 million to $74 million. The net loss for the year rose from $6.3 million to $17.9 million.
 
I should point out (I have before) that these non-cash charges reflect an expected decline in the future cash flow of the assets being written down. That may be non-cash, but it’s hardly irrelevant.
 
The Americas generated $61 million in operating income for the whole year, up 7% from $57 million the previous year. Europe’s operating income grew from $94 million to $112 million. Asia/Pacific went from an operating profit of $11.8 to a loss of $84 for the year.
 
The Quik brand, we’re told, grew 5% during the year to $806 million. Roxy was down 2% to $519 million, but it improved each quarter, growing 10% in the final quarter compared to the same quarter the previous year. One of the analysts noted that Roxy’s revenues were down around $250 million from its peak in 2008. DC was up 15% to $545 million.
 
You know what I just realized? There’s no complete balance sheet provided in the press release. Gimme my SEC filing! What they tell us in the conference call is that receivables at $397 million are 6% higher than a year ago in constant currency. Inventory of $347 million was up 26% in constant currency, with much of the increase due to the early receipt of goods. Ten to fifteen percent of the increase is the result of higher cost of goods. Prior season’s goods represent only 5% of inventory. Cash on hand was $110 million. 
 
Lacking the complete presentation we won’t see until the 10K, I’ve got no opinion on their balance sheet position.   
      
Details by Region
 
With the broad income statements discussed, let’s look at some of the quarterly detail in the documents.
 
Americas revenue was up 12.7% to $250 million for the quarter. Same store sales were up 16%.   Europe was up 11.5% to $213 million (6% in constant currency). Same store retail sales turned positive for the first time in 6 quarters in Europe. Asia/Pacific rose only 1.9% (down 7% in constant currency) to $82 million. The recession in Australia and strong Aussie dollar are making that a tough market. Japanese revenues at $25 million for the quarter are nearly back to the pre-tsunami levels.
 
The gross profit margin in the Americas fell from 48.1% to 47.1%. Europe was down from 60.2% to 57.2% and Asia/Pacific fell from 54.7% to 52.6%. As I’ve noted before, margins are a lot more attractive outside of the Americas. I wonder if the U.S. margin is much different from what’s reported for the Americas as a whole.
 
Operating income in the Americas fell 27% from $12.7 million to $9.3 million. Europe’s operating income jumped 50% from $20.9 million to $30.3 million. Asia/Pacific had an operating loss of $3 million after a profit of $8.6 million in the same quarter the previous year. 
 
Opportunities
 
The company’s goal is to get to $3 billion in revenues in five years. They think the Quiksilver Girls and Women’s business have a $100 million opportunity in the next five years. They also expect growth in ecommerce of a similar amount. In DC, especially outside of the United States, they think there’s a half billion dollar opportunity. And they see a couple of hundred million dollar of revenue from emerging markets.
 
I would have been happier if we’d gotten some more specifics about some of their initiatives in the conference call. I probably expect too much from that forum.
 
It looks to me like growth will be limited in the United States (and margins are lower). Europe generated 71% of Quik’s operating earnings excluding corporate expenses in the fourth quarter. For the year, as you can see in the numbers above, Quik wouldn’t have had any operating earnings without Europe. But Europe is poised for a recession.     
  
When we ask how Quik is doing in general, I have to go back to the operating income that declined 31% for the quarter and 66% for the year. I guess I should point out that the stock market, in its collective wisdom, doesn’t, at least with immediacy, think much of my point of view. Quik’s stock closed up 12.7% today (the day after the announcement) at $3.46 on volume that was almost three times its 90 day average. They must like that proforma, adjusted, EBITDA stuff.

 

 

Quik Grows its Sales and Profits; I Thought I Heard a New Attitude

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At the start of the quarterly conference call, Quiksilver founder and CEO Bob McKnight always makes a short speech highlighting the good things that are going on. After Rossignol, and through the balance sheet restructuring, they felt a bit like pep talks. He would highlight in a pretty nonspecific ways some things that were going well, and often they seemed like small things. It felt like he was offering reassurance where he could.

Suddenly that’s changed. Call me crazy and hell, maybe I’m imagining this, but his speech for the July 31 quarter didn’t sound like, “It’s going to get better.” It was more like, “It is better.” That was great to hear.

Reported sales were up 14% to $503 million from $441 million in the same quarter last year. They were up 11% in the Americas to $260.2 million, 16% in Europe to $176.4 million, and 20% in Asia/Pacific to $65.5 million. The percentages in constant currency were, respectively, 11%, 2%, and (3%). Quik’s largest customer accounts for about 3% of revenue. Comparative sales for company owned retail was up 21% in the quarter. Ecommerce business rose 65%, and they expect it will represent $25 million in revenue by year end. Overall for the quarter, “…Roxy was down just slightly in the quarter as a brand. Quik was up low single digits, and DC was way up. It’s in the range of 15% to 20% higher.”
 
 
I’ve previously expressed some concern that Quik might put too much pressure on DC for growth. I’ll look forward to seeing some revenue growth from Roxy and Quik and their new collections.  
 
The new Quiksilver Girls line and Quiksilver Women’s business are expected to generate revenues of $15 million. The Waterman collection, and its European equivalent, is now a $35 million business.  Quik needs some serious growth here.
 
One of the things that really caught my attention in CEO McKnight’s talk was the strategy for certain Roxy product to provide better quality and value at a higher price. Aside from generally just liking the strategy as a point of differentiation, it seemed positive, proactive, and confident.    
 
The growth in the Americas came “primarily” from the DC brand. The DC growth came “primarily” from footwear. The Quiksilver’s brand Americas growth was mostly in accessories and Roxy’s growth was from footwear and accessories. Roxy apparel declined.
In Europe in constant currency, DC and Quiksilver revenues rose, but Roxy was down. The 3% constant currency decline in Asia/Pacific came from the Quiksilver and Roxy brands, offset by strong growth in DC.
 
Gross margin percent fell from 52.3% to 50.7%. In the Americas, it fell from 46.7% to 44.2% mostly because of higher cost of goods, but also due to some mark downs. European gross margin fell from 60.6% to 60.3%. In Asia/Pacific it was down from 52.7% to 52.4%. I note again the attractiveness of sales outside of the Americas.
 
Selling, general and administrative expense jumped 14.5% to $221 million. It remained relatively constant as a percent of sales.
Operating income actually fell a bit from $35.4 million to $33.9 million even though they had no asset impairment charge this quarter compared to a charge of $3.2 million last year. It was down in the Americas from $27.7 million to $27.1 million. In Europe it rose 34.7% from $15.6 million to $21.0 million. Asia/Pacific, even with that big gross margin percent, reported an operating loss of $2.0 million up from $1.6 million in the quarter last year. For the whole company, operating income was 6.7% of sales compared to 7.8% in the quarter last year.
     
Interest expense fell from $20.6 million to $15.7 million due to reduction in their total debt. Net income rose from $8.6 million to $10.4 million.
 
The balance sheet has improved from a year ago, with the current ration rising from 2.26 to 2.45 and total liabilities to equity down from 2.45 to 2.14. Receivables are up consistent with sales. Days sales outstanding remained at about 65 from a year ago. In constant currency, inventory rose 24% compared to a year ago. This was required to support higher revenue levels. There were also some early receipts of fall season inventory.
 
I expect to see continuous, gradual, balance sheet improvement as long as the economy doesn’t worsen. And I’d like to see some growth out of the Quiksilver and Roxy brands. But you know what? If we could see those two brands grow slowly but be managed to generate a lot of gross profit dollars, if DC continued to grow but at a moderating pace, and some of the new initiatives began to generate some significant revenues I think we’d have a financial model that might make a lot of sense at the bottom line given the projected economy.        

 

 

Quiksilver’s April 30 Quarter; There Are Some Numbers that Need Explaining

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Quik’s revenues for the quarter rose 2.1% to $478 million compared to $468.3 million in the same quarter last year. The gross profit margin rose from 53.2% to 54.8%. Sales, general and administrative expenses were up slightly, but fell as a percentage of sales. Interest expense was down as a result of their balance sheet restructuring from $21 to $15 million.

So how, you might ask, did they go from a bottom line profit of $9.4 million last year in the quarter to a loss of $83.3 million in the quarter that ended April 30, 2011?

First, there was a noncash asset impairment charge of $74.6 million compared to zip, zero, nada in the same quarter last year. If you ignore that charge, operating income was up from $35.9 million to $45.4 million.
 
The charge was “Due to the natural disasters that occurred throughout the Asia/Pacific region during the three months ended April 30, 2011 and their resulting impact on the company’s business…” Okay, I guess we can’t hold Quik responsible for earthquakes, tsunami, and core meltdowns. Although, I guess we’re all a bit responsible for the core meltdown we’ve had in our industry.
 
But I digress. That write down represents a real impact on Quik’s business going forward.
 
“The value implied by the test was affected by (1) a reduction in near-term future cash flows expected for the Asia/Pacific segment, (2) the discount rates which were applied to future cash flows, and (3) current market estimates of value. The projected future cash flows, discount rates applied and current estimates of market value have all been impacted by the aforementioned natural disasters that occurred throughout the Asia/Pacific region, contributing to the estimated decline in value.”
 
This says that cash flows are going to be reduced for some period (I don’t know what “near-term” means), risks are higher (that’s what you mean by raising discount rates, we finance trained people think) and, inevitably, given the other two factors, values are lower. It’s a noncash charge but not a meaningless charge given the impact on future business.
 
With that charge, pretax income fell from $19.5 million to a loss of $42 million. But the provision for income taxes rose from $9.4 million to $39.7 million. Huh? More taxes on a big loss? Shit. I’m going to have to delve into the dreaded income tax footnotes. Those of you who are into self-abuse can see the filing here and read the footnote starting on page 15. But beware- reading this can make you go blind.
 
I think I used that joke last week. I need some new material.
 
I’d urge you to go take a brief look at that footnote. Not because you’re likely to want to figure it out, but because hopefully you’ll then feel sorry for me as I attempt to explain it.
 
A deferred tax asset is a future tax benefit. It’s easy to understand why they exist. A company wants to tell its shareholders it made as much money as possible. It wants to tell the government it made as little as possible so it can at least postpone the payment of taxes. Quik has decided (I think it’s related to the asset impairment charge above) that their deferred tax assets were $26 million too high in the Asia/Pacific region. That is, they don’t think they are likely to get the benefit they were expecting, so they wrote them off.
 
There, that wasn’t too bad. Sorry to spend so much time on these two issues, but the numbers were so large I felt it was necessary.
 
Revenues rose 5.5% in the Americas to $210.7 million and it was fueled “…largely by our retail business,” according to CFO Joe Scirocco in the conference call. Company owned retail comparable store sales rose 23% in the quarter, and e-commerce sales grew 68%.   The Quik and DC brands were up, while Roxy was down. Wholesale revenues in the Americas “…were on plan and a couple of percentage points higher than last year.”
 
Wish they’d give us some numbers on how the wholesale business was doing in the U.S. 
Revenues fell 0.8% in both Europe and Asia/Pacific to $207 million and $58 million respectively. Europe was down 4% in constant currency and Asia/Pacific 12%.
 
Gross profit margin in the Americas rose from 46.6% to 49.1%. This was “…primarily the result of a favorable shift in product mix and, to a lesser extent, a greater percentage of retail versus wholesale sales.” 
 
It was up in Europe from 59.9% to 62% as a result of improved retail margins. It fell in Asia/Pacific from 53.5% to 53.1%.
 
In a trend that’s hardly unique to Quiksilver, you can see why lots of U. S. companies are more interested in international rather than domestic expansion. Oh- Quik is going into India and expects to open 10 new stores there in the next 12 months.
 
Quik reports, in one line in its 10Q, what it calls its Adjusted EBITDA. This is net income before “(i) interest expense, (ii) income tax expense, (iii) depreciation and amortization, (iv) non-cash stock-based compensation expense and (v) asset impairments.”
 
I’m kind of a bottom line, generally accepted accounting principles kind of guy, but sometimes this is worth looking at because it does eliminate some distortions. For the three months ended April 30, it was 13% both this year and last. For six months it was 10.7% last year and fell to 10.2% this year.
 
On the surface, the balance sheet is almost identical to a year ago, though equity has grown about 10% to $535 million due to the balance sheet restructuring. Liabilities have only fallen by about $42 million to $1.1 billion, but debt maturities have been pushed way out so there are no big repayments due over the next four years.
 
Inventories are up from $226 million to $290 million, or by 28% (18% in constant currency). They describe that as being to “…ensure timely production and delivery” and as representing “…a restocking relative to very lean inventories a year ago.” I wonder if there are any cost increases in inventory numbers yet. They note that “Consolidated average annual inventory turnover was approximately 3.0 at April 30, 2011 compared to approximately 3.6 at April 30, 2010.” Higher turns are generally better until you get to the point where you’re not able to fill orders.
 
Those are reasonable reasons to increase inventory, but I’d still be happier to see increases a bit more in line with sales growth. Maybe there’s also some stocking for the Quik girls line which just started shipping in February.
 
Quik makes it clear that they are not going to be rolling out a bunch of mall stores as their old retail strategy called for. But they do discuss a cautious experimentation with some concept stores. They talk about a couple of stores at Capbreton and Hossegor in Southwest France and a Paris store. All three are used for events and promotions. At Capbreton, they have a summer concert series and it includes an athlete training center. Apparently, they include not only all of Quik’s brands, but “…a deep stock of surfboards, wetsuits, skateboards and other products that reinforce our heritage and authenticity…”
 
They plan to import this concept into the U.S. The first such store is scheduled to open in Venice, California in the fourth quarter. It will be about 10,000 square feet.
 
My point of view on Quiksilver hasn’t changed much since they finished their financial restructuring. I’m still wondering where their sales growth is going to come from. Like most companies, they see some possible margin pressure in the second half of the year because of cost increases and uncertainty as to consumer response to price increases. Their conference calls have focused recently on lots of good things they are doing with product, teams, retail and brands. They are good things, but so far they haven’t translated into much top line growth.
 
It feels like they’re doing the right stuff but this market just isn’t going to respond like it used to.            

 

 

Some Comments on Quiksilver’s Quarterly Report

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Quik came out with its quarterly results last week and filed the 10Q with SEC all at the same time so I’ve got that and the conference call to work with. I know Volcom and Zumiez have also released their results for the quarter and year, but so far they haven’t filed their 10Ks for me to peruse. When they do that, I’ll give you a report. I don’t like delaying, but I just don’t know how to do a good job without those documents. Hope you understand.

This is really the first report from Quik in a long while where we don’t have to adjust for discontinued operations as Rossignol has worked its way off the financial statements. That’s great to see.

For the three months ended January 31, 2011, Quik reported a loss of $16.3 million compared to a loss of $5.4 million during the same quarter the prior year. Sales fell 1.45% from $432.7 million to $426.5 million. Sales in Asia/Pacific were essentially the same from one quarter to the other and rose $6.8 million in the Americas. But European sales fell 7.1% from $177.8 million to $165.2 million.
 
In the Americas, the 4% growth was driven by mid-teen growth in Quik’s retail business. Wholesale revenues were “essentially unchanged.” That means all the Americas growth came from retail which they say grew in the “mid-teens.” Let’s call that 15%. It follows that the Americas quarter over quarter sales growth of $6.83 million represents something like 15% growth in retail. To use a little simple algebra, if 0.15x = $6.829 million and we solve for x, we find that retail sales during the quarter were around $45 million, or about 23% of the total.
        
We don’t get any specific sales numbers by brand. Quiksilver was flat in constant currency. They expect it will grow in the second half of the year. They note that there was “very strong demand” for their winter sports and technical snowboard apparel. But we don’t know how many dollars that involves.
 
Roxy does about $525 million in annual revenues. CEO McKnight characterizes that business as “stabilizing.” Its revenues were down 10% to 15%. They think they see girls getting tired of the “cheap quality” that fast fashion has provided.
 
Management is positively giddy about the DC brand and its prospects. It grew 15% to 20% in the quarter. Bob McKnight says DC is “…dedicated to being the most sought after skate-driven action sports brand in the world.” He then goes on to discuss DC and Ken Block’s Gymkhana franchise and being the exclusive shoe sponsor of the Monster Energy AMA Supercross series.
 
Maybe I’m too old to be cool enough to understand the relationship between skate and motocross. Quik bought a great brand in DC and has managed its growth impressively. I just hope, with the Roxy and Quiksilver brands not growing as well right now, that they don’t expect more from DC than it can deliver. Their goal is to double DC’s revenues in five years. 
 
Gross profit as a percentage of sales rose from 51.3% to 52.4%. CEO Bob McKnight indicated the increase was the result of “…improvements in our U.S. retail stores and lower levels of discounting in the wholesale channel.” It’s not clear if he means to say those are things the company can take credit for.
 
In the Americas, gross margin was up from 43.3% to 46.2%. In Europe, it rose from 56.6% to 58.9%. It fell in Asia/Pacific from 55.3% to 54.7%.
 
All things being equal, I’m guessing that the Americas are Quik’s third choice for where they’d like to sell stuff. Look at the gross margin differences. Enthusiasm for international business and its growth opportunities come across in the reports and conference calls of Quik and a lot of other companies as well. And not just in our industry. I suppose that’s the inevitable result of real incomes dropping in this country.
 
Quik, like Billabong, is referring to 2011 as a transition year, where they are investing in certain initiatives that aren’t expected to produce significant results until 2012. You see this in selling, general and administrative expenses that rose 3.58% to $210.4 million. As a percent of sales, they rose from 46.9% to 49.3%.
 
Interest expense rose from $21.9 million to $29 million. But that included a $13.7 million non-cash charge for writing off “…deferred debt issuance costs associated with our European term loans that were paid off during the quarter…” Basically, those costs have to be put on the books as an asset like a building and written off over the life of the loan just as a building is depreciated. But when the loan goes away, the remaining value has to be written off. They note that their total interest expense was $6.6 million lower than it would otherwise have been due the reduction in their total debt over the last year.
 
Their 10Q presents balance sheets for January 31, 2011 and October 31, 2010. As usual, I chased down the one from January 31 of the previous year so we’d have a more valid comparison and I’m referring to the year over year changes below. Interestingly, they refer to the year over year change in the conference call as they discuss the balance sheet, so it would be logical for them to include it in the filing.
 
Over the year, the current ratio has improved from 2.24 to 2.56. Total liabilities to equity has also improved, falling from 2.91 to 1.82. Long term debt was down 18.8% to $697 million and stockholders’ equity rose from $456 million to $602 million. The rise in equity is largely the result of Rhone debt being converted to equity. Quik has had losses over the last year which obviously reduced equity.   Inventories are up about 2.8%. Days sales outstanding (how long it takes to collect receivables) declined by six days compared to last year from 64 to 58 days. That’s good work. Being tougher on extending credit and collecting is not unique to Quiksilver in this environment. 
 
In discussing their hedging activities and foreign exchange management, Quik makes a comment I want you to read. Not because it says anything about Quik, but because it teaches us something about how we got into our current economic problems in the first place. Here’s the comment from the 10Q.
 
“The Company enters into forward exchange and other derivative contracts with major banks and is exposed to exchange rate losses in the event of nonperformance by these banks. The Company anticipates, however, that these banks will be able to fully satisfy their obligations under the contracts. Accordingly, the Company does not obtain collateral or other security to support the contracts.”
 
Okay, but what if these banks (the counterparties, to use a phrase you may remember) can’t “fully satisfy their obligations?” I remember when that’s exactly what happened. Don’t you? The institutions that couldn’t “fully satisfy their obligations” included AIG, Lehman Brothers, Merrill Lynch, and a host of others.
 
Quik’s derivative numbers are small and it’s in no way an issue for them. But isn’t it amazing how quickly we forget? People are trusting Moody’s and S&P bond ratings again. They were the ones who rated subprime stuff triple A. It’s inability to remember even the recent past, I suppose, and the fact that greed is eternal that guarantees it will happen again.
 
Okay, off the soapbox.
 
Quik expects its gross margin to be the same this year as last year. They have raised some prices selectively. They see cost increases averaging 5% to 10% with some as high as 15%. The question, as CFO Joe Scirocco points out, is how the consumer will react to the higher prices. I’d say that’s on everybody’s mind.
 
Right now, DC is providing a lot of Quik’s growth momentum, and I hope they don’t push the brand too hard. As they indicated, 2011 is a transition year for Quiksilver. We’ll find out in 2012 how some of their marketing initiatives and the launching of the Quiksilver women’s line went. If DC can keep growing, Roxy can stop shrinking and start growing, the Quiksilver can get just a bit more momentum, and some of these marketing bets pay off, the company will be doing fine.  

 

 

Quiksilver Files Its 10-K for the Year

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Last week, Quik filed its’ annual 10-K report with the SEC covering the quarter and year ended October 31, 2010. They announced their earnings by press release and held a conference call back in December. I’m not going to reanalyze their financials. I did that last month and you can read it here. But the north of 100 pages annual 10-K has a few additional details I thought might interest you. They aren’t presented in any particular order, except sort of from front to back in the 10-K.

Here’s a paragraph where Quik describes its average retail prices:

"We believe that retail prices for our U.S. apparel products range from approximately $20 for a t-shirt and $43 for a typical short to $190 for a typical snowboard jacket. For our European products, in euros, retail prices range from approximately €22 for a t-shirt and about €50 for a typical short to €162 for a basic snowboard jacket. In Australian dollars, our Asia/Pacific t-shirts sell for approximately $39, while our shorts sell for approximately $60 and a basic snowboard jacket sells for approximately $250. Retail prices for our typical skate shoe are approximately $60 in the U.S. and approximately €67 in Europe."
 
I don’t know that there’s anything of great import to deduce from that, but I thought some of you might like to see how it compares to what you know about retail prices. On to the next random piece of information.
 
Quiksilver branded products are sold in the Americas through about 11,500 store fronts. The Americas includes Canada, and South and Central America. Roxy is in 11,300 store fronts. The number for DC is 12,000. All three brands together are in a total of 10,800 locations in Europe and 3,360 in Asia/Pacific.
 
About 40% of revenue worldwide comes from what Quik calls “core market shops.” Interestingly, that number is lowest in the Americas at 28%. It’s 41% for Europe and 77% for Asia/Pacific. I’d love to know what their definition of “core market shop” is.
 
18% of consolidated revenues from continuing operations were from their ten largest customers. The largest single customer accounted for less than 3%.
 
Quiksilver has pretty much gotten away from seasonality, which is a good thing (take it from somebody who has had to manage cash in a snowboard company). Their biggest quarter last year was 27% of revenues and their smallest 24%.
 
At the end of the year, Quik had 540 stores worldwide. 116 are company owned outlet stores and 6 are licensed outlet stores. Quik had a total of 224 of what they call licensed stores. In these stores they “…do not receive royalty income from these licensed stores. Rather, we provide the independent retailer with our retail expertise and store design concepts in exchange for the independent retailer agreeing to maintain our brands at a minimum of 80% of the store’s inventory. Certain minimum purchase obligations are also required.”
 
I wonder what happens if those Quik brands aren’t the ones selling well, what flexibility they have with regards to that 80%, and what the purchase terms for that merchandise are.
 
Future season orders: $478 million as of November 2010 compared to $535 million at the same time the previous year. That’s a decline of 10.65%.
 
Number of employees: 6,200 full time equivalent; 2,600 in the Americas, 2,200 in Europe and 1,400 in Asia/Pacific.
 
Advertising and promotion budget: $106.9 million in 2010. It was $101.8 million in 2009 and $122.1 in 2008.
 
Allowance for doubtful accounts: It has risen from $31.3 million at the end of fiscal 2008, to $47.2 million at the end of fiscal 2009 to $48 million at the end of fiscal 2010.
 
I’ve got no great analysis to lay on you. I did that, to the best of my ability, when they announced their earnings. But I am very aware that a number of you heave a sigh of relief when I go through these somewhat arcane documents so you don’t have to. Anyway, I hope this was useful.   

 

 

Quiksilver’s Focus Goes From Balance Sheet to Income Statement; Their Quarterly and Annual Results

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Quiksilver continued to improve its balance sheet over the year and quarter, and this conference call is the first in a while where I’ve gotten a sense of where some growth might really come from. We’ll talk about that. 

But first, I thought some of you might actually want to know how much Quiksilver earned for the quarter and year ended October 31, 2010. Amazingly enough, if all you did was read the three pages of text in the press release and listen to the conference call, you wouldn’t know. You could finally see the actual, bottom line number on the financial statement on page four of the release.

For the quarter, Quik lost $22.1 million on revenues of $495.1 million. In the same quarter the previous year, they reported a loss of $1.78 million on revenues of $538.7 million. For the fiscal year, they lost $9.68 million on revenue of $1.837 billion. For the previous year, they had a loss of $192 million on revenue of $1.978 billion.
 
There. That wasn’t so hard. It’s not operating income. It’s not EBITDA. It’s not proforma. It’s not in constant currency. It’s just the bottom line results according to good old fashioned Generally Accepted Accounting Principles. A lot of really smart people worked really hard to give us GAAP. Couldn’t we just start with that and then provide the explanations and adjustments?
 
And we do need some of those explanations. We want to know that $119 million of last year’s loss was due to the Rossignol debacle and there’s value in being able to compare the company’s results without that impact by looking at continuing operations. But I wouldn’t want to act like that didn’t happen or that it somehow wasn’t a real loss.
 
Our industry’s popular press essentially reproduced the press release. The exception was Boardistan, who actually showed the quarterly loss in their headline.
 
On To the Numbers
 
With my rant now completed, let’s look a little harder at some of the numbers. Gross margin percentage in the quarter rose nicely from 47.6% to 53.5% compared to the same quarter last year on the decline in revenue noted above. With some help from a 3.6% reduction in selling, general and administrative expenses, this allowed them to increase their operating income from $15.1 to $34.3 million. But interest expense, not unexpectedly, jumped from $20.9 to $50.6 million. All but $16 million of that was the write down of debt issuance costs that had been capitalized and that went away when they paid off debt. The loss from continuing operations grew from $13.8 to $22 million.
 
The year ended October 31 looked a lot like the quarter. The gross profit percentage rose from 47.8% to 52.6% on the sales decline shown above. Selling, general and administrative expense fell 2.3%. Operating income was up 80% to $123.5 million. As in the quarter, interest expense rose as expected from $63.9 to $114 million, more than offsetting a reduction in income taxes from $66.7 to $23.4 million. The continuing operations result improved from a loss of $70.3 million to a loss of $8.1 million.
 
Quik’s reported business segments are the Americas, Europe, and Asia/Pacific. In the quarter, sales fell in all three, but the gross margin percentage was up in all, though gross profit dollars rose only in the Americas. All the gross profit increase, obviously, came from the Americas though it has the lowest gross margin percentage of the three segments at 48.1%. Gross profit percentage was 60.2% in Europe and 54.8% for Asia/Pacific. 
 
The big turnaround in operating income for the quarter was in the Americas, where it went from a loss of $9.3 million to a profit of $12.7 million. Europe’s operating income was up about $4 million to $20.9 million. Asia’s actually fell from $14.5 million to $8.6 million. I imagine Quik’s management would get positively giddy if they could get their Americas gross margins up to those of the other segments.
 
For the year, sales fell in the Americas and Europe and rose slightly in Asia/Pacific. Gross margin percentages were also up in all three segments, reaching 46.3% in the Americas, 59.8% in Europe, and 54.2% in Asia/Pacific. The Americas represented 46% of total revenue. Europe is 40% and Asia/Pacific 14%.
 
The trend in operating income for the year was much the same as in the quarter. The Americas went from a $25.3 million loss to a $56.9 million profit. Europe fell a bit from $104 to $94 million and Asia/Pacific was down from a profit of $23.2 million to a profit of $11.8 million.
 
The Quiksilver brand’s revenues were about $770 million during the year. Roxy and DC were each about $500 million in revenue for the year. DC is the brand where they see the most growth potential; especially outside of the Americas. They note that the juniors market is still impacted by fast fashion price point driven goods. As they put it, “Declines in the Roxy business are moderating, and it appears they will reach the bottom in fiscal 2011.”
 
The balance sheet, well, there is no balance sheet and I feel more ranting coming on. There are some balance sheet numbers (and to be fair, it’s most of the important ones) but we won’t see the complete balance sheet until the annual report. I’m actually writing this now rather than when that report comes out because at the end of the year, the SEC gives companies a lot longer to file.
 
Receivables, compared to a year ago, have fallen 14.5% to $368.4 million. They note in the conference call that days sales outstanding fell 5 days to 63 days. Inventories are essentially the same at $268 million, and they note in the conference call that it’s about where they expected inventories to be. I guess I would have expected some reduction with sales down, but given the increase in gross margin it’s hard to argue that inventories aren’t under control. Lines of credit and long term debt are down from $1.04 billion a year ago to $729 million. The debt reduction reduces their annual interest expense by $26 million. 
 
Sorry to disappoint those of you were looking forward to my scintillating discussion of the “GAAP to Pro-Forma Reconciliation” or the “Adjusted EBITDA and Pro-Forma Adjusted EBITDA Reconciliation” or even the ever popular “Supplemental Exchange Rate Information,” but I think I’ll move on to the conference call. You can view the complete press release here.     
 
Strategies for Growth
 
 CEO Bob McKnight said, “Our overriding strategic objective is to retain and remain the world’s number one action sports lifestyle company centered on boardriding. And boardriding for us has a broader connotation than just surfing, skating and snowboarding. It also includes the closely related interest of our growing global demographic. BMX, rally, moto, bike, hike, climb, paddle, mix martial arts, and many other growing action sports and activities.”
 
He identified four “primary initiatives” they would use to implement this objective. The first was to “…focus our energy and resources primarily on our three major brands.” Second is to “…focus on strategic core marketing initiatives and core athletes.”
 
The third is to “…expand through product line extensions, geographical reach, and further channel development.” This includes the Quiksilver Girls line, launching in spring. They also plan to expand DC into “…surf, snow, BMX, rally and moto.” They “… also believe we have a huge opportunity in mountain resorts and colder weather markets within the Americas and Asia-Pacific to replicate the success of our European winter outerwear business.” The geographic expansion will be where they already have a presence, but have underinvested in the past.
 
The fourth primary initiative “…is the development of incubator brand concepts that can potentially represent opportunities consistent with our culture and areas of expertise.” I don’t know quite what that means but he mentions Lib Tech and Gnu as examples, and that must have Mike and Pete reaching for their favorite adult beverage.
 
As is the case for every company of any size that wants to grow, the devil’s in the details. How do you focus on your three major brands and remain centered on boardriding but grow moto, bike, climb, paddle, mixed martial arts and others? How big a part of your business can those become before you’re no longer centered on boardriding? If you want to grow Lib Tech and Gnu “…consistent with our culture and areas of expertise,” that might be interpreted as putting some serious limits on their growth.
 
Quik’s ecommerce business is about $25 million, and they think it has the potential to be 10% of their business. They closed the year with 540 stores. They believe DC has the potential to be a billion dollar brand.
 
For 2011, they are looking for “…modest sort of growth” overall for the company. They’ve got cost pressures they estimate at five to ten percent, and expect to implement some selective price increases. They expect an overall gross margin for the year consistent with 2010. The price increase and some cost initiatives, along with favorable currency rates in some countries outside of the U.S., should allow them to achieve this in spite of costs going up.
 
What do they expect in terms of sales for 2011? “Quiksilver kind of low-single digit expectations for fiscal ’11; Roxy, down mid-singles, and DC, up somewhere in the high-single to low-double digit range. In terms of what we are expecting in regionally, much of the growth is focused on the Americas region in 2011. We are launching the Quiksilver Girls collection beginning on 2/25. Our first delivery is coming out.”   
 
It’s nice to see Quik more or less out from under their liquidity and debt problems and focused on brand building and the future. I can see that they have some possibilities for growth, but none of them feel easy and it sounds like real impact will be felt after 2011. I guess that’s just business for all of us these days. 

 

 

What’s Up with Quiksilver? The Stock Was up Huge Today

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Quiksilver’s stock jumped 22.7% today (December 9th) from 4.75 to 5.68 on the biggest volume since last March. These kinds of moves don’t happen in a vacuum, so I thought I’d check around a bit. An investment banker I know was kind enough to alert me, and I found the following reported on Bloomberg:

“PPR SA has agreed the sale of its Conforama chain to Steinhoff International Holdings Ltd. for 1.625 billion euros, La Tribune reported, without saying where it got the information.”
“PPR Chief Executive Officer Francois-Henri Pinault is interested in buying Quiksilver Inc., La Tribune said. He has reestablished contact with the company, as well as with Rhone Capital, which holds a 19 percent stake in the California-based maker of clothing for skateboarders and surfers, according to the newspaper.”
The link is here, though I’m quoting the whole thing.
Who’s PPR SA? I didn’t know either, but here’s a blurb on them from Yahoo Finance.
PPR SA Company Profile
PPR has transformed itself from a conglomerate to the world’s third-largest luxury group (behind LVMH and Richemont). PPR’s stable of global luxury brands includes a 99% stake in Italian luxury goods company Gucci Group, and luxury brands Alexander McQueen, Balenciaga, Boucheron, Bottega Veneta, Stella McCartney, and Yves Saint Laurent, among others. The group’s other activities include the multichannel merchant Redcats, Fnac music and book stores, the Conforama chain of household furniture and appliance stores, and the German athletic shoemaker PUMA. More than half of PPR’s sales are generated outside of its home country. PPR is run by Fran�ois-Henri Pinault, the son of its founder Fran�ois Pinault.
Is this actually going to happen? Somebody thinks something is going to happen given the way the stock jumped.   I don’t know what the price might actually turn out to be, but Rhone Capital would sure make a nice return quickly.
Love to do more analysis of this, but the unfortunate fact is I don’t have any information.  Maybe soon!  Or maybe not.

 

 

The End of an Era (In a Good Way!) at Quiksilver

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I don’t think anybody else noticed this (or at least I didn’t see anybody else mention it) but on October 27th, Quik got a $20 million term loan from Bank of America. Along with some cash on hand, they used it to pay off the last $24.5 million (including accrued interest) of their original term loan from the Rhone Group.

The new term loan’s interest rate is 5.3%. You may remember that the interest rate on the Rhone money was 15%. The rest of the Rhone loan (it was originally a $150 million five year term loan made in August of 2009) has either been paid off or converted into equity.

Instead of paying $22.5 million a year in interest on the $150 million (some of it was non cash), they are now either paying nothing (to the extent it was converted to equity) or paying at a much lower rate.
Financially, of course, paying off $24.5 million in debt doesn’t fundamentally change anything for Quik. But it makes me feel good to see it happen, so I can only imagine how everybody at Quik must feel. I hope they had a Rhone Credit Agreement Termination Party and burned the note. And I wish I’d been invited.
Nice work!