Spinoff not to buy: N-Able Inc. Teaser.

Originally posted on reddit 

https://www.reddit.com/r/MicrocapVillage/comments/n9f2v9/spinoff_not_to_buy_nable_inc_teaser/

"Not all spinoffs are good spinoffs"

- Sun Tzu

Since I illustrated two great (potential) spinoffs, this is one that I would not buy.

**Please note this spinoff has not yet spun off.

Business description from 10-12b:

We are a leading global provider of cloud-based software solutions for managed service providers, or MSPs, enabling them to support digital transformation and growth within small and medium-sized enterprises, or SMEs, which we define as those enterprises having less than 1,000 employees. We partner with over 25,000 IT service providers, which we refer to as our MSP partners, empowering them to deliver best-in-class managed services in a scalable and repeatable way. These MSP partners rely on our platform to deploy, manage and secure the IT environments of over 500,000 SMEs around the world. Through our multi-dimensional land and expand model and global presence, we are able to drive strong recurring revenue growth, profitability and retention.

Let's jump to the financials, that's all I am doing:

Balance Sheet.

Income Statement.

Cash flow statement.

Summary:

1) Balance sheet:

They have $1B in assets, of which $874MM is goodwill, and $448MM in total liabilities, $380MM of debt. Ok maybe the acquired company has earnings power?

2) Income statement:

$300MM revenue, growing revenue from 2018. 77% gross margin, 10% operating margin. $30MM normalized operating income. What I really hate is that they have $30MM interest expensive, effectively wiping out all earnings. Of course, some of their operating expenses are depreciation and amortization, so they are cash flow positive. And when they write down the goodwill, that will help them not pay taxes for a while.

3) Cash flow statement:

Normalized **owner's earnings is $30MM.

**Owner's earnings = net income + depreciation & amortization - capex.

Therefore I will not be pursuing any more research on this name. They have high debt, and lots of goodwill, of which doesn't have high earnings power.

--> If insiders buy stonk, I will revisit this name with new eyes.

All I am looking at is financials, nothing forward looking. Please provide your commentary, for those of you that know anything about the business.

But knowing the market, this spinoff is the one going to perform the most, as the market has a fetish for money losing stonks.

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There's another spinoff called Jackson Financial, spinoff from Prudential Financial. I don't understand anything about insurance, so I am not going to touch it.