It's now been about 10 months since my initial post on Hemacare (HEMA) so let's take a look at where we stand. The company went dark to transform their business outside the public eye from a money losing blood bank into a growing bio research cell product supply company. I thought (and still think) their plan is to file again with the SEC once they fully transition and show a couple years of good results. My original investment was based on two main points.
- Communication: HEMA went dark 4 years ago with the promise they would continue to post bi-annual reports. Well that lasted for all of one year then they stopped. I thought they would start posting reports again since they had completed transforming the company. Management had told me they would be posting the missing 2014 report as well as 2015 half and full year results when available
- Revenue growth: I thought the bioresearch division's early revenue growth would continue. Management projected a "near double" in revenue and "substantial progress toward profitability in 2016"
Overall the company has followed through. They completed the apheresis division sale for $4.6M. They met the revenue projection, posted reports as promised, and have put out a lot of general press releases. It's nice when a company does what they say they will.
We'll start with the latest numbers:
- 10.7M shares out
- clean share structure with only common
- No debt
- revenue $9.7M vs 4.8 last year
- TBV = BV = $5.3M vs 2
- Cash $2.5M vs 0.2
- Operating income $-1.4M vs -4.8
Communication:
I wrote my post on Aug 11,2015. HEMA posted their 2014 annual report and 2015 first half results on Sept 21, 2015. The 2015 full year results came Apr 11, 2016. A full audited 2015 annual report and proxy went out to shareholders at the end of Apr 2016.
The full 2015 report and proxy have not been posted to their website and I don't know why. I asked management but got no reply. It's like they feel they must post something but want to hold back what they can. I don't get it but I'll go through some highlights below. Another strange thing is the company took down the 2014 annual report when they redid their website. The new site came around the beginning of the year and looks great. Management tells me this is because the new CFO (more on that below) wanted to start fresh. 2013 and 2014 included their old divisions outside of bioresearch; I'm told they want everyone focused on the new business so they just pulled it. I have a copy if anyone out there has a specific question.
HEMA has become pretty active with press releases. At the annual meeting last month the CEO said something about issuing a monthly PR. Taken individually I don't think a whole lot about any single one of these but on the whole I think it's great. Each PR is a piece of the puzzle in turning around this company. I'll highlight some of the notable PRs here:
The full 2015 report and proxy have not been posted to their website and I don't know why. I asked management but got no reply. It's like they feel they must post something but want to hold back what they can. I don't get it but I'll go through some highlights below. Another strange thing is the company took down the 2014 annual report when they redid their website. The new site came around the beginning of the year and looks great. Management tells me this is because the new CFO (more on that below) wanted to start fresh. 2013 and 2014 included their old divisions outside of bioresearch; I'm told they want everyone focused on the new business so they just pulled it. I have a copy if anyone out there has a specific question.
HEMA has become pretty active with press releases. At the annual meeting last month the CEO said something about issuing a monthly PR. Taken individually I don't think a whole lot about any single one of these but on the whole I think it's great. Each PR is a piece of the puzzle in turning around this company. I'll highlight some of the notable PRs here:
- A few PRs were released discussing broadening Hemacare's reach. They can ship anywhere in the world. Their special packaging and process ensures the product stays good for 10 days.
- Cryoport to offer cryogenic logistics solutions to HemaCare
- HemaCare to Validate the evo™ Smart Shipper and Cloud Based biologistex™ Cold Chain Management App
- HemaCare Signs Strategic Global Distribution Agreements
- HemaCare Signs Distribution Agreement With China-Based Partner
- HemaCare Committed To Cell Therapy Research Through Strategic Agreements
- A couple of PRs were released about expanding their product offering
- HemaCare To Increase Bone Marrow Capability
- HemaCare Expands its Offering of Stem Cell-Enriched Peripheral Blood
- A lot of PRs were released highlighting trade shows and panels they've attended. At the annual meeting management talked about the importance of these. This seems to be a big part of their marketing.
Dan,
ReplyDeleteAny update on HEMA? I've been recently buying up HEMA. They posted numbers for the first 6 months of 2016. The rev has increase to $5.7M. Definitely not the $20M run rate but I think they signed more distributor agreements in second half of 2016. I would think their growth rate increased in second half, but we will have to wait to see.
I have no update. Just waiting on the annual report. Should be out in April
ReplyDeleteThe recent PRs about a distribution deal and OneBlood partnership are great. Hopefully the company will discuss those in the report or at the annual meeting
when and where is the annual meeting? also, how do you know the report is out in April?
ReplyDeleteAnnual meeting will be at their headquarters in Los Angeles. For dates I assume it'll be similar to last year when they released annual numbers on Apr 11 and held the annual meeting May 12.
Deleteare you planning on going to the annual meeting?
ReplyDeleteYes I'll be there. And I'll post an update if there's anything interesting
DeleteI will likely make it out there, unless work stops me.
ReplyDeletegreat. I'll see you there then
DeleteFrom their recent report
ReplyDelete"On January 6, 2017, the Company entered into a Common Stock Purchase Agreement that set forth terms and conditions to offer and sell to a buyer, up to $5 million of shares of the
Company’s common stock, which will be offered and closed in three installments
at a fixed price per share. The first closing for $2.5 million occurred on January 6, 2017, with the issuance of 727,572 shares of the Company’s common stock. The second closing for $1.25 million of shares will occur, at the option of the Buyer, on or before December 31,2017, and the third closing for $1.25 million will occur, at the option of the Buyer, provided that the second closing occurred in full, on or before December 31, 2018."
This means they've diluted shareholders to raise $5 mil right?
Yes that's right
DeleteOn the other hand it seems OneBlood thinks HEMA stock is worth at least $3.44, after dilution, and presumably OneBlood knows more about HEMA than you or I. And HEMA has raised a bunch of cash without taking on any debt.
To me this is a major win. Yes there are more shares outstanding now but look at the positives. At the time OneBlood was buying shares for $3.44 the stock was sitting at $0.65.
Thanks, what did you think of 2016 results, and what's your take on the current valuation. Certainly nice growth rate but nowhere near the rate of previous year. There are now about 11.4m shares outstanding at $2 that's a market cap of 22.8m if we deduct cash on hand of $4.8m after the stock sale we get a EV of $18m. EBIT seem to be at $800k this gives us a EV/EBIT of 22.5 this years numbers. If we look to next year and assume 25% increase in revenue and earnings we still get an EV/EBIT of 17.5.
DeleteObviously EV/EBIT isn't the only way to value a business so I'm wondering what your take is on it. Thanks and congrats on a great find.
Thank you
DeleteI think 2016 results were great. Sure growth wasn't as high as last year but whatever, it was still very good. Profits are there now for the first time in year. SGA stayed about the same. Balance sheet is super clean. No debt. Now have more cash to expand. As long as revenue increases profits will increase as well. All good
I don't know about valuation but I would say you can't separate operations from the great capital raise when thinking what the stock price should be. It would probably take a stock price of $4 for me to really think about selling, depending on the news. We may have a pullback for sure but to me all signs point to this stock going higher. They are doing everything they said they would and why shouldn't it continue? Have they saturated the market? Is the market opportunity going to increase or decrease? They are expanding, they are signing new distribution deals, they are increasing capacity, they are doing good on communication, they are figuring out how to get their product into as many places around the world as possible.
If the stock were to spike up to $5 tomorrow I may sell some then buy on the pullback. Otherwise I'll just wait and see how it goes. I'm eager to hear what management has to say at the annual meeting.
But I'm biased and have a cost basis of like $0.45 so you should not base your actions on my own
btw you can always email me if you want to talk more in depth. check the contact page
DeleteOne other reason I am hesitant to sell is Fidelity won't let me buy it back. Most of my HEMA stock is with Fidelity at the moment
Delete"They are doing everything they said they would and why shouldn't it continue? Have they saturated the market? Is the market opportunity going to increase or decrease? They are expanding, they are signing new distribution deals, they are increasing capacity, they are doing good on communication, they are figuring out how to get their product into as many places around the world as possible."
DeleteI think you hit the nail on the head with this commentary. If they are going to grow at anything close to 25% a year for the next 3-5 years then this is certainly not expensive, I can even see them getting taken out at $4-$5 a share based on 2016 results alone. I guess I'm trying to get some clarity on those questions. Have you found anything regarding size of market, or competitors. How big can sales grow to? I'll try to do some more research and report if I find anything helpful.
from last year's shareholder letter in the annual report, "We estimate the market for HemaCare products and services is at least
Delete$500 million, and industry reports suggest this market will triple over the next 10 years, as
additional biopharma and biotechnology companies: (1) enter the immunotherapy, cell
therapy, and regenerative medicine markets, (2) expand their research pipelines, and (3)
receive approval of their therapies for clinical use."
Management told me AllCells was their main competitor a while back. I'm not sure of others.
One thing I wonder is what it would take for another blood bank to replicate what HEMA is doing.
Regarding valuation you have to consider the $800K was really done in 6 months. In the first half of 2016, they were negative 80K. So w/ the growth the 12 month run rate is around $1.6M+ of net income.
ReplyDeleteplus these guys are in a market where there is huge operating leverage. so increamental revenue will have big impact on bottom line. plus NOLs to protect the income. so i think any valuation has to consider all this.
as for revenue, you have to realize the OneBlood deal is huge for the company. and that hasn't even come in on the results. so revenue will increase and grow. the 50% growth last year was without OneBlood, the israeli distribution, and the international distribution via OneBlood. so i wouldn't be surprised if they do 50%+ in rev growth in 2017.
Does anyone know hoe many donors are currently enrolled? I.e. how good is the increase of 750 donors in the last press release?
ReplyDeleteWhich press release are you referring to?
DeleteI don’t know how many donors they have.
Happy holidays greeting message sent to shareholder dated 20Dec17 with "750 new donors" ebing the only part of the text highlighted in italic... must be significant otherwise why bother?
ReplyDeleteI must’ve missed that. Could you email me a copy? Or else I could email the company
DeleteQuestion. Isn’t there a problem making so much money out of Donors? Usually donations are for non profit orgs. Other than that all looks great and
ReplyDeleteI imagine the donors get paid. I’ve never asked
DeleteWould you consider buying at this price or are you holding for tax considerations?
ReplyDeleteI don’t think I’d buy at this price and taxes don’t figure into my thinking.
Delete