Owner-Oriented Investment Research and Commentary - Have a private comment or question? Email us at commonstocksense@gmail.com

Wednesday, November 24, 2010

Sonic Foundry (SOFO): Passing the Torch, Plus Key Investment Musings

Per our Sonic Foundry (SOFO, $15.31) post just over one week ago, we hoped to provide additional commentary headed into the company's earnings report last Thursday morning. Two things happened:
  • First, it was a hectic week.
  • Second -- and more significantly -- along with our colleagues, we received information last week that limits us from blogging on the information technology (IT) sector.
The first challenge is no doubt the normal course of life for most of us. But, alas, we regret to relay that the second development prevents us from discussing global trends in Webcasting, lecture capture, and rich media. In other words: all things around Sonic Foundry's Mediasite.

However, let us digress for a few moments to discuss general investment considerations and our CS$ approach, starting with one of several leading headlines from Yahoo Finance (YHOO) last Friday:
The article opens with the following:
  • NEW YORK (Reuters) - Leanne Chase took her money out of stocks in early June 2008 before the collapse of Lehman Brothers sparked a near-panic. She said she and her husband had the same feeling they had during the dot-com bubble: The market had become just "weird."
  • Though the couple had been in and out of the market before, Chase, a 42-year-old part-time consultant and self-described conservative investor, said she has no intention of getting back in again.
  • "It makes me nuts when I get out early and there's more money to be made, or I get out late when I could have made more if I'd gotten out early," she said. "The stock market's not an investment, it's gambling."
  • The faith -- and money -- individual investors once held in the stock market has severely eroded. Two painful major stock market crashes over the last decade combined with the advent of arcane, complicated trading practices has created widespread suspicion of Wall Street, which many people now regard as no better than a roulette table.
  • The last crash wiped out all of the gains made during the 2000s after the dot-com wipeout. The worry now is that a Lost Decade will create a Lost Generation of investors who avoid the market in a way not seen since the Great Depression.
Her story reminds us of something a friend's father used to say: "There's no happiness in investing: when something goes up, you wish you had more; when something goes down, you wish you'd sold."

No question: timing share price moves is near impossible, especially in the short-run, and sometimes even over the medium term, as share prices can fluctuate widely without relation to underlying business fundamentals. Yet, we wholeheartedly disagree with her view that "the stock market" is "gambling."

In this regard, we share advice from one of our favorite reads, Peter Lynch's One Up on Wall Street (first published 1989 and mentioned before):
  • "The basic story remains the same and never-ending. Stocks aren't lottery tickets. There's a company attached to every share. Companies do better or they do worse. If a company does worse than before, its stock will fall. If a company does better, its stock will rise. If you own good companies that continue to increase their earnings, you'll do well. Corporate profits are up fifty-five fold since World War II, and the stock market is up sixtyfold. Four wars, nine recessions, eight presidents, and one impeachment didn't change that."
At CS$, the view that "stocks aren't lottery tickets" is one of our fundamental beliefs. As such, we approach every investment from an owner's perspective. This means we ask a set of questions detailed in our February post, Which Way from Here? An Investment Strategy for All Markets + Stock Ideas, included here with a slight change in ordering:
1. What would happen if the business went away tomorrow? Would anyone care?
2. Will the business be bigger, better, stronger if five years?
3. Does the business have a strong financial position?
4. Is management capable and motivated? Is disclosure full and adequate?
5. Can the business be acquired with a margin of safety?
6. Price is extremely important
Points one to three speak to quality of a company's economic "franchise," while points four through six cover management and valuation. Point number six is included to emphasize that, as Fairholme Fund’s Bruce Berkowitz puts it, “Investing is all about what you pay and what you get.” This statement is a variation of advice from Ben Graham and Warren Buffett.

Let's drill further into valuation to make a point we consider paramount to making money through equities over time:
  • People often look at a share price and think, well, this must be what the business is worth. If the price is low, then management and/or the business are horrible. If the price is high, then management and/or the business must be fantastic.
  • YET, based on the events of the last several years, we're not sure who still subscribes to this perspective, which is essentially the efficient markets hypothesis. Our own investing experience over time directly contradicts "EMH," as does the performance of other long-term oriented investors.
  • In reality, manic market prices of equities swing widely and are often completely disconnected from reasonable estimates of intrinsic (fair) values based on earnings power, private market valuation, and/or other sensible valuation approaches.
  • Understanding that market value and intrinsic value are two entirely different things enables informed investors (business owners) to buy and sell companies against the broader Market, taking advantage of Ben Graham's "Mr. Market."
Moreover, here's another important point: just because shares of a business are up 100, 200, or even 300% from extremely depressed levels does not mean we need to sell our position because, as Jim Cramer says, "pigs get slaughtered." How do we make the decision to buy more, keep holding, or fold? We again refer to our estimate of intrinsic value while also considering the fundamentals of the underlying business.

When evaluating fundamentals, let's revisit a piece of advice we previously shared from the late investment legend Philip Carret in March. Augmenting a video with Mr. Carret relayed in February, our March post included an insightful article from 1999 where he directly shares his investment advice - we'll again note that it's well worth a read.

On when to sell, Mr. Carret says, "How long should you hold a stock? As long as the good things that attracted you to the company are still there." We might add that valuation discipline also remains important, particularly whenever multiples move well beyond a reasonable range (e.g. our posts on alternative energy/clean tech and Blue Nile/NILE in October 2009).

On what to buy, similar to Peter Lynch's familiar recommendation to buy what you know, one of Mr. Carret's guidelines is as follows -- directly from the article:
  • For your best investment ideas, look around you. I've been following this strategy for more than 70 years.
  • Example I: In the early 1920s, not all water was metered in New York City. That wasn't going to last forever because water is a scarce resource, and there was no incentive for people to conserve water. Sooner or later, they were going to have meters for everyone. So I bought stock in a company called Neptune Meter, and it turned out very well.
Put another way, what are the market sectors or areas we encounter daily poised for growth? What business models are fundamentally disrupting the way things were done previously? The Internet arena immediately comes to mind. And, we don't need to look too far -- we're all familiar with Amazon.com (AMZN), Priceline.com (PCLN), and Netflix (NFLX).

We've long admired these businesses, touching briefly on Amazon last December and incorrectly calling out Netflix's rich valuation several times only to see shares surge much higher - whoops! We actually started a post on Priceline.com in summer 2009 but never found time to finish it.

In addition to being primarily online businesses -- putting aside physical supply chain, distribution, etc. for Amazon and Netflix -- these businesses all have another attribute in common: customers love their products/services and, thus, brand equity (economic goodwill) continues to build and build. Hence, franchise value continues to accrete for these consumer-facing companies.

While we don't own these companies, we continue to own shares in disruptive secular growers such as eBay (EBAY), Yahoo (YHOO), and our microcap Sonic Foundry (SOFO). Admittedly, wide debate has surrounded, and continues to surround, the two Internet giants, which are not delivering the blistering growth of the aforementioned companies. We discussed Facebook versus Yahoo and eBay's franchise in prior posts. We've done well with both names, although nowhere near the approximate eight times return of Priceline.com and Netflix over the past two years (assuming entry points at their respective bottoms), or even better over the past five years. Although we're making money on all three of our chosen holdings, our opportunity cost has been significant. Here's Priceline's long-term chart from Yahoo Finance:

Side-bar: our Netflix-like investment was Audible.com (formerly ADBL), which was [for us] unfortunately scooped up by Amazon.com on the cheap in 2008. Although we still received a decent premium to our cost basis, Amazon made quite a deal, buying an asset-light (no inventory), rapidly growing subscription business for less than ten times trailing free cash flow. But, this is another story.

A couple more important points: our investment approach is sector agnostic and, in fact, not primarily focused on Internet or other "growthy" companies. We go where we find value, whether in forlorn container shipping companies such as Seaspan (SSW) or Global Ship Lease (GSL), or off-the-run companies such as Parlux Fragrances (PARL) and Casella Waste Systems (CWST). With Parlux, recall that one dollar of tangible value can be had for only ~60 cents, which makes no sense whatsoever for a viable business! Lastly, we believe that the best kind of business is the kind that keeps on giving in the form of increasing net cash flows that can be used to (1) further expand the business with favorable returns on capital or (2), if option one is not feasible, return to shareholders.

OKAY, back to Sonic Foundry. While we can no longer provide commentary on IT-related happenings, we can say that the recent Capital Times article, Sonic Foundry rebounding with new focus on online teaching tools, correctly revealed that we initiated our position in 2006. Our original cost basis was in the low teens (after reverse split) and we added to our position in the mid-$5s and $6s over the past two years.

Why take such action?
  1. Favorable fundamentals -- revenue grew 19% Y/Y in fiscal 2009, margins improved, and cash operating income was near break-even (not for the most recent fiscal 2010 year, but for the prior year - for the year ended September 2009).
  2. Confidence in our estimate of the company's reasonable private market valuation and the growing Mediasite franchise.
Importantly, the recent and ongoing M&A frenzy supports our fair value estimates and, as with the June quarter, the company's report last week provides more evidence of earnings power. On this basis, we can look to our March earnings scenario range, remembering that significant NOLs should shield cash taxes for a very long time to come. One caveat is the degree to which incremental dollars are funneled into marketing and selling, which is okay so long as this investment accelerates top-line growth.

Given our stake in the company, we will continue to follow Sonic Foundry and, where possible, include Mediasite presentations into CS$ posts, such as those included in our recent Weight Watchers (WTW) post. Truly fascinating information. We'll also try to Tweet interesting/helpful links such as this re-Tweet (please feel free to follow us):
OR
Summarizing: we need to remember that the "Market" does what it does and is also often irrational because of human psychology, which tends to accentuate extremes. Likewise, shares of a company may behave like a yo-yo as traders whip them around day to day or week to week, not to mention countless mutual funds that churn through portfolios 200 or 300% per year (which we think is crazy and casino-like).

Fortunately, fundamentals always win. Always.

THUS, over the long-term, the market (lower-case "m") is efficient as share prices track earnings and should continue to appreciate so long as a business grows bigger, better, stronger. This means short-term heart burn can be mitigated or avoided by thinking of equity positions as a business owner, asking the right questions, and acquiring ownership with an initial margin of safety.

While all investors have their own risk profiles and circumstances, we are fairly confident that a common sense approach can help individual investors such as Ms. Leanne Chase regain confidence in equities and generate the necessary returns to help fund retirement. Even with lingering economic worries on many fronts, there are always opportunities.

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long SOFO, EBAY, YHOO, PARL, CWST, WTW.

© 2010 Jeffrey Walkenhorst
Please see important Risk Factors & Disclaimer

Sunday, November 21, 2010

How's the Economy Doing?.... Hmmm, Really? Yes, Let's Give a Quick Look

We plan to have a post on Sonic Foundry (SOFO) within the next few days (for reference: link to earnings and Webcast). We're also still planning to share more commentary on Global Ship Lease (GSL) per our post a few weeks back. This one remains on the backburner. In addition, we're overdue in updating our "How's the Economy Doing? - Under the Hood" series. Since we've recently fielded questions on the economy, we now focus on this topic.
  • Someone outside of the investment/business world asked us last week: "How's the economy doing?"
  • Our response: "Stable to better."
  • After a pause, their subsequent response: "Really?"
  • Our response: "Yes, really - most sectors are experiencing stable to better fundamentals."
As we briefly relay below, this is what business fundamentals reveal. Still, most Americans wouldn't know that things are "stable to better" given headlines around the weak job market, government deficits, and the Fed's much debated "QE2." On the latter point, we recommend reading an 11/16 WSJ opinion piece, A Significant Letter - Prominent economists write a letter to Ben Bernanke opposing QE2. Here at CS$, we're in this camp -- we believe the additional bond purchases are not necessarily the best course of action, particularly when equities are a significant bargain relative to bonds (per our prior post). For well-written commentary specifically on the Fed and QE2, we recommend reading Jeff Matthew's “QE 2” or “Ben’s Titanic”?

Why is additional stimulus not necessary? Consider four points (*if we had more time, we could probably share ten or more), starting at the macro level and then moving to the micro level (with possible macro implications):

Number One: From Briefing.com, personal income and consumption trends are higher Y/Y (off easy comparisons, but still better than the alternative):


In addition to this graph, we could also share durable goods orders and non-farm payrolls. Of course, the above uptick carries cautious "Big Picture" commentary from Briefing.com (note: a major Fed concern):
  • While off their lows, sustainability in the personal income and consumption sector look weak. High unemployment will put heavy downward pressures on wage growth. Since consumption has a direct relationship with the amount of income a consumer has to spend, lower incomes will cause consumption growth to be weak. We believe there is pent up demand for more consumable goods, but until the employment situation stabilizes consumers will hold on spending.
Number Two: freight traffic continues to improve, an area we've been tracking closely over the past several years and where we initiated exposure in summer 2009 through container shipping companies Seaspan (SSW) and Global Ship Lease. For those interested, we sometimes Tweet volume metrics regularly reported by various sub-segments of the global freight/transportation sector. The other week, we came across this comprehensive 11/14/10 article from The Kansas City Star:
A handful of points directly from the article:
  • After about 17 months on furlough, Heather Herbst this year returned to her full-time job working on the railroad....
  • Indeed, railroads and truckers are picking up steam as the economy recovers. That’s important for Kansas City, the nation’s second-busiest rail hub and crossroads of the nation’s highways.
  • Economists often look at railcar loadings as a harbinger of things to come for the bigger economy.
  • This October compared with October 2009, U.S. railroads each week moved 11 percent more carloads — including intermodal containers that ship on rail and trucks. Such double-digit percentage increases have been common in 2010, with the year’s high of 17 percent coming in May.
  • Trucking, too, is rising. Tonnage hauled this September was 5.1 percent higher than in September 2009. It was the 10th consecutive month of gains in year-over-year comparisons.
  • FedEx Corp. said it expected to have its busiest day ever on Dec. 13, when it anticipates moving nearly 16 million shipments around the world.
  • When asked by a CNBC reporter last year what set of economic numbers he’d want if he were stranded on a deserted island, investor Warren Buffett replied, “freight-car loadings” and “truck-tonnage moved.”
  • Rising demand for rail services reflects growth in other sectors of the economy, said Dan Keen, economist with the Association of American Railroads.
  • “No one puts a load of lumber or scrap steel or chemicals on a railroad for fun,” he said. “Rather, they put these things on a railroad so they can be turned into houses or rolled steel or fertilizer or whatever.”
  • Railcar loads are still far below peak levels in 2006, said Matt Rose, BNSF’s chairman and chief executive. BNSF and Union Pacific Railroad are the two mega-railroads in the United States.
  • “Every metric you look at shows the economy is growing,” said John Wagner Jr., president of the logistics and warehousing firm Wagner Industries Inc. “But it’s coming in very slow, baby steps.”
Number Three: see handful of positive headlines from the WSJ's earnings page over the weekend, including results from discretionary retailers (acknowledge: plucked from amidst some mixed to negative headlines - see recent reports/commentary from Walmart/WMT and Cisco Systems/CSCO):
  • Heinz Earnings Rise 8.6% Heinz's earnings rose 8.6% as the food company benefited from price increases and growth in emerging markets.

  • AnnTaylor Posts Higher Profit AnnTaylor Stores reported a sharply higher quarterly profit rose, aided by better-than-expected sales growth.

  • Dell's Quarterly Profit Jumps Dell's third-quarter earnings more than doubled on strong corporate demand and lower component costs. Sales to large corporate customers rose 27%.

  • Williams-Sonoma Raises Outlook Williams-Sonoma, bouncing back from the recession, reported strong gains in sales and earnings. The housewares retailer also raised its outlook for the full year.

  • Limited Brands' Profit Jumps Limited Brands reported a sharply higher quarterly profit on improved sales and margins and declared a special stock dividend that will cost the specialty retailer $1 billion.

Number Four: higher attendance and wagering at Churchill Downs (CHDN), in which we continue to hold shares thanks to Churchill Downs' acquisition of Youbet.com last June. From an 11/8/10 article, Attendance, betting rose for Breeders’ Cup:
  • Both attendance and wagering for the two-day 2010 Breeders’ Cup Championships at Louisville’s Churchill Downs racetrack notched double-digit increases from the levels reported during last year’s event at Santa Anita Park in Arcadia, Calif.
  • After an 11 percent increase in attendance to 41,614 Friday, another 72,739 were on hand for Saturday’s races, an increase of 23.6 percent, according to a news release from Lexington, Ky.-based Breeders’ Cup Ltd.
  • The total two-day attendance of 114,353 was an increase of 18.5 percent from last year.
  • Total wagering, meanwhile, rose 13 percent to $163.6 million for the two days, $53 million on Friday, $110.6 million on Saturday.
  • The on-track handle was $8.1 million on Friday, up 14 percent, and $14.5 million on Saturday, up 19 percent.
AND, from a Churchill press release on Friday:
  • For the second time in a week's period, Churchill Downs Racetrack will raise overnight purses because of higher than expected all-sources wagering levels. Effective immediately (Friday, Nov. 19), overnight race purses will be increased 20 percent for the final eight days of the Fall Meet, which concludes its 21-day run on Sunday, Nov. 28.
  • On Nov. 12, Churchill Downs announced that overnight race purses would jump 6.3 percent for the final 10 days of the season.
  • Purses for the final 83 scheduled overnight races – which include allowance, maiden special weight, claiming and maiden claiming events – will rise from the announced prize money in the condition book by an approximate blended average of $6,600 per race.
  • The revised projection for total overnight purses awarded at the meet is $6.8 million, up from the original forecast of $6.2 million at the start of the season. The daily average purse distribution (not including the Nov. 5-6 Breeders' Cup World Championships programs) will be approximately $459,000 per day.
  • "We've been fortunate to have good weather and full, competitive fields during our boutique, four-week Fall Meet, which has limited competition from other racetracks during the fall," said Kevin Flanery, president of Churchill Downs Racetrack. "Also, some of our high-level allowance and claiming races for our top-tier horses have not filled and were not used, which means there's more money available to distribute. We're thrilled that horse racing fans have responded to our product through strong all-sources wagering, and that our owners, trainers, jockeys and breeders will benefit from a 20-percent increase in prize money over the final stretch of our season.
So, there you have it. Although reports of economic malaise and federal/state government debt burdens -- legitimate problems that need to be addressed -- dominate mainstream media, many sectors and companies are seeing stable to better fundamentals. We may not be out of the woods, but no one can deny this truth.

We again echo the headline of our July post, Psychology Remains Fickle as The Big Bad Wolf Ignores Fundamentals. Fortunately, as in July, fundamentals are moving in the right direction. THUS, when someone asks you, "how's the economy doing?," please don't be shy. Feel free to share this post and/or verbally point to favorable reports from a variety of sources.

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long SOFO, GSL, SSW, CHDN
© 2010 Jeffrey Walkenhorst
Please see important Risk Factors & Disclaimer

Sunday, November 14, 2010

Sonic Foundry (SOFO): What's Behind Mediasite's 4th Consecutive Readers' Choice Award for "Best Webcasting/Presentation Solution"?

We hope to have brief commentary on Sonic Foundry (SOFO, $14.60) headed into fiscal fourth quarter results within the next two days. As a primer, those interested might revisit our August post, The Mediasite Franchise Alive and Kicking as Sonic Foundry is in the Black and Maintains Solid Outlook. In the meantime, we relay something else.

The other week, on 11/3/10, Streaming Media announced The 2010 Streaming Media Readers' Choice Award Winners and opened its press release with the following:
  • More voters, more votes, and more winners than ever before. The readers have spoken, and here are the winners.
  • Maybe it was something in the water. Maybe Streaming Media West's move from San Jose to Los Angeles had people more excited than usual about the event. Or maybe, just maybe, it's because 2010 saw more attention placed on online video than ever before.
  • But whatever the reason, the numbers in this year's Streaming Media Readers' Choice Awards blew away all previous editions. More than 7,000 voters cast more than 58,000 votes, which means each one cast their vote in an average of 8 of our 22 categories. By comparison, last year's awards drew just over 2,000 voters and a just over 5,000 votes.
Wow, the readership must be growing as Streaming Media certainly had a statistically significant sample size. AND, fantastic news, for the fourth consecutive year:
  • Best Webcasting/Presentation Solution
  • Sonic Foundry Mediasite
Sonic Foundry actually Webcast the awards ceremony for Streaming Media. As shareholders, we were/are pleased to see the continued recognition, which suggests that Mediasite is maintaining and likely gaining mind share around the world. This is consistent with the increased adoption we've recently highlighted by major companies such as Research in Motion (RIMM), as well as integration with third party systems such as TechSmith's Camtasia. We think more organizations are getting "the Mediasite Memo."

To illustrate our view on why Mediasite keeps winning the Streaming Media awards we share another, related point. For as long as we can remember, Sonic Foundry has advertised in Streaming Media Magazine (published bimonthly by Information Today, Inc.). The advertisements are usually 1.5 pages and wrapped around the magazine's masthead -- here is the ad from SM's October/November 2010 issue (click to enlarge):

It's a bit tough to read, so here's what the advertisement says (on right hand page):
You never have to worry about Mediasite. To me, Mediasite is more valuable than other webcasting options because it's so reliable and easy to use. For the viewer, for the presenter, for the technical team, it's plug and play. You can depend on it, and we absolutely do.

Helder Conde - Technical Director
Atitude Midia Digital, Brazil
BUT, this isn't just marketing propaganda. Mr. Conde has long been a proponent and significant user of Mediasite for large events in Brazil. He's also an active member of the Mediasite User Group.

For example, here's a great listen from Mr. Conde about his company's use of Mediasite (as well as other tools) for virtual events at this year's UNLEASH user conference:
Another, from UNLEASH 2009:
Finally, he participated in this Sonic Foundry Webinar (registration required):
In his UNLEASH 2010 presentation, he offered a revised definition of what Mediasite is:

From our perspective, he's spot on: Mediasite isn't just about efficiently capturing content, it's also about generating content for consumption, whether live or on-demand. This need should only increase with time and, in our view, has countless applications to improve life through the exchange of knowledge.

We think this is what's behind Mediasite winning the Streaming Media Readers' Choice Award for "Best Webcasting/Presentation Solution."


Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long SOFO.
© 2009 Jeffrey Walkenhorst
Please see important Risk Factors & Disclaimer

Saturday, November 13, 2010

FLY Leasing (FLY): Anyone Want a FREE Aircraft, Maybe a Boeing 757 or an Airbus A320? AND, You Don't Need to Manage It

Per our prior mention back in April, we own shares of Fly Leasing (FLY), which is a highly levered, asset heavy business like our Seaspan (SSW) and Global Ship Lease (GSL) (side note: we still plan on revisiting GSL in an upcoming post).

In our September post, The View from the Heartland, we mentioned that FLY Leasing was still trading at a meaningful discount to net tangible book value, even with ample demand for new and used aircraft (see link for interview with CEO Colm Barrington). FLY's fleet of 59 aircraft is approximately 86% "narrowbody" (percentage prior to recent sales) with an average age of just over 8 years. We shared additional commentary back in a July post, Perspective on the Global Aircraft Leasing Market.

For reference, here's an overview of FLY Leasing from an October management presentation (click to enlarge this and subsequent slides):

Our initial FLY thesis was similar to our container shipping thesis: stable long-term oriented business model with shareholder friendly management improving sector fundamentals trading at a discount to net tangible book value. But, in this case, there was less uncertainty over the book value of assets given a tight market for aircraft with limited new supply. Boeing (BA), for example, has a long backlog of aircraft to be delivered and the company's supply chain can produce only so many jets per quarter. Our original thesis remains true today.

The company reported favorable 3Q10 results the other week that again illustrated several important things: (1) the stability of the cash generating model, (2) very capable management, evidenced through gains on sale through fleet management, and (3) improving industry fundamentals. Pertinent commentary from management, thanks to SeekingAlpha.com:
  • The news from the commercial aviation industry continues to be positive. I can confirm that we are experiencing strong demand for aircraft lease product from virtually all global jurisdictions. The emerging market regions continue to exhibit very strong growth and passion to traffic, just as they have been for the past several quarters.
  • U.S. airline industry through consolidation and relatively good discipline and capacity growth has recently been profitable and cash flow positive. We continue to believe that there will be a combination of growth in the emerging market regions and the significant re-fleeting requirements of financially stabilized U.S. legacy carriers that will fuel growth in the aircraft leasing sector for the foreseeable future.
  • Our airline clients are making fleet planning decisions in a manner consistent with historical practice. That is to say, airlines have moved beyond the short term when thinking about capacity growth and re-fleeting and are now planning two to three years into the future. This is an important change from the prior 18 months and supports a traditional cyclical recovery.
  • Airlines and aircraft leasing companies are ordering aircraft in large numbers. Both Airbus and Boeing have substantial demand for the newer narrow body equipment, a particular focus for FLY. There are virtually no delivery positions available from either manufacturer on these aircraft types for several years.
  • Both Airbus and Boeing are increasing production rates in an effort to satisfy the demand but we still see a favorable supply demand dynamic that we expect to continue to underpin the recovery in aircraft values and lease rates.
  • Equity capital continues to pour into the sector. As mentioned on prior calls, much of the capital is coming from private equity community but the larger existing lessors are also allocating capital to grow their businesses.
  • As you would expect, this capital is creating more demand for aircraft to pursue prices higher. This demand for leased aircraft is creating more liquidity for FLY's aircraft.
  • We have taken advantage of this liquidity to rebalance the portfolio in the third quarter. And we sold three aircraft at premiums to net book value. We have another aircraft sale scheduled for the fourth quarter, a 21-year old 757. And we will continue to look for further sales opportunities.
  • The cash proceeds from these sales will be combined with the company's significant unrestricted cash balances to acquire new aircraft. We made some progress in this front in the third quarter with the flydubai transaction. And we expect more opportunities in the next 12 months to originate sale lease backs directly with the airlines.

We recommend listening to the conference call and/or reading the full transcript.

Now, taking a step back, below we share a handful of summary slides we pulled last summer (but never got around to posting until now) from various FLY Leasing presentations (then called Babcock & Brown Air Limited).

  • Shareholder friendly management (for more recent slide, please see October deck linked to earlier):
  • Here is a summary slide from the more recent presentation:
  • Improving sector fundamentals (from March, now dated, but most trends continue today - Y/Y gains for freight have been slowing, see recent IATA data here):
  • Favorable long-term trends (we're wary of forecasts, but global population growth is the major driver):

  • Close correlation for the airline industry with global GDP (so, macroeconomic conditions matter):
  • Historical and forecast demand for air travel (forecast is frighteningly steep from an air traffic control and natural resource standpoint!):

To summarize, we believe FLY Leasing should benefit from current and expected industry growth over time. Importantly, per the overview slide above, the company's fleet is relatively young at 8.1 years and carries an average remaining lease term of 4.4 years. Moreover, the business model is designed to pay dividends and generates significant "available" cash flow for distribution. The current annual payout of $0.80 (6% yield) -- reduced during the downturn -- is only a fraction of "ACF" (even when normalized for positive one-timers). As a result, cash continues to build on the balance sheet as the company retains excess cash flow to increase flexibility and potentially acquire new aircraft.

At $13.10, the company continues to trade at a discount to tangible book value of more than $16 per share despite improved industry fundamentals and a shortage of aircraft around the globe. Thus, as with our Parlux Fragrances (PARL), we're literally getting assets for free. In this case, cash and primarily narrowbody aircraft that are in high demand. We're more than willing to pick up (and hold) one dollar of fairly certain value for only 80 cents ($13.10/ $16.41) that currently pays us 80 cents per year (to boot).

One caveat: admittedly, a company that owns depreciating assets is different from durable retail/consumer franchises such as Starbucks (SBUX), which have brands and pricing power over time (what Warren Buffett calls economic goodwill). Yet, based on FLY's management track record, we're betting that they will skillfully refresh the portfolio and allocate capital to grow the business over time. Arguably, this might warrant a premium to net tangible book value.

There was a time when FLY Leasing traded at a premium to net tangible book value, in late 2007 shortly after becoming a publicly traded company (tough timing given subsequent macro events) - from Google Finance (GOOG):


We might just get back there one day.

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long FLY, SSW, GSL, PARL.

© 2010 Jeffrey Walkenhorst
Please see important Risk Factors & Disclaimer

Monday, November 8, 2010

Alternatives to Weight Watchers (WTW) and President Clinton's Example (Different from Classic SNL Skit?)

Shares of Weight Watchers (WTW, $34.69) continue work their way higher as the Market gains comfort that consumers are slowly opening their wallets and spending on weight loss programs. That said, while competitor Nutrisystem (NTRI) recently beat bottom-line expectations for 3Q10, the company's top-line was down 4% Y/Y. We'll see how Weight Watchers fared during the September quarter when it reports results tomorrow (Tuesday) afternoon.

In our late September post, Weight Watchers (WTW): Plenty of Embedded Upside, we shared a video titled Weight Watchers CEO Unfazed by Obesity Pill News. We also relayed that we were also not overly fazed by other weight loss remedies and noted our view that reasonable fair values are in the $40 range and could extend into the $50s if historical multiples are awarded to the company.

Yet, competition is a risk for any company and, in this case, is the number one risk factor listed in Weight Watchers' Annual Report Form 10-K (from last year):
  • Competition from other weight management industry participants or the development of more effective or more favorably perceived weight management methods could result in decreased demand for our services and products.

  • The weight management industry is highly competitive. We compete against a wide range of providers of weight management services and products. Our competitors include: self-help weight management regimens and other self-help weight management products and publications such as books, tapes and magazines; commercial weight management programs; Internet weight management approaches; dietary supplements and meal replacement products; weight management services administered by doctors, nutritionists and dieticians; surgical procedures; the pharmaceutical industry; government agencies and non-profit groups that offer weight management services; and fitness centers. Additional competitors may emerge as new or different products or methods of weight management are developed and marketed. More effective or more favorably perceived diet and weight management methods, including pharmaceutical treatments, fat and sugar substitutes or other technological and scientific advances in weight management, also may be developed. This competition may reduce demand for our services and products.
So, competition may encroach from all sides -- especially since innovators never sleep -- trying to break down Weight Watchers established, high-margin moat. Nonetheless, while we're a big fan of innovation in any field, we're less certain of the potential success in the field of weight loss management.

As an example, this headline in the The New York Times from just the other week:

  • F.D.A. Rejects a Third Weight-Loss Drug - Regulators seem to have heightened their scrutiny of diet pills that could pose risks to the heart or other organs, diminishing the options available to overweight Americans.
Although we're not schadenfreudes, we were -- as shareholders -- pleased for Weight Watchers when we saw this news. YET, as the NYTs posits, regulators are "Diminishing the options available to overweight Americans."

Really? While we know the FDA garners some negative reviews from industry participants (e.g. it's "extremely slow," or "very political"), we think it's unsettling that we -- as a people -- might look to pills to lose weight. But, wait, there might be other non-traditional methods, too.

The WSJ featured the following article on 9/14/10:
  • Freeze! Zap! Bye-Bye, Fat. Fat cells, watch out. Two new devices—one that deflates fat cells, one that destroys them—have just been cleared for "body contouring" in doctors' offices by the Food and Drug Administration. The FDA has approved two new devices that will literally freeze and empty fat cells to reveal a thinner you with no incisions or needles.
Perhaps this isn't such a big surprise given American's obsession with cosmetic/plastic surgery?

What about tried and true options, such as following a healthy, leaner diet and avoiding processed foods? After all, research increasingly shows that we literally are what we eat. Did you know that concrete evidence suggests that "our behaviors can predispose our children to developmental problems and disease, even before they are born?" This field of study is called epigenetics, which we hadn't heard of until last week. For reference, Wikipedia defines epigenetics as:
  • In biology, and specifically genetics, epigenetics is the study of inherited changes in phenotypegene expression caused by mechanisms other than changes in the underlying DNAepi- (Greek: επί- over, above) -genetics. These changes may remain through celldivisions for the remainder of the cell's life and may also last for multiple generations. However, there is no change in the underlying DNA sequence of the organism;[1][2] sequence, hence the name (appearance) or instead, non-genetic factors cause the organism's genes to behave (or "express themselves") differently.
We learned of this research from the 7th Nestle International Nutrition Symposium, which was in late October in Switzerland:
Truly fascinating and we recommend reviewing certain of the presentations. Clearly, an important research area with findings that might positively influence public health (should behaviors shift toward leaner diets).

On a related note, another extremely interesting presentation well worth a listen comes from an April 2010 talk by Gary Taubes, author of Good Calories, Bad Calories: Fats, Carbs, and the Controversial Science of Diet and Health - (via Swedish Weight Loss Services with Mediasite):
With detailed, well-researched historical evidence, Mr. Taubes points to carbs as the major problem and says, "anything that makes us fat, makes us sick also," noting the numerous chronic diseases associated with obesity (click to enlarge):


Finally, we come to President Bill Clinton. The other month we learned that he's gone vegan, captured in this blog post:
  • "Well, the short answer is, I went on essentially a plant-based diet," Clinton tells CNN in an interview airing Wednesday night. "I live on beans, legumes, vegetables, fruit. I drink a protein supplement every morning. No dairy."
Here is the CNN video featuring President Clinton:



We're afraid that our Fannie May Fine Chocolates and Pixies (part of our 1-800-Flowers.com/FLWS) don't fit too well into this picture....
Dark Pixies®
Dark Pixies® ???????
Hazelnut Clusters
Hazelnut Clusters ???????
Honey Almond Nougat
Honey Almond Nougat ??????
Here, we personally strive for moderation and recently consumed a few pixies at some birthday parties.... Uh oh.

Where are we going with all of this? We're pointing out that there are options besides Weight Watchers, including life choices that may also fit in with Weight Watchers' time-tested healthy living (lifestyle) approach. Nonetheless, we continue to believe the company's established franchise is durable and, quite likely, will be bigger, better, and stronger in five years. As this happens, we should see higher earnings, excess cash flow, and dividends, which may well garner higher valuation multiples.

Our hat is off to President Clinton and we wish him all the best. Of course, we can't help but recall the SNL skit - thanks to SNL, NBC and Hulu.com, we have "Clinton at McDonald's - Better bolt everything down before Clinton eats it all."




Classic. We suspect even President Clinton might smirk while watching this one. May Phil Hartman rest in peace.

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long WTW, SOFO, FLWS.

© 2010 Jeffrey Walkenhorst
Please see important Risk Factors & Disclaimer

Wednesday, November 3, 2010

Company Specific or Industry News Fueling Global Ship Lease's (GSL) Monster Move?

Per our post last week on container shipping companies Seaspan (SSW) and Global Ship Lease (GSL), we still plan to share additional commentary when our schedule permits. Shares of the latter continue to power higher on significant volume, which is why we briefly chime in here with five points:

(1) At the risk of stating the apparent, Global Ship Lease is moving toward what we view as a more rational valuation range (we'll discuss numbers in our follow-on post).

(2) As the "Market" gains interest, other investors are also sharing views on shipping and Global Ship Lease -- worth a read from SeekingAlpha.com:
(3) We have no insight into what's behind the big rally. There remains NO news regarding potential equity financing for CMA CGM (GSL's counterparty), nor any other company related news such as potential new financing arrangements that would facilitate the delivery of two new ships this December. The Market is clearly suggesting something, but the move upward is seemingly mere anticipation that generally better sector sentiment might soon bring good things to pass for the company.

(4) What we DO know is that industry news remains mostly favorable -- various sector news from The Journal of Commerce this today:

Yang Ming Profit Surges in Third Quarter
Yang Ming Marine, Taiwan's second largest container line, posted a record profit and revenue in the third quarter, which ended Sept. 30, on rising freight rates, stronger demand and effective cost-control measures.

Jacksonville Container Volume Gained 10 Percent
The volume of containers handled by the Port of Jacksonville increased 10 percent to a record of 826,580 20-foot equivalent container units in fiscal 2010 ended Sept. 30, the Jacksonville Port Authority said Tuesday.

Boeing Forecasts 5.9 Percent Annual Air Cargo Growth
Aircraft manufacturer Boeing, showing strong confidence in air freight demand after the longest downturn in the industry's history, says world air cargo traffic will return to its 2007 peak by the end of this year and resume strong expansion over the next 20 years.

Atlas Air Net Profit Soars 130 Percent
Stronger demand, improved yields and higher prices powered a 130 percent surge to $33.8 million in net profit for Atlas Air Worldwide Holdings in the third quarter.

USPS Hikes Rates 3.6 Percent
The U.S. Postal Service announced a 3.6 percent overall price increase for all shipping services starting in January.

Expeditors Net Profit Soars 66 Percent
Strong demand that led to a record operating margin pushed Expeditors International of Washington to a $96.1 million net profit in the third quarter, 66 percent better than the same quarter a year ago.

(5) However, as Seaspan pointed out last week in its 3Q10 earnings deck, the increasing supply of ships may press freight rates lower in 2011-12 assuming a flattish demand environment:


Despite a moderating industry view into 2011, our original thesis was that we'd see improvement in sector fundamentals and sentiment from extremely dire 2008-09 conditions, leading to a positive revaluation for both Seaspan and Global Ship Lease. We simply didn't know exactly how or when this might come to pass. We gained comfort in the stable, real estate-like business models of both companies, which are underpinned by long-term leases and generate healthy, consistent, and high margin cash flows.

As we've written in the past, sometimes the highly unpredictable Market [psychology] can turn on a dime. Of course, fuller valuations for these and other companies make finding bargains more challenging.

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long SSW, GSL.
© 2009 Jeffrey Walkenhorst
Please see important Risk Factors & Disclaimer

Tuesday, November 2, 2010

Parlux Fragrances (PARL): One Dollar of Value for Only 58 Cents - No Catch!

Hurry! Limited time only - Paris Hilton, Jessica Simpson, Queen Latifah, and other branded perfumes available for LESS THAN FREE with some pocket change to boot. No catch -- this is the honest to goodness truth.



Where can those interested pick up the perfumes? By purchasing shares of Parlux Fragrances (PARL, $2.72), which has traded and continues to trade below net tangible book value (i.e. liquidation value) of approximately $5 per share since the market decline of September 2008.

Let's back up a bit. Through the 2H08 and 1H09 market swoon, we were as active as possible initiating new positions in beaten up names, including several REITs, Harry Winston Diamond Corporation (HWD - please click name for recent post), and Central European Distribution Corporation (CEDC - recently added to our CEDC position). Then, in summer 2009 -- following the monster rally off of the March bottom -- we began to seek areas and companies that remained largely left behind, but where we saw significant, unappreciated value.

Although we missed opportunities by passing on several names such as Sotheby's (BID) and Starbucks (SBUX) (click names for prior posts) in favor of American Oriental Bioengineering (AOB) and Bidz.com (BIDZ) -- which haven't worked out to-date and hold some important lessons -- our search also led us to areas such as the container shipping sector and solid waste companies such as Casella Waste Systems (CWST). In addition, we began to look more closely at Parlux Fragrances, where we already had some familiarity thanks to a friend and fellow investor.

Here's a link to the company's Web site and summary description:
  • Parlux Fragrances, Inc. is a manufacturer and international distributor of prestige fragrances and beauty related products. It holds licenses to manufacture and distribute the designer fragrance brands of Paris Hilton, Jessica Simpson, Nicole Miller, Josie Natori, Queen Latifah, Marc Ecko, Rihanna, Kanye West, babyGund, Vince Camuto and Fred Hayman Beverly Hills, as well as Paris Hilton cosmetics, sunglasses, handbags and other small leather accessories.
The company has a somewhat convoluted history of sporadic profitability with a correspondingly volatile share price - 1994-2010 stock performance from Yahoo Finance (YHOO):


To gain familiarity with the company's history, we recommend reading through the company's annual reports and also watching this management presentation from the 2009 Noble Financial Equity Conference (captured with Sonic Foundry's Mediasite/SOFO):
  • Title: Parlux Fragrances - Webcast Link
  • Date: Monday, June 08, 2009
  • Time: 12:10 PM EDT, Duration: 00:29:56
Although the presentation is led by the former CEO Neil Katz (joined by CFO Ray Balsys), the background commentary is worthwhile. Financial history for FY2008 and 2009 (click to enlarge):
Here's what was most interesting: shares of Parlux Fragrances had traded below net tangible book value (i.e. liquidation value) of approximately $5 per share since the market decline of September 2008. Parlux was a classic Benjamin Graham "net net" value play: shares could be purchased below net working capital and for only 40% of net tangible assets (the sum of total assets less goodwill and intangible assets less total liabilities = balance sheet liquidation value). The majority of total assets on the balance sheet were inventory and receivables, plus some cash. A key question was: could inventory be successfully converted into cash?

While shares of many discretionary retailers had already tripled or quadrupled from the bottom -- see large caps William Sonoma (WSM), Nordstrom (JWN), and Limited Brands (LTD) -- despite still challenging fundamentals at the time, micro/small-cap Parlux essentially hadn't moved. Admittedly, this was a different business than these higher margin retailers, not fitting with our preference for consistent, high margin businesses. Examples include our positions in eBay and j2 Global Communications (JCOM).

Parlux was a "cigar butt" net-net value play. Although certain value investors, including Warren Buffett, shy away from cigar butt investments, we are sometimes willing to tread in these waters when we see certainty of value. Further, we recall Ben Graham in The Intelligent Investor, page 169 re: buying companies offered below net working capital (NWC):
  • .... "What is more remarkable is that none of these issues showed significant losses... and 78 [out of 85] showed appreciable gains" [in a two year period].
Also, the late Sir John Templeton (click for prior post) shared the following advice:
  • "Never adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded and skeptical. Long-term top results are achieved only by changing from popular to unpopular the types of securities you favor and your methods of selection." (Source: The Book of Investing Wisdom)
So, while it's great to seek out consistent, high margin, high ROE, high-barrier-to-entry companies, sometimes other types of companies or investments offer equally favorable -- or better -- investment returns over time. Also, it always come back to something we keep sharing from Bruce Berkowitz: "it's all about what you pay and what you get." That is, price.

With Parlux, we were getting assets for less than free. Our research provided comfort that the company's balance sheet was sound and capable of converting assets into cash. Hence, we initiated and built a position around $2 per share in summer 2009.

Not everyone was/is on the same page. Skepticism was expressed in a 2/7/10 SeekingAlpha.com post, Parlux Fragrances Smells Better at a Distance. We commented on the post, including the following:
  • Per Parlux's conference call last Thursday, the current cash position is approximately $15 million (as of this Feb, not 12/31), AR sounds current, and inventory is largely under control (and is clearly converting to cash). All of this implies tangible book remains largely intact despite "extraordinary returns" amidst weak department store sales for the company. Thus, PARL may well be a legitimate 50c dollar no matter how ugly recent results appear.
Now, fast forward a bit. The company has shown a clear ability to convert inventory into cash over the past year and even secured a $20 million credit facility with GE Capital last spring. Also, with a new CEO at the helm, Parlux founder Fred Purches -- installed earlier in the year after former CEO Katz's efforts to build department store sales channels failed to yield anticipated revenue -- the company is focused on blocking and tackling.

For FY2010 (end March), revenue was $148.1 million (down only 2% Y/Y in an extremely difficult retailing environment) with a slight operating loss following increased marketing and selling expense that didn't bring higher sales as well as a write-off related to the end of a license agreement with Guess. Importantly, tangible book value remains near $5.00 per share and, also, we believe Mr. Purches' commentary from his shareholder letter in the fiscal 2010 annual report is noteworthy -
  • In light of the challenges and difficulties faced by the Company in fiscal 2010, the Board determined that a change in strategy was required. Our strategic focus is to return to profitability, and to establish a basis for growth.
  • This focus has been four fold: (1) evaluate the potential of our existing licensed product lines and position these products in channels of distribution to provide profitability, (2) reduce discretionary spending and introduce profit improvement programs to provide an effective and efficient operating structure, (3) seek new licenses that will provide revenue growth, and (4) secure a credit line to assist us in reaching our sales and profit objectives.
  • I am pleased to report progress on all four fronts: (1) we have written down those licensed product lines that did not receive the expected customer support, and are expanding our efforts internationally and to other channels of distribution for those that have viability, (2) major reductions in spending have been made and a profit improvement committee was established to provide on-going improvements, (3) we recently signed a worldwide fragrance license with Vince Camuto, the well established creative force behind numerous successful brands, which we believe will strengthen our position in department stores and other important channels of distribution; and (4) we signed an agreement with GE Capital Corporation for a $20 million credit line.
  • Confidence in our future growth was tangibly expressed in the form of the purchase by parties related to Mr. Rene Garcia of a significant number of shares representing approximately 15% of our common stock. Mr. Garcia is one of the principals of Artistic Brands, a company owned by him and Mr. Shawn “Jay-Z” Carter. We currently have an agreement with Artistic Brands for a number of celebrity fragrances, the first of which will be spotlighted by the major introduction of a Rihanna fragrance during the latter part of our current fiscal year.
We think these points aptly illustrate the company's positive progress and CEO Purches' back-to-basics approach. Here is additional commentary from Mr. Purches relayed via an article on an industry Web site in August:
  • Another growth driver could be acquisitions, the CEO said, but added that Parlux would only be interested if a competitor is divesting a fragrance brand. Parlux, which sells its perfumes at department stores like Macy’s Inc and at specialty retail shops like Perfumania Holdings Inc, has had some acquisitions discussions, Purches said, but nothing that has panned out as yet.
  • The company has also no plans to get into cosmetics as have some of it competitors, Purches said. He intends to fund any takeover with cash or borrowings, and not with company stock.
  • “We can’t buy anything with our stock, because our stock is terribly devalued,” Purches said. Shares of the company have fallen 20 percent in the past 6 months and have lost 87 percent of their value from a high of $17.15 in [2006]. “It is my objective to get the stock back up where it belongs, which is at least in the $8-$10 area, that means we have to make a profit, we haven’t made a (full-year) profit in two years and I think the stock price is reflective of that,” Purches said.
Over the past month, shares finally spiked, up 28% versus slightly higher market indices - from Google Finance (GOOG):

What happened? Parlux announced like-for-like six month FY2011 sales through September up 19% Y/Y and provided forward revenue guidance as well as expectations for profitability. From the release:
  • During the course of the meeting, Mr. Purches, Chairman and CEO, noted that: “For the current fiscal year of 2011, we are forecasting lower net sales than the previous comparable year. If we eliminate our expired license, GUESS, from the prior year we anticipate an increase of approximately 15% to approximately $125 million in net sales in the current year. Keeping our focus on profitability, we have cut back new product launches, and advertising/promotional spending, which was reduced by 35% this current year. We expect to return to profitability this year.”
  • Mr. Purches added: “It is worth noting that our first six months’ net sales ending September 30, 2010 are expected to be approximately $62 million, compared to approximately $80 million in the comparative prior year. This is significant when one considers that the prior year figures include $28 million of GUESS sales. Paris Hilton and Jessica Simpson products accounted for approximately 80% of our gross revenues for the first six months of the current year. We anticipate this ratio will decrease as we introduce new products later this year and into next year, most notably Rihanna in Spring 2011 and Vince Camuto in Fall 2011. With these new introductions we expect to grow the Company’s revenues, profitability, anticipating net sales of approximately $150 million in fiscal 2012.”
Honestly, we're pretty amazed at the resiliency of the products (brands). Aside from stiff competition and a domestic-oriented revenue profile, reliance on celebrity brands (especially Paris Hilton and Jessica Simpson) are clear risk factors. Still, while some investors might view celebrity brands as fads and too competitive, we believe recent results, as well as those from the past several years speak otherwise. Parlux reports full September quarter results this Wednesday after market close.

Importantly, our investment case for Parlux is based on net tangible book value. For this, let's quickly review the company's balance sheet as of 6/30/10:

Net tangible book value = total assets LESS trademarks and licenses, net LESS total liabilities

= $114.5 minus $4.5 minus $14.2 = $95.8 million

Divided by 20.6 million fully diluted shares = $4.65 net tangible book value per share

Even with the recent run in the stock, the company can literally be purchased for $0.58 on the dollar ($2.72 / $4.65 = 0.58 or 58%). Put another way, a dollar of tangible value can be had for $0.58, which to us -- makes no sense -- and is akin to finding money on the street. Normally, companies trade at this sort of discount if bankruptcy is a significant risk. In this case, a discount to inventory value and receivables would be warranted as a true liquidation might bring values below reported, balance sheet figures.

BUT, recent results and cash generation tell a different story, which implies that shares should trade at or above net tangible book value of just under $4.65 per share (rounded up to $5 for sake of discussion). Moreover, we can envision at least another $1-2 dollars of upside beyond the $5 for Parlux's going-concern value (celebrity relationships, licenses, etc.). Finally, if management executes and delivers margin expansion toward the company's former 10% target operating margin, we could see a fair value range meaningfully higher than current levels. But, this would be gravy. For now, we're focused on $5 as a starting point. This simply makes common stock sense.

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long PARL, HWD, CEDC, CWST, EBAY, JCOM, AOB, BIDZ, YHOO, SOFO.

© 2010 Jeffrey Walkenhorst
Please see important Risk Factors & Disclaimer