WeBankrupt™

Q1 results are out, time for some short follow-up.

Bed Bath & Beyond (NASDAQ:BBBY) went bust, and many other unprofitable companies should follow suit, but it’s a good start.
Bitcoin still costs 27k tethers, so, I think, we are far from the bottom but definitely closer since my previous post: Bloodbath and Beyond.
An interesting article on BBBY: The United States of Bed Bath & Beyond.

Ok, moving on.

Conifex Timber Inc. (TSX:CFF) is burning cash. Again!
CFF added $6 million to its debt, bringing the total to C$12.5 million.
The good thing is that they are expecting around C$12M in insurance payments by Q3’23, so I guess, this will go toward paying down the debt.

Another positive is that Conifex will start having better and greener lumber starting Q4’23:

Future harvests are now going to be sourced from green, commercially viable stands. Our summer logging plans were developed under the old group, which means that our transition to Greenspan will fully take effect in Q4 when our winter logging season kicks in. Transitioning to a green log diet, of course, it reduces our sawmill conversion cost, it improves our lumber recovery factors, and it provides us richer grade outturns and it also boosts for selling price realization.

Source: Conifex Timber Inc. (CFXTF) Q1 2023 Earnings Call Transcript

I did some calculations before on how much CFF can make with shitcoin mining, but it seems they don’t charge for electricity, they charge “hosting fees and market-based performance fees”.
Whatever, but how profitable is that? It looks like I have to ask this question myself on the next conference call. 🙂
The CEO’s move into mining makes me a bit nervous because I have a feeling he doesn’t really understand what he is doing and he is doing it very slowly.

The revenue streams for hosting are typically sourced from multiyear contracts with institutional quality customers, and this helped us ensure that we achieved payback on any capital we may connect to this business. One major difference between HBC hosting and a power plant is that the hosting business can be built out in phases with the cash flow from the initial phase of redeployed to fund follow-on phase.

Based on these financial characteristics, we believe all Conifex stakeholders and all British Columbian’s, in fact, benefit if we promptly move forward on this opportunity. This explains why we are challenging the legal validity of the 18-month deferral composed on the project that we described in our April press release.

First, who are those “institutional quality customers”? Nearly bankrupt Greenedge?
Second, one thing is selling electricity to shitcoin miners, another thing is fighting for them in court and building data centers.
It feels like after almost failing it in 2019, Ken Shields is trying to prove that he is still capable of succeeding and turning the business around.

About the latest conference call, btw, there were actually some good questions this time:

Unidentified Analyst
Just a couple of questions here. The first is, roughly, you have about $1.10 of duty per share that is owed coming back from the U.S. presuming you get some or all of that back. I’m not sure how much — if it will be taxable or not. But would you pay that out to shareholders or would that — or would you put that towards the build-out of the bitcoin mining? That’s the first question. The second question were somebody to take over Conifex, you have about $4.50 a share of tax loss carryforwards — which is kind of as I see a nice hidden asset. Would a cross-border company be able to use those or would there be some measure of difficulty in applying those losses?

Ken Shields
Well, thanks for those two questions, Hugh. Winny will answer the second question about tax after I exhaust my complete knowledge of tax and in a sentence or two that I’ll share with you in a moment. But in terms of your first question, Hugh, it’s difficult to exactly or precisely determine in effect, you’re asking what our capital allocation priorities are in the event that we had a windfall or [Indiscernible] — and so I — we don’t know what portion of the duties are likely to be returned. And when we go through markets like this, the only thing I know about tax is that there’ll be less cash paid on the duties that we do receive because of some of the results that we’re incurring this year. And secondly, one thing I’d ask you to reflect on Hugh, is that we financed our power plant using nonrecourse debt to the parent company. We think that hosting, and I have put the emphasis on the word hosting because we’re not a bitcoin mining. We are hosting high-performance computers, some of which do mine bitcoin that it’s got cash flow characteristics and an ability to pledge assets that opens up the potential that it could be financed similar to the power project. And additionally, in that business, customers typically prepay the hosting fees. So we haven’t determined what net equity is required to build out the hosting business. But I do not see a situation where we’d ever require $1-plus per share of cash to go in it to be use of equity to build this new business. So I’ll turn it over to Winny, who will remind us of the breakdown of our tax losses between Canada and the U.S. and what value they may be to other prospective purchasers.

Winny Tang
So I would say that a large portion of our noncapital loss related to our US operations with the balance relating to our Canadian operations. And I can’t speak too much around the cross-border points, but I will say that the general rule of thumb is, if you are operating at the same or similar business as how the offers were generated, you should be able to utilize those losses again you’ll have to look at the specific nuances of the loss and the characteristics there.

 
And this:

Unidentified Analyst
Just a quick follow-up related to the power plant. And in the event of a full economic downturn, where, let’s say, sawmill went 100% idle for illustration purposes, let’s say, it just completely closed its doors. What alternatives do you guys have to fuel the power plant? What would that cost? And I guess, what would the economic impact be to the stand-alone plan? Can you just talk a little bit to that, that would be very helpful.

Ken Shields
Your question almost described the situation that we faced in 2019 when we were in extremely difficult financial position and our sawmill was idled for a considerable period of time. And what we did in that year is that we got a special dispensation to use natural gas as an important source of fuel supply to augment the purchased feedstock that we were able to secure. And we ran the power plant for a considerable period, even while the sawmill was idled.

 
There are maybe some problems with the electricity in BC.
First, they forbade shitcoin mining for 18 months, and now they might not “turn down” Conifex Power Plant during the late spring, early summer “low demand” period:

We anticipate that BC Hydro may not exercise its turn down option in 2023 based on anticipated energy requirements. In 2022, BC Hydro issued a dispatch order for 61 days, from May 5 to July 4, 2022.

That should bring more cash for Conifex, as they will be paid at full rate.

All in all, we have an undervalued company with improving prospects on one side and a CEO doing sketchy things on the other.
I’m still holding and desperatly hoping for Confiex to be sold somewhere in the (near, please?) future.
Would buy more shares at lower prices.

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Goodfood Market Inc. (TSX:FOOD)
Goodfood reported a positive Adjusted EBIDTA and even positive Net Income.
Yeah, right.
FOOD lost 24k subscribers.
Fewer customers with higher incentives… Somehow, net sales per active customer are up, but if you read customers’ reviews, there are now lots of complaints about smaller portions and higher prices.

 
At the same time, FOOD burned ~C$13M of cash, all the proceeds from debentures, and some more.
They were basically forced to pay down cheaper debt (~7% credit facility, that was cut in half and turned into ~9% term loan) with more expensive one (12.5% debentures).
The only difference is that interest on debentures is paid with shares untill 2025, so they bought themselves some time, but it’s hard to believe they will survive anyway.

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NFI Group Inc. (TSX:NFI)
NFI has raised $150M (almost C$200M) in new equity.
Insider Adam Gray and his Coliseum Capital Management bought all the shares, 24,363,702 of them. This is like ~31% of the current 77.18M shares outstanding.
That’s some dilution.

I have mixed feelings about that.
On one hand, this shows the support of insiders and their confidence in the company.
On the other hand, Coliseum was buying shares in the C$12-C$21 range before, so they were deep underwater and bankruptcy was looming for NFI, they just had no choice.
Luckily, they have deep pockets to sink another $150M into the company.

NFI might be a good recession play. They have a growing backlog, and a slowdown in the economy can finally fix their supply chain problems.
Unfortunately, there is still dumb management that wasted C$29.1M + C$46.5M + C$22.4M = C$98M on dividends since the start of the pandemic and until creditors slapped them on the wrists.

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Vermilion Energy Inc. (TSX:VET)
I sold all my shares in the C$28-C$31 range, and now it is trading at C$15/share. Wow.
Other O&G stocks didn’t fall this much, is it time to buy it again or what?

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Cascades Inc. (TSX:CAS)
CAS lost some more money in Q1’23, but they are painting a bright future, so it seems like shareholders like this, and the stock rallied up to C$12/share. Unexpected. 😮
Here is a picture of this bright future:

 
Everything looks almost as good as 1 year ago… but their math doesn’t add up!
In 2022 they have projected the following: C$2.9B (Containerboard) + C$0.7B (Specialty Products) + C$1.7B (Tissue) = C$5.3B.
Now, in 2023 the projections are C$2.6B (Containerboard) + C$0.735B (Specialty Products) + C$1.5B (Tissue) = C$4.835B.
Both numbers are equal to around C$5B, right? But in reality, the difference is almost half a billion!

Something tells me Cascades management will revise it down again somewhere at the end of 2023 or the beginning of 2024.
Just compare their projections for Bear Island today and 1 year ago:

I dunno, revenue is flat, the economy is slowing down, and I think their bright future is way too bright, but because spending on Bears Island is over, they can finally start making some money.

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Indigo Books & Music Inc. (TSX:IDG)
Considering that Q4 is usually slow for Indigo and adding the recent security breach to the mix, I would say that IDG‘s stock price must be much lower.
My napkin projection is C$2+/share net loss for the Fiscal Year 2023.
I would even short the stock if I could.
Maybe I will. 🙂

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Out of curiosity, I’ve checked the financial statements of WeWork Inc. (NYSE:WE)
It’s funny.

The Company’s Free Cash Flow during the first quarter 2023 of $(343) million was $18 million better than its projection of $(361) million made in connection with its Debt Restructuring Transaction.

Source: WeWork Reports First Quarter 2023 Results

At the same time, they have $224M of cash, a working capital deficiency (been for a while), and almost $3.76B in negative equity.
This is just a dead company weworking…