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- 2014 - August - 18th -
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Richard Kahlbaugh, chairman and CEO of Fortegra Financial Corp.

Fortegra skips over the ‘elephant in the room’

By Mark Basch, Contributing Writer

After releasing its second-quarter earnings in a routine news release late last Monday afternoon, it was something of a surprise when Fortegra Financial Corp. announced a buyout agreement early Tuesday morning.

It may have been more surprising when Fortegra held its previously scheduled quarterly conference call at 8:30 Tuesday morning — an hour after announcing the $218 million agreement with Tiptree Financial Inc. — and didn’t even bring up the merger.

“There seems to be an elephant in the room,” Macquarie Research analyst Sean Dargan said when the conference call was opened up for questions.

“There was a press release this morning that wasn’t addressed in the prepared remarks,” he said.

If you’ve never listened to a quarterly conference call, the typical format is for top company officials to read prepared remarks about the financial data and other events that occurred during the recent quarter. They might also give forecasts for the next quarter. Then they take questions from interested analysts and investors.

Fortegra Chairman and CEO Rick Kahlbaugh explained to Dargan that the merger agreement was not completed “until late last evening” and the company didn’t have time to add the details to its script for the conference call.

Still, it did seem strange that the Tiptree deal was not addressed before Dargan’s questions.

Dargan feels that Tiptree’s offer to buy all of Fortegra’s outstanding shares for $10 each may be a bit cheap, because it represents only 6.1 times the company’s earnings before interest, taxes, depreciation and amortization.

“It seems to me that you could hold out for a better deal for shareholders,” he said.

However, For-tegra’s board of directors is satisfied with the price, which represented a 42.5 percent premium to the stock’s market price before the deal was announced.

“The special committee were all independent directors. They reviewed the offer from Tiptree and they determined it to be a solid price and attractive. So that’s what we decided to do,” Kahlbaugh said.

It’s also significant that Summit Partners LP, which owns 62 percent of the stock, has already approved the offer.

Fortegra has 30 days to solicit or accept other offers, but it seems unlikely there will be a competing bid.

Fortegra, a Jacksonville-based insurance services company, went public in December 2010 at $11 a share, but the stock fell below that price in the spring of 2011 and never made it back to $11. Actually, it never made it back to $10, so the Tiptree offer brings good immediate value for shareholders.

The stock had been trading near the $7 level recently before the buyout agreement, and there didn’t appear to be any catalysts besides a buyout on the horizon to get the stock back to double digits.

Whether or not shareholders could get a better deal, the deal is good for Fortegra employees because Tiptree intends to keep Fortegra as an independent company headquartered in Jacksonville, where it employs about 300 people.

ParkerVision sees $1 million to $2.5 million in sales

Most of the headlines surrounding ParkerVision Inc. involve its various legal battles, but the Jacksonville-based technology company has its own elephant in the room that needs to be addressed: when will shareholders see any actual sales of its wireless technology?

ParkerVision says its technology has the ability to improve performance and reduce power consumption in wireless devices, and it has been trying to sell it to manufacturers.

As ParkerVision last week reported another quarter with no revenue, Chairman and CEO Jeff Parker did tell investors that there may be some sales soon, but probably not at the numbers they are looking for.

In the company’s conference call, Parker estimated initial upcoming sales “in the $1 million to $2.5 million range, based on the current identified customer opportunities, which were generated from our limited initial campaign and product offering.”

When questioned about that relatively low number by one investor, Parker said he is “encouraged” by it “because it’s based on what I think is a relatively modest initial campaign, which is now starting to expand, and the geographic coverage is beginning to expand as well.”

He also promised better sales news in the future.

“3LP has a number of dialogues that are ongoing right now. I’m hesitant to give you any specific numbers, because I don’t think that’s appropriate. But from my view on what they’re working on, it’ll be meaningful. I think it will be very encouraging to our shareholder base,” he said.

3LP Advisors is an intellectual property advisory firm that has been working with ParkerVision.

Body Central goes silent

While other companies were holding their typical conference calls, Body Central Corp. went silent last week when it released its second-quarter results.

The Jacksonville-based fashion retailer gave investors about 24 hours to submit questions by email after its late Thursday news release.

“Relevant questions will (be) responded to in the form of an open letter to shareholders that the company intends to issue via press release,” it said.

Body Central reported a second-quarter net loss of $21 million, its fifth straight quarterly loss.

The company also revealed in its quarterly report filed with the Securities and Exchange Commission that it has abandoned plans to move into a larger headquarters and distribution facility at One Imeson Center in North Jacksonville.

St. Joe CEO retires

The St. Joe Co. last week announced that Park Brady retired as chief executive officer after three years with the real estate development company.

St. Joe, which moved its headquarters from Jacksonville to WaterSound in the Florida Panhandle in 2010, said it is searching for a new CEO and hopes to name the replacement by the end of this year.

Jeffrey Keil, an independent director of the company, will serve as interim CEO until a permanent replacement is found. Brady will be available as an advisor under a three-year consulting agreement.

Jacksonville Bancorp improves earnings

Jacksonville Bancorp Inc. reported second-quarter earnings of $507,000, or 9 cents a share, compared with a basically break-even quarter a year earlier.

“We continue to execute a clear strategy and remain encouraged by the ongoing economic improvement in the Northeast Florida market,” CEO Kendall Spencer said in a news release.

“Our core earnings are stabilized and momentum is building as we continue to focus on earning opportunities and strong expense controls,” he said.

FNFV getting FleetCor stock

FleetCor Technologies Inc. last week announced a $3.45 billion agreement to buy Comdata Inc. in a deal that impacts Fidelity National Financial Ventures.

If you recall, FNFV is a unit of Jacksonville-based Fidelity National Financial Inc. that holds the investments Fidelity has made in non-title insurance and real estate businesses. The company created a tracking stock for FNFV last month that represents the value of those investments.

One of FNFV’s investments is a 32 percent stake in Ceridian LLC, a Minneapolis-based human resources services firm. Ceridian currently owns Comdata, which provides electronic payment solutions, including fleet, virtual card and gift card services.

FleetCor, a Georgia-based company that provides fuel cards and workforce payment products, is issuing about 7.3 million shares of its stock worth about $950 million to Ceridian as part of the Comdata buyout. The rest of the purchase price represents repayment of Comdata debt.

The buyout agreement means that FNFV will end up indirectly owning about 2.3 million shares of FleetCor stock valued at about $300 million. That represents about 3 percent of FleetCor’s outstanding shares, FNFV said.

Analyst downgrades CSX to ‘neutral’

Macquarie analyst Cleo Zagrean last week downgraded her rating on CSX Corp., saying lower demand for export coal will affect earnings for the Jacksonville-based railroad.

“When we initiated in April we selected CSX as our top pick based on a thesis that the market underestimated the growth opportunity in intermodal against a bottoming in coal markets, management’s willingness and ability to get price, and the network’s flexibility in responding to variability and shifts in the supply/demand (im)balance,” Zagrean said in a research report.

“Halfway through ’14, network congestion and weakened global thermal markets have pushed out the timeline for these drivers to show through in results despite stronger than expected volume growth across the rest of the portfolio,” she said.

“Given modest upside and the absence of a near-term catalyst, we downgrade the stock to ‘neutral’ from ‘outperform,’” she said.

Meanwhile, Zagrean upgraded Union Pacific Corp. from “neutral” to “outperform” and named that her top railroad pick.

Zagrean said she is maintaining a “neutral” rating on Genesee & Wyoming Inc.

“We still see Genesee as a core mid cap holding whose growth should moderate on a larger base built through acquisitions, most significantly RailAmerica in 2012,” she said.

RailAmerica Inc. was headquartered in Jacksonville before the merger of the two short-line railroad operators.

Drone Aviation reports loss

Jacksonville-based Drone Aviation Holding Corp. last week reported revenue of $354,326 and a net loss of $391,308, or 10 cents a share, for the first six months of this year.

The financial report filed with the SEC was Drone Aviation’s first since it became a public company after merging with an existing public company.

Drone Aviation Holding Corp. operates a subsidiary called Lighter Than Air Systems Inc. that produces tethered drones and tethered aerostats for military and commercial applications.

Dick’s Wings owner reports loss

ARC Group Inc., the franchisor of the Dick’s Wings restaurant chain, reported a second-quarter net loss of $52,548 in its quarterly SEC report last week. Revenue fell 8.6 percent to $137,306.

ARC Group changed its name last month from American Restaurant Concepts Inc. The company also changed its ticker symbol from “ANPZ” to “ARCK” with the name change.

The company is headquartered in Louisiana, but its corporate offices are in Jacksonville.

ARC Group currently franchises 16 Dick’s Wings restaurants in Florida and one in Georgia.

Convergys falls on revenue forecast

Convergys Corp.’s stock fell as much as $1.51 to $17.80 Tuesday after it lowered its revenue forecast for the rest of the year.

The company, which provides outsourced customer management services, reported second-quarter adjusted earnings of 34 cents a share, up from 26 cents last year and 2 cents higher than the average forecast of analysts surveyed by Thomson Financial.

Convergys also reiterated its forecast for adjusted full-year earnings of $1.45 to $1.50 a share. However, it lowered its revenue forecast from at least $2.9 billion to at least $2.85 billion.

Robert W. Baird analyst David Koning said in a research note Wednesday that he thought the stock was oversold, even after the stock recovered to close at $18.60 Tuesday, but that could create a buying opportunity.

“While we consider risk/reward to be generally balanced, we are warming a bit to the stock given yesterday’s pullback below $19,” said Koning, who is maintaining a “neutral” rating on the stock.

mbasch@baileypub.com

(904) 356-2466

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