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Monday, July 10, 2006

Precision Auto Care (PACI) stop following

PACI (sec) Precision Auto Care. Fast turn-around auto service center franchise. Jiffy Lube on steroids: 6-8 service bays (2-4 drive through with pits), stand-alone building. Cost to open a store is $123K to $208K. Look for management experience plus $70K to $250K in liquid assets to open a store, $250K to $1 million for area developers.

7.5% royalty rates. $25K up-front franchise fee. 9% dedicated to local advertising (1.5% goes to national ads, 7.5% goes to local advertising). 10-year term with 5-year extensions. Additional initial franchise fees are $15K and $10K after that.

These franchise companies always make me nervous, especially if they're growing fast.

Q3 period ending March 31, 2006.
29 million shares on April 18, 2006. Big increase in share count. From 10-K below, 1.7 million options outstanding in 10-K, but probably other sources of dilution here. About 900K more that can be granted.
Cash is up, AR is down, huge PP&E almost entirely depreciated. Lots of goodwill, but strong balance sheet overall. About $2 million net cash.
Revenues up somewhat, but 9 month revenues are down . 8.1% operating margin. About 4% net margin.
About $600K earnings for 9 months.

Cash flow from ops is well above earnings due to non-cash stock option expense and deferred taxes. Capex is above depreciation but not large.

Lawsuits pending.

Reasonably short depreciation schedules.

Master license agreement to open and operate at least 330 Precision Tune Auto Care centers in China over a period of 7 years. "Unforseen circumstances" caused Hung Yue to request additional time to make payments. $2.1 million total obligation (short term is in the 6 figure range). It never happened, Hung Yue defaulted and the individual stores are trying to sue that company. None of the stores has paid their fees to PACI. It looks very bad (see Q3 10-Q).

Also working on expanding in Spain. Hey, why not outsource the work on expending in Spain to China.

Maybe I'm missing something, but I'm not finding anything on the number of stores and how that has changed over time (openings, closings, total stores). Serious HEEBEEGEEBEE factor here. Overall, I get bad vibes from this company.

Stop following

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