Company Overview
Old Market Capital Corporation (NASDAQ: NICK) has undergone a remarkable transformation, transitioning from a consumer finance company to a leading provider of broadband services. This strategic shift has positioned the company at the forefront of the growing demand for reliable and high-speed internet connectivity, particularly in underserved rural areas.
Founded in 1986 and headquartered in Clearwater, Florida, Old Market Capital Corporation, formerly known as Nicholas Financial, Inc., has a rich history spanning over three decades. The company initially made its mark as a specialized consumer finance company, primarily engaged in acquiring and servicing automobile finance installment contracts for purchases of used and new automobiles and light trucks. In addition to its auto finance business, the company also offered direct consumer loans and sold consumer finance related products.
Historical Performance
Over the years, Nicholas Financial grew its consumer finance operations through organic growth and strategic acquisitions. In 2021, the company reported $50 million in total revenue and $8.35 million in net income from continuing operations. The company’s success was driven by its disciplined underwriting approach, strong customer relationships, and focus on serving the needs of its target market.
However, in 2022, Nicholas Financial faced some challenges as the economic environment became more uncertain. The company reported a decline in revenue to $44 million and net income from continuing operations of $3 million. This was largely due to an increase in credit losses and a more competitive lending environment. To address these issues, the company implemented cost-cutting measures and adjusted its underwriting criteria.
Despite these efforts, in 2023, the company reported revenue of $40 million and a net loss from continuing operations of $34 million. The significant loss was primarily attributable to an increase in provisions for credit losses as the company proactively addressed potential delinquencies in its loan portfolio. Additionally, the company incurred restructuring costs as it streamlined its operations to improve efficiency and profitability.
Strategic Transformation
In November 2023, the company took a bold step, entering into a Master Asset Purchase Agreement with Westlake Services, LLC to sell substantially all of its finance receivables and repossessed assets. This strategic divestment marked the beginning of a new chapter for Old Market Capital Corporation.
In June 2024, the company completed the acquisition of Amplex Electric, Inc., an Ohio-based provider of rural broadband services to both business and residential customers. This pivotal transaction has been a game-changer for Old Market Capital Corporation, allowing it to leverage Amplex’s extensive infrastructure and customer base to expand its reach and solidify its position in the rapidly growing broadband market.
Financial Performance
As of the end of the second quarter of fiscal year 2024, Old Market Capital Corporation reported total revenue of $3.45 million for the six-month period, a significant increase from the previous year due to the newly acquired broadband services operations. The most recent quarter (Q2 2024) saw revenue of $489,000, reflecting the early stages of the company’s transition to the telecommunications sector.
Notably, the company’s gross profit margin for the six-month period ended September 30, 2024, stood at an impressive 99.28%, underscoring the inherent profitability of the broadband business model. This high-margin revenue stream has the potential to drive strong bottom-line results and support the company’s ongoing investments in network infrastructure and customer acquisition.
However, Old Market Capital Corporation’s transition has not been without its challenges. The company incurred significant one-time expenses related to the acquisition of Amplex, as well as the re-domestication process from Canada to Delaware. These non-recurring costs, which included professional fees and restructuring expenses, weighed on the company’s profitability during the first half of fiscal year 2024, resulting in a net loss of $3.73 million. For Q2 2024 specifically, the net loss was $3,278,000.
The company’s cash flow has also been impacted by the transition, with operating cash flow (OCF) of -$437,000 and free cash flow (FCF) of -$806,000 for Q2 2024. These figures reflect the ongoing investments and adjustments as the company establishes its new business model.
Strategic Outlook
Despite these short-term headwinds, Old Market Capital Corporation’s management remains optimistic about the long-term prospects of the business. The company has outlined a strategic roadmap focused on leveraging Amplex’s existing infrastructure, expanding its fiber-optic network, and capitalizing on the growing demand for high-speed internet services in underserved rural markets.
Liquidity and Balance Sheet
The company’s balance sheet remains relatively strong, with a current ratio of 3.71 and a quick ratio of 3.79 as of September 30, 2024, indicating a healthy liquidity position. The company’s cash and cash equivalents stood at $29.48 million, providing ample resources to fund its growth initiatives and navigate any near-term challenges.
Risk Factors
One potential risk factor for Old Market Capital Corporation is the highly regulated nature of the telecommunications industry. The company is subject to various federal, state, and local laws and regulations governing the provision of broadband services, which could impact its operations and profitability. Additionally, the company faces competition from both traditional and emerging providers, which may put pressure on pricing and market share.
Business Segments
Old Market Capital Corporation now operates primarily in the telecommunications segment, following the acquisition of Amplex Electric, Inc. in June 2024. This segment offers a range of services:
Wireless Internet Services The company provides wireless internet services to over 9,100 fixed wireless broadband customers. These services are offered under standard monthly plans with 12-month contract terms, with pricing varying based on bandwidth provided.
Fiber Internet Services OMCC offers fiber optic internet services to over 9,000 fiber passings and over 3,500 fiber customers. Like the wireless services, these are sold in 12-month standard monthly contracts with pricing based on bandwidth tiers.
Other Services The company also provides VoIP telephone services and video streaming services to both residential and commercial customers, typically sold in 12-month contract periods.
For the three and six months ended September 30, 2024, the telecommunications segment generated $2.96 million and $3.45 million in revenue, respectively. The cost of providing these services, including plant operations expenses, totaled $1.13 million and $1.30 million for the three and six month periods. General and administrative expenses for the telecommunications segment were $2.55 million and $6.32 million, respectively, which included costs related to the Amplex acquisition.
Consumer Finance Segment (Discontinued Operations) Prior to April 2024, the company operated a consumer finance business through its subsidiary Nicholas Financial, Inc. (NFI). This segment is now reported as discontinued operations following the sale of its finance receivables and repossessed assets to Westlake Financial. For the three and six months ended September 30, 2024, the discontinued consumer finance operations generated revenue of $0 and $1.23 million, respectively, with net income of $801,000 and $2.86 million for the same periods, driven by the gain on the sale of assets.
Conclusion
Overall, Old Market Capital Corporation’s transformation from a consumer finance company to a broadband service provider is a bold and strategic move that positions the company for long-term growth and success. The company’s strong financial position, high-margin revenue streams, and focus on underserved rural markets make it an intriguing investment opportunity for those with a longer-term investment horizon. While the transition has resulted in short-term financial pressures, the potential for growth in the telecommunications sector, particularly in rural broadband services, presents significant opportunities for the company’s future success.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.