On November 7, PICO Holdings reported earnings for Q3 2017.
There wasn’t much news, either in the SEC filings or in the earnings call. The earnings call was so short and uneventful, we thought we heard a cricket chirp in the background.
While not very exciting for PICO CEO Max Webb and CFO John Perri, we view the lack of participation as a positive indicator. We believe that investors have trust and faith in these Executives and this Board. As a result, there wasn’t a whole lot to inquire about.
Investors in general, and especially those with an activist slant, tend to focus their grease on the squeaky wheels. Two years ago, PICO was the squeakiest wheel in small cap corporate America. Today’s PICO is far improved. Hence, less grease.
PICO itself damped much of the rationale for inquiry when it announced a $5 Special Dividend on October 26. With about $150 million in cash on the balance sheet, shareowners were wondering when a few of those greenbacks would hit their wallets. PICO has answered that question.
The most interesting detail from the Q3 Press Release was the steady increase in federal Net Operating Losses. The federal NOL balance was $125.1 million on March 31, 2017, $162.3 million at June 30, 2017 and and finished Q3 at $187.1 million. The sharp increase in NOLs indicates that PICO’s asset sales have been far below basis for tax purposes. We can thank John “The Juicer” Hart for that.
The numbers given above are federal only. PICO also carries significant state tax benefits which will shield some monetization proceeds from the Golden State of California.
Hopefully, these NOLs will benefit owners when the remaining Vidler assets are monetized. If such assets are sold at a premium to their tax bases, the NOLs should funnel a few more Benjamins to PICO owners. Fingers crossed.
Alternative Dividend Facts
We were surprised to learn the dates related to the PICO $5 Special Dividend. The Record Date was November 6, the Payment Date is “on or around” November 20 and the Ex-Dividend Date is November 21.
Huh? Since when does an Ex-Dividend Date come after the Payment Date?
Typically, the ex-dividend date is the deadline that matters. The ex-dividend date comes two business days before the record date and is the chronological dividing line between receiving the dividend or not receiving the dividend.
However, the PICO Press Release and Mr. Webb on the earnings call, make clear that the parameters of the $5 PICO Special Dividend are different. According to the Press Release:
“The dividend will be payable on or around November 20, 2017, and pursuant to FINRA Rule 11140, the ex-dividend date will be November 21, 2017 – one business day after the anticipated distribution of the special dividend.”
We looked up FINRA Rule 11140, because we’d never encountered it before. Section (b)(2) states in pertinent part:
“In respect to cash dividends or distributions, stock dividends and/or splits, and the distribution of warrants, which are 25% or greater of the value of the subject security, the ex-dividend date shall be the first business day following the payable date.”
For the full text of the FINRA Rule 11140 provisions, click here.
Best we can tell, investors can purchase PICO shares before the Ex-Dividend Date on November 21 and receive the $5 Special Dividend. The Special Dividend should be paid sometime after that, even though the Payment Date is “on or around” November 20.
Better Late Than Never
PICO may own the record for longest unfulfilled return of capital – over 2 years. Recall that on November 17, 2015, Juicer and Legacy PICO announced a “Revision to Business Plan,” which committed to asset sales and return of capital. Here is the exact wording from that Release:
“With the Company’s share price trading at a discount to its book value, the Company believes the highest potential return to shareholders at this time is from a return of capital. Therefore, as assets are monetized, rather than reinvest, the Company currently intends to return capital back to shareholders through the stock repurchase program approved by the Board or through other means such as special dividends.”
It has taken shareholders, certain Executives and certain Directors a long time and a lot of sweat equity to reach this milestone. Upon receiving the Special Dividend, we suggest that all PICO participants give themselves a pat on the back. We deserve it.