Byrne, the company’s executive vice-president, stepped into the CEO role as mop-up man. His first job: Stabilize the business. As Byrne calmly explained during the investor presentation in Miami, “That uncertainty in the market has had an effect on our business.” Specifically, an unnamed restaurant chain and a large supply-chain company had dropped Swisher, costing the company $11 million a year. Meanwhile, the internal investigation itself rang up $18 million in costs.
It all meant that Swisher would have to halt its dealmaking spree. “Do not expect to see a lot of acquisitions from us—really, none in the next couple of months,” Byrne told investors. The company now wanted to concentrate on “brand enhancement.”
After basking in investor love as one of North America’s fastest-rising stocks, Swisher was now chastened. As of early April, the company’s market capitalization sat at around $220 million, about a seventh of its peak.
Has Swisher gone completely down the toilet? Byrne gives reasons to be optimistic.
In an interview, he said the audit showed the company had understated its losses by $4.8 million. Byrne characterizes the problem as a series of unfortunate accounting errors. For example, when Swisher bought Florida’s Choice Environmental Services in 2011 for $50.1-million worth of stock, the company came with $41.5 million of debt. Swisher paid the debt off early, and folded the $1.5-million early-payment penalty into the cost of the deal. Accounting rules, however, dictate that Swisher should have booked the penalty as an expense outside of the deal.
“I would say maybe it was a bit of a grey area,” Byrne says. “I think if we were to explain the transaction to 100 people, probably all 100 of them would say that makes sense.” That is, if none of those 100 is a regulator.
At Clarus Securities, Cheung has put the stock under review, “as we await clarity” on the company’s numbers.
Byrne remains confident in the original model. Swisher is in a $17-billion industry on the chemicals side alone, he points out. Ecolab aside, the sector is still ripe for consolidation. “In any market, typically there are two dominant players that are able to capture the lion’s share of the profitability. We’ve now put ourselves in the position to be one of those two,” Byrne says. “Yes, there was a huge distraction in 2012 that didn’t allow us to capitalize on that opportunity. But the premise is still the same.”
During a conference call held on March 18 to disclose the company’s numbers for the third quarter of 2012, Byrne did his best to highlight the positives, despite a $14.3-million operating loss.Swisher is now making over 80% of its chemicals in-house, he said, which will help margins. And the firm has cut operating costs by reducing its plant space. Swisher holds no debt, has $70 million of cash sitting idle, and foresees positive operating cash flow before the end of the year, he said. The company also expects to be up to date on its regulatory filings by late spring.
The stock climbed 15 cents the day of the conference call, closing at $1.37 (Canadian) on the TSX.
No longer the darling, Swisher is simply looking for respect. Perhaps the man who can best explain the rise and fall is Berrard himself (Michael Serruya declined to be interviewed). In a 2011 interview, Berrard said it was the thrill of the hunt that drew him to Swisher.
“You see a tail, and reach your hand through the fence, thinking it’s a cat,” Berrard said. “But then it turns out to be a tiger. And then you’re in it.” It’s an accurate analogy—particularly for investors who went along for the ride.