Jason Ader’s knowledge of investing stems from him as a successful gaming and lodging analyst for many years. In 2000, Ader was ranked by Institutional Investor as the top analyst in 2000. He later then started his own hedge fund, Hayground Cove in March 2003.
In Ader’s 13D filings, he did not exactly present any ideas for the company. Therefore, in his article, Altucher presented his thoughts on Ader’s possible approach to Denny’s. He predicted that Ader was going to view Denny’s at two perspectives: as a cash-flow-generating company and as a resource allocator. The question presented was, would it be better for Denny's to own its assets such as real estate, restaurants, etc... or to somehow change those assets into cash for the shareholders?
Overall, Denny's business of cash flow was mediocre. It produced $54 million in cash from operations that past year, which was about the same amount it planned to spend on capital expenses like fixing up restaurants and purchasing restaurants for the next year. Altucher stated that Denny’s had a flat revenue growth and $550 million in debt.
With Ader, Denny’s was still paying off debt with their cash flow. Altucher thought that this process was great because the company would then get to build its business with debt as it would slowly increase shareholder equity in the business as it paid down debt. But $54 million in cash flow a year to pay down $550 million in debt was not sufficient enough. Therefore, Altucher assumed that Jason Ader would take various actions to the situation.
He imagined that Ader would hold back on all capex as Denny's makes 86 cents per dollar of sales at its franchises, but only 31 cents per dollar of sales at the company-owned restaurants. Altucher suggested that Ader should approach converting as many of the company-owned restaurants into franchises as possible.
In addition, Altucher presented that Ader do something about the real estate. Viewing that the real estate was the main value, since many of Denny’s restaurants are located on prime properties that are worth numerous of their purchase prices; Altucher hoped that Ader would show that value, by selling off the real estate, converting locations in franchises, and entailing the franchises to lease back the real estate.
Also, it would be a right move if Ader were to keep the Denny's brand, liquidate the real estate at what is probably an interim high in real estate, and center the company around the highest cash-producing part of the business, percentage-wise. Ultimately, Altucher believes that a manager such as Jason Ader will turns things around as he will unlock more value for Denny’s.
Nearly seven months later, in another article by Altuchern, he reports that after he had profiled Denny's, the stock went from $3.90 to just over $5. He assumed that the strong increase was most likely a result of a combination of the micro-caps’s strong first quarter, rumors of the food chain being put up for sale, and a strong report from research group CL King.
Jason Ader and Denny's is still believed to be an ongoing story on Wall Street, and the outcome remains to be seen. Jason Ader's hedge fund owns $30 million worth of Denny's stock, and $30 million worth of Great Wolf Resorts.