Pinned straw:
Curious to see how they have gone sales wise in this quarter, good to see they are progressing all around the place, product traction seems good so surely positive things to come. They usually report early so might have initial sales data next week with the 4C the week after.
Seems to be well priced pre the bump in the last few days, not a huge cash burn relative to cash on hand with good traction so far.
@mikebrisy Are you expecting them to need another raise at some point or do you think they have enough to get to cashflow positive.
I haven't done much work on the units to break even but seem to think I read somewhere that they sell for a similar price irrespective of country so any extra locations they add will help a lot Vs most money being in the US with others a small bonus. Correct me if I have this wrong...
These guys would be good to have on for a chat, I looked through the old meetings but they haven't made an appearance yet.
@Schwerms I am not sure. Consider the cash flow picture below - I will describe adjustments I've made to cut through noise and non-recurring items.
For context, their closing cash at the end of FY25 was $28.6m, having raised some $18m in the year to fund the US launch.
In the picture below I have plotted receipts (blue) and payments (orange) omitting other components from the cash flow statement, like grants and rebates. Importantly, I have also omitted the FY23 upfront payment for the exclusive global distribution deal Striate ($21.5m) in my calculation of Receipts.
I have also excluded the one-off Striate "contract receipt" from my Free Cash Flow ("adjusted") number, to get a better view of the trend within the operating business.
Now I can explain WHY I am being cautious. With a cash burn of the order of $9-10m per year and increasing, the $29m closing cash could conceivably get them through 2+ years.
HOWEVER, what is not clear to me is just how much cash will be mopped up by inventory and marketing. They now have many geographies and many distributorships, and I don't think they've disclosed the terms of their distributorships. The norm is for the distributors to take title to the product (after all they are getting a healthy margin!) but with a new product in a new market, I don't know if any incentives have been structured in the deals to encourage early US uptake.
That's why I am so keen to see the next couple of quarterly reports, as I don't consider that I have any feeling for how this business is scaling.
Zooming in now to a quarterly resolution, I've plotted the Operating Cashflows again excluding Grants, Taxes and Interest to understand the trends in the scaling of the operation.
As you can see, despite the uptick coming from top-line growth, the trend in operating cashflow is increasingly negative. I can't make a call on whether they will need to raise cash again until I see how that trend starts to evolve.
Having focused on cash burn, my thesis doesn't rest on that. If the product continues to show superior efficiacy in its category, then I will be happy for them to burn some cash (even if they have to raise another $20-30m) given that they are following a rapid global rollout via a multi-distributor model.
However, my thesis does rely on two factors:
1) Continued strong traction in ANZ and Singapore
2) Early success indicators of uptake in the US, indicating a similar trajectory (of course in a much bigger market).
As long as those remain strong, then in my view we are potentially on to a winner.
Subject to that being the case, I will increase my holding (provided the SP remains modest) once I have increased confidence in the operating economics. As it stands today, there is too much uncertainty for me to take a bigger position today.
Hope that helps!
Disc: Held in RL and SM