Thanks for sharing @Wini , always love to get your take on companies I am interested in and well done buying in for your fund at the cap raise low. Thanks also @Schwerms for suggesting and @Strawman seeking another meeting with Wayne, hasn’t been that long but a lot has happened.
Your point on the ASX Small Cap Wrap @Wini about the risks in XRG centres on needing continued new contracts to sustain cashflows was very pertinent. My thesis requires this assumption to hold and their cash is dependent on them securing around 40+ new PD customers each year until renewals become a high proportion of receipts.
The exact timing for customer renewals is currently still messy, due to the contracting model being less than 2 years old and having several exceptions. However at worst it is 3 years and most should be this length. In FY25 there were 2 renewals, in FY26 I expect this number to remain low (sub 10 at a guess), but we have the $4.3m Texas Law Enforcement contract cash hitting, which worth at least the same or more than adding 20 new PD’s for FY26.
By FY27 the renewals should be 20+ PD’s and FY28 35+ so the need to find new PD’s diminishes and even in FY26 is only half that of FY25 to maintain the same cash receipts. As such the base line cash receipts requirement for positive operating cash flow is starting to look more solid and reliable, even given the lumpy nature of the upfront cash payment form of sales.
This has only recently been the case, with strong Q4FY25 new customer additions and the announcement of the Texas contract the tipping points. Added to the reduced and longer dated debt this is now a significantly less risky business than when I first invested in January, but still risky.
I look forward to another SM interview with Wayne to get a better feel on how the US PD market is evolving, more on the distributor model for RoW, US DoD and R&D (AR + Cloud). Oh and any progress on exiting Entertainment and having some extra cash to accelerate Operator XR.
Disc: I own RL+SM