The outstanding, $100 M contract asset is keeping me up at night, so thought I would share on this forum what I am doing about it......
The FY2021 Q2 activities statement, provided some good news, but there are questions that remain unanswered. I have contacted Investor Relations, and I raised a few questions as per below:
"We are writing to you in relation to the above item outlined in the Electro Optic Systems (EOS) Annual Report for 2020.
In the FY2020 results presentation dated February 26, 2021, Dr Ben Greene reported that more than $120 million of contract cash asset will be converted to cashflow in the first half of FY2021, with 25% of contract assets delivered to the customer, accepted, and now in payment process. Then, on May 12, 2021, Dr Ben Greene, in an announcement with the headline: “EOS Cash Receipts Accelerate”, reported a downgrade to the contract asset conversion to cash, reporting that $30 million of the contract asset had been converted to cash, with the remainder expected by Q4 2021. We made further enquiries to confirm this guidance was for the end of Q4 2021. Given this revised guidance, we were expecting to see this contract asset convert at a rate of $12 million per month from May onwards.
On July 23, 2021, EOS released an activity statement for the quarter ending June 30, 2021. This statement confirmed no further payments were received in relation to the FY2020 contract asset since May 12, 2021.
We have a number of questions in relation to the abovementioned contract asset as follows:
1) What percentage of the contract asset has been delivered to the customer, accepted, and now in payment process as at July 26, 2021?
2) Are there any quality, performance, or commissioning issues relating to the EOS product, or the head contractor’s product that is delaying payments for Phase 1 of the project?
3) Do you have a schedule of payments agreed with your customer in relation the remaining $100 million in contract assets? If so, can you advise what this is?
4) What are the average debtor days, i.e. time from raising invoice for work done, to receipt of payment from the EOS customer for this contract?
5) In relation to item 4 above, what actions are EOS taking to reduce debtor days for Phase 1 and 2 of this contract going forward?"
We look forward to your response, and thank you in advance for your time in responding.
In relation to this matter, it has highlighted to us that EOS’s communication could be more transparent, and clear. In our opinion, glossing over delays in relation to the conversion of the contract asset to cash is undermining investor confidence in EOS.