Thanks for posting this. I hadn't been able to find it in my searches two weeks ago.

My thesis for continuing to hold 50% of my $AMS position was the belief that there was no substance to the claim (taking the Board announcement at face value) and that with $AMS stating its willingness to defend the claim, we would see this blow over (or be settled quietly) as the vast majority of adversial senior exits are.

Reading of the claim alters my view of risk because of the depth and breadth of the claims and the number of parties named. I was expecting it to be bad, but this...? Of course, it is only one side of the story, and there is another side that we have not heard and might never hear. The Board might still be correct and be proven in time to be so.

However, the change to my value and risk assessment is that if the complainant does not settle and this comes to trial, it will be a massive distraction to management and the Board. Furthermore, I am unable to assess the potential risk of contagion into Australian jurisdictions, given that several of the claims (even if they do not lead to regulatory investigations in Australia) could conceivably be rolled up by shareholders in claims that breaches of continuous disclosure obligations have occurred. To be clear I am not saying that I have grounds to believe any such claims have substance. However, I can see a very messy 12-24 monhs aheads and my view of this is clearer than it was two weeks ago. I would expect the pay-off to settle this case could be material. $AMS is not awash with cash. Even if this is settled, does that preclude knock-on actions in Australia? Are we looking at a death by 1000 cuts?

Lesson: I'd have lost a lot less if I'd sold when the CEO resigned.

Score: Gaurav Sodhi 1: Mikebrisy 0

Disc: Sold IRL and SM

Thanks mushroompanda, it’s a very extensive document if a bit unsubstantiated, but it is sobering to read in the context of risk management. If it’s true it’s hard to see how the company will survive it, given their current cash position.

I’m not really clear on how systemic channel stuffing would really help them as a business as it just brings purchases forward, but the demand still needs to be there, or am I missing something.

mikebrisy I was also thinking about atomos today as I was listening to the Gautama interview, and I think for me it’s time to sell as I am not confident in my assessment of the situation or how long it will drag on for. If any of these claims are true I can see a class action happening and management having to spend a lot of energy and cash on it. I can buy back in if their cashflow position improves or it proves to be a molehill.

I agree that it is impossible to know what's happening from the outside in. I guess my rationale for selling is that the former CEO's claims seem to align somewhat with the companies performance in the past FY.

If what she is claiming is true (and I by no means have any idea if there is any truth to her claims), then it seems that she took over a business that had some fuddy bookkeeping. Tried to align it back but this caused recognised revenue to decrease substantially, had a spat with the board as a result and was told to leave. "New" management stepped back in and there was a massive increase again in sales for Q4 (maybe actually increased, maybe not, I have no idea just speculating). Cash flows seem to also agree as the cash balance was low at year end, but maybe as a result of recognising revenue and not receiving cash yet (you guys have discussed this in detail yesterday).

All this information just makes it "too hard basket" for me. Will watch from the sidelines as I think the tech itself is very interesting.

Great analysis @mikeBrissy, and good points @BoredSaint. The other part I would add with todays developments is that it all seems timed to cause maximum noise and disruption to AMS. I actually took comfort from the response from the AMS board to the AFR article. Their response was clear and believable, this is not to say that they handled the old CEO exit well or did a good job in 2022. Despite this, I actually think they have a good management team in place, and I think Trevor and James are the right people to deliver on the new strategy. Listening to Trevor on the call gaves me enough confidence to let this play out for a bit longer.

I have decided not to sell my holding, in real life I have held AMS for 3 years now and watched it go up and down. I think they were unlucky with the covid sell-off and managed that period pretty well, but this recent sell-off is entirely justified and largely self-inflicted and I wouldn't be surprised if they hit 15c and hang around these levels for the next 6 months or until the good news starts to flow again. I also expect that they have all learnt a lot from the last 6-9 months and are aware of what needs to be done. My trigger to sell will be if the cash position doesn't turn around during Q1 FY23.

I also take comfort from the 5 year plan they released, I think moving into the cloud and next gen connect products are going to be big drivers for the company, but also big risks on execution. Moving the buisness back to the mid teen EBITDA margins within 2-3 years and approaching 20% by 5 years, is a good roadmap for them to be measured against and they have plenty of growth opportunities. For me it really just comes down to whether they have the cash to get their and the execution risk around the new strategies. This is what I will be watching.

My assessment is that they have had a big stumble, bruised their knees and knocked a few tooth out, but I think they will get back up and be a better buisness for the experience. Its' just going to be a slow 6-12 months in sp action. I recognise that there is an opportunity cost to my strategy, but I look at AMS and say that if I wasn't holding it today, it would definately be on my watchlist for an entry when the cashflow position turns around. I am making an active decision not to sell any.

I sold yesterday as well. The main reason is that amid these allegations, this is not the “situation I signed up for”. If I had a guess, I’d say this will likely to blow over in not too long. But it’s just not something I’m interested in having any mind-share taken up with - time is probably better spent looking at other opportunities and return to this when the dust settles. Will look at this from the side lines.

Good summary. That’s pretty much how I see things too. I hope they address in detail balance sheet and plan for FY23.

Also, how much of Q4 revenue/ receipts was delayed from Q3? Do we estimate revenue growth by averaging Q3 and Q4? So inevitably there will be questions about momentum into 1Q23.

i don’t enjoy these micromanaging questions, but management have to earn the right to avoid them and unfortunately these guys haven’t.

Also, why two investor calls on two days. Tomorrow = capital raise, I wonder?

Reporting back on the question I said I wanted answering.

Q (me): What is the plan to ensure the business remains appropriately capitalised during FY23?

A. (James Cody CFO): We are comfortable with the position at the moment, and we just talked about the fact that we’ve just raised that new debt facility that’s concluded in May, I think. 

So this reinforces some concerns for me, in that the question was not really addressed. Several other red flags on the investor call today. I might attend tomorrow's as well, just to hear if any other information is disclosed.

Disc: Held in RL and on SM.

I have reduced my holding by 50% to reflect re-assessment of risk. Will do the same on SM, taking a sizeable haircut along the way.

Yeah,I was a bit concerned with his answer to that question as well - given the $12m debt facility only has 200k left it’s not really providing anymore breathing space.

If the $5.7m one-off costs are truly removed from this year and the working capital returns to more normal levels then I think they won’t need a cap raise, but I really didn’t think a cap raise for survival would have even been a discussion point 12 months ago.

the other part I tried to get clarity on but my question wasn’t read out was why they invested so heavily in Q2 in the inventory build up of the older models, when their growth strategy is clearly around the next generation connect line up that either have been and are being launched this year. A bit of a concern that 75% of the existing inventory is models that they had to discount/promote to move in Q4. I think H1 Fy23 will be a consolidation period and am not really expecting much of a recovery in the SP.

Great chat here @Slideup and @mikebrisy.

The cashflow and cash-at-hand situation is a bit of a shock. No doubt this is also what the market is highly concerned about. And as you guys have mentioned - not helped by the lack of elaboration from the CFO on the topic other than "the further unwinding of working capital" will ease/resolve the situation.

But taking management's comments on face value.

• The receivable levels are very high because of the sales happened in May and especially June, after a disastrous Q3. Atomos currently sells through retailers only, and revenue is recognised when goods are transferred to the retailer. At 30th June, a lot of the goods sold in May/June would be still within the payment terms (30/60/etc days).
• Inventory levels are a bit high. Part of that is to buffer from the supply chain, other is he after effects of failing to move stock in Q3. Management have said it should come down further. They've also made design changes to have more shared components between products and will be able to hold lower stock levels as a result of this consolidation.
• Prepayments to suppliers (other current assets on the balance sheet) is also higher than historically. Again likely to be a supply chain buffering thing.

If you normalise for these things, one could make the case that they could have had $25m in the bank instead of $5m. I'd much rather the CFO confirming this, than mucking around with numbers by myself.

@mushroompanda Great analysis, thanks.I agree that if sales are continuing at a reasonable clip, and they are managing inventory down, and bringing receivables back into proportion with sales, then it is not unreasonable to believe they are OK.

What spooked me yesterday, was CFO James reference to the debt facility, which as both @Slideup and I read, is almost consumed. My only interpretation of his answer (and I have no factual evidence to support this) is that he either wasn't prepared for or didn't want to answer the question. I would have said "Moving to end of 1Q23 we expect to have liquid resources around $Xm comprising, cash, debt capacity, forecast payments. Based on our range of working capital forecasts we expect this to be between $Ym and $Zm by end of Q2. We will update the market in our 1H results, but at this stage we do not foresee any need to raised capital, absent significant adverse external factors."

Interestingly, James was asked a similar question on today's call, and was more robust and prepared in his response - albeit, no more transparent. (The power of rehearsal)

I am sure this issue is weighing heavily on the SP. I am just in the process of writing up my notes on the call, but thought to address this point separately, because clearly it is a concern.

@mikebrisy I was the one that asked that question today. I would have preferred more elaboration, ala your sample answer. :D

Many thanks to you @mikebrisy for your comments.

As a result of previous behaviours (mine) I've been caught 2 or 3 times "hanging on" and waiting for a company I hold to either turn-around or clarify an issue of concern only to lose out.

The last time was several years ago and none since because of a conscious change in mindset in that as soon as there is a hint of an issue I sell out immediately keeping my 1st rule of capital preservation.

So far this has served me well although I've had to go in and buy back on occasion as what was considered to be an issue turned out to be nothing of consequence but I'd rather lose a brokerage fee or two on occasion than a whole bunch of capital.

Best of luck to all holders and hopefully I'll be looking to buy back in down the road a tad.