Great breakdown as always @mikebrisy

Baby Giants pod covered Damstra briefly on a recent episode and Claude highlighted the debt companies like this have taken on to avoid capital raises at depressed SP's.

DTC's recent announcement that they have increased their debt facility slightly from $15m to $17.5m does not fill me with confidence despite the consistent positive operational cashflow and now posiive free cash flow.

If they are doing so well and expecting to stay free cashflow positive, why the need for an even greater loan facility?

I'd much rather see them reducing their facility like Volpara has done recently.

@AUROPAL totally agree. That's why, for me, the thesis is not restored. To be investible, there needs to be powerful revenue growth and the jury is out on that for $DTC.

My main point, however, is to give credit to management for the trend in cash generation. Now the question is can they scale profitably from here? If they can do that, eventually the debt is less of a concern, and equity holders will be pleased to have not been further diluted. But it is a sufficiently large question, which the debt adds to as an issue, so that for me $DTC is uninvestible at the moment.

Your comparison with $VHT is a good one. I sold out of both $VHT and $DTC in the same week in June 2021. $VHT has given me confidence to get back in, whereas $DTC hasn't.

One factor distinguishing the two, is that I have more confidence in the revenue growth potential of $VHT, even though the slope of the FCF line for $DTC is actually stronger (but more of it has come from the depth of the cost control). But the second factor is confidence in management, and that's a strong consideration. Teri's turned the ship around quickly on costs without harming revenue, articulated a simple strategy, and her sales history in EPIC (she spent 21 years there), means that she is proven in selling healthcare software to hospitals and healthcare service providers.

I heard the Baby Giants episode you referred to. It is a very interesting time at the moment, trying to discern which tech stocks, having controlled costs, are going to be able to grow profitably. In some respects, the current high interest rate period is helping to sort out the wheat from the chaff.

I think they refinanced the debt as it was coming due at the end of this year.

Probably better this way than to dilute shareholders now when the share price is depressed to repay the debt (as Claude suggested might happen).

Gives them a small runway to generate enough cash to repay the debt when it comes due in Nov 2026.

Disc: Held IRL and on Strawman

@mikebrisy agree to give management credit, they have managed to stop the bleeding and do some kind of turnaround.

Also agree with you on $VHT, which I also own.

@BoredSaint am I reading right that it is also interest only payments (at a minimum of 11%!)?

They exclude from their FCF calculation payment of debt which I don't think is reasonable as the debt has to be paid. It's not an optional item like R&D spend or other investment items.

They excluded the repayment of the loan (which was only $169k) but did include the interest cost on the loan ($530k).

Including all the above, they were still free cash flow positive for the quarter.

Note: They did not withdraw any cash from the loan so "Financing Activities" is only related to repayment of the loan, lease repayments, interest payments and a small amount of interest earned.

I agree the new terms of the loan are not 100% favourable (there are also options exercisable to purchase shares which will dilute shareholders) but I think it's the best they could agree on.

Time will tell though whether they will be able to generate enough cash to repay the loan and interest.