Overview Comment:

Cash from operations looks good while profitability down. Extra costs throughout the half due to the ordering of new compute and cost of 3rd party compute appear to be temporary issues. Revenues and order book continue to grow as expected so the growth narrative is still there.

General notes:

• A wild swing in the share price throughout the day. Started at $1.80 and closing at $2.44. Price down 4.3% for the day.
• $12.2 of capex in the half (for new compute).
• Financial figures half by half:
• 

Positives:

• Strong revenue growth to $30m. Up 24% HoH or 28% PcP. MP-FWI imaging is gaining momentum and key driver of revenue growth. Record high half for revenue for the company.
• Order book as of end 1HFY24 $40.6m. Up 45% from FY23 end.
• Operating cash flow of $6.2m and expected to strengthen further in H2.
• New compute expected to be available by late April, at this point compute power would have doubled.
• The significant cost of third-party compute compared to DUG's own compute shows their relative efficiency and justification of their business model to complete the compute themselves.

Negatives:

• Still do not have enough compute to meet demand. Started using external compute. This reduced profitability due to the additional cost. Debt levels have increased due to asset financing of new computers.
• Profitability down HoH and PcP.
• HPCaaS still not looking like it will take off as a product.
• New graph showing client relationship length and value. Negative is it showed one client provides around 20% of revenues.
• Cost of construction for Geraldton HPC campus significantly higher than expected.

Has the thesis been broken?

• No, as long as revenue continues to grow and temporary costs such as 3rd party compute can be removed due to DUG getting on top of the compute demand of orders.

Valuation:

• Unchanged at around $2.40-2.50.

What are you expecting and what do you need to see over the next reporting season or generally into the future?

• New compute is able to meet the demand of customers and remove unnecessary extra costs associated with this. I expect higher profitability into the future as a result.
• Start to pay down financing debts as expanded compute meets demand.
• Still watching the CFO revolving door from the past.
• Order book continues to grow. Even after compute starts to meet demand.
• Share price has been on a run. I think it is fairly valued for the growth at $2.40-2.50. Maybe consider trimming at prices above $2.75 unless there is news which justifies a higher valuation.

Note: USD used for all figures except share price.