@SudMav for a company that is just at the inflection point of profitablity like $PNV, focusing on NPAT is almost meaningless.

From my perspective, I did care about it this year because it demonstrated the delivery of a commitment the company made at the capital raising at the end of 2022. (We need growing companies to exercise capital and cost discipline.) However, this is a company with a leading product that needs to invest heavily in the global rollout. The business in the USA has demonstrated it is highly profitable.

Furthermore, they need to step-up the investment in R&D to exploit the platform and develop new products. Their 10% of revenue-going to-R&D is a BARE MINIMUM. At this stage in their evolution I wouldn't mind if it was 15-20%. However, they are demonstrating discipline so far in capital allocation, so I'm OK with that.

NPAT will have its day, But today is not the day. So, frankly, I don't care how much of the NPAT that I am not yet focused on came from where.

The measures I am tracking are:

1. % annual revenue growth (How long does it stay >50% p,a,? The market thinks next year is 28% - they might be very wrong indeed!)
2. % gross margin
3. Sales & marketing / Revenue (they don't report it, so I need to model it from their headcount)
4. Overhead/Revenue

For this company, 1. is the focus, 2. appears to be a given (93%-95%!), and 3. & 4. are to be monitored closely. As it's very capital light, I keep half an eye on capex too. For example, $26m capex is going to buy them $500m pa additional revenue capacity. I'll take that any day.

It is so important to focus on the right things at the right time.

Totally Fair - I appreciate the different perspective and in no way doubt the massive growth opportunities they have going forwards.

I agree that all 4 of the points you are tracking are definitely a great gauge at determining where the company will be heading in the future.

I was more suggesting that from my perspective (probably from some of the bad experiences in the past) I find it hard to work out what a fair multiple/market price to attribute to emerging businesses. I have always tended to focus on NPAT/EPS and have never been a good gauge of what is right in the small cap space.

Insights like yours and posts/research from all Strawman members have been a great help me since becoming a member a few weeks ago, as they are helping to bridge the knowledge gap and understand what to focus on in these emerging companies.

Great set of meeting notes @mikebrisy

I would just add the following from my notes:

• Pricing - there was talk with Jan (CFO) that they have been putting up prices in USA in line with inflation, but there could be scope for additional price rises. But not in FY25.
• "New Stuff" - David Williams said he wanted to share a bunch of new things...but couldn't yet. But hopes to soon. Any guesses on what this would be? New countries or partnerships?
• Swami said that they have developed their products to not need cold storage from FY25 onwards. This will obvioulsy reduce the cost to the hospitals but also costs in transport around the world and help margins.
• I loved Swami's comments about how we are not 'Next Generation wound care' we are now 'New Standard of Care'.

I would also say that Swami is now working at the peak of his abilities (which are very high). He was across everything and gave very precise answers but also giving his team room for delays etc., and not setting unrealistic expectations in the market. I feel it has taken him some time to get all the current and future R&D projects under control and set in the right direction. But as @mikebrisy said...i feel these products are def on the way in the next 2 years.

I would also like to contrast that meeting with the IIQ meeting. David Williams Chairs both companies. The PNV team really make the difference. I know they are further down the commercial pipeline.....but I think the Directors of IIQ should be looking at how PNV runs it's team.

@mikebrisy my previous post in PNV i asked if anyone had some thoughts on how MTX will add to revenue. How are you dealing with it in your model. Actually...how are you dealing with all the current and future products?

@mikebrisy Potentially just a change in timing issue but was there any mention of higher staff costs in the call? Using a very basic measure of average employee expense per employee figure has increased quite a bit. Employee related expenses up 51% while number of employees up 17%.

@Parko5 … good adds.

The pricing lever is important. $PNV is a lot cheaper per sq cm compared with biologics. Once the healthcare economics studies are published, highlight value of treatment (total cost, patient outcomes) this might create pressure by payors on HCPs and Hospitals in US to use Novosorb. (At present there is published evidence that hospitals are incentivised to use higher cost solutions because they can extract a higher profit!)

I also think $PNV are being smart on pricing: capture the market, prove the outcomes, redefine the standard of care, then price is a later lever.

On modelling of products, I am taking a simple approach.

First, treat MTX within BTM. Over time, as mix shift moves from burns to trauma, I am slowly eroding %GM, e.g., from 95% down a few percentage points over my 9-year horizon.

I’m not modelling new products. This is for two reasons. First, I think it will still take 3 years to commercialise them. Then once commercialised, there are existing standards of care to be displaced. Even in the success case, I’m not convinced these are high revenue applications. (For example, I’ve done some research into hernia mesh, and I think the revenues available to Syntrel aren’t that high.)

Therefore, Ive decided to model the scenario wherein $PNV is successful in developing a broader range of products off the Novosorb platform simply as a higher continuing value in the terminal year of my 9 year DCF. e.g., 4.5% vs 3.5%, for example.

I've thought about alternatives, but concluded it would create false precision.

Any yes, I still think material new product revenues, are a way off.

@Dominator - yes, it was discussed, but only at the headline level. And the analysts didn't particularly dig into it.

I see the underlying employee cost growth trend is lower because:

• Large HC increase in FY23 (+43%) now flows through to full year FY24 cost impact, as the sales and marketing build out made a step change in FY23
• This effect should be smaller from FY24 to FY25, as the FY24 HC increase is only 17% as you've shown
• Several new FY24 senior hires skew the numbers a little: CHRO, General Counsel, Head of APAC
• Building up R&D, will be above average $/FTE
• They will have paid high levels of incentives in sales in the US (commissions; bonuses)

More generally, there will have been a strong payout on performance-based compensation across the board. Looking at the odd 2022 number - its skewed by the reversal of CEO incentives that were booked in 2021 for SR's predecessor.

So, overall, it was in-line with my model, and I'm reasonably conformfortable.

Another way to get comfortable is that Rev/Employee grew by 35%, while wages/employee grew by 29%. This is very encouraging because the company is still rapidly expanding its global footprint, so there is a general lag effect. I think that as the rate of employee additions moderates, that difference will continue to increase, as the sales and marketing team gains traction in their territories. (It takes around 2-3 years for a new sales rep. to become fully effective, and that is in addition to the growing adoption of the product by clinicians, and relates more to them building all the relationships within their accounts)

Does that make sense?

@mikebrisy thanks for the deeper insights.

On the topic of future HC growth. David has previously talked about the need to grow the sales team to grow revenues, was a surprise to me they only added 36 HC this FY, was expecting more around the 60 number. Do you think they can continue revenue growth of 50-60% without adding significant (50+) sales staff a year? Or in your view are we starting to see the effectiveness of sales staff hired years ago come through?

@Dominator that's a question I am mulling over deeply at the moment, as I finalise my model update!

I did expect FY24 to be a period of consolidation on sales and marketing growth headcount. Why?

Well, after the cap raise at end-2022 the lid came off hiring and they added a lot in the US, but also built out in UKI and ANZ. And for good measure they threw in a starter pack of 20 in India with $0 sales! (Note: UKI has only 9 for sales in FY24 of what I estimate to be c. $6m, or $3.5m when they went from 6 to 9!)

So, after that FY22-to-FY23 burst, we saw FY24 back off relatively, speaking.

But, as you say, we are yet to see the full impetus of the FY23/24 cohort play through. And those new account adds in the US ... wow! Now before we get too excited, a lot of those new accounts will be smaller revenue accounts.

The second factor, is that I think we saw a little cost discipline in FY24, because DW and Co. knew they were on a promise to deliver a profit in FY24. SR also spooke about not pushing the organisation too hard. At this scale, hypergrowth can have unintended consequences. They have to hire good people, onboard them, and drive the right culture. SR understands this, and I think over the two years he's been at $PNV, he's releasised that he's not at J&J and is leading a relatively immature operation.

In answer to your question, I think 50-60% revenue growth in FY25 is unlikely, unless they win a whole bunch of tenders in India and that market really takes off (unlikely) and if they add a bunch of HMOs in the US (possible, as that is where SR will be pushing them.)

Also, don't forget about BARDA, In the push to finish enrolling the 120 patients, BARDA revenues grew from $5.663m in FY23 to a massive $11.150m in FY24. I'm now kicking myself that I didn't ask a forward looking question about BARDA. Potentially, being now in the evaluation phase, there could be very limited BARDA revenues in FY25. While there is ample money in the contract (recently expanded to a total value of $US25m, I just don't know what they are going to spend it on as far as $PNV is concerned.)

I'm in the process of finalising my growth scenarios, but if sales to customers grows 50% and BARDA falls back to $2m, for example, then the growth trajectory FY24 to FY25 looks like:

FY25 (1.5 x $92.042 + $2.0) / FY24 ($92.042 + $11.150) = 37.4%

and if we see commercial sales grow at 55% then it looks like:

FY25 (1.55 x $92.042 + $2.0) / FY24 ($92.042 + $11.150) = 40.2%

I expect the analysts (especially, Macquarie) will talk about BARDA in their follow-up discussions with DW, so I'll be looking to see if they call it out when they do their next detailed research note.

At the moment, consensus revenue (based just on the quick updates) has FY25/FY24 at only +28%, which I think is way off the mark, but it indicates to me that the analysts have cottoned onto the end of the BARDA pivotal trial. So the "BARDA effect" is a potential one-off wild-card in the FY25. But it is a one-off, so it might spook the horses who act on the headline, but for those who understand the business, it shouldn't matter much. Sounds like a bit of juicy short-term volatility potential to me!!

Hope that makes sense.