As expected.... sigh. Another underwhelming quarter, referencing project delays and promises that additional contracts are coming.

Fundamentally, my investment here looks to have been a bad one. @mikebrisy's recent analysis paints the perfect picture -- this is not mission critical software as my investment thesis initially suggested. They are struggling to win contracts, are no longer growing sufficiently and perhaps most importantly I no longer believe management are competent enough to take the business forward.

Last year in general was a shocker -- cash receipts collected went backwards considerably, while costs widened. This is continued evidence of more of the same. Perhaps what grinds my gears the most is management suggesting they had the capital required to operate sustainably, before eventually succumbing to what was a much-needed raise at dilutive levels. Their strategy has not been effective to date and I wouldn't be surprised if we hear the dreaded 'strategic review' in a year or two.

Stepping backwards, I think they have spread themselves too thin. This is a good case that demonstrates you should target certain industries/thematics and not try and be a 'jack of all trades' across the board. This approach is difficult when you are cash flow negative, particularly in the current environment where funding is increasingly difficult to obtain. I also don't think we can make a case that Pointerra are genuine market leaders, and their balance sheet and growth (or lack of) supports this.

More than anything else, my decision to sell at these levels boils down to the fact that this just doesn't appear to be a high-quality business like I once thought, and there are much better opportunities elsewhere.

Disc: sold

Trying to process how I feel about Pointerra’s radio silence in the last quarter.

On one hand, stopping a big client from churning is hardly worthy of an ASX release. This may be especially true for Ian who seems to have a love/hate relationship with the ASX’s announcement rules (he mentions this often in interviews).

On the other, the share price’s sabotage could have gotten leadership to be a little more promotional about any noteworthy progress made in the quarter. 

That a large client churned isn’t cause for the thesis to break for me. Clients churn even from good software, often with valid excuses on their end (we got bought out, we’re consolidating, CIO’s gone mad, etc…) 

But that a large client’s churned with growth otherwise completely stalled for one full year, with little progress elsewhere isn’t good. 

I’d love Pointerra to take this as an opportunity to step up their game in onboarding clients faster (like much faster), and also step up their game in how they report. I’d like them to lose the ACV metric and adopt a more standard ARR metric reflecting live use of software to date. 

Anyway, rant over, not much longer to wait now. If they report on the last business day of the month as they do normally, this would be the 28th.

Two weeks to go lads. 

Evening All

Bit late to the party with my thoughts on the Pointerra 4c. I will attempt to build on the coverage provided by others with some personal observations.

Let’s start with an extract from the ’Outlook for FY23’as provided by Ian Olson in the FY 22 Financials…

‘As we move further into FY23, the Company remains laser-focused on balancing our ambitions to deliver exceptional organizational and financial growth with a disciplined approach to financial management. Success will likely result if we are able to focus on the biggest drag on growth – identifying, onboarding, nurturing and retaining exceptional people……. ‘

At the time, I interpreted this as ‘Our future success is only subject to acquiring/ retaining the correct skill-sets across the organization’.

So how have they done over the first 6 months of FY23? (I will park the shocking AUD 1.9m Customer Receipts number for now)

Pointerra have never been light on the narrative. In fact, they have often been overly generous with the amount of information shared. Over and above the headline news on three new Contracts, the latest 4C carries more information on progress than anything before.

Herewith a couple points, which highlight real progress:

• A ‘material’ Financial contribution by the Transport, Mining and Oil & Gas sectors, this reflecting the continued development and adoption of the higher-value elements ‘Analytics’ & ‘Answers’.
• The integration of Emesent & Pointerra 3D. This will fuel Commercial opportunities with a leaning to ‘Analytics’ and ‘Answers’
• Successful POC with Velociti & Amazon which will culminate in an impressive Scale-up.
• Pointfuse Integration. A key milestone in the Company’s AEC strategy.
• FPL moves to a Full-Suite Subscription, this a natural extension following a number of successful PAID POC programs. Will extend to include a Vegetation Growth model and POC (FPL Parent), targeting operationalization by End CY2023.
• FPL’s Advocacy provides a valuable ‘blueprint’ for scaling other investor owned Utilities, driving faster onboarding and lower cost of customer acquisition.
• Expansion of Services to Tier 1 Mining Companies, where 3D Point Cloud data acquired via Slam Lidar in GPS denied underground environments. Again, a POC process and then scaling, a vast opportunity for each Mining Group.
• The capability developed for the Transport sector (Road & Rail) has been further validated by the Award from Main Road, Western Australia. Another endorsement, which now allows Pointerra to target new geographies, incl. Europe, the UK and the USA.

The above says to me the Thesis is very much intact, the growth story is alive and well and the momentum is set to continue.

Looking at the ‘Poor’ Customer Receipt number, AUD 1.9m is less than half of what I expected (AUD 4.0m to AUD 4.3m). The Company have cited program delays by some USA customers impacted Invoicing and Cash collections. Given this pertains to a single QTR, we need to accept that this was unforeseen. Unfortunately, anything causing a delay to invoicing will show up again in the HY Financials later this month.Most likely why the Company suggested we would see a rebound over the next two Qtr’s (Q3 & Q4).

Before commenting on the ACV saga, would like to highlight an area of concern. A pattern is emerging which centers on the back end of the sales process, this being to collect money. In FY 2022, we had an impairment of AUD 1m, where a customer did not meet his obligation, was freed of that obligation and according to the Company, remains a customer. In Q4 FY 22, the Company reported Customer Receipts of AUD 1.66m (Poor), qualifying that Accounts Receivable totaling AUD 2.54m would have otherwise contributed to a net cash inflow from Operating activities for both the QTR and the FY2022.

In my opinion, time for Pointerra to employ a Financial Officer who is held accountable for delivery on this front. This is directly impacting on Investor returns.

Now, a brief comment on the much discussed disconnect between the reported ACV (in US $) and the Customer Receipts or Revenue. If we consider that Pointerra alone selected ACV as a preferred measure for their business. They then established the criteria / rules to account the ACV number. All self-determined. They keep on citing examples of why the disconnect is amplified eg takes time to get the data etc etc. The Company has several years of history. Apply factors to the numbers based on real-time issues and history. They could do this openly with shareholders, analysts etc. A ‘once off’ step-change and fixed forever. I know of more than one Adviser who will not touch Pointerra for this very reason.

Seen a couple of comments suggesting the Company ‘sneakily’ left out the graph reflecting the cumulative QTR-on-QTR Cash Receipts. Just like to remind those that the ACV features on that graph. That has not been declared yet and maybe the reason behind this.

And finally, will we see a CR given the low cash balance? Ian has again made mention of ‘continued self-funding organic growth’. I personally applaud him for the fiscal discipline applied over 3 years. 

I was looking out for the R&D Rebate in the Cash Flow summary. I maybe wrong here, but looks like they opted for the Tax offset option. What does that tell us in terms of the need for Cash?

Keenly await the HY results.

RobW

Some good commentary on 3DP already. I remain a holder, but this is no longer a buy for me. I want to see the business start to execute. Like many others, there are some real question marks about their ability to do this. @slymeat, I hear that view mate, but conversely there are early signs that 3DP are struggling at a) effectively selling their offering, and b) collecting fu***ing cash! The pipeline is one thing, but on the other hand, there is also an opportunity slipping away from them here that wont be there forever.

I want to highlight @mikebrisy's cash flow analysis chart from yesterday:

This encapsulates the real concern around 3DP at the moment. Their so-called 80-90%+ super high margins become a myth when they cannot demonstrate cost control while slowly increasing their revenues over time. Costs have been increasing QoQ for 24 months now. This is not reflective of the business I initially found interesting when I invested in 3DP. The thing is, if I was to sit down and study 3DP today for the first time, noting their cash flow performances over the last 12-24 months, I wouldn’t invest. Costs over the last three quarters in particular are rising, while cash intake is lumpy and underwhelming. Re: the ACV issue, I am less critical of than others – I get that customer invoicing can be a nightmare, particularly with larger customers – but I wont die on my sword. They need to start producing material cash, but they also need to get their expenses in line; they are getting out of hand, with little gain.

They have presented ACV to the market – in conjunction with the quarterly report or very close to it – for as long as I can remember. This month, as @mikebrisy notes, they have delayed its release due to not liking the number. I am not interested in a spoon-fed figure when they think it looks more attractive. It defeats the purpose of the report. I am also not supportive of a management team that think this way and it is bloody short-sighted. Orange flag number 1.

Perhaps we are starting to see orange flags becoming more evident, or maybe for whatever reason I am only starting to notice them. In addition to above, the staffing side of things looks to be a real concern. Correct me if I am wrong, but they acquired Airovant in 2021 – primarily to acquire the SME of the Airovant staff – but before we knew it 3/4 of the Airovant staff churned and were effectively lost within 12 months. Not a great sign, even in a tight employment market. Orange flag number 2.

@nnyck777, I missed the loss of the defence recruit – where was this recorded? If this is the case, another orange flag! That is more SME that the business is struggling to keep.

Not only do Pointerra appear to be struggling to hire the right staff, they are also having issues keeping them. This potentially points to some internal culture issues at play.

I will be very interested in the next few quarters and how the cashflow analysis looks. If costs continue to rise while the business struggles to bring in cash, I am out.

Given the popularity of this company on Strawman, I would have expected much better cash conversion on the ACV - the gap has been uncomfortably wide for several quarters now.

The non-reporting of that metric in today's update is also odd.

$3DP issued its 2Q FY23 4C report today as well as an incomplete Enterprise Sales update.

Their Report Highlights:

• Multiple new material contracts awarded

• Quarterly cash receipts Q2 FY23 A$1.9 million

• Cash outflow from operations A$0.9 million

• Program delays by some US customers impacted invoicing in Q2

• Invoicing and cashflow expected to rebound in Q3 and Q4 FY23

• Core business operations continue self-funding organic growth

My takeaways

By any measure, a softer quarter. What makes is problematic is less the lower receipts compared with 1Q, but the PCP comparison - a higher cost base and materially lower receipts.

The premise of recurring revenue is that it recurs. So while there may be q-on-q lumpiness due toi the impact of payment phasing of material contracts, a growth SaaS company should show consistent annual growth - otherwise it is no growing!

See my usual CF trend analysis, (reduced to focus on the trend of the last 8Qs). OpCF is a negative trend indicating that 3DP has some way to go to achieve sufficient scale that operating leverage shows through.

3DP remains squarely in the position of being yet to demonstrate that it is a sustainable business. There are references to expectations of stronger receipts in Q3 and Q4. Unless we see these materialise, then a capital raise will certainly be required.

I continue to hold, but these are not the results that will lead to me increase my RL position.

Additionally, there was a rather odd Enterprsie Sales update with a promise of the ACV update in February. Traditionally, the Enterprise Sales and ACV update has followed the 4C. The fact that $3DP cannot enter a $ACV number today can only mean that they don't like the number.

Expect an adverse SP reaction today.

Disc: Held in RL and SM

The Good

• Cash flow positive quarter ($64k), minor increases in R&D expenses inline with growth in cash flow, continues to show discipline of management.
• Developing the product to meet customer requests and needs, rather than developing a product and trying to find a market.
• Partnering with hardware companies to improve product functionality. These partnerships extend Pointerras reach, along with identifying where the issues need to be solved in industry.
• Market penetration across sectors outside of Utilities appears to be gaining momentum, with positive updates across construction, mining, transport and defence sectors.

The Not So Good

• Delays from third parties impacting invoicing. Having the integration and use of your product out of your control is a risk. Customers will ultimately push for their data, however not having fixed time frames could continue to impact the delays between ACV announcements and cash receipts.
• Cash receipts down on Q2 $2.85m vs $2.4m. Although ACV at Q3FY21 was US$7.89m which if broken down to a quarter means the incoming receipts aren’t too far off the mark depending on the exchange rate. So it does indicate that cash receipts are tracking with the ACV growth.

What To Watch

• US, UK Expansion & Acquisitions targets carried over from H1 Report
• Q4 cash receipts ~ $3m will be a confirmation of invoicing continuing to follow ACV trend
• Contract opportunities in utilities from Australian POC trials and recent discussions with UK and European companies.
• Targeting offshore Oil & Gas facility maintenance contracts.
• Updates on results from defence trials.