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So the "material contract" was a bit of a whimper, but hey, atleast it wasn't bad news...
The Good
https://www.teledyneoptech.com/En/Home/
The Not So Good
There are also reportedly $1.5m in deferred payments due in H2, which could help the situation.
Watch Status
Deteriorating
Valuation Status
Increase likelihood of bear case
*FY24 Annualised numbers
What To Watch
https://www.energy.gov/gdo/grid-resilience-and-innovation-partnerships-grip-program-projects
With the release of the H1 Results after the close on Friday, I did a 'snapshot' analysis on those metrics (see my previous post) which displays progress (or lack thereof) during the period, this intended to highlight the strength of 'carry' into the second Half. The NAV plunging to more than - AUD 3m (Balance Sheet Insolvency) coupled with the Auditors Report coverage on the Company's ability to continue to operate as a Going Concern constitute a sobering thought which cannot be dismissed. The Deferred Revenue and Receivables numbers as at 31 Dec hardly inspire and the AUD 2 m shortfall when comparing Receivables and Payables number all suggests the squeeze is set to continue. The AUD 100k decline in Payables is not material.
I have subsequently gone through the narrative + numbers in more detail and can comment as follows :
If we go back to the key message in the H1 Financials. " The Recorded Revenue & Customer Receipts were well below Company expectations due to previously communicated program delays with KEY US Energy Utility Companies, which impacted the Company's Invoicing and Cash collection, ALL OF WHICH are expected to resolve during H2 FY24.
In closing we have felt the pain of the pause in buying by the US Utities. If they are back, Revenues will ramp USD 10m / year based on FY 22 numbers, Then add the Entergy deal conservatively worth USD 7 m a year PLUS
Having done the Research on the process being adopted by Utilities to embrace the ginormous USA Infrastructure andClimate Change agenda + validating that the 'Pause' is real, I am staying the course on this one. Can reassess with the ASXapproval 'material contract' announcement, hopefully this week, the Q3 4c (end April), the Q4 4c (end July), the FY 2024 Financials and if all fails, a Banya Software takeover offer where Ian & Team remain involved in the Business and we shareholders get offered x cents per share.
RobW
Despite still being in an ASX Suspension Period pending resolve on an issue over an announcement regarding a 'Material' Contract, the Company released their Half Year results after the market closed.
Herewith a copy of my Hot Copper post which provides some early observations.....
The Half Year Financials were never going to be pretty. The Company is essentially in what they call Balance Sheet Insolvency. Whilst this is different to trading Insolvent (where you cannot TIMEOUSLY fulfil your obligations in terms of Liabilities),the underlying comparisons over the last 6 months do not point to an improving situation.
Negative NAV ...extends from AUD 1.581m to AUD 3.207m
Receivables... down from AUD 2.723m to AUD 0.606m (compared to Trade&Payables of AUD2.518m)
Deferred Revenue ...down from AUD 2.712m to AUD 2.270m. Note : A portion of this may be for Advanced Payments and therefore not Accessable.
And finally, the only 'small' positive
Trade & Other Payables .... down (less than previous) from AUD 2.615m to AUD 2.518m
Lots to digest in the report, but the above IMO points to the urgent need for a capital injection. CR, loan or if Directors stump up. Debtor Factoring... not much to work with.
The Company talk of a cash flow positive H2. Had they used the ' Changes since 31 Dec. comment section' to provide some numbers on Cash Receipts during Jan & Feb or booked Revenue since 1 Jan, may have supported their stated confidence on a rebound. But not to be, Just the confirmation of the AUD 1m placement to an original Founder. Helps but not enough to fix the above.
Next 4 months crucial IMO.
Rokewa
ASX have suspended Pointerra for not responding regarding details / content of 'a material contract award' announcement which justified their trading halt on the 26th. Announcement was not forthcoming this am and the ASX challenge was yesterday (27th). Welcome the fact that the ASX are all over this. Time for Ian to realise Pointerra is a listed Company and non compliance has consequences. Recent placement of 13 m shares at 8 cents (90% premium to the market price ??)
All said, the probability of Pointerra delisting and going the Banya Software route is up a notch.
Let's see how things unfold. H1 FY 24 results due by COB Thursday.
RobW
Partnership with Emesent confirmed by Emesent. This is good news, they have a good grip on Autonomous flight lidar solutions and are quite large in the mining industry around the world.
Emesent are also out of Brisbane a good Australian success story.
Pointerra have updated the market this morning after appointing a strategic reseller for the Middle East region -- specifically to 'resell and implement the Pointerra 3D Digital Twin Platform".
With an initial term of 2 years, the agreement does not contain any minimum sales or revenue targets. It currently isn't material and it is not possible to currently quantify any revenue impact for the company. The update is more noise and unnecessary of a release to the market.
My take: this is likely another classic 'must be seen to be doing something' announcement to the market before releasing another set of subpar results.
Disc: NOT HELD
*Includes Notes from Strawman Meeting
The Good
https://www.enel.com/company/our-commitment
The Not So Good
Watch Status
What To Watch
NVIDA also appears to be working in this space with Amazon, but looks to be more oriented towards design and work flow.
https://docs.omniverse.nvidia.com/digital-twins/latest/warehouse-digital-twins/use-cases.html
From a quick scan of the websites it looks like National Grid could be the closest.
National Grid
Dominion
https://www.dominionenergy.com/our-stories/five-ways-we-use-drones
Duke
Curious as to what others thought of the meeting today.
On one hand, I can totally take Ian at face value:
The company was growing rapidly, funded by extremely supportive capital markets and they had a monster opportunity ahead of them... and then, with the big deals concentrated in a specific geography/sector, their giant US counterparties pulled back on all CAPEX as they got whacked with higher rates and constrained by capped pricing.
So 3DP went from (arguably realistically) expecting $3-4m in quarterly cash flows, to finding that they didn't even have enough to fund costs and ongoing development. In short, the world changed on them before they could hit sustainable profitability and are now faced with the challenge of funding operations and growth, but with an ever shrinking balance sheet.
Importantly, according to Ian, these projects have not gone away, they were suspended instead of cancelled, and are expected to resume in the coming months. To such an extent that Ian seems to think they can deliver CF and EBITDA +'ve results for FY24.
If true, shares are probably extremely cheap. We'll see a confluence of revenue booked in one of these quarters which will prompt a material re-rate as the growth narrative is once again seen as realistic.
On the other hand...
Regardless of the external operating environment, the company has scored some big home goals in over-promising, cancelling a core reported metric and poorly executing a capital raise. Rightly or wrongly, that's done a lot to undermine trust. And trust is everything here.
Ian talks a good game, but until we see evidence of a turnaround, it's easy to take the assertions as wishful thinking. Even if the general nature of the situation is as Ian describes, there's still the potential for big clients to delay further, or renegotiate better terms. And there's not much spare cash left at this stage either..
I'd really like to give the company the benefit of the doubt, but cannot in good conscience add to my (now relatively tiny) position until we see more clarity and progress in the reported financials.
An encouraging update, although quite vague from a financial standpoint.
New commercial agreements announced, one with an initial US$312k pa subscription, and all with expansion potential.
New Business Development hires to shorten sales cycles and land 7-figure contracts, and Amazon digital twin program for its distribution centres due to restart in December.
Will look to get some more detail when we speak with Ian tomorrow.
Well, this latest raise was an underwhelming affair.
Arguably, it all started on July 28 with a bullish announcement that Pointerra's utility partners were selected for a US$15b grid resilience CAPEX program. The detail was vague, but hinted at a significant revenue opportunity, and shares duly rose -- in fact, they more than doubled at one point (briefly).
A few days later the company's 4th quarter announcement showed a disappointing cash inflow, but this was explained as a timing issue with much of the shortfall received in July. The company said it "continues to self-fund organic growth". The ACV metric was again notably absent.
Two weeks later, Pointerra revealed it had raised $2m via an institutional placement at 12c per share (a 13% discount to the recent volume weighted trading price, but a 25% premium to where shares were at prior to July 28). Veritas, the lead manager for the raise, was paid $120k, or 6% of the total raised.
Shareholders were offered the same deal to raise a further $1.5m, but by this stage shares had returned to sub-10c, meaning any uptake would be at a 20%-odd premium to what you could get on market. Unsurprisingly, very few shareholders took up the offer, which raised just $195k, or 13% of the targeted total. Frankly, it's amazing they raised anything!
All told, the capital raised cost 6% in fees and a 2.8% dilution to existing shareholders. And all for a relative pittance in cash -- an amount that would have barely covered the FY23 cash burn.
I've lined up a meeting with Ian for the 31st of this month, but I assume the rationale will be they just needed a bit to help accelerate some growth and will be self-funded from here ("cross my heart and hope to die, stick a needle in my eye")
To be fair, they are dealing with big customers and project delays aren't uncommon for large CAPEX programs. They are a tiny company desperately trying to scale while continuing to invest in their product and resourcing. So maybe what we're dealing with here, and in other outcomes that fell short of expectations, is just a bit of over-exuberance from management, but which they genuinely feel is well founded.
But the fact is that they have damaged their reputation -- and that will take a long time to rebuild.
The lesson here for management is that it's usually best to under-promise and over-deliver. When you make bold claims you really just create a rod for your back, imo.
Hi Andrew,
Any chance of a meeting with Pointerra? It has been ~1 year since you last met them.
I realise that the last year has been a disappointment, but I am trying to work whether I sell. I am particularly interested in future revenue, noting that last year was heading downwards.
Ideas for questions are:
Q. Future revenue expectations
Q. Traction in the US market? Has this fallen away?
Q. When do they expect to raise money from shareholders again? [ Boom!]
Q. Can they report customer retention rates?
Q. Are they still predicting cash flow positive? When?
I note that they have said they will not report ACV anymore, so not personally interested in asking that.
Thanks.
The market mood has really shifted for the better with Pointerra of late -- and not without some justification. But the latest 4C is somewhat lacking in my opinion.
Operating cash flow was significantly negative for the quarter (down $1.8m) with just $800k in customer cash receipts. That compares to cash receipts of $3.25m in prior quarter. This was apparently due to invoicing delays, and in July $1.8m has since been collected.
So hopefully just a timing issue, and the company says "the core business operation continues to self-fund organic growth across the business in Australia and the US."
Let's hope so -- there's less than $1.5m left in the bank.
The ACV chart -- long highlighted by the business -- was again absent. I think that's very poor form to simply abandon this metric.
Lots of fluff in the announcement and very little detail.
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.
The Good
The Not So Good
What To Watch
Others have commented on today's news. I'll not repeat their content, buy add my assessment and decision.
The improvement in cashflow is good; however, $3.3m is still lower than two quarters ago. In a firm that needs to be growing strongly to justify its (albeit beaten down) valuation, it is hardly a need for celebration. I’m with @Noddy74 – I don’t share the market’s enthusiasm today. Perhaps the SP reaction was relief that the cash result wasn’t worse?
Cash receipts of $3.3m mean that the free cash surplus is likely to be thin, although it is good to hear that Ian believes this will be sustained going forward (although he now also has some new senior hires to pay.)
However, I’m still bothered by the unwillingness to give an ACV update. That means that without the contract renewal agreed, it looks bad. And as I’ve said before, I don’t trust management who only report discretionary metrics when they make them look good. The last entry in my spreadsheet was $20.1m in Oct-2022 up from $18.2m in Jun-22. So we are coming up to the anniversary and it sounds like the dial might not have moved much. Moreover, the result appears to be very dependent on a single customer. In the absence of newsflow of other large contracts, that sounds like an ongoing concentration risk.
Again, as @Noddy74 writes, if this product is so mission critical, why is the renegotiation of the contract taking so long?
I am pleased the CFO role has finally been filled. However, the musical chairs on the "Chief Growth Officers" roles - not one role but two (in a company that makes total annual revenues of the order of only $10m) continues to signal that things are not working to Ian's satisfaction on the customer wins front.
For me, It is time to look at the thesis. I originally held 3DP for three reasons:
• Leading tech platform for spatial data management with a large range of applications in multiple verticals
• Strong ACV and revenue growth
• Close to the inflection point, with potentially strong economics emerging
Looking back over the last 8Qs (and I appreciate I should wait for the 4C to fully update this straw, and therefore may prove to be premature):
• Cost growth has generally been ahead of or at least in step with growth in receipts
• We are still hovering around the inflection point. We first saw positive free cash flow in Sep. 2019. and have flirted with it on 3-4 occasions over the last 3.5 years
• ACV growth is now a question-mark
• Cash reserves are low
• Newsflow on new contracts / new customers has not been strong
Importantly, as @Noddy’s analysis shows, the operating economics are becoming a question-mark too, with the gap between ACV growth and growth in receipts expanding. What’s going on here? Are customers taking longer to use the product than anticipated? Is there drag in deploying it/customising it in each application?
I appreciate that it can take a long time to deliver “overnight success”. However, I’ve decided to move to the sideline with $3DP until the proposition becomes clearer. I recognise that in so doing I am crystallising a loss and if I buy back in in future, that I’ll give up the ground between maybe $0.105 (my sale price) and $0.20 or something similar.
However, for me, in these higher risk small caps that are yet to become cash generative, the thesis requires strong revenue growth above cost growth. Taking the high risk of a cash burning proposition relies on the momentum of the top line growth and the emerging economics, and all that entails in terms of positive revenue retention and new customer wins. I’ve now gone 5 or 6 Q’s where I haven’t been convinced that $3DP is delivering this. The ACV reporting holdout is the final straw.
I have divested my position in $3DP (IRL and SM).
Disc: No longer held
The market seems to be a lot more excited about Pointerra's trading update than I am. The ACV update is not really an update at all except to say that previously flagged renewal negotiations are still ongoing. It seems like all will be revealed at an update on 28 April 2023. Hopefully that is the case.
They report a 'rebound' in cash receipts. It is true that at $3.3m it's the second highest quarter they've had for receipts. The problem is that cash in is not keeping pace with previously reported trailing ACV - not even nearly. If you track trailing 12-month cash in, it used to trail reported ACV from about 12 months prior. Not great but if you knew that was what to expect you could probably live with it. In late 2021 that started to slip and it was taking up to 18 months to convert ACV to cash. In today's update an 18-month trail seems like the good old days as trailing 12-month cash receipts doesn't even keep pace with the ACV from two years ago!
They describe their suite as a must-have platform. As difficult as it might be to deal with some of their US customers, I can't get my head around why they'd not pay for mission critical software nor take so long to renew.
[Not held]
Musings on the already mentioned ACV and Cash receipts.
At Sep22 the light blue bar matches the Dark blue bar from Jun2. Hence Cash Receipts (green bar) is closely resembling the 15m trailing ACV per Q (Light Blue) = Count 5 bars across from one to the other!
If this trend continues, next Q indicates approx. 4.2m in cash receipts; irrespective of additional payments - Storm response?. Interestingly to note that Dec21 Cash receipts were 800k cash flow positive for that Q; wonder if that indicates a lumpy utility payment coming up.
More importantly ... As indicated by the Dark Blue bars - Commencing from Jun21 onwards, Cash receipts will add approx. 700k in aud each Q as a result of the increasing ACV of 2m usd Q on Q. That said I have always wondered if the ACV is padded because of the consistent 2m ACV usd per Q add. But if the cash receipts match the trailing 15m ACV then does the shoe fit???
If 700k is added each Q from here, can Ian spend that much?
PS. ACV in the chart is aud at 0.70 exchange rate
Some great commentary already. Similar to others, I think this is a cracker of an update. In terms of my investment thesis -- consistent growth over a long period of time without investing huge sums of money to chase said growth -- everything appears in order here. And similar to you @mikebrisy, my confidence continues to grow, as Pointerra does the same.
@PinchOfSalt touched on the currency conversion tailwinds at play here. We obviously saw yesterday's 4C update provided in AUD, but when you consider ACV being reported in USD -- totalling more than $US20m -- extrapolate these payments out over the next year or two and you have some serious cash being added to Pointerra's pockets.
But there is another key bull case argument, which has already been touched on by @mikebrisy, that deserves further highlighting: net revenue retention (NRR). A NRR of 172% YoY is insane. The investment case becomes a different proposition when customers are not only using Pointerra's software, but slowly expanding their offering over a timeframe -- whatever this may be. Your target audience expands from not only new customers, but those already using Pointerra's platform.
To digress slightly, from all accounts, Pointerra have really hit the ground running with their recent work with FPL during Hurricane Ian. I am going to go out on a limb here and say this is one of the deals we will look back on in five years time and remark how it was company changing. Not only is the market a significant one for 3DP to enter -- think about the countries, towns and municipalities that are impacted by serious weather events, the list is exhaustive and only continues to grow -- but they are starting to enter 'mission critical' status when you are helping agencies respond to natural disasters. The capability of Pointerra3D to ingest data in real time shouldn't be underestimated. Ian mentioned in the recent chat with us that other agencies, similar to FPL, are starting to reach out and ask how 3DP can assist them. I am not surprised. That is powerful 'word of mouth' marketing that doesn't cost Pointerra a cent. But you are also starting to interact with reputable clients that have extensive budgets and a duty of care to the societies they service. Anyone here that has worked in crisis environments -- whether they be emergency response or coordination of resources -- understands the importance of mission critical software. When it genuinely helps the response to life threatening events, it becomes worth its weight in gold.
The main risk here for Pointerra -- who are still relatively small and struggle to attract high-quality sales staff -- is that they spread themselves too thin across multiple verticals/industries. It isn't uncommon to see a strategy like this overwhelm a business and ultimately backfire. With that in mind, their growth since FY20 has been nothing short of remarkable.
All in all, I am really happy with their progress and remain a happy shareholder. I am still looking to add to my holding around the 20c level and they are high up my list to increase my exposure to.
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