Just as Beam were starting to turn the corner and consolidate a good year with another solid one they announce that they are going to arbitration with their joint venture partner RoadPost. I am noticing an unfortunate habit of BCC, just as things are looking positive and interest is developing they manage to find somethng to knock the momentum out. Hopefully this one will be temporary. They expect an arbitration decision to occur in 2H 2024FY.
This was always a opaque JV, and details have been a bit scarce but at its heart the JV was distribution arrangement for N America, BCC made the units, sold for very low margin with the aim of getting high margin subscription revenue. Roadpost sold them in N America and the JV had the costs/profits that would then be distributed to each partner.
It looks like from the BCC version that Roadpost has brokern some of the contractual arrangements in the JV and Beam are now trying to get it terminated through a canadian arbitrator. Negotiation has failed and they are going to the umpire for a decision.
It looks like either Roadpost or BCC will end up owning the Zolio inc JV (or is it just a V now?).
Its not a great outcome but I don't know enough yet to really know long term whether this is potentially positive development or not.
The majority of th subscriber revenue is in the US, - total subscribers is now 80Kish (up from 71K at end of FY) and Aus has a bit over 6K currently. So full ownership of the JV would give them 80K subs of high margin revenue. Not really sure how they would pay for a buy out of Roadpost though and not totally sure how a contractual break, affects the price etc, presumerably their would be some kind of penalty. Lots of unknowns, which is never really great for the SP direction.
Also not really clear how a buyout from Roadpost would work as Beam being the manufacturer would surely then raise the margin on the units as they wouldn't be getting the subscriber money. So they would get a good injection of cash but it would seem like the Zoleo device would then become a bit problematic.
Hard to see how this works out but what I am looking to see over the next 6-9 months is an enterprise customer signed up, I get these are slow but I think if they don't manage to get one over this timeframe it means that its not that attractive to enterprise customers. I also want to see this arbitration resolved and then assess what it means. I think if the SP was closer to 25c I would be selling and probably will sell some if the SP goes for an unexpected run, but I think at the current level the longer term downside is minimal. Zoleo isn't the main driver of revenue or profit for BCC and its not hard to get a valuation on the 80K subscription revenue that is worth just as much as the current market cap of BCC.