Cleanspace Holdings have announced the appointment of their new CEO.

The new CEO, Gabrielle O'Carroll has quite the CV, and appears to be quite the coup, as she is the main competitors Asian Industrial Sales Director, with many years of established contacts in the Industrial sales channel.

Half of Gabrielle's long term incentive package is based on share price appreciation, with incentives based on achieving a share price of $1 - $2 by end of 2028.

DISC - HELD

Had the opportunity to tour Cleanspace Holdings facility after the AGM (Nov. 11) with @mushroompanda . Some of my notes from the AGM & tour:

All sales are via the distribution channel, and as a result, sales can be lumpy, depending on the re-sellers inventories (the MD stated they tell their distributors to keep inventories low, as they can supply stock as needed). When you look at the previous half year, the first 4 months generated $1.325 M per month. This then fell to $1 Million per month over Nov. to December. France sales represent 25% of all sales.  The MD reported they received some big French orders over the past few days and recently won an Irish Govt tender, and they are confident sales will outperform the quiet Nov - March period they experienced last FY.  It is fair enough to be skeptical, we have seen this movie before when it comes to H2 guidance (or hopes).

Some additional things I learned:  The new Work product is simply a re-badged Halo PAPR.  They have 3 production lines - Ex. (explosion proof PAPR), CST Ultra & Pro (main products), and Work / Halo. Their production lines take up about 70-80 m2 of warehouse space (the filter production plant and lab take up about another 130 m2). They have a massive inventory, and they will be downsizing their warehouse by what I reckon is 1000 m2 (reducing operating costs by about $200-300k pa).  The existing production line can deliver $70 M in sales per annum. So there will be no need for growth capital expenditure for many years, and there will likely be inventory, currently written off, being re-used on the Work PAPR.

Interestingly, they manufacture the HEPA filters in house. The MD complained they are too good, as consumable sales are not lining up with PAPR sales - Users tend to just run the PAPR fan / battery harder to get more filter life......They are looking into ways to reduce the pain / barriers to ordering replacement filters. Possibly a centralised app / platform to monitor device run times and alert customers when filters need replacing.

US sales team - Is being completely re-built, and the prior team was geared towards health sector, and was unable to pivot to industrial. They have a new US sales director, and they decided to sack the entire US sales staff and start again under the new leadership / strategy (Notably - they hired a new West cost sales manager over the past week or so). They are aiming to have a team of 4 in the US sales team.

Their production leadership originates from Resmed, and most to the production team has been there for years. Work and team culture look OK. They have applied innovations form Resmed devices, such as using onboard pressure sensors to modulate airflow according to the users breathing pattern, thereby minimising airflow and battery usage, which in tunr enables a miniturised product.

They have found the new CEO, and an announcement will be coming out in the coming weeks.

I have in my notes they are aiming / expecting for 15% revenue growth on H1 2023 (which seems doable if they maintain current monthly runrate) - which is also the same as H2 2024.  Lets check in on this number after H1 results.......I would be happy enough with this - As long as they can get US sales traction by end of FY 2025.

DISC - HELD

Cleanspace announce the following regulatory approval that Cleanspace says increases their TAM:

1. HALO devise meets NZ's Medsafe requirements and added to WAND database.   Cleanspace report trails have commenced in NZ hospitals with HALOs.  
2. AX filter approvals in Europe and ANZ.   THis increases the industrial applications the cleanspace PAPR can be used for.    

Notably, there was no reporting of Q1 sales. They should have good data on this, given it is October 1.   I see this as a negative...

DISC - I HOLD. 

Cleanspace Holdings sales & marketing capabilities / capacity is currently sub-scale, with around 20 employees in sales - globally.  Just 3 are in the USA, and USA is a market they sell directly to.  They rely on distributors in most markets, with direct sales, I believe,  in Australia and the USA.  

However,  there is a growing movement of Health Care professionals advocating for safer workplaces and better protection, and an example of this is Dr Berger, who intends to buy a Halo device for his personal use, in the absence of the Hospitals providing them.  

Anecdotally, there appears to be a bottom up movement from Health Care Workers (HCWs) to insist on access to a safer working environment that Cleanspace's can help provide.    

Cleanspace have an enormous oppotunity ahead of them.   It remains to be seen whether Cleanspace Holdings sales & marketing capabilities are up to the task.  

Personally, I would like to see their sales team scaled up in the USA, and would liek to see Cleanspace target the top 100 hospitals, and to do they, they will need way mor ethan 3 sales people......

DISC - I HOLD - but want to see better sales execution befreo adding...

Cleanspace released their H2 results.   It was a mixed bag of news, with short term results poor, but medium term outlook looking good, with strong tailwinds via regulatory requirements presenting a good opportunity.  Highlights are: 

1) Revenue of $10.2M,  which means Q4 revenue was just $3.2M. 2H EBITDA of -$2 M.   This equates fo sales of about 2000 respirators, based on aconsumables / rpoduct mix of 49/51%.  This result is of little surprise, and was flagged by management, as PPE de-stocking and vaccine rollout impacted sales.   

2) US market was a significant drag, with H2 revenue of $2.7M, vs $20.2 M for H1.  Clearly, US hospitals virually ceased purchasing, as they de-stocked disposable masks, and focused on vaccine rollout.  

3) Europe and other markets reported H2 revenue of $7.5M vs $20.2M for H1.  Again, significant slowdown in these regions.  

4) Good News: US Emergency Temporary Standard was released on June 21, 2021, which applies to all workplaces where COVID-19 cases will be present, mandating:

"When employees have exposure to a person with suspected or confirmed COVID–19, the employer must provide a respirator to each employee and ensure that it is provided and used in accordance with 1910.134"  - A respirator is defined as: Respirator means a type of personal protective equipment (PPE) that is certified by NIOSH under 42 CFR part 84 or is authorized under an EUA by the FDA.  i.e. N95 marks are not deemed adequate protection. 

This ruling has not had a material impact on Cleanspace results, however, Cleanspace report this standard is expected to be made permanent in the coming months, and they will provide a marke tupdate when this Stadnard is finalised. 

DISC - I HOLD

Winnie the poo strikes again....https://www.ausbiz.com.au/media/smart-caps-for-smart-tax-an-end-of-fiscal-year-strategic-recap-with-luke?videoId=11760

Anecdotal evidence of recent demand surge for Halo product in the UK. 

here  and,

there

CEO Interview  here.

At the time, Cleanspace was in 30 hospitals (aug. 2019). 

Notable Hospitals implementing HALO technology: JOhn Hopkins Hosptial. 

Sales presentation here (I believe the case study is John Hopkins Hosptial). Interestingly, presentation was produced prior to COVID-19 pandemic.  

Caught up with this briefing, which can be seen here.

A rather awkward briefing via zoom, with a rather emotional investor peppering management about company valuations and share price at the end of the call - don't be that investor.  

There was some interesting insights though: 

1) Despite revenue for the quarter falling to $7 M, Cleanspace was still generating positive operating cashflow.  

2) Margins fell from 78% to 73% - still great for a device business. 

3) 5-6K devices were sold during the quarter (final numbers not confirmed at time of briefing).  This compares to 4.6k devices sold in previous corresponding period.   

4) health care / industrial revenue  split in H1 2021 was 80/20.  It was 60/40 split in Q3 (or was that 40/60 - rather unclear in call ? - CFO a little rattled)  

5) 46% of revenue was consumables.  This equates to about $125 per installed device, which is close to pre-pandemic level of $110 per device.  This indicates use is normalising very quickly.  

6) US revenue fell from 50% of sales in HY1 to 20% of sales in Q3.   I.e. it fell from about $6M per quarter to $1.4 M per quarter.  This means other regions sales fell slightly from around $6M per quarter to $5.6 M per quarter.  CEO & Chair advise this is due to resources being devoted to vaccination rollout, which will continue for another 4 months or so. 

7) CEO, Alex Birrell, estimated they currently had less than 1% of market share for Operating theatre / ICU PPE market, with opportunities to expand into other hosptial / medical departments. 

8) Chair, Ron Weinberger (ex. Nanosonics CEO),  explained their go-to market strategy, of establishing case studies (or examples of excellence) at places like University of Maryland Hospital, following the Nanosonic strategy as defining the Cleanspace device as the exemplar personal protection equipment in healthcare through having Cleanspace being referred to in operating guidelines and procedures for PPE.    

9) Ron went on to say he sees Cleanspace as re-defining / disrupting the PPE space, and sees it as a $5 Billion market cap business, and claimed he was itching to buy shares at this price. 

Subsequent to call: On April 15, a change of directors interest notice for Ron was released - he brought $49 869.46 worth of shares @ $2.06 average price.   

CleanSpace Holdings provided an update this morning, reporting a significant slowdown in sales in Q3 2021, with revenue expected to come in at $7 M  for the quarter.   

Sales have slowed significantly in the US, with the unwinding of a large stockpile of disposable masks, and the roll out of vaccines impacting sales in the short term.  

CleanSpace report there is a strong US hospital pipeline for the medium to long term.  CleanSpace is deploying capital to double regional sales capability.  

CleanSpace will not be providing guidance for H2 2021.  It looks like the sales pipeline will be disrupted by the inevitable de-stocking process, and vaccine roll-out.   

I expect the normalised, post-COVID-19 revenue run rate for CleanSpace to be around $35 M per annum (current $28M) by 2022.  It may take time, say 12-18 months for this to occur, and it may  worsen before it improves.   Patient buyers may pick up a bargain over the next 6-12 months.  

DISC - I HOLD.