CleanSpace ha announced that their new Chair will be Mr Rathie who has board experience with 4DX Medical, Cettire CTT, and Polynovo PNV

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. 

Looking forwards at CSX's prospects you have to be confident that guidelines will change to drive sales. I really think this is the only thing that matters.

I can now routinely get comfortable high quality masks that really are not that bad to wear. I say this because during the previous sales surge N95's especially the particular brand you may need were in a serious shortage. Often the masks you could get were uncomfortable and not fit tested. Often would only be availible to you in certain clinical settings.

If the protection is enough from mask to stop you from getting sick you really dont need the increased protection of the PAPR.

Things to watch out for are HCW's getting sick using N95's, new government recommendations, vaccine resistant strains of COVID. Without these things I think even with CSX's formidible warchest of 35+ mil they may find it hard to drive sales in healthcare.

I think it provides in your portfolio a potentially inversely correlated position as some of these things would be bearish to the economy but bullish for CSX. 

I wont be adding unless I see these catalysts or the company surprises with a great sales strategy anyway.

@Rapstar a follow up to your earlier straw on CSX. I agree a lot with this straw. Thanks for sharing Dr Berger tweet. I have been meaning to do a straw following the presentation however reporting season has been busy. So here are some of my thoughts on this company following results release. 

I recently commenced a very small position in CSX in both strawman and IRL.

I do have some concerns with CSX and will not add to this until I see some further uptake in the product. Following last weeks results and investor call I continue to have concerns around their distribution methods. Currently CSX have a world class product that they are having difficulty getting traction. Essentially they have reps who sell a range of PPE products. With the over supply of N95 masks, cheaper prices of these and just the simplicity of them they will continue to dominate this field. The reps would benefit from selling larger products but they will also just sell what they have available and an over-supply of. I got the vibe they did not have much insentive to push the HALO product by Cleanspace over other products that these distributors sell. 

Management mentioned they have had a lot of focus on distribution capabilities over the past 12 months. This includes adding to sales team including 17 new distributors in the industrial sector and expanding global training of the product. Lockdowns and just covid itself has restricted distributors particualry in the industrial side of things in the EU. They believe they now have systems in place to expand and are positive on growth.

Currently CSX sell to Healthcare (72% of sales) and Industrial (28% of sales). Over time this should be closer to a 50-50 split. Currently the Geographical split is 30% EU, 30% AUST, 30% in US 10% emerging markets. The significant area is the US with emerging dominance occuring in this market. In the US the healthcare sector dominates wheras in the EU sales are more Industrial dominant. This means that there is a lot of upside in the healthcare sector for the EU. Further as the Industrial sector starts to return to full functioning we should see further uptick in sales. 

My take on CSX is that as the world opens up CSX will see strong growth. I do firmly believe a transition from being 100% reliant on Vaccines which appear to have efficacy issues on transmission will lead to a greater need of protection of healthcare workers. At the end of the day if they can mandate vaccines for the safety of workers and patients than they should ensure all avenues are considered and this is where CSX growth may occur. Staff such as the one @Rapstar linked will demand stronger protection and IMO N95 masks which have limited evidence will not be good enough and COVID wards, ICU, ED, Paramaedics etc will need to find better alterantives. I would further expect PPE supplies to come back to a more normalised amount compared to what we experienced over the past year and therefore the distributors may be more inclined to sell the HALO product.

An additional point was that each unit has a $120 per annum per unit cost for accessories and parts. Currently there are 100,000 units worldwide (if I heard correctly). This is similar to the ResMed approach where they make a lot of revenue from selling parts and accessories yearly to maintain the longevity of the product.

Disc- Held 

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

Thought I'd outline the various opportunities for the Halo and why I think it has a long growth runway with great opportunity for recurring revenue.

Ambulance

Undifferentiated patient may have fever, high risk contacts or respiratory symptoms prompting paramedics to employ PPE.

Emergency

Immediate care will require PPE until patient cleared. From here several things may happen

-       If patient is low probability COVID rapid PCR test usually employed (~90mins to clear patient)

-       If high risk then multiple formal PCR test usually required to clear patient (6-24 hours)

-       High risk procedure such as intubation possible (Highest level protection warranted)

-       May need urgent operation (cannot wait for PCR) this will involve an intubation for anaesthetic with PPE required intra-operatively (This step is the level of current penetration)

Ward

-       As discussed earlier 6-24 hours to clear (PPE required)

-       If positive then Ongoing PPE requirement

-       COVID wards generally require PPE to be worn when in environment

ICU

-       Similar to above with 6-24 hours to clear (PPE required)

-       If positive then Ongoing PPE requirement

-       Unwell patients with 1:1 nursing

-       Nurse will be wearing PPE constantly without removing for minimum 4hour blocks

COVID is now endemic (not yet in Australia but in the world) given the potentially serious long term effects of infection and the lack of 100% efficacious vaccines the above process will occur on an indefinite basis whether or not the staff are vaccinated (this is a permanent change at least for the next 3-5 years I'd guess maybe forever). N95 masks provide inferior protection, are more uncomfortable and do not provide a verifiable record of compliance.

As you can see there is room for significant expansion from the prehospital setting through to ongoing care of patients who are COVID positive. Even if COVID is not an issue at a societal level it will remain a concern within healthcare. I really cannot see how this doesn’t permeate all of these environments over time.

Some significant pedigree with notable inclusions being:

Chairman:

Dr Ronald Weinberger is the former Executive Director and Chief Executive Officer of Nanosonics (ASX:NAN). He therefore understands the razor/razorblade business model and the ongoing opportunity that CSX has to become the standard of care.

Executive director

Mr Dan Kao, is a former senior designer for ResMed. He founded the business of CleanSpace in 2009 and has been a director of CleanSpace since April 2011. Mr Kao worked in the medical and healthcare industry for over 20 years, and has extensive experience in manufacturing, supply chain optimisation, quality management systems and in securing patents for innovative technologies in healthcare.

CTO

Alex Virr

Another former Resmed engineer working at Cleanspace since 2010.

For me it’s too early to say regarding CEO Alex Birrell and CFO Elizabeth Harvey but both have long careers have been at the company for some time (2010 & 2017) and a cursory search does not raise any red flags.

Management do have a decent chunk of the company currently sitting just under 10% of issued capital.

It is my opinion that CSX is one of the best opportunities I have seen in my short investing career.

A high margin manufacturer of powered air purifying respirators. Razor blade business model with ~40% of revenue from high margin consumables.

They are a busted IPO who raised a ton of cash during 2020 due to their unique position as a PPE solution during COVID. I suspect a bunch of short term money piled in due to the narrative and one off profit growth which then quickly dropped off secondary to a shift to vaccine focus. The market is now pricing the company to return to pre-COVID levels of sales and I strongly believe this is wrong.

This view is formed by

-       My personal experience using the product

-       Witnessing the land and expand strategy of the company

-       Attending a research presentation highlighting the satisfaction that the users experienced over masks. (Done independently).

-       Having been quantitatively fit tested for N-95 masks twice there is one on the market that fits me which retails for ~$7 ea. Generally is kept locked in a cupboard which I have to ask to access.

-       Having viewed small audits of the most popular available masks in Australian hospitals the most available has ~45% pass rate the best is only around 80%.

-       Most Australian healthcare staff have still not been quantitatively fit tested and are unaware that they are unprotected by the standard equipment.

-       My understanding of how we treat and will treat patients moving forwards who are suspected or confirmed COVID even with vaccinated staff (ongoing requirements for isolation and respiratory protective equipment)

Balance sheet strength to quickly drive sales up. $42 million in cash no debt (~1/3 of market cap).

Currently there is not a legitimate competing product (have a look at what other PAPR systems look like.)

Short term shareholder base negative trend leading into tax season will lead to further tax loss selling in my opinion.

With so much cash on the balance sheet I suggest this is a heads I win tails I don’t lose much situation and the upside is truly asymmetrical.

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.