Q1 FY22

I have had a quick look at Damstra’s 4C results - they are disappointing - I thought I would present the bear case here.

• While not unusual, some selective reference points are used in the quarterly. I think QoQ is a better reflection of a business progress, but Damstra swap between Q4 and Q1 FY21 to gloss up their figures. With their recent acquisition included, ARR is still down in comparison to Q4 FY21. (see below chart)
• Didn’t meet guidance. In fact, they were quite some distance off it – 20% rev growth when their guidance was initially 32-40%.
• Cash burn concerning, pushing 2m burnt in the quarter. This is my biggest gripe with Damstra – staff and admin costs account for 80% of profit intake. When you add manufacturing costs to the equation, I see an orange flag. Is this sustainable? I would like to see more receipts from customers without overheads going through the roof.
• 6m cash in the bank after the quarter. Is a further 2.5m still to be deducted from their recent acquisition? A capital raising can’t be far away.   
• Loss of a material customer – management citing ‘descoping arrangements’. They suggest that no competitor has replaced what they do and they remain in discussion with Newmont (the customer) re: future arrangements. How important is Damstra’s service if Newmont can phase it out and not replace it? The overall impact to Q1 is estimated to be at 0.8m. Is there another possible orange flag here?
• Have management been a little deceitful with regard to the ‘descoping arrangements’ of a material customer? They are happy to announce immaterial contracts as standalone announcements but there hasn’t been any release noting what is a significant loss in revenue for the company. 

DISC: Not held