Unfortunately I wasn't able to attend LBL's AGM on Thursday, but reading new CEO Rob Freeman's address I was impressed by the clarity of the strategy he was outlining. He spoke about the company's strengths, the challenges they need to overcome and the constant drive to solve customer problems.

Pleasingly the first four months of FY26 continue the turnaround seen in 2H25. Through to October, LBL reported revenues of $15.9m and PBT of $2.5m. LBL was also able to disclose the name of the OEM customer they signed a $2.3m Technology licensing deal with in September as Komatsu, and said they expect this first deal will be the "first of multiple" with two additional OEM's in "advanced stages of negotiation". After some trial and error it appears as if LBL has finally got their Technology segment go-to market correct.

The Investor Presentation that Laserbond released to the market today gives some more detail to the problems in the Products segment.

evenue is expected to remain stable "as a minimum" for the next two halves.The Products division revenue has declined 27.5% on pcp.

The OEM's are reporting impacts from "competitive pressures" and they are implementing strategies to "expand market share". This customer concentration risk which has been previously identified by management is confirmed by LBL's Orders Received graph.

From the about graph the majority of their Products division revenue is coming from two OEM's.

In the FY24 Annual report management stated in regard to decline in Products division revenue that was driven by lower demand from a large OEM , "The Board and management have strategies to diversify revenues so that they are not critically impacted by key customer dependencies. These strategies include developing a wider base of ‘tenant’ customers to dilute the risk and business development plans to target new customers in new markets."

Well fast forward to the current half and there is no evidence that management are fixing this problem. They have stated in this Investor presentation that Product revenue is expected to "remain stable as a minimum" for the next two halves. They are not expecting new OEM's to grow the Products revenue in the next 12 months.

The Laserbond share price has righfully fallen a long way. I now am uncertain of managements ability to execute on their stated strategy.

LBL has guided for FY25 revenue of $43-$46m and net profit before tax of $4.1-$4.7m (NPAT about $2.87-$3.29m assuming 30% tax rate). Taking the bottom end of this they are of a P/S of 1 and P/E of 14.9 looking forward.

How much rope do you give management to turn this around and at what point does this become thesis creep?

Laserbond are a profitable, dividend paying company with some defensive qualities and are relatively cheap however management need to start rebuilding trust with their shareholder base. The best way to do this is forward momentum of the business.

Held IRL (and just holding!)

Ugly. Still digesting completely but while the headline reads investment year, it isn't the extra costs that hurt too much, it's been the collapse of Products revenues. Here is the timeline from 1H24 when weakness first showed up:

Supply issue, but sorted in November so big backlog to eat into 2H24:

Supply issue sorted but then OEM customer upgraded their ERP software which messed up ordering patters. Sorted in June though so 1H25 will see recovery:

"Actually we have NFI why the OEM customer isn't ordering"

More work to be done, but when the last 18 months are outlined like this it doesn't paint a rosy picture!

It’s not a huge purchase but there is generally only one reason for directors to buy shares in a business. On the 26th and 27th February 2024, Non-executive Director Ian Neal bought 25,000 Laserbond shares at $0.75 per share, total value $18,750. Ian is paid a total of $60,000 per year for his role on the board.

Gateway Group

The reason details were lacking in today’s announcements regarding the purchase of Gateway are now apparent. Laserbond have just released an ASX update.

It looks like a great fit for Laserbond providing a base to further expand the business in WA through increased efficiencies and possible synergies with the hard- chrome plating part of the Gateway’s business. Gateway has some large mining services clients that should help to boost Laserbond’s revenues. While it will add to the capex and dilute shareholdings initially, this looks like a good long-term investment for Laserbond. I like the deal!

About Gateway

Established in 2010 to offer a more affordable and customised approach than original equipment manufacturers, Gateway has quickly established itself as a reliable machinery parts supplier.

Our purpose built workshop in Perth (Western Australia) allows us to provide flexibility in our services and allows our customers an involved and specific approach to their machine and maintenance requirements.

Services

Held IRL

Wayne Cooper spoke at the AGM today -- I didn't attend, but in the release to the ASX there was an update on the revenue growth so far for FY24.

Before that, it's worth highlighting (as Wayne did) the last 3 year's worth of growth:

So far in FY24, the company has seen revenue increase by 12.6% above the same period last year. (he actually makes the comparison to FY22 but I assume that's a typo)

At any rate, in his words, the company is "well positioned and primed to continue its strong growth". He once again emphasised the investment made in people, skills and equipment.

Importantly, Wayne reiterated the FY25 revenue target of $60m. Obviously, that's great to hear. But it will require an acceleration of the average growth achieved in recent years, and a doubling of the growth seen in the first quarter.

I've lined up a meeting with Wayne for November 21 to see if we can't get a better grip on the reasons behind this expectation. But if they get anywhere near that target, and more or less maintain margins, the current PE of 20 seems rather tame.

Disc. Held

Not covered with glory here. below is my LBL dividend statement! how did this happen? i had a bushranger (low) bid in for a lot more stock, in the end of year volatility i got hit for 76 shares and then i hoped it would pull back and complete the trade or something, no luck, dumb move. should have raised and closed. now my trade has expired! at least its franked! lol

Hey Straw people,

I'd like to share with everyone the experience of the site visit and meeting with Wayne and Matt - the duo steering the LaserBond ship a few weeks back. (Disclaimer: I hold LBL in my real-life portfolio)

I had a really good time there at their HQ in Sydney. It was an incredible and eye-opening experience. Wayne and Matt were very friendly and approachable and throughout our meeting, were also very generous with their time and knowledge, shown in their willingness to listen to my line of questioning and how thorough their answers were.

I managed to ask them a few questions about their backgrounds, competitive landscape, organisational structure, and their thinking process on capital allocating topics. A few are as follows:

• "How do you measure success?" - to which Wayne suggested that a success to him is to watch LaserBond continues growing without him. Through Wayne's answer, I learned that his vision of success is tied to building a robust team and culture at LaserBond - one that can sustain itself over the long term. To this end, he has assembled a dynamic management team comprising heads of R&D, Operations, HR, Finance, and Marketing. They work together with the goal of driving LaserBond forward, allowing Wayne to shift his focus from day-to-day operations to strategic planning and capital allocation. For me, this tells a lot about Wayne's and the Company's commitment to nurturing talent and fostering a self-sufficient structure.

• "If you could choose one and only one ratio, for example profit per x or cash flow per x, to systematically increase over time, what x would have the greatest and the most sustainable impact on LaserBond's economic engine?" - I got answers from both of them. Wayne described this "x" would be around the efficiency-value contributed to customers (such as the number of hours of reduced downtime) and ESG standpoint (as in the number of worn parts that got scrapped). Matt said that for him, "x" would be the number of new customer orders from new industries/sectors - which somewhat reveals an important driver of LaserBond's growth story and tells me that the risk of economic dependency is always on his mind.

• Competitive Landscape - It is believed that most competitors are typically small family-run businesses that are just happy to be where they are hence no investments made in R&D, sales and marketing simply because "they don't want to grow too big" - this represents huge opportunity for expansion. Also on this topic, I got to ask both Wayne and Matt about the selection criteria for acquisition targets to which Matt assured that would not expand for the sake of doing it and actively look for businesses that are profitable and possess the right tool, equipment, complementing technology and most importantly, the skilled management team and labour force with expertise, given the challenges of finding skilled operators.

And to reflect on the general feeling about the business, I genuinely believe that there is a sense of cost-focus and a frugal approach to most things around the business. This was shown in minimalistic and functional offices and furniture (almost to me too simple and there's nothing that screams ostentatious or fancy), most of the tools and equipment in the lab are second-handedly purchased though still very functional, and the Wayne playfully refers to himself as T-rex - an analogy for having a deep pocket and short hands.

I talked and discussed about LaserBond a bit more here if you are interested in learning about the company.

I hope you find this helpful.

Revenue up 7% on prior half. H2 revenue of $19.9 M. ($38.6 M for FY2023).

Gross margins 54% (53% prior half).

NPAT: $4.76 M

Diluted EPS: 4.34 cents per share for FY 2023.

Final divvy: 0.8 cents per share

Outlook: Laserbond maintain FY2025 $60 million revenue target remains on track.

$2.5M id licencing fees that were guided to be earned in FY2023, have been delayed and will be recognised in FY2024. Flagged recent sales wins in India and another large offshore OEM manufacturer expected to see revenue recognition in FY2024.

DISC: HELD

Interesting chart for our guest this week from Laserbond.

Looks good from a chart perspective.

Ahead of our meeting with Wayne Hooper CEO of $LBL later this month, I recently came across Owen Rask’s (aka @Owen ) interview and site visit. It’s a really good discussion of the history of the company, the family-owner-manager mindset, economic drivers, customers, and the technology licensing strategy.

Thoroughly recommend to those interested.

edited to add the link: https://youtu.be/geRLAorTM5E

Disc: Held in RL and SM. (Small position)

I had the pleasure of meeting the Laserbond management team yesterday via zoom. My takeaways are as follows.

• I raised the query of missed revenue guidance. CEO Wayne Hooper commented that revenue guidance is only a loose guide. He further commented that it was projected out from 2019, which didn't include the impact of Covid. Covid’s effects on the figures were substantial, as it was very hard for them to do business due to lockdowns. The company had previously been criticized for not previously providing revenue guidance, and that's why they provide guidance today, although it should be taken loosely
• CFO, Matt Twist, commented further that the sales team was heavily restricted during COVID and struggled with no person-to-person interaction. When borders re-opened, the sales and marketing team were on the move.
• Target regions for sales included South America, which was a no go zone during Covid.
• Global supply chain issue delayed of equipment to north America and Curtin Uni in Western Australia. The equipment is now expected to deliver revenue in FY23
• The sales representative for Western Australia is currently based in South Australia. They currently have no plans to have a dedicated sales rep in Western Australia but are open to this in the future.
• The current labour shortage is affecting the productivity of the company. This is being addressed by employing staff on overseas Visas. Currently, 5 employees have arrived, and they are waiting on 15 more people.
• Pre-Covid recruitment strategies had included employing high school graduates straight out of school and providing education on opportunities within the industrial sector directly to schools. Covid impacted their ability to continue this as schools were in lockdown.  

The comments above are not direct quotes from the CEO or CFO; they are my interpretation of discussions had

25/8/22 LaserBond 2022 Annual Report

A very strong set of numbers from LBL to finish the year. After downgrading revenue guidance from $35m to $30-31m a couple of months ago I had fear the numbers could look ugly but it appears the revenue miss was largely from delayed Technology sales with the core Services and Products segments doing well and remaining very profitable.

Arguably the numbers look even better than the headlines suggest, with the company failing to normalise out the effects of Covid grants and a lower tax rate from asset write offs in the prior period. Despite missing their revenue targets gross margins improved from 51% to 54%, a fantastic result considering I expected GM's to weaken after revenue contributions from new acquisitions running lower GM's before LBL's technology could be implemented and scaled.

Adjust for the Covid benefits last year and PBT margins grew from 11% to 17% with the total number of $5.3m nearly doubling on last year.

Like a lot of other businesses the balance sheet has some interesting movements with receivables spiking (watch this in the next period) and higher inventories as well. Digging into the notes (7), nearly all of the inventory build is work in progress which would be the Tech sales that fell into FY23. I'd expect that to unwind relatively quickly given management were originally hoping to recognise those sales in FY22.

Overall commentary was very positive with management believing international growth momentum can recover as Covid restrictions ease, they are targeting an acquisition in WA to bolster their national footprint and re-iterated a $60m FY26 revenue aspiration.

LaserBond Limited (ASX: LBL) is pleased to announce a 28.1% increase in profit after tax to $1.52 million from 1.19 million in the previous corresponding period. The revenue performance was also strong with a 13.4% increase to $13.4 million from $11.8 million in 1H21. These results were achieved with the ongoing backdrop of Covid, which prevented sales teams from travelling and resulted in delayed customer maintenance schedules for repair of worn componentry.

Chief Executive Officer, Wayne Hooper, said, “We always believed we had a strong business, but the past two years have proved just how secure and durable the foundations of LaserBond are. We have weathered the substantial disruption precipitated by the pandemic and been tested well beyond any expectation for an extended period of time, and we have produced the sorts of earnings increases that are commendable in a normal trading environment.”

During the half, the business also retained its focus on growth with negotiations and an $11,127 million capital raising resulting in the acquisition of QSP Engineering in January this year to continue expanding its geographic footprint, build capacity and operate closer to customer sites down the east coast of Australia. Investment in innovation also continued with a number of projects underway to further develop and test proprietary products and technologies and preserve LaserBond’s market leading position in advanced surface engineering. LaserBond’s excellent health and safety record also remains intact, with no major incidents between 1 July and 31 December.

Strategy and Outlook

LaserBond has also sustained its focus on growth over the past two years, as well as balancing the demands and challenges of the changed trading environment. On 1 February this year, the acquisition of a Queensland presence for the business was settled for $9 million, consistent with the strategic objective to secure sites closer to customers while building capacity across the business divisions. QSP Engineering is a specialist surface engineering business with a full suite of thermal spraying equipment laser systems that LaserBond can immediately upgrade with LaserBond IP and technology. The operations are expected to contribute revenue in the vicinity of $2 - $2.5 million between 1 February and 30 June 2022.

LaserBond has a strong track record for integrating bolt-on acquisitions to augment capacity and expand its geographic footprint in Australia. In FY 21, the Victorian operations were acquired, and while the LaserBond® cladding cell that was planned for installation soon after the acquisition in 1H20 could not proceed due to the restrictions, it is now operational and expected to add capacity and thus revenue in 2H22.

LaserBond remains strong, committed and on the cusp of realising some material gains from a decades-long innovation program. It has a rock-solid operating platform with a blue-chip client base in essential services sectors, a suite of proprietary products and technologies that are more effective and cost-efficient than the alternatives, and sizeable markets for these products and technologies in North America, Asia and in Australia.

At our Annual General Meeting last November, we revised our long-term revenue target of $40 million by the end of financial year 2022 to approximately $35 million based on the impact of Covid on our operations. Having extended our strategic plan to 2025 year-end, we expect to be able to achieve a revenue target in excess of $60 million. This target, however, is underpinned by a number of assumptions, including the presumption that the constraints to our business and our customers’ operations will have eased to the point that normal economic conditions can prevail.

Mr Hooper also said, “Over the last five full years, we have invested almost $3 million in our targeted research and development program, working closely with customers to identify solutions to problems and expanding those solutions to our broader customer base. And over that time, we have gained a significant market lead in our areas of expertise, developing products and technologies that are well ahead of the competition. As restrictions around the globe ease, we are in a position to profit from our R&D investment by selling these products and technologies into specific, valuable markets both here in Australia and offshore.”

Disc: Held

5/11/21 2021 AGM Presentation

Well the worst kept secret in ASX microcaps has now been made official; LBL has backed away from their long held $40m FY22 revenue target. The market has expected this for some time (and the company had hinted they needed acquisitions to hit the target) but they have now come out and provided organic FY22 guidance of $34-35m. That would be 38% growth on the low end which is still a fantastic result and largely explains why shares barely budged despite management running back the previous target.

Revenue for the first four months was a tick over $9m meaning the business needs to accelerate through the remainder of FY22, but the platform is set for that to happen particularly with the key markets of NSW and VIC now fully re-open. Management remains committed to finding a bolt-on acquisition, targeting QLD and WA which would really flesh out their geographic footprint nicely.

LaserBond has executed an agreement with Curtin University in WA for the design, construction and supply of a LaserBond Laser Metal Deposition system. The system will provide Curtin with flexibility to provide research, training, demonstration and delivery of complex 3D metal printing, laser additive manufacturing, laser cladding, laser welding, and laser heat treating with associated materials development. It will provide revenue of $0.96 million in FY22 with consumables sales in the future. The ongoing collaboration will assist LaserBond in R and D of materials and applications as well as provide a demonstration facility for LaserBond technology to potential WA industry partners.

LBL FY21 Performance Summary and Outlook Statement

Earnings for FY2021 released by Laserbond today were characterised as being stable by the company. It is a decent yearly result, in my opinion, given the on-going limitations on travel and their customers' business activity.

Outlook Statement

Given the new trading paradigm under Covid conditions, the Laserbond Board and management have revised the company’s strategy with a major focus on penetrating lucrative markets for Laser Bond, products, services and technologies in North American, European and Asian countries. They intend to deliver new products and technologies that were originally solutions for individual customers and have been further developed for broader market application.

To realise this growth, Key aspects of their strategy include:

·       domestic expansion of the Services Division via acquisition

·       growth in the Products Division through increased international marketing with likely warehousing, distribution and possibly manufacturing offshore

·       growth in the Technology Division through licensing the new E Clad technology and other proprietary technologies

·       a continued commitment to research and development to innovate ahead of the market

The founding CEO, Mr Hooper said they were gearing up their sales and marketing function to monetise the products and technologies that they’ve invested greatly in over the years.

22/2/21 Dec 20 Appendix 4D & Financial Report

A mixed result from LBL with revenue increasing 5% and NPAT increasing 3% however some big moving parts between segments. The core Services division revenues fell 21%, but also benefited from four months of the United Surface Technologies acquisition meaning organic revenue fell even further. Management did not break out the acquisition contribution which was disappointing. Operations were hit hard by Covid, with many customers deferring maintenance and interstate border closures meaning some customers unable to freight equipment for servicing. PBT margins fell from 18.2% to 16.7% which was a decent result given the revenue fall.

The Products division was the shining light with revenues increasing 45%. A lot of this was recognising revenue from orders that slipped out of the prior period, but nonetheless it was a great result for the segment. PBT margins grew from 17% to 19.7%.

The Technology division recorded minimal revenue in this half, but commentary here was the clearest from management it has ever been of the immediate opportunities with terms agreed with a US customer pending final testing and management confident enough of closing new E-Clad technology licensing sales to order important components with long lead times ahead of agreed terms.

Some one-off items that should be considered are $840k of Other Income (I suspect largely JobKeeper) and management's decision to pay $192k bonuses to employees for their work over the Covid period.

The business continues to be a solid cash generator with $1.73m of operating cash, with $423k capex.

Management provided commentary on their medium/long term strategy and it was confusing with the $40m FY22 revenue goal maintained but the strategy tweaked for growth out to FY25. My read is that further acquisitions are now required to hit the $40m revenue target with targets identified in WA and QLD.

Other commentary supporting growth was open quotes of $10m with confidence most would proceed, and the recovery of the US steel industry which has struggled to keep up with demand during Covid.

Overall it seems as though the business is well-positioned to recover with the economy post-Covid, but this is the first report I have been disappointed with communication from management in the years I have held LBL. The failure to disclose the UST acquisition, break out Other Income properly and not give a detailed breakdown at the AGM update of the large split in revenue between Services and Products (they were just bundled together as 11% growth Jul-Oct) is unacceptable and I will provide this feedback when I get a chance.

24-Feb-2021:  CCZ Equities Research: Laserbond (LBL): Stronger second half expected, Products division performing well

Analyst:  Daniel Ireland, [email protected], +61 2 9238 8239

Stronger second half expected, Products division performing well

• Recommendation: BUY
• Target Price: 83cps (previous 108cps)
• Market Capitalization: $54m
• Index: None
• Share Price: 56cps (26-Feb-2021:  59.5cps)
• Sector: Industrials
• First half update: LBL declared 1H21 revenue and EBITDA of $11.8 M and $3.1M respectively (vs $11.3M and $2.7M pcp up +4.8% and +13.4%). The result was lower than expectations, largely due to COVID-19 restrictions causing delays in interstate transportation of parts to LBL’s facilities in NSW, SA and Victoria. Most notably, LBL’s softer services revenue that experienced delayed sales from new customers and reduced maintenance servicing for large mining and manufacturing businesses. However, the company is expecting a stronger second-half contribution from the services division (46% of group revenues 1H21) with the company declaring a ‘record volume of open quotes for active opportunities that currently exceeds $10M, with much of this work expected to proceed’.
• Services softer, Product sales strong: LBL displayed strong product sales during the first half ($6.3M up from $4.36M, +45% vs pcp), due to a product reconfiguration from a material OEM customer, combined with strong general demand. Management also highlighted several new products will add to the current sales momentum, including NanoClad© and EClad© which are close to commercialisation and promise to disrupt significant addressable markets. With lockdowns interrupting business conditions in 1H21, United Surfacing Technologies (UST), which was acquired in June 20, is expected to rebound in the second half, regaining the lost momentum caused by lockdowns in Victoria.
• Technology Division: LBL have ‘two promising local opportunities and one international opportunity under negotiation’, and we expect more opportunities will open as border restrictions ease. This will enable LBL’s sales force to meet customers face to face, further increasing tech sales and licensing revenues. The company noted that a technology sale in the US was imminent, subject to final testing, however we have not included these in our numbers given the uncertainty in timing (tech sales have traditionally added between $1.2M-$1.7M revenue for a core laser cladding cell, $200K in licensing revenue and $1M in consumables pa).
• Valuation: We reduced our valuation to $0.83 per share (previously $1.08) taking into account a weaker services contribution. We have reduced our estimates for FY21 Revenue to $27M and NPAT to $3.3M (CCZ prior forecast Rev $32.3M and NPAT $4.2M) excluding technology sales in the second half in our assumptions. We have also reduced the company’s Fy22 $40M revenue target and only included organic revenue growth as it remains unclear as to the timing of an acquisition which is required to reach the company’s stated target.

--- click on the link at the top for the full CCZ report on LBL ---

17/11/20 2020 AGM CEO's Presentation

Decent update from LBL at the AGM last week. Revenue for FY21YTD is up 10% despite on-going challenges from travel restrictions for engaging new customers (particularly in the US for steel mill rolls). Management once again stuck to their $40m FY22 revenue target.

What interested me most was the company yet again remaining very tight lipped before revealing a new product as a result of R&D. Both Micro-Clad and Nano-Clad were announced as new products on top of E-Clad (trying to replace hard chrome plating) and steel mill rolls and rotary feeders. While the Services segment will remain the core for some time, it is clear developing new Products will be a major engine for growth.

11-Nov-2020:  CCZ Equities Research: Laserbond Limited (LBL): Australian industrial company going global

Analyst:  Daniel Ireland, [email protected], +61 2 9238 8239

• Initiating Coverage - Laserbond (LBL): LBL’s products and services reduce the maintenance costs for critical machinery, with maintenance largely determined by corrosion and abrasion as key determinants in the useful life of machinery parts. The process known as laser cladding, enables parts and machinery to be protected from harsh conditions thus improving wear life. These services/products maintain mission critical parts used in manufacturing and minerals extraction, with life improvements ranging between 2x-20x a standard part. The cost to buy and maintain such machinery is a considerable cost, whilst downtime experienced during replacement compounds this expense. LBL’s laser cladded products and services protect machinery from this wear.
• Significant Industry Potential: Abrasion wear is estimated to cost up to 4% of GDP, with estimates of circa $30B pa across Australian industry alone. Industry research have found that even a modest improvement in wear life of critical components is crucial to improve the efficiency of capital-intensive industries. The applications for LBL’s technology are far reaching, across multiple industries and applications, with many avenues yet to be explored. LBL’s products have proven to significantly increase wear life, offering a cost-effective alternative to discarding parts once worn.
• High Barriers to Entry and Strong Growth: LBL’s heat diffusion process reduces the temperature required when laser cladding, resulting in a harder and longer lasting surface finish compared to traditional cladding methods. The company’s IP, a ‘methodology around surface application’ has been built over two decades of experience. Combination of expanding sales in the US and imminent R&D technology commercialisation could see LBL increase sales 2x within 5-7 years.
• Significant profit growth forecast in Fy21: Strong organic revenue for Services and Products (CCZ forecasts 11% & 20% vs ˜10% & 20% from LBL) in Fy21, combined with the 12-month integration of United Surface Technologies will accelerate revenue growth (CCZ forecast $32.3M Fy21, up 45% on Fy20). CCZ estimates the company will execute 1 Technology sale per annum (vs ˜LBL 1 in Fy21 & 2 thereafter), aided by the recurring support and services.

--- click on the link at the top for the full CCZ report on LBL ---

21/2/20 December 2019 Appendix 4D & Financial Report

LBL released a messy 1H20 report yesterday, with the market reacting accordingly with a 23% sell off. The clear negative was a 9.1% fall in the revenue of the previously high flying Products division. On top of that, the reported financials were impacted heavily by the adoption of AASB 16 given they lease the majority of their equipment through financiers.

Trying to back out the best like for like comparison of profitability I think using EBITDA and removing the benefit of additional interest and D&A from the 1H20 result is the best metric. This results in EBITDA of $2.25m vs $2.07m in 1H19 or a 9% increase. While I don't like using EBITDA (particularly for a business like LBL), it is helpful here because it puts the AASB 16 impact below the line.

9% is definitely disappointing compared to expectations and a sharp slowdown from the AGM update in October, however it is positive that they were able to maintain some operating leverage even as revenue came in lighter than expected. This was driven by leverage in the Services division with 21% growth resulting in gross margins improving strongly from 45% to 50%. This was good to see as a return to the historical levels of ~50% had been flagged in previous reporting periods after the segment had invested heavily in new equipment and training for new employees.

Turning to Products, management commentary suggests the result was not as bad fundamentally as it was reported, with orders actually slightly up on the prior period however due to timing of shipments reported revenue declined. They re-iterated their belief that it represents the highest potential for revenue growth for their medium term $40m revenue target, highlighting some customers wins from late in the year.

As expected there was no contribution from the Technology division, but the update was positive with management stating they expect one more sale in the 2H and the first license payments from the UK customer won last year. 

Cashflow was weaker than the prior period however the prior period did have the benefit of residual payments from the Technology sale last year. 

Looking at operating expenses, other than the higher D&A and interest costs from AASB 16, they fell from $3.3m to $3.1m. With higher gross margins and good operating cost control, if Products revenue can re-accelerate in the 2H as management expects then they are a chance of hitting my original target of 25% profit growth.

Given a large part of the Products growth is shipments to US steel customers, they can be tracked at https://panjiva.com/Laserbond/39198550. It is definitely worth checking every couple of weeks to track whether the recovery is happening as planned. Note that there has been no shipments registered so far in the 2H which is a concern.

20/8/19

Laserbond 2019 Annual Report

LBL released their annual report today which was a solid beat on their previous guidance.

Revenue came in at $22.7m, beating to top end of guidance ($22.2m) and profit before tax of $3.8 smashed the top end of guidance ($3.5m).

The highlight of the result was the margin expansion with gross margin of 47.4% compared to 44.5% in FY18 and EBITDA margin of 21.6% compared to 14.2% in FY18. This beat my expectations of 20% EBITDA margins.

While revenues were slightly lower than I expected (Services revenue declined half on half) management addressed this by clarifying this was due to capacity constraints with key machinery being used in the period to satisfy the Technology sale. 

Overall the outlook was extremely positive with the long term goal of $40m revenue by FY22 confirmed, with initial guidance of double digit revenue growth in FY20. To hit the target of $40m revenue, LBL will need roughly 20% CAGR revenue growth over the next three years, which is certainly likely given the pace of current growth and new equipment installed to increase capacity over the year.

Management have been conservative by stating they expect margins to remain flat, made up of an increase in the gross margin offsetting the loss of roughly a $500k government grant. However, assuming 20% revenue growth in FY20, I think margins expand and EPS can grow by at least 25%.

Operating cash flow of $4m was a great result, with the vast majority ($3.4m) invested back into the business in a heavy investment year. This will help address the capacity concerns and drive revenue growth in the future.

Finally, management provided an in-depth breakdown of the Technology division, in particular the various ways it will generate revenue. The first is the production of the Laserbond system itself generating revenue between $1.2-1.7m (note the FY19 tech sale was for $1.9m as the client required some customised automation within the system). Secondly, there will be on-going license payments of "hundreds of thousands" of dollars for the term of the agreement, with the FY19 tech sale being a 7 year term. This will be extremely high margin with "little in the way of additional costs". Finally, customers will be contracted to purchase LBL's consumables, being the powders used by the Laserbond system. Each system can use up to $1m of powder at full utilisation, but management did note this revenue would be lower margin to the other streams. 

Management have a goal of one Tech sale in FY20 with two in FY21 and beyond. The Tech division represents the largest blue sky for LBL as it could signify the shift away from a manufacturer to an IP business.