20/10/22 LBL 2022 AGM Presentation

Coming back to LBL's AGM after Wayne's meeting the other day where I thought he did a fantastic job of describing the business and the positive outlook. Just a few short years after I attended an AGM where I was the only non-family member or employee present, LBL now has a much wider following with various brokers and funds on board now.

The update on FY23 was strong at the AGM, 36.4% revenue growth in the core Products and Services segments, with the Technology sales yet to be delivered and revenue recognised. No guidance on margins was given but I was extremely impressed at how they were managed in FY22 and there was commentary that inflationary pressures were yet to impact the business with price increases successfully passed on.

I am expecting 50% revenue growth for LBL in FY23, while the 1Q23 36.4% growth rate is below trend, the fact Technology sales haven't been booked yet will make up the difference.

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.

28/1/22 Market Update

Nice of LBL to give a little update through all the market volatility.

Nothing major, but good to see revenue growth accelerate through the end of the year with revenue growth through the first four months of 8% given at the AGM accelerating to 27% in the final two months to give the 13% reported growth over the whole first half.

$2m contribution from recent QSP acquisition in the final five months of FY22 seems like a good contribution given at the time of the acquisition management disclosed the business averaged $3.5m revenue over the last few full financial years. Whether that is LBL driving growth immediately, Covid recovery or something else is not clear but still nice to see.

2H22 shapes up to be a crucial period for the business, with guidance implying ~$21m revenue or more than 50% growth half on half.

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.

28/5/21

License Agreement with North American Manufacturer

LBL confirmed they have now signed the Technology license agreement with a North American manufacturer they had alluded to in previous announcements. Revenue of $1.5m with $144k on-going license fees and ~$670k consumable sales to be recognised in FY22.

Importantly management committed to their $40m FY22 revenue target which I believe implies another two, possible three Tech license sales.

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.

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.

18/8/20 Laserbond 2020 Annual Report

LBL released their FY20 annual report. Revenue decline of 2% was already flagged in the update provided in the announcement of the United Surface Technologies acquisition, but profits held up better than I expected to be flat on last year driven by strong gross margins in the Services division.

The Products result was disappointing given it was expected to be the big earnings driver in FY20, but the outlook remains positive with management confirming orders up 10% with shipment delays meaning revenue recognition was deferred to FY21. Tracking US exports suggests this is true with a number of shipments already sent in FY21 with some customers having multiple orders already.

Technology segment also didn't register a licensing sale which was originally budgeted, but given how conservative management is I expect they will record at least one in FY21.

A Technology sale combined with pent up Products growth and a $4m contribution from United Surface Technologies means FY21 should record extremely strong revenue growth on FY20. Margins are a bit trickier to forecast but even if they stay flat it means LBL will do $4m NPAT which would be extremely cheap on the current market cap of $48m

I think it is very hard for anyone to accurately predict on a macro level how long the current downturn lasts for and the long term effects of it. What we can and should do though is look at individual businesses and assess the impacts to them from the coronavirus, positive or negative.

For LBL I emailed CEO Wayne Hooper who subsequently released an announcement to the market. He confirmed that the business has seen no material impact on the business so far and they remain confident in their short and medium term targets. Their customers and suppliers have been exempt from restrictions so far and no issues with freighting either.

In a sign of their confidence LBL continued with their dividend payment and Wayne has recently bought some small amounts of stock on market.

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.

22/02/19 December 2018 Appendix 4D & Half Yearly Financial Report

LBL reported their 1H19 results. Revenue of $10.49m came in at the top end of guidance, with EBITDA of $2.07m beating guidance of $1.8-1.9m.

The result was driven by strong growth from the Products division, which grew 103% to $4.80m to make up 46% of revenue (from 33% last year). This helped EBITDA margins grow from 7% to 20% as Products have a 35% EBITDA margin compared to Services at 14%.

Looking forward, management didn't provide specific guidance, however commented that first half growth will be "reflected" in the second half, with January "already demonstrating continued growth".

Other notes:

Services gross margin was 45%, however management confirmed that the margin is still depressed due to the extra investment in skilled employees and are targeting a return to the historical 50% levels as those employees become more proficient.

Despite not being broken out, management stated that there were some one off costs in this period associated with the Technology sale due in 2H19.

The Technology sale was confirmed to be over $1.8m, a nice increase on the $1.5m I was expecting. Further sales are expected in FY20 as a "significant part of the company's planned growth".

Management outlined roughly $500k of planned capex in the next few months to service current growth.

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.

5/12/18 LaserBond successfully breaks into the US Steel Industry

As flagged in their Annual Report, LBL have shipped their first order of Composite Carbide Steel Mill Rolls to the US. This builds on the $2.6m of Products that were exported in FY18, targeting the US steel industry which is 15x larger than Australia's.

Importantly, the business continues to focus on international growth, both with new regions and new products. Hopefully more information in the 1H19 report.

7/5/19 Strong Revenue Lifts Profits for FY2019

LBL management released guidance for FY19. Revenue is expected to be $21.6-22.2m and EBITDA to be $4.3-4.6m. Using the top end of guidance which I believe is conservative, EBITDA margins are forecast to increase from 19.7% in the 1H19 to 21.4% in the 2H19.

Ultimately I think the guidance is conservative given 1H19 revenue of $10.5m and expected revenue of $1.8m from Tech division means that 2H19 core revenue would be $9.8m at the top end of guidance.

Unfortunately there was no further colour on the development of further Tech sales, though we likely get an update at the FY19 results.

11/10/2018 First Quarter Revenue Up 44%

As the title suggests, LBL announced that unaudited figures for the first quarter of FY19 has shown organic revenue growth of 44%, accelerating from the 27% organic growth in FY18. The Technology sale announced a couple of months ago to a UK multi-national will also add at least another 10% on top of this to FY19 revenue growth. 

Management stressed that while there can be fluctuations with quarter to quarter results, there are no signs that the increased demand from customers is slowing down.

Importantly, further information on the FY19 outlook will be provided at the AGM in a couple of weeks to potentially give an indication as to margin recovery.

27/8/18 Laserbond 2018 Annual Report

LBL reported their FY18 results. Revenue increased 13.8% to $15.65m and NPAT increased 12.3% to $1.25m after excluding a one-off inventory impairment management are confident of being compensated for.

A very strong result after keeping two things in mind; first, FY17 included the company's first sale in the newly created Technology division for $1.44m. FY18 did not have a Technology sale, however one has been recorded so far in FY19 with management confident of more. Excluding the Technology sale from FY17 and "core" revenue grew 27%. Second, 1H18 was an investment period for LBL as they increased their workforce by over 40% to meet the increased demand from customers. This resulted in higher training and overtime costs which impacted profit margins in the short term. However, 2H18 saw a rebound to higher profit margins in line with historical figures. Isolating the 2H18 NPAT results in $1.02m, a more accurate number for the on-going earnings of the business.

Looking at other comments from the Chairman and Executive commentaries:

Core revenues are expected to grow at "similar" levels to FY18 with margins returning to higher historical percentages.

Several EPS accretive acquisitions have been identified and currently in negotiations.

New product designed for the steel industry has had successful trials with an Australian customer and now in talks with major US steel producer.

Strategic plan put in place to generate $40m revenue within 4 years.  

10/8/18 LaserBond signs Technology Licensing Agreement with UK Multinational

As flagged in their FY18 guidance, LBL has signed their second Technology sale. The customer is a UK based multi-billion, multi-national engineering company. Based on my back of the envelope numbers this will add $1.5-2m to revenue in FY19 which would be in line with the first Technology sale of $1.4m.

LBL stated that this sale only relates to the customer's UK operations, but given they have operations in all major continents the chance of further Technology sales is high. A further comment of other enquiries being received about Technology licensing also sounds promising.

5/2/18 FY18 Revenue

LBL announced core revenue growth of 27% with margins rebounding to historical highs after 1H18 was a period for re-investment. Guidance for FY19 was for continued double digit growth with margins remaining consistent.

LBL's new Technology division which involves LBL licensing their technology reports lumpy upfront sales with on-going licensing payments. After reporting their first sale in 2H17 ($1.4m) there was no sale in FY18. However opportunities have developed and LBL expects to announce a second Technology sale in FY19. 

Tiny family-run business focused on the provision of laser coating services primarily for mining and manufacturing. Product provides a longer useful life for equipment used for drilling or grinding. Tied to mining capex and share price has languished since 2012.

However company remains profitable and paying a small dividend. FY18 results muted by investment in staff and R&D, however experienced management team believe benefits will flow through in FY19.