I tagged along to the SOM AGM today. There’s no virtual option and I wanted to see the new CEO(s) in action.
I went a couple of years ago and there were not many in attendance which I always like, and I wanted to go last year but couldn’t make it so there I was.
They upgraded FY25 Revenue guidance by 5% from $100m to $105m and EBITDA (excl leases) by 40% from $5m to $7m before the open. The share price dutifully rose 46% in response!
SOM has been on a rollercoaster this year from lows at $0.21 at which they raised, then up to $0.45 before hitting $0.27 the day before the AGM and back up to $0.40 on the upgrade today.
It’s a real mixed bag this year. They’ve had significant capacity constraints meaning they couldn’t supply customers who promptly switched to competitor devices (more on this later).
So with Revenue and reputation taking a self inflicted hit, cash reserves getting dangerously low and high interest debt climbing, the CEO was exited.
2 NED’s parachuted into Co-CEO roles and promptly did a massive Cap raise for 100% of issued equity at a 45% discount! The CFO then moved on and the supply issues were addressed so revenue could grow again.
This salvage job has now been largely completed and further improvements to capacity and exec ranks are under way. New CFO Was announced at the AGM alongside the upgrade. This was good timing for the board to face shareholders as this relatively good news seemed to soften up the mildly hostile shareholders in the room.
As soon as the first questions were taken on resolution 1, the floodgates were opened and all sorts of questions, concerns and comments were raised.
The Chair is a seasoned campaigner and handled them all well.
Strategy has shifted away from pursuing the potentially company making / breaking “Rest Assure” product at all costs to rebuilding the foundations of the core business.
This did not seem like good news to most shareholders as the potential upside has been capped for now so the potential downside can be limited.
The board seems to think it makes sense to mend the leaks before hoisting another sail but that does not seem to align to the risk appetite of most shareholders who asked almost exclusively about this new “Rest Assure” product which is going back to the FDA next year with hopes of beta testing in FY26 and launch in FY27. Lots of questions about the share price too and most must have been well under water (SP was down 90% over 7 years with share count up more than 3x in that time).
The big takeaway for me is that the oral device for OSA they have is the best and possibly accounts for 25-30% of the fragmented markets they service. BUT, the turnaround time from fitting to delivery is often a bigger swing factor for ‘customers’ who will quickly switch to a faster solution if SOM cannot deliver their Somnodent product fast enough. This turnaround time has been improved by 30% but there are limits as they have one ‘milling’ factory in the Philippines that cannot compete with faster deliveries from inferior competitors based closer to the ‘customers’ in the US, Europe and APAC.
These ’customers’ are dentists and their patients are given what the dentist recommends. The dentist wants to get paid fast as they are typically running a small business on the smell of an oily cash flow.
So it seems that SOM do not have a sustainable competitive advantage and should be valued accordingly.
“Rest Assure” has the capacity to bring oral devises in line with the industry standard CPAP peddled by Resmed and others (CPAP is ~90% of the OSA market) in terms of measuring patient compliance and efficacy – critical in an industry focused on reimbursement.
So “Rest Assure” does have a chance to shake up the industry – eventually but it’s unclear what sort of market response it will generate from ‘customers’ and sleep physicians (expect very positive), and what competitive response it will elicit from bigger competitors (who sell CPAP and will be watching closely).
If / when this “Rest Assure” finally gets approved there should be a lot of noise and SOM may get taken out (if cheap), or their competitors may get taken by Resmed, Phillips, Fisher & Paykel, etc and CPAP smarts put into their devices to go head to hear with SOM.
Resmed also have oral devices (SnoreRx) so presumably could pivot to putting their high tech smarts for monitoring compliance and efficacy into a modified version of these as Somnomed have done?
Disc: Held (Small position)
