Ann: Appendix 4C - quarterly, page-45

Today's July 2017 4C - Lots of positives and negatives... and hidden surprises – good and bad.
Here is my Analysis of the numbers → I've compared each FY 2017 4C, and the 2015, 2016 FY's compared it with July 2016 4C. To be honest – the company WAS a mess. Its trending in the right direction but ain't out of the woods yet. There still appears to be a few minor areas of minor mess but the trends are positive in all cases.

Costs - Appeared high so lets break it down starting with Staff costs.
Staff Costs
2017 July - $4.4 M
2017 July Estimated – $3.9 M
2017 Apr - $3.9 M
2017 Jan – $3.6M
2016 Oct – $4.4 M
2016 Jul - $3.6 M


2017 FY – $15.9 M
2016 FY - $15.1M
2015 FY - $12.1M
Ok – so staff costs have gone up since the last quarter a small amount, but still more than estimated. In fact, since WP has taken over, staff costs have risen slightly compared to PCP (prior corresponding period) and year on year. My take on this is AHZ's wage bill has remained similar but the sales team have generated an extra $8M for that cost. I'm also under the impression that as per WP's statement – there is a minimum size that the company needs to be to sell stuff. The structure in the USA is set so not expecting much growth in wage costs but am expecting a continued growth in sales.
Positives: My expectations are that $15M per annum remains the minimum baseline spend for future wages as the quoted structure with which to sell the ADAPT products – in the USA. I'm expecting $17M wage bill for next year based on this quarters $4.4M*4 =$17.6M and would say $4.4M per quarter is now reasonable but doesn't take into account Europe, China, India.
Negatives: How much is Europe going to cost to set up? Another $10M perhaps. What about China and India. My personal belief is wages are going up in the future. I'm not sure how much and its only my guess.
Sh1t – my positives and negatives were almost the same.


Cost of Sales
2017 July → $2.1M
2017 Apr → $2.45M
2017 Jan → $3.5M
2016 Sept → ??? can't figure this out but a number of $6.1M under working capital is listed
2016 Jul – $4.5M (again working capital so not sure if comparing apples with apples)
2017 FY - $12.4M
2016 FY - $9.03 M
2015 FY - $7.17 M
Ok – We are making more so its going to cost more. But to make an extra $8M in sales AHZ had to spend an extra $3.3M year on year with improved manufacturing success. Add in staff costs, and that $8M increase in revenue took $4M to earn.
Positives: Cost of goods sold is trending downwards. I'm guessing this is the improved manufacturing rates so this is good news. Its one key area that WP targeted that is having good returns. Well done Scotty.
Negatives: COGS actually went up – but i'm guessing this was because more products are being sold. Also the working capital item is a confusing until Sept 2016.


Costs in General / Cash Outflows
2017 July - $9.5M
2017 July Estimated – $8.3M
2017 Apr - $9.3M
2017 Jan - $9.3M
2016 Oct – $11M
2016 Jul - $9.3M


2017 FY – $35.6M
2016 FY - $44M
2015 FY - $35M


Ok – this surprised me. I added up all costs and left out income. That's how much AHZ spent in 2016 and 2015 - $44M and $35M. Ok – add revenue, other income, and you are left with the $25M and $26M losses for 2016 and 2015. WP has effectively reduced pure costs by $8.5M in one year. Not a great amount by itself but he has done it by increasing revenue by $8M with more products being sold or an $18M turn around. In effect total costs to run AHZ for 2017 are about the same as 2015.
Positives: Trending in the right direction. A lot of effort has gone into getting 4 extra products to market. In my opinion – cardiocel by itself was never going to make this company. Neocell, 3D, are unique products and will either make it or break it. TAVR is supposedly a world beater but we await the sales data most patiently. The pressure is now on WP to deliver on that advertised blue sky.
Negatives: This year WP must deliver large 3D sales growth and get TAVR to market ASAP. If they don't then I don't see much of a future. Costs are still high, and the realism is AHZ will spend about $35M a year at minimum to make their revenue.
A lot of people have called for a different sales structure – data is data but the issues are that this sales team is apparently trained to assist with technical support during a surgery on how best to apply the Adapt products. I don't think a generic sales team could do that and hence I think WP has gone the right direction with a company trained and focused sales team.


Receipts from Customers
2017 July - $4.5M
2017 Apr - $6.6M
2017 Jan - $4.2M
2016 Oct - $4.9M
2016 July - $3.7M
2017 FY - $ 20.5M
2016 FY - $ 13.5M


How to put it bluntly. Cash flow is king. AHZ are negative. Everyone believes AHZ will turn it around – this next 6 months and quarter the shareholders need to see receipts and revenue jump by at least $2M per quarter, and sustain that growth. My expectation was for $21M revenue so am hopeful as was exceeded but also a little disappointed with the relatively high costs to make that revenue.


Sales Revenue
2017 July → $5.1M
2017 Apr → $4.9M
2017 Jan → $6.1M
2016 Sep → $6M
2015 July → $4M


2017 H1 → $12.1M
2017 FY → $22M
2016 FY → $14.1M
2015 FY →$10.1M
So that implies AHZ decreased revenue by $2M for 2nd half compared to first half 2017. All I can say is that since March, AHZ has a largely new workforce to sell ADAP products and hence back to scratch in March 2017. They also introduced 3 products (neocel, vascucel, 3D) with TAVR to come which is that increase in R&D
Negatives: revenue was increasing at 40% year on year when WP took over. Quarterly sales were increasing at 41.5% prior to WP taking charge. I would say 2 giant steps backwards to make 3 similarly sized steps forward. Not perfect but costs were the issue apparently – not revenue!

Loss / Net Cash
2017 July → $3.2M
2017 Mar → $450k PROFIT...
2017 Jan → $5.1M
2016 Sept → $4.8M
2016 July → 4.2M
2017 FY → $12.6M
2017 H1 → $9.9M
2016 FY → $25.1M
2015 FY → $26.8M


Ok – AHZ are still losing money. Look at the trend. I would suggest the corner has been turned and $3.2M is the best loss aside from the small profit last quarter. Not perfect but now trending in the right direction with no hidden surprises (ie vax, legal bills, un-controlled costs, etc). Regardless a loss is still a loss. I'm not 100% happy myself but I understand why but my expectation was a lower loss or break even. If estimated costs (which should have been under control) were achieved, then the loss would have only been $2M. That's a fail! That is an example of uncontrolled costs IMO.


Prior to WP, we were losing about $25M a year. This year during a growth year AHZ lost $12.6M. Total Costs year on year have decreased by $8M in only one year and the trend is getting better → restructure, legal bills, payouts, many new hires of quality people are behind us. Revenue HAS increased about 58% from last year. If we keep this rate of revenue increase – then one could reasonably expect revenue of $35M FY2018 or more. I think with new premium products such as TAVR, 3D, and Neocel that AHZ will achieve this number and more and hence are on the path. In fact they AHZ has to achieve otherwise they are still going backwards. Hence revenue must increase by on average just over $3.3M per quarter – not a big ask if TAVR released soon and 3D is fully released.


Anyway, I can see the light at the end of the tunnel.
I'm a positive shareholder. I'm also a realist. If you make negative comments – please present your data. If you make guesses on profitability then understand the cost equations and how much AHZ are spending to make that revenue before you spout meaningless (but highly enjoyable) figures.
In summary →
I think WP has made a difference and is heading in the right direction but isn't there yet.

1. Revenue has kept increasing at a similar rate to what Rodne was achieving. WP put his nuts on the line and stated $21M → well that was achieved with room to spare.
2. Costs to make that revenue have come down significantly but are still surprisingly high. WP said this was a priority and he has delivered but a way to go.
3. New unique products that are significantly more profitable are being released which are IMO company makers. The adapt product is a very very good product and the 3D, TAVR, Neocell will help sell each other by reputation IMO
4. IMO China has potential to dwarf India, USA, Europe. I've lived there and people want the best and complain like CRAPOLA when they don't get it. Especially for their family and children. India is just different and they love cows.
5. Costs are only under control when expectations equal reality. As per above, they aren't under control yet, but AHZ and WP are getting better at control.
6. IMO, the Vax will not make this company and this company will either be dead or highly profitable simply due to ADAPT before the vaccine ever gets to the market IMO. If you asked me this question last year → I had a really different answer.
7. Infusion is saving this company → that is a surprise and a silver lining while the Adapt mess is brought under control