NUH (ASX) Doing the numbers

Originally posted by kickit2me ↑

In response to @Rokewa from the media thread:

Rokewa:
Hi Kicks

If you refer to my previous post on the Govt grant, I concur that it is an integral part of the cash inflow / outflow equation.

That said, the R& D spend is generally spread across each quarter. The Govt grant hits the quarterly in one quarter. All I am suggesting is divide the inflow by 4 and redo the nett outflow calc for each quarter. You will quickly see that what appears favourable as per the latest quarterly, is in reality a deterioration vs the Jan to Mar quarter.

Similarly, when we talk parabolic growth, I am simply suggesting that you may condsider it differently if viewed for each product ( IQ Buds vs Boost). Know we don’t get to see the splits. We do however know that a part of the receipts stemmed from a portion of 2500 units of Boosts. We also know that even at the 40 % discount price, the Boosts sales receipt are likely to carry a higher unit price. With this as context, questionable whether we are talking ‘parabolic’.

Be interested to hear your educated guess on how many units sits behind the cash receipts number for the Apr to June QTR.

This picture will be a lot clearer when we receive the FYE result and the accompanying financials.

Rokewa

Response:

With regards the R&D refund of $1.2m I have done even better than you ask and apportioned it quarterly with respect to what was spent in that quarter in the qualifying areas (Research 1.2a and IP 2.1d).

But having done that, I am not clear on what you "quickly see" as "a deterioration vs the Jan to Mar quarter" .
The receipts have clearly increased by 32% - that can not be argued as a deterioration.

If you then define the increase in overall outflows as deterioration, I would have to argue that is far too simplistic.

Why did the outflows increase this most recent quarter? What went up and why?
Research - up from $220k to $473K - would that not be for the two new products - and hence likely to be non-continuing?
IP - up from $1.1m to 1.6m - once again, two new products being developed - also non-continuing?
Product - up from $414K to $881K - two products rather than one one with no prior stock - and how much is inventory still?

So yes - outflows went up from $2.9m to $4.2m (as detailed in the previous paragraph). This is the increased gap between the two points at time = 6 in the graph above. But you would be hard pressed to make an argument for what constituted these increased outflows as continuing. In fact last quarters outflows increase followed two consecutive quarters of decrease (t = 4 and t = 5) as efficiencies and economies of scale kicked in.

Against this one off, explainable, increase in outflows its not difficult to argue that receipts are on a steady increase - whether you think its linear, parabolic or exponential.

And hence, when you smooth the data for differences in quarterly conditions over the 6 quarters of continuous data you get the situation I've modelled in the OP. One in which faster growing receipts will eventually exceed growing outflows. The models I've used show that happening in about two years. It could be more, it could be less. Given the company is only 2.5 years old and only has 6 quarters of continuous reporting, cash-flow positive in two more years would be an enviable result for a tech start up. What do you think the SP will be when Nuheara reports its first quarter of cash-flow positive?

And finally, I haven't responded to your discussion of separating out products as I think that's a moot point. If there are efficiencies to be made by product control, I will be happy for Nuheara to do that based on their data - we don't have the data. Similar for unit numbers.

Expand

Hi Kicks

Let's try again, this time as a stand-alone response.

Re R& D rebate... " I have done even better than you ask"

Clever. Change the point put forward / being argued and then challenge / dismiss the original conclusion. We are agreed that R&D spend is likely to continue as an integral part of Nuheara's brand and product development. You must surely acknowledge that the receipt of what appears to be an annual Govt grant will skewer the cash flow picture in the quarter it is received.

The only reason that I crunch the numbers (whichever way I can) is to challenge the strength of my investment. I am not looking for the best case scenario to justify my decisions or provide comfort. The nett result is after normalising the effect of the annual grant, the nett cash outflow extends from $786 k (Jan to Mar) to $ 1406 k (Apr to Jun).

Not to say that this is a bad thing, but it challenges those who believe that the latest quarterly confirms we are on track to be cash flow neutral or positive. Simplistic or fact ? IMO worthy of a caution.

Looking at patterns on expenses, comparing the Qtrly avg for H1 FY18 VS Jan to Mar VS Apr to Jun

R&D : Near double the previous Qtrly avg, fully expected with the launch of Boost and the future launch of Lives. Tick.

Advertising : The last 2 quarters have been low relative to the quarterly avg in H1. That said, Co continues to achieve priceless exposure through media channels. Nuh Mgt clearly managing this for max impact per $ spent. Higher spend indicated for next qtr indicated, so Tick.

Staff Costs : Last two quarters contained vs H1, probably through role optimisation and activity analysis versus workload. Tick.

Admin & Corporate : Essentially static last two qtr's and next quarter projection. Tick.

And now

Product Manufacture & Operating Expenses

Spend reduces from $1340 k per qtr in H1 FY 18 to $ 414 k (Jan to Mar). Half year results confirmed high inventory at 31 Dec, so IMO explained away the reduced spend.
One quarter on, the spend lifts to $881 k, this during the time when we know that a second product is brought on line. Irrespective of what percentage of the Initial Boost campaign's associated prod'n and operating costs contributed to this quarters spend, there is a big CAUTION in terms of the IQBuds portion. Are we still carrying inventory from Jan or have the unit cost to produce dropped that significantly, that the unit sold number is still on track (growing). The FYE results and accompanying financials should allow for greater clarity.

In closing, I think the relationship between customer receipts VS the the manufacturing spend will be a key indicator of whether the product/s are gaining traction. In monitoring this, we need to consider that Boost's inflate both the ave unit selling price and most likely the unit manufacturing cost, so in any measure of traction, we need to again normalise any comparisons so as to base traction on number of units sold.

And finally, we are in agreement on something. This will be a long journey. Looking at the comments of other posting, I wonder how many honestly are baking in say two years with lot's of frustration in between.

Enough for now.

Take care

Rokewa