I thought the term loan facility is 10% pa of whatever amount is drawn, so until they start drawing from the facility they don’t owe any interest. If they draw say 1m now, they owe 100k per year or around 8.5k per month interest.
I think the best way for them to get the sp moving upwards is to focus NOT on cash burning acquisitions, which will be expensive (esp when cost of capital is 10%pa) and always has risks of execution and integration problems.
they should instead focus on reducing cashflow burn and getting cashflow positive, so potential investors (and existing investors) can grow our confidence that the number of dilutive capital raisings at ever lower do’s will stop.
the good news is that they only had a net loss of 2m last FY, compared to 4-5m in previous years. This seems partly due to revenue growth and cost control, but also due to much lower salary costs to directors and executives. Looking at the annual report, the only person now on a significant salary is the ceo, with most of the directors receiving share based payment for most of their compensation, with only a small amount in cash salary eg 40-50k.
this means the board have massive share and option holdings, which aligns their interests very closely with ours as shareholders, both over 12mo and over 3-5years.
We are on track for circa 10m revenue for FY22, so I would prefer that they control costs to aim for cashflow break even at least in operating cashflow terms. I would love to see them start to report ebitda or operating cashflow or at least report their product R&D spend so we can work out underlying cashflows. I suspect they can achieve positive operating cashflows by the end of this FY if they can control operating expenses and can deduct product development/ new market spend.
I would like them to avoid acquisitions that would burn existing cash / term loan facilities, thus minimising further dilution. The exception would be a highly synergistic acquisition at a cheap price, but these are often promised and seldom delivered in my investing experience.
my position in ad1 remains extremely small relative to my portfolio and a relative moonshot, but if the company could convince me that they are focussed on cashflow rather than just top line growth, and would provide detail on their financial goals eg gross margins within each product category etc, then I would be happier to invest more once I have better clarity on their capital management priorities and discipline. they should run the company with a razor sharp focus on cashflows, assuming that future equity capital will be scarce.
simply chasing top line revenue growth regardless of profitability and the cost of that top line growth, and not informing investors regarding cost of customer acquisitions, operating margins, etc is not the hallmark of a good management team.
if they can build confidence in their financial discipline, buyers will enter, the sp trend will reverse, and it will be cheaper (less dilutive) for them to raise capital from investors who have their trust and institutions who see the risk as low, plus they will be able to borrow more cheaply due to improve credit risk.
one positive is the recent on market director buying, but is that compulsory for a new board member within 12mo, or is it voluntary due them already having met those requirements, I suspect it’s compulsory new board member buying.
AD1 Price at posting:
2.3¢ Sentiment: Hold Disclosure: Held
