The big thing for me though with the last 4C was the...

The big thing for me though with the last 4C was the confirmation of the expectation of being ebitda positive late this year and the announcement of a significant part of how that will happen with the supply agreement with a major bedding company.

I don’t view the supply agreement with the major bedding company as the most significant driver of positive EBITDA by CYQ4. My reading is that the company with which the supply agreement has been signed is the same major mattress manufacturer to which Alexium has been supplying Alexicool for the last couple of years.

There are only two multi-billion dollar US-based mattress companies – Serta Simmons and Tempur Sealy. Alexium has been indirectly providing PCM to one of these (imo Serta Simmons) for the past couple of years via supply to the mattress company’s fabric suppliers. At the AGM in November last year, shareholders were told that a significant drop in sales had occurred because “a major customer” had switched to a cheaper, competitor PCM supplier for some of its products. I believe this was the same “multi-billion dollar US-based mattress manufacturer”. This customer’s business was said to have been won back by Alexium demonstrating the superior cost effectiveness of Alexicool based on a new analytical tool which it had developed. It was stated then that this customer would be adding Alexicool to some of its higher volume lines. It was also stated then that Alexium was now the single-source supplier of PCM to this customer.

The supply agreement signed in March, which took a while to nut out according to Dr Brookins, is, imo, simply the formalization of an agreement which had been already reached informally late last year with this mattress manufacturer. I’d argue that, if Alexium was already the single source of PCM to this major manufacturer by early November, and if this was going to be the single most significant driver of positive EBITDA going forward, then we should have seen a greater lift in sales receipts in the recently released 4C. Therefore, although I think that the supply agreement will provide greater certainty to Alexium, I’m not convinced that its signing will be the key driver of positive monthly EBITDA.

That said, this company’s reinstatement of earlier PCM orders, combined with its additional orders for higher-volume (i.e cheaper) mattresses, should be one booster of sales revenue.

Another will be new customers. The article in BedTimes mentions that there is a variety of other bed makers which will be bringing out new products incorporating Alexicool at the July Las Vegas bedding show.

Sales of Alexicool (via Pegasus) for a multi-million pillow program with a major North American big-box retailer (announced in December) should be a further revenue booster.

Also contributing to an improved bottom line will be the improved margins expected through higher volume production and lower raw material procurement costs.

But perhaps that the biggest contributor to positive EBITDA will be sales of Alexicool FM for foam applications. One competitive advantage that should drive demand here is the significantly greater cooling effect that independent testing has demonstrated that this product has compared with a leading competitor in this segment. Add to that the fact that the market for PCM on bedding foam is sizably larger than that for PCM on bedding textiles (PCM is used on foam in 50% more mattresses than on ticking). A final reason that this could be a big driver is that significantly larger quantities of PCM are applied to foam than to ticking – in upper tier mattresses, up to 6 times more PCM is used on foam than on textiles.

Where I am in agreement is that what ultimately counts, more than how the company gets to positive monthly EBITDA, is that it can actually demonstrate it via reported revenues and receipts.