Hmmm, bit of a mixed bag this one for me, looks like some of the...

Hmmm, bit of a mixed bag this one for me, looks like some of the bad news is tucked away in the accounts... Comparing 1H to 2H revenue has actually fallen $4.3M -> $2.8M, "cost of revenue" down slightly ($2.9 -> $2.6M) and gross profit down from $1.9M to $265K

Also, if revenue in advance is up by 500M but total revenue is only up by $2.8M does that mean "real" revenue is only $2.3M higher? I know 3Q wasn't great, but surely on their ARR base we should be seeing rising revenue H-o-H.

They've reported a fall in operating expenses (down almost 10% y-o-y) despite ramping up sales, but given the rise in "cost of revenue" (up almost $4M, completely offsetting the $4M raise in revenue) I wonder if they've just shifted some of their expenses above the line. The end result is that gross margin has fallen from 70% last year to 44% last half to 9% this half.

Another worry is the net current assets; headline cash number looks OK (down from $9.2M to $7.6M implying a cash burn of $1.6M for the half) but receivables are down by $1.7M while payables are flat, and "revenue in advance" has risen by 0.5M. Borrowings have also fallen by $0.5M but provisions are up by the same amount. So net current assets have fallen from $10.1M to $6.2M, almost $4M decrease over the half.

Given the improvement in the 4Q I'm hoping most of these problems are a combination of attrition in 3Q and increased sales marketing for the future pipeline (which should really be in operating expenses).

I'm still happy to hold, as I really think they've turned a corner and have a great range of clients by business and geography - but it looks like it might be a slower growth path than the picture management have been painting.