OVT (ASX) Ann: March Quarterly Activities Report

Originally posted by mondyinvest: ↑

@DanMachine I can appreciate what you’re trying to argue here, but I think the problem is rather simple.

For the three quarters year to date, excluding payments to merchants, IOU have had the following expenses:
September 21: ($4,475,000)
December 21: ($5,098,000)
March 22: ($4,301,000)

These are quite simply the mundane expenses incurred in operating the business. Some of them can theoretically be reduced quickly i.e. ‘advertising and marketing’, which for FY22 averages ($557,000) per quarter. Others might move around a fair bit depending on circumstances, such as ‘administration and corporate costs’ which for FY22 averages ($1,670,000) per quarter. Others are static and can’t be changed unless you sack people, such as ‘staff costs’ which for FY22 averages ($880,000) per quarter, and has been growing rapidly – Q2 staff costs were up 30%, and Q3 staff costs were up 20% again (in the March quarter, IOU spent ($1,064,000) on staff costs alone! Separately, this is a huge issue – they’re allegedly a tech company, but the way they approve merchants means it is not scalable: in order to grow they have to keep expanding the workforce).

Again, all of this does not include payments to merchants. Here they are by quarter:
Jun-21 ($524,000)
Sep-21 ($5,517,000)
Dec-21 ($5,262,000)
Mar-22 ($13,334,000)

You have to put aside the $13M, they are not going to get this back anytime in the next quarter if you assume the repayment terms are between 3-6 months. So at best they are likely to get somewhere around $5M-$6M in payments back, plus their circa 5% margin, less whatever the bad debts are which is quite the unknown. They now have two options:

1. Halt/reduce further payments to merchants, and put some/all of that cash aside to pay for the ongoing operating costs above and the second IDSB payment, or
2. Lend the cash straight back out again as payments to merchants, and thus run out of cash to pay for the operating costs and have to raise at 52 week lows.

Either way the net result is that BNPL operations have been / are being wound down (evidenced by the TTV tanking the second six weeks of the past quarter) because of working capital constraints. That is very poor management and there’s not much point dressing it up. It really is that simple when it all boils down.

I am happy to be corrected by someone (@kevin103, @Ryzie?) if I have these numbers wrong, but that’s my read of it.

Expand

And I agree with what you're saying also.

Where I'm coming from is - they built a marketing and lending infrastructure (it cost significant amounts of money as you demonstrated)

They had cash to lend and what they have spent money on is development of a demand for it.

What would a better business decision have been?

I agree, they're going to have to do a cap raise or find someone to fund BNPL. But they have an actual business case for it- ie, a demand for their product and (as far as anyone can tell) good lending practices.

The one real unknown is their bad debt metrics for the sept-december quarter. I mean, if their bad debt has crept up and they still went all in on lending, yes, bad management. You're going to find out next quarter, and as I've said above, if the YTD bad debt is more than double, I'm out myself.

Would it have been more conservative to roll back credit criteria and try to keep the payments to merchants in a sustainable balance? Yes.

But.. then they might have lost momentum. So yes, they took a risk, time will tell if it was a bad one.

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(20min delay)
Last 0.9¢		Change -0.003(25.0%)		Mkt cap ! $9.920M

Open	High	Low	Value	Volume
1.2¢	1.2¢	0.8¢	$96.47K	10.67M

Ann: March Quarterly Activities Report, page-262

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