Time to unpack the AGM presentation in the context of the recent...

Time to unpack the AGM presentation in the context of the recent CR.

Firstly, as I've stated in previous posts, the CR came as a surprise to me given we just started to inflect, we had very strong 1Q22 cashflow and we're presently in what I expect to be an even stronger quarter. With a healthy cash balance and more cash to come, it certainly was unexpected.

Unfortunately, the CR halted the short term SP momentum but we had an exceptional run and were probably propped up by the broker to get a good CR outcome for the company and holders but who knows really? In hindsight, given the recent weakness in small/microcaps we could have been trading around this range anyway but that is speculation. Personally, the short term share price is not important to me unless it's near my buy price, or sell price.

BUT, the key question to ask is "what is the value creation from this raise?" This is important given dilution, which most of us will bear.

From the CR were learned two IMPORTANTnew things:

• They will build and work on a 2nd generation Zoleo device - there had been no talk of a new generation device that I'm aware of. My expectation for a simple device like Zoleo was that the life cycle of updates/upgrades would be longer given features are relatively simple. For BCC's other satellite devices, the life cycle is somewhere between 5-10 years. So the question is what is driving this? (see below)
• This device will enable 3rd party integration via API/SDK - The REALLY interesting piece of info was the potential for API/SDK integration by 3rd parties. This massively opens up huge potential and while BCC won't show their hand, this will likely future proof the device, potentially differentiate against competitors but most importantly, add material value creation

In REALLY simple terms, think of value creation using margins and revenue in a 2x2. Where you want to be is top right of the matrix and where you want to avoid is bottom left.

For BCC and specifically Zoleo, value creation is a function of (1) subscriber numbers and (2) ARPU (avg revenue per user). COGS and general overheads do impact value creation but this business exhibits good operating leverage so that will just improve over time. Also, Zoleo is primary value driver so I'm not considering the other parts of the business in this example.





So in the context of the raise, bringing FORWARD the R&D costs for the next generation device suggests that management believe that short term dilution will be EASILY made up by increased ARPU and the strategic advantages of being a product leader rather than a product follower.

While we do not (yet) know the costs required to develop the next generation device I can back solve the change in ARPU required to change the market cap by $5m by FY2024 i.e. likely when the devices will be released. For those about to say, but we have an extra $5m cash so EV is more appropriate, I'm assuming that $5m is fully expensed.

Based on my assumptions in the valuation thread, I use a pre GST ARPU of $40.50.
To cover the $5m gap in FY2024, we roughly need ARPU to grow by just $1 to $41.50 - yes, just $1.
So, the way I look at the CR, while in the short term, my portfolio gave back some gains from the recent high, the company is INVESTING in ARPU growth, strategic positioning and essentially doing things FASTER than previously planned. In other words, this was a savvy raise that has the potential to increase the valuation of the business.

The above is relevant given the positioning of Zoleo is one that is comparative to the best in market but that is almost half the price. If Zoleo can ADD FEATURES then the value gap will only increase, which will drive subscriber growth and market share. Here's a good table from outdoorgearlab that provides their view of the market. Just based on the information below, I think most potential consumers will be saying, is 3 points in a rating worth almost double the price? If I had to pick which brand I'd want to be on this ladder I would pick the challenger Zoleo based on the optimal mix of ratings and price.