Ann: Quarterly Activities/Appendix 4C Cash Flow Report, page-12

Hi everyone,

First off, l want to say a big thank you for everyone’s warm welcome. I have been following this thread for quite some time and have really gotten tremendous value from everyone’s perspectives here – and in cases where there wasn’t direct value, it has certainly been entertaining (my favourite so far is doctornoh secretly being a senior EOS employee)

Without further ado, please join me in my brain dump…

My initial impressions from the cashflow report: I’m hugely concerned about the company’s liquidity.

As of March 2022, EOS’s cash position was $28.1M which represents roughly 9.4% of their equity position. The report goes on to say in section 7.6 that there are 2 cash deposit securities over a performance bond of $19,006,857 and $8,616,444 respectively. When you add these numbers up, it amounts to $27,623,301 – just shy of the $28M currently held.

The report is silent on whether the term deposit funds are set aside separately but if it isn’t, then the company is technically at 0 quarters of funding available (not withstanding the cash injection that would be accounted for in Q2) – as that cash isn’t really liquid being under a security pledge.

This made me dig deeper into the company’s cashflow history.

Cashflow history

With the exception of FY21 (where the net operating cashflow was marginal), the company has seen a deficit in net operating cashflow for the past 5 years. This, however has been mitigated by capital raising events (incl employee share programs etc) for the past 4 years from FY17-FY20.

This then lead me to questioning who is financing EOS: Export Financing Australia (EFA). It brought me huge relief that EFA is owned by the Australian Government and this made perfect sense to me in respects to credit appetite and recognising the financier here is almost bespoke to the existence of EOS.

Lastly, l was so surprised by the repeated mention of the “strategic review” in sections 8.6 almost like this will be the silver bullet to bring EOS out of this cashflow crunch. It’s so uncharacteristic to justify ongoing operations by a strategic review that has “no certainty in leading to any outcome or transaction”….

In conclusion (TLDR):

Currently, EOS isn’t in a favourable cash position and has historically relied on capital raisings to mitigate net cashflow deficits. This is complicated further by increasing debt levels and the security pledge over cash reserves puts the company’s overall liquidity into question.

However, my bull case is that this isn’t a surprise for EOS and management has had time to adequately prepare for this. This has been very well covered in another thread but I agree that the “strategic review” will result in unlocking capital from Spacelink to provide the much needed cash injection. Further to this, EOS has recently undergone considerable scaling, internal restructuring and re-investment at the cost of profitability. These decisions would not make any commercial sense unless there was a material reality of facilitating significant project(s).

I’m also comforted EOS has a financier that is government owned and considering the increased focus on our defence and space sovereignty, it is likely EOS will get the support they need.

For my last point, I’ll leave this graph here:

It’s the trend of EOS’s revenue and customer receipts for the past 7 years. I don’t think the success here is due to brilliant management or excellent marketing. This growth is driven by real demand and a critical need by a niche market. Sure, EOS could be a dog stock with terrible PR – but it could also be in the best place at the right time in it’s entire history to capitalise on the most unprecedented global instabilities we’ve ever seen...

Not financial advice. All the above is my opinion only. For entertainment purposes only. DYOR.