Ann: Response to ASX Aware Letter, page-2

February 2, 2018
Mr. Dale Allen
Senior Adviser, ASX Listings Compliance
ASX Compliance Pty. Ltd.
Level 40, Central Park
152-158 St. Georges Terrace
Perth, WA 6000
Ref: Buddy Platform Limited ("Company" or "Buddy") - ASX Aware Query
Dear Mr Allen
1. We refer to ASX's letter to the Company dated 23 January 2018 in relation to the Company's
announcements entitled Quarterly 4C Review dated 28 July 2017 ("July Quarterly") and
Quarterly 4C Review (Q1 FY2018) dated 31 October 2017 ("October Quarterly") ("Letter"), as
enclosed with this letter.
2. The Letter requests that the Company respond to a number of queries relating to the "$52
Million Revenue Contracts" (as defined by ASX in paragraph 2.3 of the Letter) which we advise
comprise of the following contractual arrangements:
(a) a contractual statement of work with Thor Industries Inc ("Thor") ("Thor Agreement");
(b) a reseller agreement with Digicel Group Limited ("Digicel") ("Digicel Reseller
Agreement");
(c) a referral agreement with Saskatchewan Telecommunications ("SaskTel") ("SaskTel
Referral Agreement"); and
(d) a distribution agreement with Ingram Micro LP, Ingram Micro Inc's Canadian
subsidiary ("Ingram") ("Ingram Distribution Agreement").
Australia
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United States
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Seattle, WA 98101
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3. An overview of the relevant background and details of each of the $52 Million Revenue
Contracts is detailed below. Also below are specific responses to the various questions in the
Letter.
Background
Thor Industries Inc
4. On 13 January 2017, the Company announced the execution of the Thor Agreement, which
announcement included, amongst other things, the following disclosures:
(a) the deal with Thor is "valued at up to A$2.14 million over 18 months (plus hardware
costs)";
(b) that the Thor Agreement provides for "A$1.8 million of contracted commitments
starting immediately, and running through the end of May 2018";
(c) that Thor has "flagged an interest in optionally purchasing an additional component
valued at nearly A$350k prior to December 2017" and "a further annual & ongoing
platform and application services component of more than A$250k will apply from June
2018 if the customer (Thor) wishes to continue with the provision of services by Buddy";
(d) the Thor Agreement "brings the total contracted value with this customer (Thor) to
A$2.25 million".
5. The A$2.25 million amount (referred to in paragraph 4(d) above) is comprised of the A$2.14
million referred to in paragraph 4(a) plus an unbilled work in progress balance in respect to a
prior agreement with Thor.
Digicel Group
6. On 14 July 2017, the Company announced that it had reached an agreement with Digicel to
sell, distribute and install its Buddy Ohm product through Digicel's sales and operations
teams.
7. The Digicel Reseller Agreement was formally executed on 27 July 2017, but was announced
on 14 July 2017, prior to its execution, on the basis that:
(a) save for exclusivity provisions, the key terms and conditions of the arrangement had
been agreed by the parties; and
Australia
Level 2, 333 King William St.
Adelaide SA 5000
1-800-831-317
United States
217 Pine St., Level 7
Seattle, WA 98101
1-844-265-6460
(b) Digicel elected to publically announce the agreed arrangements with Buddy at the
Smart Destination Jamaica event (held on 14 July 2017) and that Digicel (with support
from Buddy) was promoting Buddy Ohm at the same event.
SaskTel
8. On 23 August 2017, the Company announced the execution of the SaskTel Referral
Agreement, which announcement included, amongst other things, the following disclosures:
(a) the SaskTel Referral Agreement provides for the Buddy Ohm product to be
marketed, sold, distributed and installed across Saskatchewan, Canada;
(b) SaskTel will identify and facilitate the sales of the Buddy Ohm to its key customers
(i.e on a referral basis); and
(c) that "the signed contracts figure disclosed in the Company's Appendix 4C filing for Q4
FY17 (July Quarterly) did not include any contribution from this deal which is expected to
result in revenue starting in Q3 FY 2018".
Ingram Micro Canada
9. On 20 October 2017, the Company announced the execution of the Ingram Distribution
Agreement, which announcement included, amongst other things, the following disclosures:
(a) the Ingram Distribution Agreement provides for Ingram to distribute Buddy Ohm via
its reseller customers across Canada;
(b) that "if the distribution relationship and region performs comparatively to the Caribbean
and Central American market, it is expected to yield more than A$20m in revenue over
three years to the Company"; and
(c) first sales under the Ingram Distribution Agreement are expected to commence in
Q3 of FY18.
Distribution, Reseller and Referral Agreements
10. The Company notes that other than the Thor Agreement which provides for a "direct sales"
arrangement (i.e. the Company selling products directly to Thor), the other agreements with
Digicel, SaskTel and Ingram are distribution, re-seller or referral arrangements which provide
for the distribution and sale of Buddy Ohm product to, or through, third parties.
Australia
Level 2, 333 King William St.
Adelaide SA 5000
1-800-831-317
United States
217 Pine St., Level 7
Seattle, WA 98101
1-844-265-6460
11. Only the Digicel Reseller Agreement carries a minimum sales commitment (which is for
Digicel to procure new sales of at least 1000 Buddy Ohm systems over a three year period in
exchange for exclusivity in specified territories, whose penalty is that such exclusivity right
will be terminated if the minimum sales commitments are not met) which approximately
equates to a revenue sum of A$20.9 million.
12. The Company notes (as indicated to the market most recently in the 2018 Annual CEO
Shareholder Letter, released 8 January 2018) that typical distribution, reseller and referral
arrangements do not offer territorial exclusivity and thus do not provide for minimum sales
commitments or purchase orders (this is consistent with the SaskTel Referral Agreement
and the Ingram Distribution Agreement).
13. The July Quarterly and October Quarterly include details of:
(a) cash receipts received from customers as at the date of each report; and
(b) "contracted minimum commitments" (being A$22.7m in the July Quarterly and
A$22.1m in the October Quarterly) - which are comprised of outstanding contracted
commitments under the Thor Agreement (refer to paragraph 4) and the minimum
sales commitment under the Digicel Reseller Agreement (refer to paragraph 11).
14. The October Quarterly details the Company's expected "value" of its signed contracts such
figure (A$52 million), being an aggregate of:
(a) the "contracted minimum commitments" detailed above (as adjusted for the
recognition of revenue for the contracted commitments in respect to the Thor
Agreement);
(b) the expected revenues from activity contemplated by the SaskTel Referral
Agreement (over a three year period on and from the date first sales occur under the
SaskTel Referral Agreement); and
(c) the expected revenues from activity contemplated by the Ingram Distribution
Agreement (over a three year period on and from the date first sales occur under the
Ingram Distribution Agreement).
15. The determination of expected revenues in paragraphs 14(b) and 14(c) are based on the
Company's management analysis of data provided by, and engagement with, SaskTel and
Ingram in respect to the SaskTel and Ingram arrangements (respectively).
Australia
Level 2, 333 King William St.
Adelaide SA 5000
1-800-831-317
United States
217 Pine St., Level 7
Seattle, WA 98101
1-844-265-6460
16. The Company acknowledges that although it disclosed details in respect to the Digicel
Reseller Agreement in the July Quarterly (following the day of its execution) and previously
disclosed Thor's contracted commitments in the Thor announcement, it did not explicitly
state that the "contracted minimum commitments" of A$22.7M in the July Quarterly
comprised:
(a) A$1.6 million of outstanding contracted commitments from Thor;
(b) minimum sales commitments of A$20.9 million to be derived from the Digicel
Reseller Agreement; and
(c) an additional A$200,000 from various other customers.
17. Actual revenue received (including commitments recognized as revenue) and profits derived
from the $52 Million Revenue Contracts will be disclosed in the Company's financial
accounts, including its audited year-end consolidated statement of profit of loss and other
comprehensive income and in accordance with the Australian Accounting Standards.
Question 1: Does the Entity (“Buddy Platform Limited” or “Company”) consider the $52
Million Revenue Contracts to be information that a reasonable person would expect to have a
material effect on the price or value of its securities?
18. Yes.
Question 2: If the answer to question 1 is “no”, please advise the basis for that view.
19. Not applicable.
Question 3: Please provide the following for each of the agreements forming the $52 Million
Revenue Contracts:
Question 3.1: The identity of the counterparty?
20. The identities of each of the counterparties are as follows:
(a) Thor Industries Inc;
(b) Digicel Group Limited;
(c) Saskatchewan Telecommunications; and
Australia
Level 2, 333 King William St.
Adelaide SA 5000
1-800-831-317
United States
217 Pine St., Level 7
Seattle, WA 98101
1-844-265-6460
(d) Ingram Micro LP.
Question 3.2: The date the Entity first became aware of the contracted revenue amount?
21. The Company first became aware of:
(a) the contracted commitments for Thor on 9 December 2016, during the course of its
negotiations in respect to the Thor Agreement. The Company did not announce the
contracted commitments for Thor at that stage as the Thor Agreement was still
subject to negotiations and remained incomplete;
(b) the minimum sales commitments for Digicel during the period commencing 17 July
2017 to 26 July 2017 (US time), being the period the Company negotiated the terms
of the exclusivity arrangements with Digicel;
(c) the expected revenue to be derived from performance of activities contemplated by
the SaskTel Referral Agreement during a management forecast meeting held on 30
October 2017 (US time) to determine an expected revenue figure for the purpose of
providing shareholders of the Company with an update in the October Quarterly;
and
(d) the expected revenue to be derived from performance of activities contemplated by
the Ingram Distribution Agreement during a management forecast meeting held on
19 October 2017 (US time) to determine an expected revenue figure in preparation
of the Ingram announcement released on 20 October 2017.
Question 3.3: Whether the contracted revenue amount is considered material to the Entity? If
not, please explain the basis for that view?
22. The Company considers:
(a) the contracted commitments for Thor;
(b) the minimum sales commitments for Digicel;
(c) the expected revenue to be derived from Ingram; and
(d) the expected revenue to be derived from SaskTel,
to be material to the Company.
Australia
Level 2, 333 King William St.
Adelaide SA 5000
1-800-831-317
United States
217 Pine St., Level 7
Seattle, WA 98101
1-844-265-6460
Question 3.4: Whether the Entity announced the contracted revenue amount before either the
Quarterly 4C Review or the Q1 FY18 4C Review? If so, please advise the date of this
announcement. If not, please advise why this information was not announced before the
release of the Quarterly 4C Review or Q1 FY18 4C Review announcements commenting
specifically on when you believe the Entity was obliged to release the information under Listing
Rules 3.1 and 3.1A and what steps the Entity took to ensure the information was released
promptly and without delay.
23. The Company disclosed:
(a) the contracted commitments for Thor on 13 January 2017, prior to the July Quarterly;
(b) the minimum sales commitments for Digicel in the July Quarterly on 28 July 2017,
being the day following the date (in Australia) of execution of the Digicel Reseller
Agreement, noting that it was not announced earlier as negotiations for the Digicel
Reseller Agreement remained incomplete; and
(c) the expected revenue for Ingram on 20 October 2017, prior to the October Quarterly.
24. The Company did not disclose the expected revenue for SaskTel prior to the October
Quarterly. This was on the basis that:
(a) the SaskTel Referral Agreement is a referral arrangement (i.e. SaskTel is only
responsible for providing a "lead" for the sale of Buddy Ohm) and a determination of
the expected revenue for SaskTel can only be undertaken when sufficient
information is provided to the Company by SaskTel and the Company has had
sufficient opportunity to analyze and verify that information; and
(b) prior to the management forecast meeting held on 30 October 2017 (US time) (being
the day management held a meeting to analyze and determine the expected
revenue for SaskTel as part of its preparation of the October Quarterly), the
Company did not have a reasonable basis to disclose the expected revenue figures
for SaskTel to the market.
25. The Company notes that it was obliged, under Listing Rules 3.1 and 3.1A, to release
information in relation to the expected revenues of SaskTel following the completion of its
analysis and did so promptly and without delay in the October Quarterly.
Australia
Level 2, 333 King William St.
Adelaide SA 5000
1-800-831-317
United States
217 Pine St., Level 7
Seattle, WA 98101
1-844-265-6460
Question 3.5: Any material information, including performance conditions to be satisfied by
the Entity, (and the progress (if any) by the Entity in satisfying those performance conditions)
in relation to the reported contracted revenues?
26. There is none. However, in order to derive revenue, the Company must:
(a) deliver on its obligations concerning the products under the Thor Agreement;
(b) achieve "sales" either by contracting directly with a third party customer under the
SaskTel arrangement or through the respective sales efforts of Digicel and Ingram
under their respective agreements; and
(c) deliver on its obligations concerning the products under the Digicel Reseller
Agreement and Ingram Distribution Agreement and deliver on its obligations
pursuant to its direct engagement with customers derived from the SaskTel Referral
Agreement which includes the provision of its products and services (ie. to ensure
installation, activation and trial ( if any) and ongoing support and service activities).
Question 3.6: The period over which the contracted revenues are expected to be earned and
received in cash by the Entity, commenting specifically on the cash received as reported in the
Entity’s Appendix 4C’s for the periods ended 30 June 2017 and 30 September 2017 (which totals
$941,000)?
27. With the exception of the Thor Agreement, the expected revenues under:
(a) the Digicel Reseller Agreement will be earned by the Company over a three year
period commencing on and from the date first sales under the Digicel Reseller
Agreement occurred (being in October 2017);
(b) the SaskTel Referral Agreement are expected to be earned by the Company over a
three year period commencing on and from the date first sales under the SaskTel
Referral Agreement occur (expected to be in Q3 FY2018); and
(c) the Ingram Distribution Agreement are expected to be earned by the Company over
a three year period commencing on and from the date first sales under the Ingram
Distribution Agreement occur (expected to be in Q3 FY2018).
28. Customers under the Digicel Reseller Agreement, the SaskTel Referral Agreement and the
Ingram Distribution Agreement will be billed monthly and cash will be received by the
Australia
Level 2, 333 King William St.
Adelaide SA 5000
1-800-831-317
United States
217 Pine St., Level 7
Seattle, WA 98101
1-844-265-6460
Company in accordance with standard payment terms, which vary for each region but are
not more than 120 days.
29. In relation to the Thor Agreement:
(a) A$1.8 million of contracted commitments is expected to be earned and received in
cash by the Company on or before May 2018;
(b) on the basis that Thor exercises its option to purchase an additional component and
continues with the provision of Buddy's services (refer to paragraph 4(c)), an
additional A$350,000 and A$250,000 (respectively) will be earned and received in
cash by the Company, subject to billing and payment terms.
30. The cash received in the July Quarterly and October Quarterly which totaled $941,000
comprise a portion Thor's contracted commitments and other customer receipts.
31. Any reported contracted revenues will be recognized in accordance with the Australian
Accounting Standards.
Question 4: Please confirm that the Entity’s responses to the questions above have been
authorised and approved in accordance with its published continuous disclosure policy or
otherwise by its board or an officer of the Entity with delegated authority from the board to
respond to ASX on disclosure matters.
32. Yes, the Company's responses to the questions above have been authorized and approved
by an officer with delegated authority from the board to respond to the ASX on disclosure
matters.
Sincerely,
Stuart Usher
Company Secretary, Buddy Platform Ltd
Enc.
ASX Compliance Pty Limited
ABN 26 087 780 489
Level 40, Central Park
152-158 St Georges Terrace
Perth WA