It's prepaid, the liability is now wiped and recognised as revenue. In my opinion the risk of missing guidance is very low at this point, as this contract alone added $7.1m + $7.4m + $14m to the second half figures per their announcements, meaning just $5m outside of this contract will need to be generated to get them to $82m revenue guidance.
The market is only interested in new contracts and what cash they would bring in.
I have no doubts about demand for their products and so I am mainly interested in the cash balance and how close they get to running out over the shorter term. I find it interesting they went into this half year with $7m of cash, with about $25-30m of the $35m revenue guidance already prepaid but needed to be delivered/worked on.
Even with a generous high margin, say 60% when at full scale production, and assuming $15m of operating costs per half, that's very ballsy. I suppose those with accounting backgrounds will appreciate the situation even more.
I am a little rusty on it all, but I am calculating cash this half as $7m opening balance + 60%*$5m revenue (assumed to be products outside of current SUAS contract) - $15m half yearly operating costs - $5m negative cash balance.
However I note a couple things:
- I am not including the cost of production for the SUAS orders of $25-30m. They had about $24m of completed and WIP inventory at the beginning of the half, a $10m increase during the last period. It's likely a large chunk of this was in prep for the current half SUAS deliverables. To not budget any further cost in this half is obviously not realistic, because if they had actually completed all the work by the end of the last half, it would've been delivered on 1 Jan 2023, not in milestones in May, mid June and then late June. So there must've been some more costs on top of the $10m inventory build last half.
- I know they have about $5m working capital debt facility if needed.
So if I take into account those two things above, I see cash at $0 and WC debt facility fully used for the end of this half, that's including a rather generous production cost timing assumption on the SUAS order. Now you see why I am so interested with how this half turns out.
To top it off, this dilemma was/is very visible 6 months ago, so I am inclined to think management had some source of confidence.
I assumed a few months ago that a raise was coming, but as we are getting closer and closer to year end it's looking more interesting if it will come or not. Maybe Regal jumped the gun and XTE called the bluff. Then again, no listed company wants a lousy cash balance figure on 30 June, in any year.
If they go through period to the next major contract with a small raise I will not be too upset given it is clear to me how ambitious Scott was to avoid share capital destruction by securing prepayments instead of highly dilutionary raises, but if XTE scrapes through to the next major contract without a raise I will be amazed with XTE's team.
Expand
(20min delay)