BUD: Where are we? August 2018

As promised…

(1) My thoughts on the recent 31 July Quarterly (April/May/June):
Negatives:
- Some customers owe debts to Buddy ($534k)
- Operating cash outflows $134k higher than anticipated
- Teething issues with latest update to the Ohm software
- Delays in installation rollout with Ingram Micro and SaskTel
- Backlog of customers waiting for their Ohms because of this delay
- Slow of growth rate of sales with Digicel (primarily due to personnel changes at Digicel)
- Ingram Micro sales not to commence until September/October this year
- The reality of the rollout process has again been reinforced – signing a partner, on boarding them and first revenues through them is a lengthy process (9 months+)

Positives:
- $761k revenue achieved (slightly under my target of $800k)
- Despite only selling ohms in the UK (which began half way through the quarter) and in the Caribbean through Digicel (which slowed down due to personnel changes) BUD still achieved 51% revenue growth from the previous quarter
- Buddy is currently in discussions regarding deals. If they close a major deal this could result in thousands of ohms sold at once (could be worth $10-$20m+ a year in recurring revenue?). Note the smoke signal relating to this, as stated in the Quarterly, the company has a range of “non-disclosure arrangements to discuss larger/broader relationships, trial arrangements, not-yet-awarded bids on large volume customer deployments and services” – Buddy is currently bidding for major deals!!!!
- Deals have been the focus in North America. The team has focused on directly selling ohms “into large property porfolios” such as in the hospitality sector, schools, supermarkets, corporate locations, resorts, restaurants and food storage facilities
- $22.5m cash on hand (this is huge as there is more than enough cash to see us through to cash flow positive (next year), meaning no more CRs/dilution)
- Government rebate of $1.1m received
- Company costs to now remain flat
- Distribution in UK has successfully taken off under Rizon (Rizon to deliver on $20m+ in three years)
- Latin America team successfully signed distributors in Colombia, Panama, Mexico and others
- Dicker Data has started selling ohms in Australia
- Upside in ohm sales – 30% of customers are spending an additional 78% of their initial base pack (explains the additional order last year of sensors etc rather than base packs)
- The company continues to expand and diversify the ways in which they can sell ohm (demonstrating the flexibility and adaptability of the product and team). Examples include temperature and humidity monitoring for cold storage units, different bundling and pricing (although the blended mix of A$1,000 per month per ohm remains). Further, Buddy is looking at expanding their potential customer base by offering lower pricing to get quick service restaurants, convenience stores, petrol stations and supermarkets.
- Buddy continues to update the Ohm software
- There is a backlog of customers (demonstrating the demand for Ohm exists)
- Another strong hire joins the team, having had 18 years work experience at Microsoft
- Revenue forecasts for Digicel remain on the table, being $22m in 3 years. On this basis alone BUD is seriously undervalued at current prices.
- In November 2018 Buddy will conduct an internal business review of their first year of commercial activities under the Digicel arrangement. It appears investors will receive an update regarding this.
- Buddy’s relationship with Ingram remains strong.
- Continued demand for Ohm product around the world.
- Rollout of self-installable Buddy ohm bundles to accelerate installations
- Introduction of Buddy ohm comfort pack (new product)
- As @supergwailoh shared (see https://hotcopper.com.au/threads/thor-deal.4337166/#post-34704322) and comment in the Quarterly “Buddy can participate more extensively in Thor’s unit volume growth over time” – IMO, it appears further changes (improvements) to Thor deal for Buddy – increase to monthly retainer? (Note, Buddy already set to generate some A$2m per year from Thor deal)
- On track for January 2019 alternative data sales to commence
- Carbon Offsets as a Service (COaaS) begun


(2) Fundamentals:
We are still at this pyschologically challenging inflection point. IMO it’s far too early to say Buddy has failed and its time to sell – global distribution has not even commenced. As you can see below (Note, we are now in Q1FY19, and last quarter was Q4Fy18):

Distribution timeline:


IMO we won’t know if the ohm product is a ‘failure’ until later this year/early next year once distribution has taken off around the world.


(3) Company growth analysis:
(a) In May, I posted:
“Current revenue:
Oct 17: $415k
Jan 18: $428k
April 18: $505k

Projections revenue:
July 18: $800k-$1.3m
October 18: $1.3m-$2m”

As you can see, BUD hit the lower end of my target, notwithstanding the delays that occurred! What does this say about the revenue potential of larger scale ohm rollout (once we hit that fabled global distribution)?!!

(b) Looking forward:
Current revenue:
Oct 17: $415k
Jan 18: $428k
April 18: $505k
July 18: $761k

Projections:
October 18: $1.3m-$2m
Jan 18: $2m-$3m

As you can see, despite the setbacks IMO we are still on track. BUD could very easily be cash flow positive by Q3 or Q4 this FY (FY19 – i.e between January and June).


(4) Growth is STILL the name of the game!
51% growth in revenue from the previous quarter, I am looking for just as much (or more) % growth in the October quarterly.

Notwithstanding further growth in the UK and the Caribbean, if you extrapolate current sales in those regions by other regions not yet distributing that Buddy has agreements with (i.e Spain, Germany, Colombia, Mexico, Panama, Canada, USA, Australia) we are already looking at about >$4m revenue per quarter.

Further factors, e.g, a major sales deal, alternative data sales (January 2019), any kind of growth in these regions (ohm sales are a cumulative business so revenue should increase) suggest Buddy should become cash flow positive in CY19 as forecast by Buddy.

However, we are still at the bottom of the “J-curve”. IMO this quarter will be the beginning of the major turn upwards.




(5) Webinar questions:
- Further details on Néstle – to what extent are they rolling out ohm across their factories? Can they use Néstle as a case study and share the benefits the company is having from using ohm?
- Details about the success of ohm in Whitefish, Montana
- Clarification that the A$70m three year revenue forecast and the CY19 cashflow positive forecast remain on the table


(6) Upcoming events:
Webinar: Quarterly review
9 August 2018

Webinar: Reducing Risks Uncovered From Your Energy Audit
15 August

Webinar: The Smart Building Business Case for Hotels and Resorts
19 September, 2018

Webinar: Increasing Innovations and Discovering Better Ways of Doing Old Processes
17 October, 2018

Webinar: Aligning Building Occupants to your Energy Reduction Goals
14 November, 2018

Buddy internal business review of arrangement with Digicel – investors to receive update
November 2018

Webinar: Improving Productivity and Scaling Your Energy Management Program
12 December, 2018


(7) Closing comments:
Overall a massive overreaction by emotional retailers who have little understanding of where the company is at or the nature of the distribution timeline. It’s a shame to see some long term holders give up when the 'turn up' in the J-curve is on the horizon.

Current valuation:
IMO it is crazy that we are sitting at just $80m EV. As I have suggested previously, in my view the A$70m revenue forecast still stands because if it didn’t, that would be something the company would have to announce according to ASX Rules (hopefully this will be officially clarified in the coming Webinar).

With global distribution ohm can scale quickly… and the upside is outstanding:


IF Buddy can get the global distribution going, the upside here is significant.

Note, this projection is based on a Price Earnings ratio. It is more likely Buddy would follow a revenue valuation in its earlier stages (resulting in a significantly higher valuation).


Remember, “no news doesn’t mean nothing is happening”.

Looking forward to the Webinar next week!

GLTAH


All my posts are IMO and do not constitute investment advice. Always do your own research!