In April 2018, I posted the following:
It is unhelpful, given that there remains a level of financial illiteracy in our investing community, for the ASX not to have a standardized standard of disclosure of financial information and allow some companies to introduce their own financial jargons in their quarterly disclosures.
Even people with financial background find it somewhat perplexing to understand the different forms of REVENUES as recently disclosed by several small cap tech companies.
BIG UN (BIG)
I was one of the first few to caution BIG holders, following AFR reports questioning their modus operandi, about BIG’s choice of reporting CASH REVENUES in their disclosure.
What is Cash Revenue? Well, as it turns out, cash revenue in BIG includes unrealized deferred revenues (monies received in advance). Reporting Cash Revenues would certainly show a higher figure than revenues appropriately recognized in accordance to accounting standards for completed services rendered.
So to most investors, they would take Cash Revenues as meaning Revenues in the ordinary sense. And if you see BIG’s disclosures, their Cash receipts can exceed their Revenues. And their disclosure also treat Cash Revenues as being the same as Cash receipts.
LIVETILES (LVT)
“Another record quarter delivers $11.2m annualised subscription revenue (ASR)….” screams the announcement.
What is ASR? In the footnote, it says Annualised subscription revenue (ASR) represents committed, recurring subscription revenue on an annualized basis. So how is this different to REVENUE in the ordinary sense of the meaning? And what is the meaning of Committed? Is that the same as Contracted?
On the chart, its ASR in Dec17 was around $7.5m – so if I were to interpret this, it could mean monthly subscription run rate is about $625k ($7.5m/12) . But when you its half yearly announcement to 31 Dec 2017, it reported 6 months revenue of just $1.9m , which translates to a monthly revenue of just $158k. Am I missing something? Or perhaps the rate of growth had been so phenomenal that it started out very low at the beginning of the 6 months and then closed at $625k for month of Dec17?
But the point is, LVT is reporting well ahead and makes reconciliation to its statutory revenue somewhat difficult to comprehend.
Everyone reads to regard Committed as Contractual? But can committed necessarily mean contractually committed? It is unclear and it would be better expressed as Annual contractual recurring subscription revenue rather than Annual committed recurring subscription revenue. I may have given you my commitment verbally or as a forecast but yet to sign anything to effect the commitment as being contractually bound.
It matters because if LVT annual revenues are just $3.6m based on its accounts, its Mcap/Revenue ratio would be 51x which is overvalued but if we base the Mcap/Revenue using ASR, then it comes down to 17x.
Pay close attention to its next disclosure of statutory revenue and compare against the ASR figures to determine if there is any disconnect.
PUSHPAY (PPH)
PPH uses the jargon Annualised Committed Monthly Revenue (ACMR) frequently in its disclosure. ACMR seems to show a 46.8% rise to $US86.4m over the year to 31 March 2018.
Its 6 months revenues to 30 Sep 2017 shows US$29.7m or an annualized of close to US$60m, and on 11/4/18 announced unaudited revenue of US$70m over fiscal year to 31 March 2018.
In January 2018, on two occasions, it reported achieving and surpassing ACMR target of US$100m. But ACMR reported most recently as per first sentence above dipped to US$86.4m.
By using the ACMR jargon, it has allowed PPH to announce forward revenues ahead of statutory revenues and this certainly helps stoke shareholder interests in the stock. But after reaching a high of $4 in early Jan18, its share price continued to be stuck in the $3.50-$4 range.
In PPH’s presentation, they had footnoted that ACMR are not GAAP financial measures to be clear but they continue to use it as a primary representation of Revenues.
So you ask, What is the Point?
Why can’t Revenues be reported as Revenues and not new ‘forms’ or ‘interpretations’ of Revenues that is vague, not properly defined and more dangerously more likely to be treated and interpreted by common folks as being Revenues. As you can see, those forms of Revenues are all higher than statutory revenues, some or perhaps most of them may not have been realized.
This also shows that in ASX disclosure framework, there does not seem to be a more stringent approach in the common and standardized use of acceptable financial terms , namely Revenues in accordance with GAAP or International Accounting Standards.
For the above reasons, I remain wary of these companies approach in reporting their growth. If their growth are as strong as claimed, they ought to be profitable very soon. But PPH reported a 6 month net loss of $US12.5m for six months ended 30/9/17 and did not mention its profitability position in its most recent announcement on 11 April when it announced a doubling of revenue. And LVT remained in the red with a loss of $5.6m in the 6 months ended 31 Dec 2017. These are fairly large annualised losses of US$25m and $11.2m for PPH and LVT respectively. As for BIG, we know happened to that one and I need not elaborate further.
PPH sp has been on a steep decline (25%) since mid June (when it was at $4.10)- recent set of revenue announcements continue to indicate growth but sp continues to decline. It again does not mention the losses and while revenues continue to grow strongly, they have actually been reducing their staff headcounts.
I wish I have more time to deep dive to better understand this 'fishiness' but something is not stacking up.
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