Questions for the webinar., page-6

Hi @Holdtight, great post, very informative, logical and well thought through, imo. It has helped me to decide my approach to BUD, as I am pondering that ahead of the market tomorrow.

I thought your post was really worth reading, but unfortunately suffers from the damn annoying way HC makes words contiguous when copy/pasting into it from some other apps (as I assume you did).

To make it more readable, I copied it into my laptop email program (Thunderbird), ran spell check and edited out the contiguous joins, then copy/pasted below. I hope you don't mind me taking the liberty of reposting it. Please correct anything I may have erred in.

PLEASE NOTE: THE FOLLOWING IS MY EDITED VERSION OF HOLDTIGHT'S POST:

I am expecting a lot of criticism for my faith in DM and management after this 4C and it would have been easy not to make a post at all. But after thinking about it, I believe I need to make an unemotional, rational post to counter those who are understandably very angry.



No question, this is a massively disappointing quarterly based on the guidance that was given. With the risk of being called delusional and one eyed, it is still $34m revenue yoy in a period of restructuring and a global economy uncertainty that has seen almost all retail business contract significantly during the trade war, both online and bricks and mortar.

So what happened to miss guidance by such a margin?



This assessment is my opinion only. I am not looking to make excuses for DM and his expectations of the (1-3) deals landing and saving the day with regards to all 3 of his guidance. ( FWIW I believe 2 of the deals will land in February and the coy will have a serious re rating higher.) IMO, DM was unfortunate to be required by the ASX to disclose in the cleansing statement to the market that the US utility order was imminent. It didn’t land in the time he expected. He now needs to explain what factors have resulted in it being pushed back 6-9 months. Question 1 for the webinar.!!



Breaking down the numbers for the quarter, there are positives and negatives.

(1) Negative are obviously a lower than expected revenue number and only profitability in December. (due in part to Cyber Monday falling so late in Nov).
(2) The fact that massive orders were once again turned away is unacceptable aside from those unable to be filled at unrealistic time constraints. Although the finance facility did take much longer than expected, they did used their cash on hand to build up inventory, ---- therefore , if the rejection of the orders was not finance related what was it? Question 2 for the webinar. I suspect something else is going on with this manufacturer.

There are several positives hidden in the data, but let’s just focus on LIFX and say that the commercial business did better than expected with 2-3 one off payments and QRR is now over$640k ( >$2.5m pa growing 5% monthly compounding or >100% pa. ) with expenses flat. Further progress anticipated without rising expenses in 2020. Airstream and the Eastfield licenses are both yearly payments for work and continually building MRR from monitoring.



(1) Lifx CYQ4 2018 revenue was $17m vs $12.3m ( down 27%) in 2019. However, what is now obvious, in order to get 2018 revenue to this level, discounting and selling product for significant losses had to occur. ( IMHO this was a beef up by the Chinese and previous CEO Tim Peters as part of the business sales process). This resulted in current assets falling $4m in q4Cy2018 vs a $2m increase this year with the lower q4Cy2019 revenue numbers. This is smart business. Also unit prices of the most popular mini white lights fell from say $35 to $25. So even if unit sales numbers where the same (without the extreme discounting) revenue would have been 28% lower.

(2) In 2018 LIFX launched something like 10 new product lines, in 2019 there was only the candle and that was in the last few weeks of the CY. I guess the question is why this was the case? Was it difficulties with the manufacturer, organising the debt and trade facility or restructuring and moving personnel or something else? Recently they announced they will discontinue the Tile product and it sounds like they might be discontinuing a few other unprofitable products, but will introduce the filament ( which is Philips hue second largest selling light by revenue) will be available in coming weeks. Also they have worked on having weather proofing the lights so they can move into exterior lighting. They have told us they expect 10 plus new lines of products in 2020 and revenue from new products is all growth.

(2) Cash and receivables rose $2min the quarter with inventory approx. the same.

(3) Product manufactured for this period was prior to the negotiated 25% reduction in costs and expected further reductions in manufacturing costs. This will result in either higher margin or a lower cost to customers and therefore greater sales volume and revenues in2020. DM has said in the last webinar that dropping a product 20% in price led to a more than doubling of sales. Clearly dropping the price drives growth, but the reverse is true too - if they can’t drop the price then they’re going to sell fewer units, which is what appears to have happened in this quarter.

(4) Renegotiating contracts with retailers what were previously unprofitable will alter the profile of the quarters in 2020. More quarters can now be profitable with a big kicker in the final. If best buy or home depot or the likes are charging too much for the shelf space to turn a profit in each quarter, it makes little sense to continue with them. This is a massive positive and an easing on the cash flows. Commercial ( switch ) will also aid with the cash fluctuations of the past.
(5) European expansion is expected to be all profitable and add directly to revenue.

(6) During 2019, Sengled and Mirabella flooded the market with cheap smart lights. Google and Amazon had a crack at bundling with them at the expense of Lifx who refused to sell for a loss. Amazon and google now have learnt from the high amount of returned products, that partnering with cheap Chinese lights is NOT the way forward and too expensive as the Alexa and google home also get returned.

(7) IMHO, the most positive part of the 4c was regarding SWITCH. I read that there was over 8000 new video cameras alone promoted at CES. To achieve “ best of ” top 5 at CES vs so many products, in such a short time period is exceptional. This is the highest margin product they have. Nine months ago this product didn’t exist. Now they're expanding to US switches also, and UK/EU can’t be far behind.


I remain very optimistic of bud in2020. IMO, DM has zero upside in announcing deals that aren’t going to happen. He is not selling stock. In fact, he and the board have been buying in every raise. Last thing he wants is an aware letter. To what end would he have to announce an imminent deal and then it is not happens. The ASX have to approve every release that he/coy makes. They require to see some factual information/communications/emails/contracts from potential deals/ partnerships. Yes, there have been timing issues with his guidance. Longer term investors have the right to be sceptical. OHM failed in 2018. It wasn’t what the market required. We all remember the coy walking away from Telstra deal. We remember walking away from Noveda and Zentri ( a great decision in hindsight as both have gone broke) OHMWW been changed and appears to be gaining traction with specific clientele. I would like to hear more about the Cushman/Wakefield deal and the Central American ATM deal when it lands. For those who claim can’t close a deal in the last 12 months, well he negotiated the LIFX deal, debt and trade finance, Wattwatchers and Wattics patnerships, Dixons, AppleJapan, DIY blinds, Razor, Qantas FF, Umps health, manufacturing cost reductions and the employment of Donald Hicks from Ring/Amazon. Ring's $1b revenue in door bells/cameras in 2019. The market for switches and lights has to be many many times larger than that. If the average price of a light was $34 then Lifx sold 1m lights. The market for the product globally is eye watering and what is clear from 2019 awards that Philips and Lifx are really the only two worth partnering with.


IMHO, the coy has never been in better shape to move forward. Sequoia are out of all there selling and the pipeline is very positive. Only wish I was starting from here and not 2016!! But I guess that is the nature of start ups and small caps.

Holding tight and looking forward to the next few weeks for more deals to land and to proving the naysayers wrong.