@Fat Harrys Cat and
@MichibaPaul and Jeff stated at the investor presentation on Tuesday 12 July 2022 that they were not intending to raise any more funds and that expenses were approximately $825k per month, and they intended to keep them there. If everything stays static they have a monthly cash burn of circa $500k and will not need to raise in the next 12 months. I have set out a table analysing their cash needs in light of an increase in revenue each quarter.
Their increase in revenue this quarter was disappointing to me. However, based on their trading update of 12 July, and their presentation, the below table shows that only at the lowest MRR increase a quarter (10%) will they
need to raise funds.
HTG's last quarter growth was nearly 70%. While I would like to see that again, anything above a 20% quarterly growth would ensure no need to raise funds. I note that if they are not hitting at least 20% quarter growth, I will be very concerned. Again, their current quarterly growth was embarrasing in my eyes. Regardless of the reasons.
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| 1 | Quarter | MRR (1.1) | Cash on Hand (1.1) | MRR (1.2) | Cash on Hand (1.2) | MRR (1.3) | Cash on Hand (1.3) | MRR (1.4) | Cash on Hand (1.4) | MRR (1.5) | Cash on Hand (1.5) |
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| 2 | Jun-22 | $257,000.00 | $6,250,000.00 | $257,000.00 | $6,250,000.00 | $257,000.00 | $6,250,000.00 | $257,000.00 | $6,250,000.00 | $257,000.00 | $6,250,000.00 | Actual |
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| 3 | Sep-22 | $282,700.00 | $4,623,100.00 | $308,400.00 | $4,700,200.00 | $334,100.00 | $4,777,300.00 | $359,800.00 | $4,854,400.00 | $385,500.00 | $4,931,500.00 | Forecast |
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| 4 | Dec-22 | $310,970.00 | $3,081,010.00 | $370,080.00 | $3,335,440.00 | $434,330.00 | $3,605,290.00 | $503,720.00 | $3,890,560.00 | $578,250.00 | $4,191,250.00 | Forecast |
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| 5 | Mar-23 | $342,067.00 | $1,632,211.00 | $444,096.00 | $2,192,728.00 | $564,629.00 | $2,824,177.00 | $705,208.00 | $3,531,184.00 | $867,375.00 | $4,318,375.00 | Forecast |
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| 6 | Jun-23 | $376,273.70 | $286,032.10 | $532,915.20 | $1,316,473.60 | $734,017.70 | $2,551,230.10 | $987,291.20 | $4,018,057.60 | $1,301,062.50 | $5,746,562.50 | Forecast |
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| 7 | Sep-23 | $413,901.07 | -$947,264.69 | $639,498.24 | $759,968.32 | $954,223.01 | $2,938,899.13 | $1,382,207.68 | $5,689,680.64 | $1,951,593.75 | $9,126,343.75 | Forecast |
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| 8 | Dec-23 | $455,291.18 | -$2,056,391.16 | $767,397.89 | $587,161.98 | $1,240,489.91 | $4,185,368.87 | $1,935,090.75 | $9,019,952.90 | $2,927,390.63 | $15,433,515.63 | Forecast |
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| 9 | Mar-24 | $500,820.29 | -$3,028,930.27 | $920,877.47 | $874,794.38 | $1,612,636.89 | $6,548,279.53 | $2,709,127.05 | $14,672,334.05 | $4,391,085.94 | $26,131,773.44 | Forecast |
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| 11 | Monthly Expenses | $825,000.00 |
| Cash flow positive MRR |
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| 12 | MRR | Varied (see table) |
| Each 0.1 above represents 10% | e.g. 1.1 = 10% qrtr growth | e.g. 1.2 = 20% qrtr growth |
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@loco123It doesn't appear to have been open to all investors. One of the big comments was that these sort of things should be on regularly (e.g. each quarter) and available to all investors (such as through an electronic meeting).
I'm sure some of you who weren't there (and didn't have reps there etc) would like to know the general tone / discussion. I've tried to capture some of that (with my own thoughts below).
Overall Exceptionally well spoken by both Jeff and Paul (every time you hear Jeff speak, you realise just how good a leader he is). That said they (especially Paul) were asked some tough questions. They need to work on responding to investors, especially with tough questions without getting too defensive. It became a little heated / combative at some points, which probably could have been avoided. That said, you can't help but leave their presentations / talks with a better understanding of the company and more relaxed feeling about the company's future.
While it helped, the presentation really didn't do anything other than better explain the quarterly update.
Communication
This was big topic of the evening. Paul and Jeff recognised that they could and should do better. There were lots of simple, cheap and effective possible solutions put forward, such as:
- regular town hall meeting (for all investors) (quarterly?)
- updating the company's online investor page (to better incorporate all information that HTG is putting out, regardless of whether it is an ASX announcement or not); [Note: you can already subscribe to their newsletter, and you should for all the latest information, bottom right corner of their website; HTG's News page contains a lot of this information] and
- better worded / drafted documents such as the quarterly update.
The company will consider all these options and more, but is endeavouring to be delivering news every fortnight.
SalesThis is the first quarter of being a pure tech / 'SaaS' company (that is, without Shine operating revenue or expenses).
June quarterly target from the trading update on 28 March 2022 was MRR of $300k-$350k. While the June quarterly MRR was $257k. This was substandard to me, significantly so.
The trading update of 12 July 2022 did suggest that the company is increasing sales though, but the key MRR metric (and associated quarter on quarter growth) was too low for my liking. Paul also stated that a lot of companies are picking up 1 - 5 licences to start, and it will expand from there. In some ways, this is testing the product, in others, this is part and parcel with mobile assets such as ships that can be away from port for up to 5/6 months at a time (can't refit/outfit until they are in port, and have the time etc). It could take 5 years to deploy across some companies' entire fleets.
In addition to the above, some of the deals that the company envisaged taking 3-6 months look like they will take 12 - 18 months from start to finish (I considered that this was more in respect of companies such as Cisco etc).
Reasons for not hitting MRR targetObviously macro economic, but also some large contracts went through in July instead of June (at client's request). While a 'fine' explanation to me, it doesn’t hit the right notes. They've essentially downgraded the September quarter based on not hitting the June quarter numbers.
I want more transparency why the sales weren't hit.
If it really did come down to when things were billed, then we should smash the September quarter. However, if it is actually more to do with macro economic pressures (outside the company's control) then we are actually circa 3 months behind where we (company and investors) thought we would be. This is not the end of the world, and really probably can't be helped. However, if it is due to a substandard sales team, this is a concern. That said, I want the clarity. I don't feel I got that on Tuesday night, and it might not be until the September and December quarter results that we will really understand the sales progress.
Expenses
Expenses have been reduced, and it was discussed that they were intending to either lower expenses further, or (at worst) maintain them at this level ($825k per month). This included a reduction in some board member fees.
Big tick on this front in my eyes.
@3179I hope this clears it up for you - this was picked up last night and queried. They clarified that the $825k are expenses, and that current cash burn is circa $500k a month.
Capital RaiseThe current MRR and expenses leaves a cash burn of circa $500k per month. As such, if nothing changed from the June quarter, HTG does not need to raise money for 12 months. The company is aware of the current climate, and has no desire to raise cash, and doesn't need to (for at least 12 months,
if at all).
Existing opportunitiesThey have plenty of existing opportunities, it is about closing them though. The company is 'laser focused' on sales. Jeff stressed this repeatedly.
The company considers that the sales pipeline is growing. [
This was raised as opaque due to the nature in which the target transitioned from licences to MRR, and so did the 'pipeline', however, Paul confirmed that not only are sales growing, but the company's potential pipeline of opportunities is also growing]
Cisco is still on the cards. It is unclear how big or little this may eventually be. Ideally, it becomes an imbedded part of Webex, but by the sounds of it, it may be packaged as an add on to Webex in some capacity.
It is going to be put through funded trials in the next 3-6 months.
Potential OpportunitiesI have seprated this from 'existing opprotunities' because the company is focusing on Maritime and Aviation (drones).
Due to limited cash, employees etc etc, the company is not pursuing big 'white whale' opportunities such as a Defence contract. There is the suggestion that Defence is still in the picture, but it is in no way a direct focus of the company.
Jeff noted that Cisco (Broadcasting & Conferencing) came to them. The company had recognised B&C as a potential avenue, but was not actively pursuing it, and Cisco came knocking. This reinforces the tech to me, and it reinforces that large / complex companies and deals can come to HTG while they are laying the ground work (regarding revenue / company building).
Again, a big tick from me - don't try to do everything at once, get the company settled and cash flow positive.
Research and Development The company's R&D sounds phenomenal. Any explanation I try to give it definitely won't do it justice.
In simple terms (and please correct me if this does not accurately capture it, or there's a better way to explain it) but instead of just A to B to C (end user) it can go from A to B to CC (being multiple e.g. thousands of end users).
The next iteration of their tech is already in beta testing, and will be for the next 6-9 months. HTG considers that it only has one 'actual' competitor, and they are doing a different thing with their business. In real terms, the company still sees itself with at least a 2 year lead on any potential competition.
Honestly, no complaints on the tech / future tech front.
Next quarter
The company, based on their stated MRR target of $340-$380k for the September quarter are predicting between 30% - 50% growth based on the current quarter. This remains to be seen after the lacklustre growth in MRR this quarter.
GeneralThey consider that they are in the middle of 'Phase 2' of the 3 phase plan, and that Phase 2 is likely to run for another 12 months.
I note that Phase 2 was initially slated to run for 12 months (CY 2022). As such, this reinforces my opinion that the company (largely for macro economic reasons) is 3-6 months behind where they anticipated.
(20min delay)