Below are rough figures but we have to start somewhere.
Ok so we know from the March 16 financials that cash outflow is about 3.4 million last quarter.
Advertising was 1.8 million but management have indicated they will be reducing the amount spent. Let's assume that staff and admin costs are unchanged for the next 2 quarters and advertising can be reduced by
800 million.
That would give us a quarterly cash burn of 2.6 million or an annual rate of 10.4 million dollars.
Even the cynics on this page can see the huge potential that this company has so the immediate urgent goal here for NOR in my opinion to quickly get cash flow positive so they can grown the grow the network in a sustainable way.
For this to happen NOR is going to need to bring in at
12 million in revenue annually to be sustainable based on the current spending patterns.
Let us have a think about how this may be possible outside of the obvious capital raising that must occur next quarter
A possible model for NOR's revenue breakdown
Outside of capital raising or debt NOR can currently get revenue from 3 possible know sources
1. WP call reciepts
2. Corona update
3. OTT contracts
World Wi-fi and messaging are exciting prospect but I think we can all agree that they are going to come too late to solve the current cash burn problem and we just don't have enough detail to make any meaningful speculation. So that leaves us with the 3 above. Nor must get itself financial in the absence of world wifi and messaging.
So how can NOR come up with 12 million dollars a year to stay in this game ?
1. Wp call receipts.
According to the last release they currently have an
4,100,000 downloads with
US dollar revenue of 485,000. Converting this to good old Aussie bangers gives us
$637,000 so far. World phone launched 9 months ago so give or take its bringing in
850-1 millionv Aussie dollars a year based on the previous few quarters average.
For world phone to fund norwoods cash flow
alone we will need
12 times the number of downloads which means on current revenue percentages they will need an annual download figures of
50 million this year. Not out of the world of possibilities but no easy task and certainly not indicated by current trends.
Yes but what about global dynamic pricing ?
Good point.Assuming global dynamic pricing and free app to app really helps move things along lets be generous for arguments sake and assume they are will be
double as efficient at converting downloads to revenue. They are still going to need
25 million downloads for this to happen. Again not impossible but not indicated by current trends.
Perhaps a more likely possibility is that they have
8 million downloads by the end of the year and become twice and good at converting revenue with world phone. That's going to give us
2 million dollars of revenue from world phone.
Hopefully future announcements will better clarify their conversion rate since dynamic pricing and WP 2 have been introduced.
So we still need another 10 million dollars in annual revenue
2. Corona update
Corona was PO's original tech dream and pre-dates even world phone. In its original form it was not picked up as hoped and expected and to NOR's credit they have diversified to release a cloud based version very soon. Initial examples of the interface are mind blowing and there is nothing that comes close to the metrix shown here in the competition.
http://norwoodsystems.com/corona-cloud-info-page/
http://norwoodsystems.com/corona-admin-page/
So what's the income potential of Corona ?
Well the potential is enormous and it is only limited by the number of small to large corporations that wish to have consolidated state of the art global roaming networks but revenue is hard to know as we have now idea what the uptake will be.
Given there is a 1 month free trial available and we are still yet to launch as on the 30/04/16 I struggle to see Corona being able to make an impact over the next quarter unless Paul's rabbit is far more advanced in it's beta version than we realise.
Also to be considered is the rate that companies make decisions. the larger the company the slower the decision to change. I imagine that large companies will want to see it industry tested before they take the plunge so it will be small to medium companies for NOR for a while to cut their teeth on before the big boys step in.
Reluctantly ( failing any early announcements ) for now I think its best to but CORONA cloud in the exciting development box that may have some very exiting implications for the October to November Quarter but will not be relevant to the discussion of how to stem next quarters cash burn of 3.4 million.
3. OTT contracts
Ok now I see why PO was pushing so hard for these. They seem to be NOR's best shot of buying enough time to develop their product range further.
The last announcement hinted at 7 possible over the top contracts.
http://www.smh.com.au/business/markets/quotes/announcement/NOR/norwood-systems-limited/1736489
Let's review the potential vietnam deal that looked oh so good until the words non binding appeared.
From their 21st March ASX announcement of the vietnam deal.
Let's bloody hope they can get it signed off over the next few weeks.
Here is the juicy bit
They wish to charge a potential mobile market of
33.7 million 1-3 US dollars plus plus have a profit sharing deal where VNPT can get 25% of NOR's in app revenue for credits purchased.
If 5% take up of this offer ( at one dollar ) from 33.7 that is at least revenue of 1.6 million. the MOU does not specify what percentage the split would be. If we assume 50% then that leaves NOR 800,00 dollars per year just on the monthly fee let alone the 75% in app revenue for NOR . Unknown how hard VNPT will market and support this. will they have world phone pre installed on handsets etc ? If they really get behind it should do great, if they just pay lip service it will be up to NOR to put in the marketing grunt. Never easy in an OS country.
That's 800,00 US Dollars so it's
1 million in Australian bangers just on subscriptions lets alone in app revenue. We don't know what in app revenue could be but we assume the revenue rate is similar to app store downloads (10%) that should give NOR an additional income of 10% of 1.6 million = 160,000. ( 25% goes to VNPT)
So one OTT contract could give NOR about 1.1 million per year with a 5% uptake.
Not bad but they will need to do better if we are going to drive the red cars. either the uptake must be 20% or above or the in app spend needs to be substantially higher than the current app dowloads ratio,
So in nutshell according to these ugly preliminary figures and my logic NOR can solve its cash burn problem if it potentially gets 10 5% uptake OTT's white label contracts signed before the end of the year ( or 3 @ 20% uptake ) and get WP downloads to 8 million.
NOR may not be able to find 10 large OTT's so getting CORONA cloud revenue positive within 3- 6 months seems vital to me.
They will need another capital raising ( or angel lender ) of around 4-6 million to cover the revenue gap over the next 2 quaters.
Again just my humble opinion after a long work day and at this point in time. All clarifications or improvements to the above very welcome.
Good luck and chin up my Norwidian friends, this company can really fly if it can survive the next 2 quarters.
Go PO and team Norwood I am sure you guys are working your butts off right now. It is appreciated.
(20min delay)