I sold out of 4DX yesterday. It’s something I’ve been privately contemplating for a while now. My reasoning is as follows:
1. The biggest reason is the sudden unexpected departure of key personnel at a critical junction. This is almost always a bad omen for the near future, especially when it is the CFO. It was the last straw I think.
2. AF has been a bit loose with the truth about revenue growth to date. If you look at the quarterly receipts, there’s been virtually no increase in the last 4 quarters. I know past performance is not indicative of future performance, but this leads to my next point.
3. Something that I don’t think people have clued onto was a comment from AF that they operate on 90 day payment terms. This is significant because it means that you can fairly confidently predict the financials of Q1 & Q3 by looking at the trade payables & receivables from the half yearly and annual reports. For the next quarterly, this is not looking good (again no growth in receivables).
4. Regarding statements about not needing any more capital raises, I cannot trust AF anymore on this. If he had said last year that no more capital raises would be needed provided that the options from the 2023 CR were exercised (11m options at $1.365, expired end of last year) then that would have been honest. In hindsight this was an obvious requirement to avoid further raises. But he didn’t say that, he said they wouldn’t need another CR, period.
5. He did however mention (I’m paraphrasing here) that they are counting on the options from the most recent CR being exercised in order to raise further capital. Given that no options have ever been in the money from capital raises, I’m sceptical that these ones will be in the short term, particular given my current outlook on the company. I don’t think FDA clearance of CT:VQ is going to put a rocket under the share price. Shareholders have had their fingers burned too many times for that to happen.
6. So far, the Imbio acquisition looks like a terrible decision by management. They have not come close to achieving revenue targets set out in the acquisition documents. It’s debatable whether they have increased their revenue at all. Noteworthy is the fact that they only once published the revenues of the Imbio business in the FY24 full year results. Since then it has not been reported. It looks like management got caught up in the AI hype and felt the need to do something, rather than being disciplined about capital management. The AI potential of the core business is huge anyway, so why did they feel compelled to purchase another loss making business? The below from the acquisition presentation on 11/12/2023.
a. Imbio CY2023 revenues forecast US$3.0m (9 months actuals + 3 months forecast), at +84% gross margins
b. Imbio CY2024 revenues forecast US$6.3m, growing 112% year on year, underpinned by signed contracts and significantly expanded pipeline
c. Milestone 1: CY2024 revenue growth – an amount equal to four times the incremental revenue growth (over US$3.5 million) of Imbio products in CY2024 from forecasted CY2023 revenue, up to a maximum earnout payment of US$10 million.
d. Milestone 2: CY2025 revenue – an amount equal to the amount by which CY2025 revenue exceeds US$4.0 million multiplied by 0.812, up to a maximum earnout payment of US$5 million.
7. Breaking into the medical field is very hard and takes a long time. I’m not convinced that 4DX will see a massive increase in revenues over the short term, even with all the good groundwork that has happened (contracts, Phillips partnership, etc). History says that it is going to take time, and most likely a lot longer than people think. This will only result in more capital raises and more dilution to existing shareholders.
8. Least importantly, the chart is absolutely horrendous, having never broken out of the major downtrend which started soon after listing. Macro outlook also looks very uncertain in the short term.
I continue to believe (and hope) that 4DX can and will be a successful company at some stage, but until I see actual growth in receipts I will be sitting on the sideline. I will continue to watch very closely (as I have since it listed) as I do hope to buy back in again at some point when it is truly on the growth path. Happy to miss the first leg up if that’s the consequence.
In hindsight I got caught up in the potential and went too hard, too early into 4DX. I’m in the red (obviously), but there have been some good lessons learned at least.
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