Dynamic Technologies Group Inc - Class A ERILF

RE:RE:RE:RE:RE:RE:RE:Free Cash Flow

[pone]

pone wrote:

billy4325 wrote:

Exactly, trade receivables was basically unchanged year over year (2014 - 15,645 vs. 2013 of 15,409).  Increase is due to unbilled construction contract receivables (it's kind of hard to collect receivables which haven't been billed yet).  This is part of the business, when you have contracts which stretch over multiple years you cannot bill until certain milestones under the contract are met.

First, you are missing the deterioration of trade receivables.   Everyone, please download the 2014 annual report in PDF format and pay attention to the top of page 56.   The company has gone through a significant deterioration in how quickly it gets paid for trade receivables.   Notice that timely payments within 30 days were cut in HALF.   Payments over 90 days in 2014 are 240% of the 2013 level!!

Regarding construction contracts, we do not know what this includes because the report does not tell us.   Can you point to some other disclosure form where they give detail of what goes into that account.   Unbilled construction costs have ballooned by 50% from 2013 to 2014, far in excess of revenue growth.

Companies ask for prepayments on part of unbilled construction all the time.   Why doesn't Empire?   Are we supposed to put up with years of sales increasing 10% and construction contract receivables going up 50%?    How long does that last before the company starts to show financial stress?

Every aspect of the accounts receivable shows deterioration, and there is no discussion of why at all in their annual report.

In the Q1 2015 earnings report, accounts receivable deteriorates even further.  The AR is up about 12.5% sequentially, and they don't disclose credit deterioration like they did in the year end 2014 report, so we do not know if the higher AR contains even worse payment trends.

What is deeply disturbing is not the fact that accounts receivable continues to deteriorate.  What is distressing is that management doesn't talk about this issue at all.   Comparing the year end 2014 to 2013 reports, it is clear that there has been an extremely dramatic deterioration in their ability to get paid.   How can they not talk about that to investors?