Financial analysisFor those who haven't seen it or read it, here is an analysis that followed yesterday's results.
( )
It looks like it is that time of year again. I've received requests to do their quarterly statements in the past but to be honest, I can only stomach reviewing Pyro once a year.
In April of 2022, I awarded them a lowly one star review when the stock sat at $3.20 and in April of 2023 downgraded them to a half star when they were a buck and a quarter. So down 87% over two years and 66% since their last annuals were released.
I also received more vitriol on my reviews of Pyro than maybe any other stock, although I will admit the competition is pretty fierce. Most of that crew from two years ago surprisingly don't post anymore.
I notice that the company dropped their news release at midnight and you have to scroll through numerous paragraphs before you get to the financials highlights section. I'm going to assume that is not a good sign, but let's dig in to see for sure.
Balance Sheet: Rough start with a tough looking current ratio of just .7. Just $1.8M in cash, $9.3M in receivables, $1.9M worth of inventory and another $3.8M in other various current assets against over $23.8M in current liabilities. The balance sheet has gotten significantly weaker in a year when their current ratio was 1.06 last year that I pointed to being worrisome at the time. My largest concern for some time was regarding their receivables. While the overall receivables number is down, the concerns regarding their collections abilities is not. They wrote off $3.9M in 2023, $4.1M in 2022, and their allowance for doubtful accounts now stands at another $8.6M. Their revenue has only been $31M in the past two years, and write offs over the past three could surpass 50% of that. There doesn't appear to be any guarantee its the best case scenario either, as 87% of their $16.8M of receivables are over 90 days. This is by far one of the worst cases of AR management I have seen in my hundreds of company reviews. If they announce a big contract, it looks like there's a decent chance they aren't going to get paid anyway.
If there is any good news here it's that debt isn't a big problem with only $400k due to the EDA, and $2.5M in convertible loans and debentures. The loan is with Mellon Trust, a party related to the CEO, and interestingly the one that is secured against company assets.
Cash Flow: Another dreadful year within their operational cash flow of $12M, nearly $1M worse than what they achieved in 2022. It looks even worse than that $12M however with nearly $10M of adjustments to working capital items, mainly due to the reduction in AR which will not repeat itself in 2024. At best they are burning $1M operationally per month and they only started the year with $1.8M with some highly questionable receivables. During the year they sold almost $11.5M worth of stock in HPQ for proceeds of $3.9M, and raised about $9M from a PP, and the previously mentioned debentures and loans. At their burn rate which isn't showing any signs of slowing down, they will need to raise a similar amount at a further suppressed share price to continue to operate through 2024.
Share Capital: - 178.9M shares outstanding with 3% dilution during their fiscal year
- 8.2M stock options outstanding, all out of the money
- 9.7M warrants, with just 625 currently in the money and remotely exercisable - owned by the CEO at 41 cents
- 45% insider ownership
- CEO has disposed of approx 6.1M shares through an ASDP via indirect holdings through a trust over the past two years for estimated proceeds of nearly $9M (per Sedi filings). He has also added a couple million to his personal holdings via PP participation and options exercised.
Income Statement: The P&L I'm afraid is another sad state of affairs with a 35% drop in revenue to $12.34M, down from $19.01M. If that wasn't bad enough gross profit was disastrous, eroding by nearly 1500 basis points to 27.9%. So after a revenue decline of 39% the year prior, lost 35% in their most recent year with a 58% decline in gross profit dollars. Making matters worse, their SG&A costs rose by 6.7% to nearly $31M. If you remove the one time losses in relation to their investments in HPQ, their net losses were over $4M worse on two years of declining revenue AND a bedshitting margin performance. Break even point on their margin and this level of spending would have been $102M.
Overall: Pyro has delisted from the Nasdaq, revenues have declined over two years by 60%, margins went from 58% in 2020 to 28% last year, expense control is not in their lexicon, and when they do sell something there is a good percentage of a chance they may never collect it based on recent history. Oh, and they will likely need to raise capital very, very soon. Yet it still trades at 6x revenues. Further downgrade to .25 stars.