Financing Will Close – Adding EU Units to Base Case…Just here me out, the capital raise is filled and its just timing of announcing the closing, this is my thesis.
If they weren’t going to get any large strategic to participate in the deal they would of announced a first tranche closing as soon as possible and get as much money in the door before the holidays as they could of. This did not happen… BULLISH???
I say yes, this means large carrier partners Bell, AT&T and Orange in Europe would of taken time to due their DD and clearly are sniffing around the name if not other large resellers.
Why hasn’t the financing closed then???
I note that all those major carriers (and most businesses including resellers) have December Year ends hence 2018 capital budgets are essentially fully spent and allocated out by the time the back half of December comes around. Just antidotally, I work for a Large CPG company and trying to get money for any sort of CapEx or general expense accounts is down right impossible the last couple weeks as books are winding down for the year and budgets are exhausted.
I understand it’s a drop in a bucket to these large telcos budgets, but its about allocatable capital and fresh capital budgets come in the new year and the money will be flowing.
Additionally, by the time the DD was done communications back and forth and getting the required signatures through large corporations can be time consuming, especially as people are leaving for vacation. These companies are in no rush.
Pure Speculation but…. one of these large carriers had to look at the business and think if not discuss, there must be a number we can offer Owen and team in which we take the whole business 0.40-0.50/share??? Interesting thing to think about. Strategic value alone > then current market cap IMO.
My conclusion, they get a big strategic on board for a sizable portion of the financing come early January!!!
If you dig into the prospectus and see how the funds will be allocated with $2M to inventory $500K working capital and $300K Europe Expansion. They are tempting Orange to come onboard with them…
I would also point out with this raise this takes them through the next 3 years without needing access to capital up until December 2021. Clearly you could have another demand surge and they would likely tap the markets again to raise capital again, but I can all but guarantee the stock wont be down here because at that point the recurring revenue generated will be much much higher and they could tap debt markets at much better terms with a profitable reoccuring revenue model.
Introducing European Units Order Estimate for 2019
50k Units in Europe
106k Units in North America
156k Total Units
See Prior Post for explanation - https://www.stockhouse.com/companies/bullboard?symbol=v.bew&postid=29114396
My level of confidence has grown in the closing of the equity raise so they will have capital to build inventory and pursue their European launch that has been in the works for significant time with Orange in Q1 of 2019.
What are the economics of those orders (On a normalized basis)?
156,000 units x avg $60/unit = $9,360,000 (30% margin = $2,808,000 Gross Profit)
Avg $2/Unit Per Month x 156,000 units = $3,744,000 (80% margin = $2,995,200 Gross Profit)
Add:
Current Annual SaaS = $1,200,000 (80% margin = $960,000 Gross Profit)
Equals
Run Rate Business of 14.31M (4.95M Recurring Revenue) and 6.75M Gross Profit Dollars.
With a Opex structure in both 2017 and 2018 in the 2-2.5M range you can see as the business scales the underlying leverage within the business model.
Valuation
Using the industry Comp again as 5x Recurring and 2x Hardware Sales for FY19 run rate figures using a 80M share count.
That equates to a share price of 0.55/share or 175% upside on the business today… We are just getting going.
By closing this financing, it allows them to really target new geographies and expand and meet demand and gives them the ability to grow and outspend cashflow. When you have the demand to put up 20-50% QoQ Revenue growth. Invest in It! Go for it!
The European expansion alone in my analysis adds 0.15/share to my valuation target alone.
I still got 4 growth drivers to highlight…
Saddle up, I don’t think you are going to be able to get share <0.25/share after this week.
LONG