AJX 2020 numbers and outlookThe company just published it's annual reports. Some interesting insights we can extract from them. And note that the financials don't state that CLAAS and AgLeader were the two large customers for the company so I'm going on the assumption that this is the case.
1. AgLeader was a big contributor to sales for the year. In total AJX sold $7.9mm to Ag Leader in 2020, down from $9.8mm the prior year and $11.6mm in 2018. Of course the 2020 sales were only for three quarters. That's going to be a big loss of revenue going forward until the lawsuit is settled. But if a favourable and meaningful outcome is achieved I would expect the stock to pop.
2. CLAAS sales were way down last year but they continue to be a customer. Total sales to CLAAS in 2020 was just under $1.6mm vs. prior year $24mm (BPO). It would appear that after the BPO CLAAS had significant amounts of inventory to work through before they would make additional orders. In fact you can see that EMEA sales picked up in Q4 to $1.2mm vs. $1.8mm for the first three quarter combined. Sales to CLAAS pre-BPO was $10.9mm in 2017. If AJX can even get half the 2017 sales number in 2021 (which would be $5.5mm), which looks very likely given trajectory in Q4 + market demand, then this will go a long way to replacing the lost AG Leader revenue during the year.
3. US Sales, not including AgLeader, was around $3.94mm for the year up from US$3.75mm in 2019. That tells me that Wheelman was helpful in offsetting OEM declines (e.g. Stara) in the region likely contributing about $1mm in total sales for the year. We could see a significant bounce back here in second half of 2021 as OEMs recover and Wheelman continues to gain traction. I'll guesstimate somwhere around $4.5mm to $5mm in total US Sales for 2021 (OEM + Wheelman).
4. APAC sales increased by about $855K in the year to $1.43mm. That is rapid growth and can be fully explained by new OEMs. Could we add another $1mm here in 2021 or even higher?
5. Royalties for 2020 were $1.15mm up slightly from $1.12mm. In my mind this just shows how tough of a year it was for our royalty partners Raven and Outback. The addition of Kubota in Q4 would have been incrementally positive so the fact that royalty sales increased so marginally really emphasizes the industry challenges. For 2021 whatever increase in sales we see Raven / Kubota have YoY should translate into a proportionate increase in royalty revenues for 2021 (or at least serve as a good proxy).
6. Gross margins: Royalties should have 100% gross margins since there are no costs associated with earning these each year (as we know royalties are based on a clients revenue). So assuming that royalties were 100% this implies that all other sales (OEM + Wheelman) had gross margins of 45% (to make the math work). That's quite an improvement vs. prior years. Increased software sales probably helped here as has selling higher value add components vs. complete kits (those OEM solutions were producing 35% GM in the past). It would be great to get these into the 50% range longer term.
7. Revolver: This expires in May 2021 so unless AJX is renegotiating with their banks they'll lose access to this $3mm. It doesn't appear they will need it however if 2021 shapes up as management has guided.