RE:RE:RE:RE:RE:Great opportunity!You have to figure in the change in the balance sheet since it either gives you cash (like lower inventories), or uses your cash. Only way to figure full operational cash flow. So despite the $19mil income statement use of cash, the balance sheet freed up $13mil so net cash usage in ops was $6mil. Cash actually increased over the 9 months because of the small net financing between loan and bond retirement at a profit.
Levesque and Dubuc will have to get aggressive. The 2022 numbers when they report them will be distorted by two major items - that Egrifta inventory writedown that artificially increased cost of goods by $2.3mil and by closing Europe and writing off that territory amortization fully ($6.3mil in selling costs). Neither used cash, just writedowns. THere was a tiny severernce of $800mil one off too in admin costs.
So the real "Clean" 2022 if you annualized those 9 month numbers and took out the one-offs may look like Revenues $79m, All costs $111m, $38.5 net loss (they will report worse than this because of the two one-offs that you can adjust out).There will be around -7.1mil net operational cash flow use.
The aggressive budget would see Revenues around $89mil, same cost of goods percent, cut $4mil a quarter of RD or $16mil out of the $37 (so still some RD going on), cut SGA by $1.5mil a quarter or $6mil from $50 to $44 (a bit from sales, a bit from Admin). You can switch how much RD vs SGA cut, but a total I'd shoot for would be around $20mil. Maybe they need another $5m in RD, so just take it from SGA somehow. Easier said then done, but they know how much of the RD is "hard" and what can wait. With slightly higher finance costs, you'd cut your loss to only $10mil next year from $38 (adjusted) this year. Quite a nice improvement. Oper cash flow would actually be slightly positive by $3.3mil and net/net you'd probably be up in cash at year end with the loan hitting.
By then you'd know if the remaining RD spend is needed and it only would be if trials are going on, which would be a good thing. By 2024 maybe you get Revenues to 100mil, same % cost of goods, and cut another $12mil in RD down to around $8-10mil, let sales and admin grow back a bit by, say, $4mil to $48 and similar financial costs of $8mil or so. So a net cut between the two of only $8mil, not a huge deal and if you need more RD, shift the increased SGA of $4mil over to RD and build it back. You'd have net income of $6mil and cash flow from operations of close to $18mil.
There's a lot of leverage to cost cuts when sales are growing. That two year turnaround would basically be $21 mil in new sales over two years from a base of $80, plus $24.2 mil cost cuts from a base of $111m and it would add $45mil to operating profits (from -$32 to +13) and similar to bottom line, from -$38 to +$6mil. by 2024.
From there you can basically keep the structure so if you had another $9mil of revenue to $109, you see net income grow 70% to around $10mil and positive cash generation of $20mil. Aggressive to an extent only around RD, not so much sales impact or Admin. But you'd underline very small operational loss next year, cash generation (you have the loan anyway as buffer), and a clear path to EBITDA positive soon, net income soon and decent growth and cash generation.
That would be supported by investors who like cash flow growth, revenue and earnings momentum. Not hard to see 4x sales or more for high margin, growing, cash generative company. That's the kind of plan he needs to lay out --aggressive, unfortunately painful, but doable and shareholder friendly. He and shareholders would be rewarded if what they're thinking and planning is somewhere around that model. There's other ways to slice it and dice it between categories, but the operational profits, cash flow and net income should be aims. Of course, sales growth is the first order they have to do to hit numbers like that. They've turned it around a lot so hopefully the momentum continues. Laying that out would start to attract the deep value, turnaround guys if they hit the numbers. And just maybe, ladyluck strikes with their trial when you least expect it.
houbahop wrote: For the First 3 quarters of 2022:
Operation cash ouflow was $19.8m before balance sheet items.
During that period, R&D was $27.5m
They would need to scrap 25% of their R&D to achieve breakeven, 55% to achieve $10m Net Operating Cash Flow.
Some cuts in the SG&A ($72.5m in the first three quarters) would make sense but seems well protected.
It won't happen until they have no choice. By then, scavengers will fly low.