I remember taking a brief look at these guys a couple of years ago and wasn't very impressed. At the time I think it was in the thirty or forty cent range and they looked a long way from hitting their stride, if they were going to at all. But a recent request came in from the TSA discord and upon a two minute glance, they look like they could have some potential here. So let's do a full review.
Balance Sheet:
Immensely strong current ratio of over 4.5 (deferred revenue removed from CL) consisting of $4.36M in cash, $1.9M of receivables, $3M in inventory and $450k in prepaids over only $2.15M in liabilities due over the course of the next twelve months. Aurora has no debt. A very strong and encouraging start.
Cash Flow:
$1.9M of operational cash flow generated during their first three quarters, an impressive turnaround from burning $2.2M at the same stage last year. I will say I do not think the $1.9M due to working capital changes is as good as it looks, mainly due to deferred revenue changes, but the main thing to note is that they have turned a big corner into a cash flow positive operation and the days of raising capital through dilutive measures could be behind them. So far this year have purchased $125k in patents and other assets and spent $200k on leases, so overall have been able to improve their cash position by over 56% from the beginning of the year.
Share Capital:
- Slightly bloated float of 222.2M shares outstanding, no dilution this fiscal year with the major dilutionary event in the past two years coming from their BTi acquisition.
- 36.75M stock options outstanding with 27.3M awarded this fiscal year at 5 cents. Maybe this is where things start to go south for me. This feels extremely excessive and based on the shares outstanding must mean that the company has a greater than 10% SBC plan - if so that means I'm out without looking any further. The only options that appear to be in any danger of being exercised any time soon are 1.9M options expiring in October at 6 cents.
- No warrants outstanding with 11.8M expiring unexercised this year
- 4% insider ownership and 10% institutional ownership (per SimplyWallSt)
- Some modest insider activity in the past year on the open market
Income Statement:
$4.2M of revenue in the quarter, up 26% over last year and through nine months have achieved $8.95M of revenue, a tremendous 126% increase over the same time frame in 2023. Their YTD business comes with a meaty 57.5% gross margin, and that number is also up over 450 basis points from what they did through three quarters last year. Total expenses on 126% more revenue, only grew by 4.5% with a noticeable 50% reduction in R&D spend. Their largest cash burning buckets were Sales & Marketing, which rose by 33%, and G&A costs which rose by 37%, still quite impressive conversion on that type of sales growth. At the bottom line, they were a little better than break even with $125k in net income YTD, with their Q3 number of a $514k gain. That is quite an overall impressive turnaround after a net loss of over $2.6M.
Overall:
It's hard not to be impressed with these numbers, particularly looking at a market cap of just $11M. This latest quarter trends out to $17M in annual revenue, and they may have turned the corner on cash flow positivity and overall profitability. This should make some people stand up and notice, and so far it has with the stock off of its lows from a measly deuce to a nickel where it closed yesterday.
But here is why I'm out (see image). I made a promise to myself to never invest in a company with a greater than 10% SBC plan. I just do not feel that a company with that type of a plan has the best interest of anyone but themselves at play. Some may think this is harsh, but I also believe most retail investors who have been in this stock likely never even noticed.
As you can see they moved to a new fixed plan at their latest annual meeting which allows for up to 31M to be awarded this year. They have already nearly maxed this out and I would have the expectation that could very well happen when we see the annual statements.
Just when you think dilutionary measures could be over, along comes this revised plan.
I still must give credit for their strong FINS, and award them with a very good 3.25 initial stars.