Interesting ResponsesTo a multitude of questions. GLTA
Are the stock based expenses a one time thing ( yearly) or will they be part of every quarterly report? To have such a reportedly big effect on the earnings, was the company overally generous in this dept? SBC can occur at any time and impact quarterly and annual reports. These are not considered one-time events, but there are a few reasons why the impact was larger in its recent quarter than prior quarters. The most recent quarter was for the period ending March 2024, and not only has the stock price seen a significant rise in value, incentivizing employees to exercise their options, but also, it was a new calendar year, which can further incentivize employees to exercise in Q1 rather than the prior year for tax purposes. Much of this is theoretical, and overall we do not think the company was overly generous, but rather these are standard practices to encourage retention of top talent, and the performance of the stock price is key, which clearly demonstrates a fundamentally-sound company.
-----------------------------------------------------------------------------------------
Seems like HPS.A is going to have trouble keeping up with demand. They are expanding to $900 million capacity, and then $1 billion by end of decade. If they want to grow faster and keep up with demand and capture market share, would they buy a competitor to gain more capacity faster?, What would you advise them to do strategically? Could they be acquired by a larger company?
HPS.A could acquire a competitor although its current cash balance does not currently support this, but it could issue debt or shares for such an acquisition. It could also invest in capacity expansion, which seems to be its current strategy; this would be a slower approach to increasing capacity than a straight acquisition. It could also form strategic partnerships through joint ventures or licensing agreements. We think an acquisition could make sense if there is a significant demand/supply mismatch, but the company has been performing excellently without an acquisition, and sometimes if the current strategy isn't broken, there's no need to fix it.
It could always be acquired by a larger company - it only trades at a $1.2B market cap today.
---------------------------------------------------------------------------
EIBT margins declined in the most recent quarter, and some of this is due to an increase in G&A, but mostly due to a significant rise in SBC. Its free cash flow has dipped negative in the first quarter of most years in the past, likely due to large seasonal disbursements for bonuses and customer rebates.
Overall, we feel the underlying factors of rising sales, long-term healthy margins, and a growing backlog should be viewed as most important here, while seasonal factors and high SBC are likely to be more lumpy and impact the company on an inconsistent basis. (5iResearch)