YANGAROO Inc V.YOO

Corporate Presentation

[HisNoodlinessTheFlyingSpaghettiMonster]

Is it too much to ask for a new investor presentation on the website? No update since December 2020, and a lot has changed since then. Would be very helpful to have something new to outline their game plan with this acquisition, as well as DMS financials and complete terms of the deal (Eg. What are the revenue targets that are used as benchmark for the earn-out payments).

[Justin1]

We'll probably get one after Q3, unless they have a much better than expected Q2, then we might see one sooner. They tend to only update the presentation after good quarters.

[HisNoodlinessTheFlyingSpaghettiMonster]

So you only expect them to provide an updated investor presentation by December? That seems absurd. There seems to be some rock bottom expectations of management in this forum...

[Justin1]

They've updated the corporate presentation 

[HisNoodlinessTheFlyingSpaghettiMonster]

Thanks Justin.  They are projecting DMS revs of 4.5-5.5 mil in 2022, with EBITDA contribution of 0.5-1 mil. My question is, is that AFTER taking into consideration earn out payments and the acquisition facility repayment schedule? If so, that is very good. If not, that puts us in a precarious leveraged situation. Hope we get some clarity at the AGM.

[NickMTL1978]

There is a mixture of CAD and USD in their financial numbers. What i understand is that DMS will bring between 0.5 to 1M (USD) by 2022. 1M would probably be along the 'pre-pandemic' levels, and would trigger the final acquisition price around 5.5M USD. As i remember from the conference call, whathever the final price of the acquisition, i will have to be paid in 6 years. So it looks like

[HisNoodlinessTheFlyingSpaghettiMonster]

So you are assuming that it adds 0.5-1 mil cash flow BEFORE paying the 0-1 mil payout.  That is OK, aside from the fact it makes us very leveraged with debt and extremely vulnerable to an econmic downturn. And there will be no immediate benefit to bottom line for several years, as any extra cashflow benefit would be used to pay for the acquisition. If you are telling me they make that much

[HisNoodlinessTheFlyingSpaghettiMonster]

This is basically my confusion: debt payments should not be included in EBITDA. So I would assume that it contributes 0.5-1mil EBITDA before the earn out payments. However, they give a 1 mil revenue variance, while only giving an EBITDA variance of 500k. How does that work with a company that runs at 90%+ margins? That's why it only makes sense that these numbers take into consideration the

[NickMTL1978]

I guess upper management would have to clarify this, however what i understand is that the 'profits' generated by the DMS division would be sufficient to pay back the loan in 6 years. In terms of increasing the net cash flow, it really looks like we will have to rely on organic growth for a while.  One way that they could 'maximize' the impact of DMS within the new structure

[NickMTL1978]

And if we look at it at a simplified level, they would expect to generate 0.5 to 1M in profit from DMS, and they will pay between 2.5 to 5.5M to acquire DMS depending on the revenues (and profits). So if we look at the low and high range of this transaction, it looks like YOO upper management expect a 20% return (per year) on their investment. This is ok for me.

[HisNoodlinessTheFlyingSpaghettiMonster]

You surely see the confusion I am pointing out though? The lower end of the revenue range is 1 million lower than the high end, yet the lower range of EBITDA is only 500k lower. How is that possible when we run at 90%+ margins? Either they can't perform math, or they are using the term EBITDA incorrectly.  You also just plucked the optimistic end of their forecast into your

[HisNoodlinessTheFlyingSpaghettiMonster]

Also, look closer into the presentation. They state we have 3 million liquidity,  inclusive of the 1.8 mil credit facility. So we have 1.2 mil cash not including this, when we had 2.3 mil cash at the end of Q1. I know there were likely closing costs, but there is no way they were that big...? Which makes me think we paid off DMS debt.  Again, we need to see the full details of the deal

[NickMTL1978]

I think that YOO has 90% gross margins, but not net margins. Heck, if YOO had 90% net margins, we would make 1M plus per quarter. I guess YOO's management think they can make 500k from DMS if DMS revenues are in the +/- 4.5M range, and 1M if DMS revs are in the +/- 6.5M range. So your point is that if DMS also has 90% gross margin, how come YOO is expecting to make 1M out of 6.5M when it can

[HisNoodlinessTheFlyingSpaghettiMonster]

The revenue range they give is 4.5-5.5 million, not 4.5-6.5 million. It makes no sense, given their margin profile, that 1 million lower revenues would only reduce EBITDA by 500k. Either that includes a reduced earn out payments (which would mean they are defining EBITDA incorrectly), they can't perform math, or we bought a DMS business that performs on much smaller gross margins than

[tannin]

I suggest the latter.