Thoughts on earnings
The CEO and IR team have indicated to me that there will be a press release and earnings call. The earnings call will most likely be on Friday (I assume in the morning). I have provided a number of questions to them and they have assured me that they will be addressed. We shall see.
Positives
1. Gross margins for the food business were 21.1% in the quarter. I think that's a great level and higher than I would have expected. I was modeling mid teens gross margins.
2. Working capital improved as DSOs went down.
3. I think the breakeven level in terms of revenues should be $3mm/qtr.
Negatives
1. Revenue growth was obviously underwhelming. This needs to be explained and I have forcefully made this point to the CEO. He was coming back from Dubai when he responded to my email, so I hope that more new business will be announced shortly.
2. More convertible debt, but I don't view this as a big point of concern. The company needs capital to finance working capital and raising equity obviously doesn't make sense. The interest rate on the debt isn't bad at all and hopefully they can replace all of the convertible debt with a credit facility soon (they have one with Standard Chartered, but we don't know the size of it).
If you bought the stock hoping for a blowout July quarter, you were probably somewhat misguided. While I expected a higher revenue level, I think the problem is lack of working capital. It's time for the CFO to show his mettle and get some non-dilutive financing deals done.
I also expressed my displeasure to the CEO that there's been no insider buying from management or the Board. The latter is understandable since they joined during the quiet period, but there should be no constraints now.
That's all I've got for now. Look out for a PR soon and hopefully you can join the earnings call.
