Well, I said that I would give you the details, so here goes.
First, as we've discussed, VEND's March 26, 2019 press release gave a range of 600 to 800 installs for the last six months of 2019, with revenues at $38,000 per machine. From the looks of things, they have a long way to go to complete the early lower-value sales before they get to the sweet $58,000 sales they've been booking lately, so I think that number is correct - A max of $30.4 million for the six months if they hit the top end of their estimate.
Now, here's the problem. Their margins suck. In the December 31, 2018 10-Q, they managed less than a 7% gross profit margin on their kiosk sales, and that's under the most generous of assumptions.
So, if you apply a 7% gross margin to the $30.4 million in projected sales, that brings you to a gross profit of $2,128,000 exclusive of royalties and other miscellaneous revenues. I bumped it up to $2.4 million in gross margins. Maybe it will be a bit higher than that, but it hardly matters. Those royalties and other income are not going to make the difference.
Now, here's an unknown that I made an assumption for - I assumed that the sales that were reported in the December 31, 2018 quarter were made at $38,000. If the average sales price were less than that, then maybe their gross profit margin on a $38,000 sale is better than 7%. But, I went back and looked at their reports for franchises signed during earlier periods and, if anything, they were closing deals at prices a bit higher than $38,000 on average. So, you could challenge the assumption underlying the gross profit margin and show me that those sales were at price points significantly below $38,000 in the quarter ended December 31, 2018, but I don't think that's the case.
Operating expenses for the December 31, 2018 quarter amounted to $4.9 million, so for the six-month period, assuming no cost reductions, there's $9.8 million in costs against a $2.4 million gross profit for a loss of $7.4 million. I rounded that to $7 million as I recall.
There are certainly cost reductions that could conceivably be achieved - stock compensation, professional fees, R&D and "other" all seem high - but the company hasn't given any indication that there will be any such savings. Furthermore, there may very well be increases in some costs to accommodate the new growth, so who knows?
There might also be some improvement in the gross margin by reducing the cost of goods sold, but in Yates' presentation in mid-March, he only indicated that there might be a potential savings of $4,000 per machine in the future. Didn't sound like something that will happen soon, and in light of the manufacturing follies, it's clearly more important to ramp up production than it is to negotiate cost savings.
So, the bottom line is that even if VEND hits the very top end of its estimate for the six months ending December 31, 2019, they are looking at a not-so-great gross profit and a pretty sizable loss.
You and DDR are most welcome to challenge my figures, calculations, assumptions, etc. I tried to give VEND the benefit of the doubt on most calculations, but I didn't go out on any limbs and predict cost savings that haven't been projected or sales above what the company says we might expect.
The bottom line to me is that they need to do all those things I mentioned, and the most difficult one is probably raising sufficient capital to continue operations.
AI
