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July 10, 2021 - 12:00 AM
63 Reads
Post# 33525956
RE:RE:RE:RE:RE:RE:RE:RE:Settlement details
Best guess at what a settlement could be, typical revenue royalties can range anywhere from 5% to 8% and somtimes higher. AJX sold $9.6mm to Ag Leader in 2017, $11.6mm in 2018, $9.8mm in 2019, and $7.9mm in 2020 (Ag Leader didn't make any Q4 purchases so annualizing this number gets you ~$10.5mm. Carrying forward last year's sales run-rate into Q4 2020 and 1H21 gets you a total around $7.9mm in lost revenue to AJX over that time period, add let's say 20% growth given the market this year and that's a whopping $9.5mm in lost revenue to AJX pre-settlement over the past three quarters ended June 2021 and at 35% gross margin on VAR sales around $3.3mm in lost gross profit. Revenue in Q4 2020 would have constituted as lost due to breach of contract, so let's say Ag Leader settled for 50% of that amount, that would be $1.3mm to AJX. AgLeader likely puts a 30-40% markup on AJX products (maybe higher) to their end customers so total AG Leader Revenue from former AJX products in 1H21 would be between $8.3mm to $9mm and at a 5% to 8% Royalty this would be $400K to $700K in lost revenue to AJX this year, or an average of $550K. So total upfront payment I'm guesstimating is $1.8mm and maybe as high as $2mm. In terms of ongoing royalty that would be last years estimated full year Ag Leader sales to AJX of $10.5mm x 20% sales increase for 2021 Ag. market x 30-40% markup that Ag Leader puts on AJX products x Royalty of 5-8%. In total that gets you a guesstimated annual Royalty of ~$800k to $1.4mm to AJX on a go forward basis (and remember it's a royalty so that's 100% gross margin and hence 100% pre-tax profit).
So net, net that's what I'm expecting from this settlment abount $1.8mm to $2mm in upfront cash and an annual Royalty somehwere between $800K and $1.4mm (let's call it $1.1mm per year).
dt_core (7)
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July 10, 2021 - 12:36 AM
262 Reads
Post# 33525983
Why is management so bullish on H2 2021 and beyond?
A couple of items to note about why managment thinks the back half of this year will be meaningful for the company.
1. Claas comes back - After the big BPO was completed Claas became saturated with inventory while the agriculture industry was in a recession. As such Claas had little need for additional product and in 2020 the company purchased only $1.6mm from AJX (this assumes AJX's big EMEA customer is indeed Claas. These numbers are straight from the annual report). How does this compare to prior years before the BPO was announced? Well in 2017 AJX sold $10.9mm to Claas and that was still a relatively down year for the ag industry compared to 2021. If sales to Claas resume in the second half of 2021 they should be able to at least hit half that number, or roughly $5.5mm in sales and if Claas is also benefiting from the recent market resurgance than a $6.5mm number is not out of the question. That's $4-$5mm more in sales to Claas than what AJX had all of last year.
2. AG Leader Settlement - See prior post but probably almost $2mm in cash and $550K+ in incremental sales that are 100% gross profit. After that figure $1.1mm each year +/- industry growth rates.
3. Raven gets acquired - You better believe that CNH plans to roll out Raven products accross ALL CNH agriculture equipment and that puts CNH in a position to have fully installed at the factory floor precision steering and also allows them to supply used CNH equipment for retro fit. AJX has a royalty with Raven and the CNH opportunty will likely cause that Royalty to grow significantly higher, as in 3x - 5x the current amount which is likely today in the $500K to $800K range. I'm not sure how much of that AJX would see in 2021 but Q4 could touch on some of that increase and 2022+ would benefit from all of it. Again that would be a $1.5mm to $4mm additional royalty stream to today's numbers all going straight to the bottom line!
4. Hello Kubota - We're still waiting for the litigation settlement to bear fruit on this deal and we may begin to see early signs of that in Q4 of this year as Kubota launches it's new product lines. I'm guestimating this would only add about $500K to 2021 revenue but by 2023 that could look more like $5mm+. Remember that Kubota comprable sales are about 3.4x that of Claas so longer term that could be $30-$40mm in revenue to AJX each year at least and if Kubota rolled out AJX products accross it's entire product line then we're talking $100mm+ (which is why, like CNH, Kubota must be thinking about an AJX acquisition at some point in the future rather than outsourcing).
5. Mahindra wild card - We've seen a demonstration in Turkey. Not much to that at this point but in 2 years or so one of the largest tractor manufacturers in the world could start implementing AJX product accross its product line. The potential from this deal is mind blowing but it's still a very long run way to reach the peak (probably 5 years at least).
6. DV, former CEO of AJX, prior comments - In a past conference call DV said that AJX would finally bring online 10+ new live revenue generating OEM customers starting in 2021 and that number would grow into 2022. AJX has been working with these customers anywhere from 2-5 years. That's a long sales cycle!). Then of course COVID happend and the Ag Industry was in a funk, but that doesnt' mean these opportunities have been lost. In fact these OEM's simply delayed their next generation equipment projects that AJX was to be involved with and today they are under the gun to accelerate deployment. Realistically these sales will now start happening in 2022 with 2023 being a bigger roll out year but that potential has never gone away. I figure by 2025 these OEMs which likely be mid-tier players could add $10mm to $15mm in sales to AJX and frankly that might be a very low estimate.
So add it all together and that is the potential everyone has been waiting to see materialize in AJX. Some of it is near term but most of it is longer term. We do need to see evidence that the second half of 2021 will shape up just as management expects it too. If it does then this could be the begining of a steady share price march to significantly higher levels. If it doesnt' materialize then I'm afraid the company will be sold at a good price for today's shareholders but well below its long term potential.
