Sure BW, I'll share the way I see it. Again its not investment advice.
As of the 10-K, I see a company experiencing growing pains. I haven't seen many arguments about the company's revenue growth. Beating their projections, they posted a 44% revenue increase over 2021. Over the past several years they have delivered consistent high growth rates that most any company could be proud of.
As we saw through the year, gross margins increased at times, but when the final numbers came in the gross margin for the full year remains fairly thin. Like last year, the full year gross margin remains in the range of about 2%. Excluding the funding for acquisitions, iQSTEL needed a gross margin more in the 6%-7% as a base.
When you dig around a bit you can see that iQSTEL has a telecom unit in "SwissLink" that hasn't grown much recently, but it has delivered a gross margin over 15% at least over the last two years. Obviously if all the telecom operations had margins like that then iQSTEL could be profitable, and very much so.
I also notice that Etelix has reported positive quarterly margins, and sometimes over 5% or more, but not for the full year this year. In fact, the Etelix margin is negative for the full year. When you consider that Etleix currently represents about a quarter of all iQSTEL revenue then a negative margin has a dramatic effect.
Why? Growing pains, I think. Some of you may recall that iQSTEL stated in a previous filing that when adding new business, the margins are lower until the customer base is acclimated and rates can be negotiated for more favorable terms. But how does that fit into Etelix, which is the core telecom company that has been there from the start?
Well Etelix is not just old business, It's growing and growing fast. Perhaps this is one of the most overlooked, but potentially exciting aspects of iQSTEL's telecom growth is that they are able to grow their core operation as such. Etelix grew 44% last year, matching the overall company growth rate. The only other telecom operation with a (better) but low margin was IoT Labs (aka SMS Austin) and that's the only other fast growing operation, as it grew at 21% last year. I'm thinking the correlation between new fast growing business and lower margins is not coincidence. Note, that I'm not considering the new acquisitions (Smartbiz and Whisl) at this point as their is limited quarterly data compared to the others.
But, this really puts the weight on the the overall gross margin when you realize that Etelix and IoT Labs currently bring in 81% of all company revenue.
Even if you agree with all this it may still feel frustrating that margins could be seeing a strain from the growth. It might feel better for a minute if iQSTEL stopped growing and just maximized the business they have. The trade-off to presume is that you can only stand to gain so much, whereas continued growth might allow higher and higher levels of potential success as more and more "new business" transitions to old business with the assumed negotiated higher margins.
Does that condition last forever if they keep growing? It doesn't have to, as you may see the new business each year as still substantial or even large, but as the company may continue to grow that new business would likely become less and less a percentage of the total business. In this case, growth and profitability could go hand in hand.
For better or worse, I think this is where iQSTEL's stands at the moment. It's a big part of their business model as they described, and its a work in progress. One that is delivering big revenue gains. Do bigger margin gains follow? I think the company thinks so, and I'm here, but that's just me.
I'm not all about this one report or the next, as much as the long term trends and where I think this can go. Perhaps the one clue we have is the company's stated projections for operating income this year. Does that hint towards at least their hopes to improve margins this year? Will growth and profitability finally go hand in hand?
A few other quick notes is that their cash position over the year has lessened by about a couple million or roughly just about the amount for the acquisitions, so holding well there. I take that as they did not take on much or any equity selling than they felt they needed to.
As someone posted, the 10-K mentions a reference to the global chip shortage as one reason that could have delayed the IoT products. My first thought is why did they not just tell us already? I have already wondered if the long standing Covid lockdowns in China could have affected the EV products. They can tell us these things and it will be ok, I think.
Also, I wish they would, will, or do consider multiple sources for EV vehicles and products, and other offerings such as IoT devices. Maybe the Chinese EV design has to stay with the current manufacturer. I don't know. but if so, maybe have another EV design built in another country. Or multiple countries. Maybe even in USA? Anyway, just wouldn't want to see us at the mercy of one source.
An interesting note in 10-K about IoT. "an important milestone" - company received patent for IoT device. Recently? Was that one of the hold-ups?
Fintech - I don't see any new timelines coming mentioned in 10-K.
Blockchain - Commercial release in June 2023? Again, that would have been good to put in one of the PR's. Maybe send one out now explaining the plan and potential?
Metaverse - maybe it's cool, but hope we don't spend (much) money on new areas, as profitability is needed to help increase overall credibility.
EV - I hope the new website includes a dealer locator among other things, that validates the program and provides more accessibility. When do you see final certifications achieved and all testing completed? When do you see first sales (date)?
Well that's my thoughts, actual DD is personal experience.
