Ben & Threw,
I don’t think producing 10 machines a month will result in our being in “great shape”. Based upon the prior release of margin information (MZEI estimates), 120 machines per year would result in less than $0.02 EPS annually. I wouldn’t call that great shape. I do realize 10 machines for a month or two is a ‘start’.
Based upon what Threw wrote in response to your post, I’m guessing that he thinks MZEI will produce a higher level of sales.
The simple point is that we don’t have any economic information that would lead to sustained higher share prices. Yes, we’ll probably get formal news about the patent (maybe even some refined projection of US patent award timing), probably some bed bug information (seems to be overdue) etc. in the coming days/weeks, but MZEI needs to start offering expectations for commercial value for the various market segments for which it’s developed applications.
We can’t gain this insight by looking at SMTC’s pro-forma announcements. Its current revenue run rate is about $276mm annually, yet about a month ago it announced FY2012 prospective revenue of $240mm+, despite new relationships with MZEI and others. In other words, SMTC is losing existing business and there is no basis of determining the amount of net new business at SMTC nor the amount prospectively attributed to MZEI. Further, it’s not up to shareholders/analysts to ‘channel check’ to derive MZEI revenue estimates, although such due diligence is undertaken by most analysts. MZEI should be forthcoming about such expectations.
I would like to know the conditions precedent for moving from ‘soft launch’ to a materially more substantive marketing plan. Perhaps this rests with the establishment of marketing/distribution relationships with F500s, but what are the conditions precedent to formalizing these relationships and when will these be initiated? Will such relationships cover the water front in terms of applications or be limited to the hospital application? If so limited, what are the plans with respect to commercializing the other applications? When will MZEI announce government sales, a function it’s previously said to retain in-house?
With the patent in hand, or nearly so, and with production engaged, will management offer more insight into the marketing, market-specific pricing, unit sales and prospective profitability pro-forma it has had years to develop?
Some on this board will suggest that such informational expectations are too great, preferring to leave management alone. Since June of this year, management has made a few announcements about scientific progress. Dr. Zoutman taking on a new role signaled that his work was largely complete. The company is to the point where the commercial plan becomes evident, or not. Despite the good scientific results over the recent few months and the receipt of patent, signing of a manufacturing agreement, emplacement of incremental IR functionality, etc. the stock has drifted lower. This simple fact reflects the markets’ need for actionable economic information.
After hiring a PR firm and a new IR person, we’ll soon see what management believes investors need to know and who those investors are (what new channels will be used to tell the MZEI story). Again, since being hired, we haven’t seen much in the way of channel expansion that would result in new and more economically qualified investors seeing the MZEI story (again, recent share price and volume doesn’t indicate an expansion of investor awareness). IR has apparently spent a good amount of time in direct shareholder interface. With a new PR firm and a new IR person, it seems probable that MZEI management is hearing about the need to execute the communications plan differently, both in terms of content and reach. We will soon see if they’ve been effective in communicating such need.
It used to be that investors waited for each new PR with anticipation and the market responded in a generally upward direction. We saw such a move in April of this year and PRs since have generally fallen on deaf ears as the share price has retrenched 55%+. It’s apparent to me that shareholders are increasingly less concerned with a given PR and more interested in the big picture, but have little information to discern the size of big or the capacity of MZEI to achieve it (apart from the scientific advances).
The intent of this post is not to be critical of management but to offer an opinion concerning the need for alternative information and providing a framework for company progress assessment beyond a given PR. Just as MZEI’s science has progressed, so must the communications about the elements of the business plan and its execution.
BTW, Threw, I agree with the notion that the science has thus far carried the day, but as we move forward, we’re going to need to look financially solid as a business. Let me illustrate this point with a simple question; with the science being equivalent, would you, as a hospital administrator or a CEO of a hospital chain, rather buy one or hundreds of machines from JNJ or MZEI? I understand that the answer to the hypothetical has shades of grey, those less black will result in low volume of sales while those more black will require financial robustness of their vendors. In my view, the likely answer to the question speaks to the need to accelerate the signing of the F500 marketing and distribution agreements now that the machine is available. If such requires the completion of additional hospital beta testing, when will such commence, how long will the tests take and when will test results be published? In my view, the company’s sales really won’t become economically significant until these marketing and distribution agreements are effective. To me, we’ll be in “great shape” when such agreements are announced.
