An Australian-based company, Spectur Limited (ASX: SP3) offers cloud-based technology and security system solutions. The company is working towards revolutionising security & surveillance systems using IoT, solar and artificial intelligence technology. Spectur designs, develops and manufactures systems that protect businesses and organisations in industrial, commercial and government sectors.
Recently, Spectur has released its Quarterly Activities and Cashflow report for three months to the end of June 2019. The company reported an excellent fourth quarter, delivering strongest revenue and sales results to date. Let us take a deep dive into Spectur’s quarterly highlights below:
Continuing Momentum in Revenue Growth
Spectur reported an outstanding revenue figure of $1.45 million during the quarter, representing an improvement of 23 per cent on the previous quarter. With June quarter’s robust revenue growth, the company’s full year revenue surpassed its earlier guidance, crossing $4.8 million. The June quarter’s revenue included the company’s best monthly sales performance to date of $627,000. The substantial growth in revenue was driven by the rising penetration of high-quality deterrence solutions that utilize the thermal imaging technology, and a number of large volume sales to existing customers.
The company has continued its momentum of revenue growth as it had also achieved a 9 per cent growth in its revenue during March 2019 quarter, despite the quarter being one of the slowest of the year. Spectur also reported a record month of revenue in May 2019 of $516,000, driven by a growth in number of system sales and rentals.
Delighted over the fourth quarter results, Spectur’s MD, Dr Gerard Dyson, cited that the company is committed to remain disciplined, strategic and transparent during its transition to a leading technology company. Dr Gerard Dyson has officially taken the position of Spectur’s Managing Director recently, subsequent to a smooth transition period in the fourth quarter.
Spectur’s revenue from rental sources and subscriptions was recorded at $592,000, demonstrating a stable recurring revenue stream. The recurring revenue has remained a material portion of the company’s overall revenue. This is so because the company, being the only material supplier of solar powered surveillance and deterrence solutions in Australia involving purchase rather than rental, has observed a tremendous growth in the unit sales and rental units of its solutions.
Source: Company’s Presentation (8th May 2019)
Outlook: Spectur expects its upfront sales of new units to continue exceeding its revenue in future. The company informed that the more predictable recurring revenue sources and the higher gross margin will remain a material portion of its revenue.
Well-positioned Balance Sheet
The cash performance of the company has improved as indicated by its cash balance of $2.16 million as on 8th July 2019. This is a record quarterly cash performance of Spectur, driven by two consecutive cash flow positive months – May and June 2019. The June quarter’s cash performance was also supported by Tranche 1 of the Placement, recently conducted by the company to raise a total capital of ~$1.5 million.
Spectur notified that the overall operational cash burn during the June quarter was only $86,000. This was lower than the previously recorded operational cash burn of $190,000 in March 2019 quarter.
Outlook: The company expects that the improving operational performance and Tranche 2 of the Placement which is likely to be completed in August 2019, will offer a solid funding base to execute its ongoing growth strategy. Spectur is also anticipating a slight rise in its operating cash consumption during first quarter of FY20 due to the payment of inventory purchases and few annual expenses incurred in July. The transition of the company from previously set higher levels of inventory to more capital-efficient levels will also be a contributing factor.
Spcectur’s Risk Mitigation Measures
In June this year, Spectur entered into an agreement with Westpac Banking Corporation (ASX: WBC) over $1m debt facility to support risk management and continued growth of the company. However, Westpac declined to extend the facility at the late stage due to a high level of secured revenue from recurring and rental sources in the company’s accounts receivable.
The company was disappointed with Westpac’s move, but it remains firm on its strategy. In an effort to alleviate the funding risk of several simultaneous large orders, the company is considering alternate options to ensure adequate funding. It has already commenced discussions with other bank credit sources to ensure adequate access to debt at the time of requirement. Spectur had recently stated that it is in a stronger cash position currently and there is no urgency for debt facility.
Spectur’s 2020 Outlook
The company’s strategic focus for 2020 reflects its evolution from an industrial or security company to a technology company. The company will implement the strategic initiatives (including product road map, marketing and sales) developed for FY20 as per the plan. Initially serving in Australia, Spectur will continue to service lucrative customers outside Australia through case by case basis and its channel partners in New Zealand. The company believes that the customer led technology development, the outbound sales targeted at utilities and government customers in a bounded geographic region, and its focus on creating a premium brand will help it deliver positive earnings and cash.
According to Spectur’s Chairman, Mr Darren Cooper, the company is well positioned to expand and deliver on its promise amid its persuasive and practical strategy, continuous progress towards becoming operational cashflow positive and strengthening of its management team.
Stock Performance: SP3 closed the trading session at AUD 0.100 on 1st August 2019.
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