Synety Grp Share Discussion Threads

[the millipede] 21/1/2016 09:46

Brian, ARR is quite simple: it is annualised recurring revenue. I appreciate there is an argument to say it is not a prudent measure but, when a company is rapidly growing, as SYNETY is, last year's revenue is almost irrelevant. What is important is the trajectory of the revenue and the cash burn. Why? Because probably the biggest risk for investors is that the company will not get to break even before running out of cash. And last year's results do not really help in properly assessing the likelihood that this will happen.

To me there seems no point in converting ARR into revenue. They are different measures and are useful for different reasons. Either use the ARR measure or don't! Surely? The point about the £3.02m figure is that it was correct when it was published: That is, December 2014 revenue multiplied by 12. If the figure is not valid now (I think it is) then it can only be because some of the revenue obtained in that month was subsequently lost........ which is why an indication of "churn" is important, and the company has always implied churn is negligible.

IMO the calculation I did 3.02 X 1.54 should still be valid to get to a value for December 2015 revenue multiplied by 12. Unless I have misunderstood what a 54% increase means! This will inevitably be a far larger number than 2015 revenue but I think it gives a better indication of the CURRENT state of play of this rapidly growing business than last year's revenue.

IMO WDIK.

[deltrotter] 21/1/2016 09:10

Stop loss out the window TM! I have written this one off as a very expensive mistake. Was quoted 65p to sell 25k yesterday.

[briangeeee] 21/1/2016 07:53

If considering ARR figures, the important issue is understanding what they mean. In order to do that, you need to be able to convert them to historic revenue.
So, what the basic sum above does is to take the average of the year start and year end ARRs, and add the approximate non-ARR revenue, to arrive at actual historic revenue. In addition, there is a lag due to on-boarding of a couple of months, or thereabouts. I didn't state this, but I've simply assumed that over a short period, ARR growth is linear, and interpolated/extrapolated back in time by that period from the quoted ARR figures. In terms of ARR, it is the monthly sum of subscriptions plus telcom revenue, and excludes setup and hardware.

At the end of 2014 the company was coming under pressure to both to maintain their ARR growth profile, and to fund costs. The £3.02m figure you quote from Dec appears to have been "enthusiastic", which is what my conversion to actual historic revenue demonstrates.

Now I believe the company is under neither the same cash and cost pressure, nor the same ARR growth pressure, and is run more conservatively, although they do still have a small funding gap. Obviously the per share valuation has suffered hugely, but it seems quite an attraction growth proposition currently.

I have another plot of ARR that I'll post when I figure out how! It neatly illustrates the issue at the end of 2014.

..... and thanks Jonwall for the reminder of your earlier post.

[johnwall] 21/1/2016 07:32

I did a comparison of ARR and reported revenues here (post 4438 on the other thread) -

[the millipede] 21/1/2016 01:10

Brian, FWIW I think you are confusing ARR with annual revenue. ARR is essentially a forward looking number and is roughly current monthly income multiplied by 12. Annual revenue is revenue over the previous 12 months.

The company has stopped providing quarterly updates with ARR but at the end of 2014 the figure was given as £3.02m and there is no reason to suppose this figure is not right along with my estimate of current ARR.

You are correct that revenue earned during 2015 is less than the current ARR that I calculated. I don't think anyone would dispute that.

HTH

[briangeeee] 21/1/2016 00:54

The Millipede, replacing the battery in your calculator may not fix the problem.

If you assume the company revenue is roughly (ARR_start + ARR_end)/2 + £0.5m(h/w & services), then you would end up with 2015 revenues of: (3.02m + 4.65m)/2 + 0.5m = 4.335m.

Clearly that does not give the right answer, as actual revenue for the year is stated as 3.33m. Even if we allow for a couple of months of on-boarding, which I think is fair, that would take us to roughly 4.06m.

The issue appears to be that the 3.02m announced at the end of last year was incorrect, and they're now using some other base for their 54% calculation. Numbers are always a struggle with this company unfortunately.

[the millipede] 20/1/2016 21:34

Del, FWIW I am not surprised people are selling but one thing I would say is that Gertjen has broadly the right idea in the sense that, during the last six months or so before break even, they won't be far off. In his/her analysis you can see they only need £250K total..... which is the.sort.of sum that is easy to find.

If they are still a million away at the end of the summer we will.know there are problems. Good luck with yr stop loss etc. TM

[the millipede] 20/1/2016 21:25

OK. Well if it is that simple can you provide workings please? I get 3.02 x 1.54 = 4.65. I am happy.to be widely known as very stupid so if you could correct my maths I would be grateful. Ta.

[briangeeee] 20/1/2016 21:15

The Millipede, I did the same simple sum on ARR, but I don't think the answer is correct.

[the grim reaper1] 20/1/2016 20:13

Quite ironic that a Co selling a Communications package cannot communicate effectively themselves

[the grim reaper1] 20/1/2016 20:11

The Co's a farce with communications.

''The Board is pleased to announce performance slightly ahead of expectations.''

''we are pleased to be delivering these numbers that are in line with expectations."

Which is it? slightly ahead or in line?

0.5 from the US, no wonder they've seconded the director over there. Looks like they only had approx 7 customers before, in nearly 12 months

[deltrotter] 20/1/2016 14:26

Thanks guys, looks like it is going to be incredibly tight, but they may just squeeze to profitability without another raise. Then, if growth continues at the same pace, we should be looking at building a healthy and profitable company.

GLAH!!!!

[the millipede] 20/1/2016 12:11

ARR up 54%..... last December it was reported as 3.02m so I make ARR now around £4.65m which doesn't seem too shabby.

I think in general the results are never going to give a great picture of how things are panning out because they are looking backwards and, at this stage, we need more of a sense of things going forward. I think the ARR is useful - as is churn - neither of which is provided (although we can work ARR out..... does anyone disagree with my figure above?).

Cash burn, obviously, is critical. I like Gertjen's analysis and, insofar as I understand it, its assumption is that things improve in the future as they have done in the past year? I think there are reasons to think the company will do better than that, not least the downtime experienced in the Spring.

In any case the company are saying slightly ahead of expectations and the expectation is absolutely to reach break even with no cash raising...... so I think they are still saying they will get there.

BWDIK.

[gertjen] 20/1/2016 12:03

Hi del,
operating cash burn (OCB) is reducing, they've stated that repeatedly.
We know that
1 average monthly OCB was 400k in the first half
2 monthly OCB reduced by 20% between January and June
3 OCB reduced by 25% in 2H versus 1H (from today's RNS, implying an average monthly OCB of 300k in 2H)
1&2 combined lead to a monthly OCB of around 440k in January, dropping to around 360k in June, implying a drop in OCB of around 17k per month.
So monthly OCB should have looked more or less like this:
jan-15 440
feb-15 423
mrc-15 406
apr-15 389
may-15 372
jun-15 355
Based on 3, that trend continued in 2H, leading to a monthly OCB along these lines
jul-15 338
aug-15 321
sep-15 304
oct-15 287
nov-15 270
dec-15 253
or an average monthly OCB of 300k in 2H, being 25% lower than the 400k in 1H.
There will obviously have been fluctuations due to restructuring, seasonality, ... but the trend looks pretty clear to me.
They only burnt through 1,45 million instead of 1,8 million in 2H, which must be down to changes in working capital.
If they would just continue along this trend, they'll reach a positive operating cash flow by March 2017, and will need another 1,75 million to get there, so the remaining 1,58 million would be just short of target.
jan-16 236
feb-16 219
mrc-16 202
apr-16 185
may-16 168
jun-16 151
jul-16 134
aug-16 117
sep-16 100
oct-16 83
nov-16 66
dec-16 49
jan-17 32
feb-17 15
mrc-17 -2
Some of the reported cash flow numbers are annualised, others might not be, so there may be slight corrections needed as to the exact timing of incoming/outgoing cash flow, which may have an impact on the final amount still needed, but still, the trend is there.

[duncandisorderly] 20/1/2016 11:50

Wait for the token director buying to keep them in a job for another year once funds have been topped up.Why didn't I sell at £3.00?

[deltrotter] 20/1/2016 09:18

Fingers crossed Jim....

[jimbojet17] 20/1/2016 09:07

I like the trading update. Given the board's focus on reducing costs the slower growth was forecast in releases earlier last year, apart from that everything looks good. Re future cash raising, i think the most positive thing is that there is no way based on current performance and prospects that any offering would be lower that the last IMO. I remain a holder.

[here and there] 20/1/2016 08:47

yep, it is a hold for me too. If Seeman loaned them a couple of million working capital to see them through to profitability I would be a buyer

[deltrotter] 20/1/2016 08:20

Difficult to say h and t unless we know what cash burn is. I am guessing it is reducing, but I would have thought it was quite some way over £250k a month.

Lets see what PaulyP says today and what trading is like.

Not enough in the statement for me to buy more, and can't sell.

[here and there] 20/1/2016 08:11

Happy to see the phrase 'slightly ahead of expectations'

will the cash last to trading cash positive, wonder if they can get a loan to see them through…one or two of the directors are wealthy?

[deltrotter] 20/1/2016 07:17

Hmmm, there is the trading statement. I need time to ponder over it.

Initial thoughts are that the US is dismal and the cash balance is worrying on current performance.

On the positive side, maybe the new strategy is taking hold and we will see further growth this year. A cash call would not be too much of a problem if that was the case.

Would welcome an intelligent discussion on this thread.

[deltrotter] 06/1/2016 15:54

Great, thanks 140661.

[140661] 06/1/2016 15:08

del, I am sure there will be a pre close statement sometime second half of Jan.