Alphawave Ip Share Discussion Threads

[timmy11] 22/5/2023 15:53

no online trading just yet

[casholaa] 22/5/2023 15:38

Open for trading again

[the lockkeeper] 21/5/2023 17:40

Unless it was an acrimonious departure,CFO saying up yours!😎

[m w] 21/5/2023 10:58

An important point that seems to be overlooked here is the CEO signed off the accounts and not the outgoing CFO which to me shows a lot of confidence going forward. If there was any more potential problems in the pipeline then surely the outgoing CFO we have signed it off which would have made it easier to explain away in the future.

[trader465] 20/5/2023 10:06

Hope so, I can fill my boots again

Are you still bitter after your huge losses here?

ScepticalInvestor - 18 May 2021 - 16:31:21 - 5 of 1572
bought in at 342 today - great looking company

[scepticalinvestor] 20/5/2023 09:53

Looks like the shorts will be increasing again on Monday. Target 10p?

[jonnywalker77] 19/5/2023 20:47

Wasn't able to join the call but I'll take a stab at what I think's happened here - happy to be corrected. I'm also going to use fictional numbers/dates for simplicity.

OpenFive (pre-AWE acquisition) enters into a 1 year customer contract on 1 January 2022, worth £120m, which it gets paid in full up front. On day 1 OpenFive recognises a cash asset of £120m, and a deferred revenue liability of £120m. Every month throughout 2022, it "releases" £10m of deferred liability and recognises a corresponding £10m revenue item (i.e. the revenue is recognised on a straight line basis over the year, under accrual accounting).

On 30 June 2022, AWE buys OpenFive, at which point the latter has a deferred revenue liability of £60m (i.e. we are 50% through the financial year). Post-deal, AWE continues to unwind that deferred revenue liability to the tune of £10m/month, so recognises a total of £60m revenue in its unaudited FY22 results, like OpenFive would have done as a standalone company. Sounds reasonable, right? However...

Under IFRS acquisition accounting AWE was supposed to do a fair value assessment on all the assets and liabilities that it acquired. What is the fair value of that £60m deferred revenue liability, which relates to a contract for which cash was already received pre-acquisition? No idea, but invariably these fair value assessments lead to a write-down (or "haircut") of deferred revenue liabilities on acquisition, and a corresponding reduction in the amount that is unwound in subsequent months (so if the deferred revenue liability got fair valued at £30m, AWE would only be able to recognise £5m/month for the remaining 6 months). It seems that this acquisition accounting adjustment wasn't spotted by the prelims, but came up in the FY22 audit, hence the delta in today's numbers.

Seems like a genuine oversight to me - not convinced it is a CFO resignation event although the bigger picture here is that an ex banker probably isn't best placed to be CFO of a complicated plc under heavy media scrutiny (think back to the hot air around the related party disclosures...). You might also question the rationale for the IFRS approach - Interestingly, US GAAP changed in the last few years to avoid this exact scenario (no doubt a higher profile issue there given the number of acquisitive tech businesses with substantial deferred liability balances).

For what it's worth I have a concentrated position in Alphawave and have no concerns having read through today's RNS, but appreciate any colour/clarification from anyone who was on the call.

[the lockkeeper] 19/5/2023 15:40

“Lockkeeper -I would take issue with the idea that auditors just crunch the numbers - they need to understand the business and processes how internal controls reflect these and address associated risks.”

A fair point however it all boils down ultimately to the numbers, they got that wrong and damaged their credibility in the process, I feel they will come good but reputation is everything and they have damaged that. Im in for the long term and currently 40% down so wish them well. They have grown quickly and that can bring additional risk. I have no doubt they have learned a hard lesson here.Onwards and upwards?

[kennyp52] 19/5/2023 14:34

At least it is not a black hole as such and none of this is monetary related .. all opinions on fair values and deferred income reserve which , as has been pointed out , will unwind in future periods thereby ADDING to reported future income(s). No harm done apart from credibility and the CFO probably out of his depth and having to carry the can .

[casholaa] 19/5/2023 14:18

The $7m reduction in revenue arose following an $8.2m fair value reduction in OpenFive's deferred revenue on acquisition - shouldn't that go under ebitda or assets??

[dividevil] 19/5/2023 13:44

KPMG although they are an international company, the auditor team involved with AWE are UK based and likely won't have as much experience with silicon IP company methodology for the type of booking contracts used, so there is maybe some truth to the suggestion that they needed 'training' or 'educating'.

[valhamos] 19/5/2023 13:37

I agree the call was positive and it was good the audit committee chairman was on the call as well as the interim CFO. It laid to rest, as far as I'm concerned, the idea that there had been any ongoing dispute with the auditors. The changes that were made were all the result of errors made by the AWE finance team, despite the accounts going through a number of internal checks, which were picked up by KPMG late in the process.

The $7m reduction in revenue arose following an $8.2m fair value reduction in OpenFive's deferred revenue on acquisition. Deferred revenue at any point in time will subsequently unwind as product or service is delivered, and 86% of that fair value adjustment relates to deferred revenue at acquisition that was invoiced before year end so the related adjustment should have been unwound as well.

If the directors weren't aware before, they are now - the finance team, the controls and processes need improvement and could not handle the work involved following the acquisitions.

Lockkeeper -I would take issue with the idea that auditors just crunch the numbers - they need to understand the business and processes how internal controls reflect these and address associated risks.

[the lockkeeper] 19/5/2023 12:45

Reading between the lines they promulgate the idea that the outgoing CFO didnt have the level of experience required for the enlarged post acquisition company, this may be a fair point. However the chair of the audit committee does have that level of expertise, so the question of how they got the figures wrong still remains. I also don’t buy the explanation of having to “train” KPMG in the complexities of the semi conductor business, an auditor crunches the numbers end of… all just MHO hopefully no more skeletons in the cupboard

[dividevil] 19/5/2023 10:31

Lockkeeper. Yes the recorded zoom call is now available on the website.

[the lockkeeper] 19/5/2023 10:10

missed the presentation,are thet going to put it on their website?? any good news? TIA

[casholaa] 19/5/2023 10:09

I hope any loans were legitimately acquired.

[valhamos] 19/5/2023 08:45

Although the changes are fairly small the company has lost a lot of credibility over this episode - it could have updated the market on 28 April with latest unaudited numbers, but to release preliminary results and suggest that there would be no changes indicates the finance function and the audit committee have not been working very well. The CFO has gone and there is a lot of work for the company to do to restore confidence. It will interesting to hear what they say at 9:00am.

[casholaa] 19/5/2023 08:39

Hopefully they'll remain suspended for a further couple of weeks :op

ebitda to double despite £24m debt.

[dividevil] 19/5/2023 08:26

The stock remains suspended because the application to the FCA to lift the suspension takes time to process. You'll get another announcement letting you know when the suspension is lifted.

[casholaa] 19/5/2023 08:26

Time to digest

[pugugly] 19/5/2023 08:22

So why apparently still suspended?