Thursday, May 10, 2012

Sensio Technologies - Dissecting Q3 Earnings

Revenues totaled $679,913 for Q3. Clearly the vast majority of these revenues were split between Samsung patent deal and continuing royalties from Vizio. But what is the split?

The notes to the financial statements say that “one client represented 59.3% of sales” for the quarter. I am going to assume that client is Samsung, meaning RECOGNIZED revenues from the patent deal were $403,188 for the quarter (more to say on this later). That leaves $268,952 of Consumer revenues for the quarter. Ignoring tiny revenues SIO probably made from Cyberlink, etc, that means Vizio revenues were close to $268,952 for the quarter.

Samsung - $403,188 (vs. ZERO in Q2)
Vizio - $268,952 (vs. $61,226 in Q2)

That Vizio revenue of $268,952 is actually quite impressive. We knew there would be a pick up from Black Friday sales in the quarter, but we saw an almost 450% increase Q/Q. The CEO said in the last CC that Vizio sales for the current quarter were looking “interesting”. I am going to be very interested to see if they can build on this momentum going forward. I have said for a while now that Vizio should be able to contribute $1 million or more in annual revenues in the near future. Torday’s report shows that this is clearly attainable and that the Vizio format deal is FINALLY starting to pay off. It also highlights the importance of getting the TCL deal finalized, as I believe TCL can potentially be 2-3 times the size of the Vizio deal in the short-term. That would mean annual revenues of $3-4 million from TCL and Vizio alone. A major deal with LG or Samsung would obviously be even bigger, but I am skeptical about SIO signing another new format deal (exclusing possibly TCL) until 3DGO is launched this fall.

Unfortunately revenues from other business lines were close to zero for the quarter. Live3D revenues actually were zero for the quarter. While disappointing, clearly not a surprise since there were no Live3D events held during the quarter. But given past performance this is an area where just 1-2 events during a quarter can easily generate $250,000-$500,000 or more. So there is definitely potential going forward, particularly with the Sequence deal and other events like UFC, etc.

As of Feb 29, 2012 SENSIO had cash in the bank of $2,346,538. That is a decrease of $1.24 million vs. Q2. However the company’s receivables increased by $1.2 million to $1,639,615. So net cash and receivables were actually stable quarter-over-quarter. And during the most recent CC the CEO confirmed that the bulk of those receivables had already been collected since quarter end.

The company’s payables stayed fairly flat at around $550,000. If I had to guess I’d say just under $1.0 million of the new receivable is from Samsung and $200,000 or so is from Vizio.

The company's burn rate is currently $300,000/month. With cash & receivables of $3.6 million, it looks to me like SENSIO has about a year of liquidity at its current pace (ignoring existing/future deals like TCL, etc). If they sign TCL and get a Live3D event or two then we’re looking at well over a year before SENSIO would need to raise cash (assuming no new major deals). That being said, looking to raise a small amount of cash over the next couple months would appear to be the prudent thing to do.

Deferred income represents money received (or billed) by the company in advance for future periods. Deferred income is not recognized as revenue during the quarter. For Q3 SENSIO had $577,000 in deferred income. Again, this is certainly related to the Samsung patent deal.

From everything noted above, it appears as if SENSIO received immediate payment of almost $1.0 million from Samsung for the S2D patent. Since the deal was signed on the last day of the quarter the $1.0 million showed up as a receivable on the balance sheet for the quarter.
This $1.0 million Samsung estimate is consistent with my analysis above:

Samsung revenue (59.3% of Sales):      $403,188
Deferred Income:                                 $577,000
Total                                                   $980,188

Of the $1 million, $403k is related to past sales and $577 is related to future sales. The big question is how far into the future does this payment relate to? Is the $577k pre-payment for the rest of the year? For the next 2 years? For the next 5 years?

We know that Samsung has been infringing on SIO’s patent for about the last 2 years. So it seems reasonable to assume the $403,188 of recognized income covers the past 2 years of Samsung 3DTV sales. Maybe $300k for last year and $100k for the previous year. If that’s the case then the $577k in deferred income might just be for the rest of 2012. If correct, then the Samsung deal could still be worth a few $million more and we may continue to see additional income and cash flow in future years from the deal – but I am just guessing on this last point.

So over all I see a couple of things to be positive about here in the financials. Clearly much better than last quarter. And the reduction in operating expenses vs. prior quarters is also a step in the right direction. SENSIO said a while back that expenses should stop rising and level out and we are seeing that now. Routhier said a patent deal was coming, and we finally got the Samsung deal in in February. He commented during the last CC that Vizio sales were looking good for the current quarter and we now see that they jumped by almost 450%.

So while it's frustrating to hear of delays in things like 3DGO, and while we'd all like things to be progressing faster, I think in retrospect we can see that most things that SENSIO told us to expect are beginning to become reality. So while the upcoming PP while result in a little dilution to the shares, if Vizio royalties continue to increase, if the TCL deal gets finalized, if 3DGO is launched successfully in the fall with the support of major Hollywood studios, along with the "at least 3 major TV manufacturers", then I think patience will be rewarded here.

Monday, January 23, 2012

USD/CAD - Poised For A Significant Move

Fundamentally things are starting to look a little shaky for the Canadian dollar. Recent economic numbers have come in under expectations. Just last week New Motor Vehicle Sales came in at -1.0% (vs. +2.1% exp), CPI -0.6% (vs. -0.1% exp) and Wholesale Sales were -0.4% (vs. +1.0% exp).

On January 18 the Bank of Canada's Mark Carney said that the economic situation in Europe is going to cost Canada $10 billion in lost economic output. As well, there continues to be concerns over Canadians' high debt levels and inflated housing prices. Not surprisingly the Bank of Canada seems intent on keeping interest rates where they are for the indefinite future.

After a brief break below 1.0100 last week, USD/CAD bounced back into wedge formation it has been in for the last 5-months. The fact it bounced back while US equity markets were rallying and the USD was weakening against the Euro points to the underlying weakness in the Canadian dollar (USD/CAD higher = Canadian dollar weaker).

In the weekly chart below, you can see a clear bottom bottom at .9425/50, following by a wedge consolidation pattern folllowing USD/CAD's break above 0.9900 back in August/September.

Typically these consolidation patterns resolve themselves in the same direction as the recent trend, which would be higher. If that happens we could easily see a re-test of the 1.0800 and possibly even higher.

I like using pullbacks to get long USD/CAD for an eventual break back above 1.0300. I am currently long from 1.01375 with an eventual target of 1.0800. However a clear break below the support line would quickly target .9900/1.000. If it breaks lower I'll likely reverse my view and go with the break.

Wednesday, January 11, 2012

Gold Back In Play

Gold (GLD-ETF) confirmed its move back above its 200 day moving average today setting the stage for continued gains in the coming weeks. What makes this move even more impressive is that it happened during a period of EUR/USD weakness.

In mid-December gold broke below its 200 day moving average for the first time in almost 3 years, causing traders to liquidate long positions and analysts to declare the bull market in gold over.

However, selling the break of an UPWARD sloping moving average can be a dangerous play, especially on the first attempt. A look at the longer term chart shows that the trend is clearly still up.

Being long gold via the GLD ETF is a great risk/reward play here with a stop back under the 200 day moving average on a closing basis. The 200 day ma should come in around 158.75 tomorrow. However it would take a break below the long term channel support of 148.50 to be able to truly call the bull run over.

I went long today at 159.14.

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