After writing about the dangers of investing in a shitco like FOBI as I did yesterday, it’s always nice to come back and write about something you believe in.
The chart really tells the story. Chosen as my first ever mid-year pick back in February of last year, delivering a return of 776% in the last eighteen months and briefly touching nine bagger status last week.
Full disclosure, I do own slightly less shares from a few months ago. I bought heavily prior to their Q1 earnings when I called out a high conviction Buy Zone in my May What’s Wolf Watching article. It’s gained 59% since that piece. After initially investing at 14.5 cents, it had grown into a very large position. Less shares, higher dollar value. It’s how I manage size and risk and has nothing to do with my outlook on the company. Never fault a man (or woman) for taking profits.
Anywho, D-Box hit the streets with their Q2 earnings after hours last night. They did not knock it out of the park on the revenue line as they did last quarter, but profitability was extremely strong. If you read my July WWW, then you know my expectations were tempered coming into Q2.
It will be interesting to see how the market reacts today. Let’s get into the review, and see if they can maintain or improve upon the 4.5 score from their annuals in June.
Balance Sheet:
D-Box’s balance sheet remains cleaner than a nun’s conscience. They sport a current ratio of just over 5 and that consists of $17.8M in cash, $9M in receivables, $6.6M worth of inventory and $1.35M in other current assets overtop of just $6.9M in liability commitments over the next twelve months.
D-Box is far from the best when it comes to quarterly disclosures. No A/R aging report within their notes or MD&A. At year end their 90 days overdue did stand at 8% with half of that amount scheduled to be written off.
They are virtually debt free with just a small Canada Economic Development loan at 4% with $278k remaining and will be extinguished by December of 2027.
Overall very strong including their liquidity with their cash position alone covering all of their one year commitments by a factor of 2.6x.
Cash Flow:
Operational cash flow to last year was down rather significantly - 64%, generating $1.02M vs $2.83M in the comparable quarter.
Does this concern me? Not in the slightest.
Prior to working capital adjustments (yellow), OCF was up by 93% and all of their working capital adjustments (red) worked against them this quarter. They paid down their payables significantly from year end, and inventory and receivables grew. Some quarters this just happens. If this trends and I worry about it, I’ll let you know.
(if the colours don’t line up like I said - fuck off, I’m colourblind)
Also during Q1, DBO made minor investments of $244k, paid down $48k in debt, and bought back $386k in shares as part of their current NCIB.
Overall, their cash position improved by just over 1% during the first quarter.
Share Capital:
222.8M shares outstanding, down about 600k from their last report due to buy backs
15.8M options outstanding including 2.8M granted at 92 cents in the quarter - all are ITM but none expire for two years
420k SAR’s and 1.9M RSU including 450k granted in the quarter
6% insider ownership with 16% owned by tutes.
Mixture of insider buying and selling with the audit chair and largest insider, reducing his holdings by 38% over the past year
Income Statement:
After a 70% revenue increase in Q4, the first quarter was less of a headline maker, growing by just 2.8% to $13.4M. But don’t turn your head away, as it gets a lot better underneath that.
Gross margin grew by 300 basis points to 59.1% which in turn, grew their gross profit dollars by 8.3%. Total operating expenses were down by 5.6% despite the fact they had a $70k bogey in foreign exchange. Administrative expenses were down by more than 20% with additional savings in R&D of 7%. Only their selling and marketing bucket grew in the quarter, which was up by 5%.
Financing expenses were down on their small amount of debt, and interest income grew from their increased cash position.
That all translates very well to the net income line, delivering $2.94M, vs $1.95M, an increase of 51%.
Summary:
Early indications are we could be heading towards a morning dip as growth investors may be getting a little weary about the top line number. Wankers.
As I mentioned in my recent WWW article, the SIM business still makes up a rather significant portion of D-Box’s total revenue. Investors don’t have much visibility to this segment, and it is rather lumpy. If D-Box has an Achilles heel in their quarterly results, this is probably it.
The positive side is their royalty revenue was a record $5M, up 25%. This is going to be the gravy and the driver of D-Box’s successes or failures. That comes from bums in seats, and the death of the theatre experience has been highly exaggerated, as witnessed by recent numbers. They in fact have been surging, particularly in the premium segment which D-Box resides.
Cineplex is spending significant Capex in 2026 for premium experiences including additional D-Box screens and the company recently got their foot in the door with B&B and Marcus theatres in the USA.
DBO currently trades at about a $260M market cap and with these results equates to about a 14 P/E.
The bad news after a run like D-Box has had over the next eighteen months is you come up against those tough comps - and their next two are rather daunting. More expansion on the theatrical installs will be needed to maintain this momentum, particularly when they need to offset the lumpiness of their SIM businesses.
For those reasons, D-Box is a hold for me and not a buy right here - even with this mornings dip. At least not with my position sizing.
Maintaining the 4.5 star rating.
Disclaimer:
My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from company’s I review.
Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.