Well, this feels like one that got away. Last January, I highlighted this one as a potential winner, I started a position but only hung on to it very briefly for a very minimal gain. Since mid summer they have seen significant momentum and they gapped up to over 16 cents upon release of these financials.
I never formally reviewed them. Today that ends.
Balance Sheet:
With deferred revenue removed, DBOX has an outstanding current ratio of 3.0 (it’s pretty damn good without removing deferred as well). At quarter end they had $6.3M in cash , $7.3M of receivables, $5.8M worth of inventory and about $800k in other short term assets against $6.7M in liabilities due over the next twelve months.
Cash accounts for about 31% of their short term assets with the bulk in A/R and inventory. They do not provide any detail including an aging report on their receivables which is disappointing, but the fact they were able to grow revenues on much less inventory is encouraging.
DBOX has $1.3M of debt (down from $2.5M at the start of their fiscal year) at an attractive 4% rate. They also have an unused $8M LOC facility available.
Great start.
Cash Flow:
Even despite the $1.5M negative impact to working capital regarding their receivables, DBOX has generated $5.3M in operational cash flow through their first nine months, almost exactly doubling what they did at this stage a year ago at $2.6M.
So far this year they have purchased $600k worth of assets and paid down $1.2M worth of debt. Overall they have improved their cash position by a whopping 117% from the beginning of the year.
Share Capital:
A slightly bloated float of 221.9M shares, with only minor dilution occurring from the exercise of options.
5.7M options outstanding with an avg exercise price of 13 cents. 2.3M expired unexercised this year at a dime. Ouch.
Insider ownership of 11% and institutions range from 20-25% ownership depending on which site you look at. Insiders have been net buyers and buying on a semi regular basis.
Income Statement:
Massive quarter on the top line with $13.3M in revenue, up 64% against the $8.1M in the comparable quarter. YTD was pretty flat prior to this quarter and is now up 16% totaling $34.2M. They have made some nice improvement in margin with their gross profit growing by 400 basis points in the quarter to 50.3%, and YTD of 51.7%, up 440 bps. On 16% more revenue they have grown their GP dollars by 27%.
They have also converted well on their cash burning expenses, which only grew by 5.3% on all of that revenue and margin growth. That awards them the “Wolf Trifecta” (significant revenue growth, margin growth and quality conversion on cash burning expenses).
A Wolf trifecta always results in significant profitability improvements and that is what we have here. Net income came in at $1.53M vs a loss of $435k in Q3 of last year. On a YTD basis their Net income has grown to $3.34M, up 7x from last years $473k. Incredible YOY performance.
Overall:
This was a banger of a quarter, and they did so with a foreign exchange bogey of $580k to last year.
Even with the gap up today this still looks under valued at an 8 P/E, a sub 6 EV/EBITDA, and trading at .75 of revenue (All TTM). If you just look at their last two quarters, that annualizes at $50M of revenue and $7.34M in net income and $9.5M of EBITDA. At a $32M market cap that generates valuations of 4.3 P/E, 3.2 EV/EBITDA and a .64 P/S ratio.
The royalty element is probably one I missed when I first looked at them over a year ago and that component of revenue doubled and is now a relatively significant at $3.2M this quarter.
There is quite a bit of caution in the wording of their press release around seasonality and potential lumpiness of the business in addition to some vagueness around potential tariff impacts. That will likely suppress some of the enthusiasm surrounding these results and make it a little unlikely their Q2 results could trend out that well for a full four quarters. With that said, their TTM results still show quite a bit of value. I’m in with a late afternoon partial buy at 16 cents - didn’t quite get all I was trying for. Maybe I’ll rectify that tomorrow.
Oh so close to a four star performance. 3.75 stars and gets the “Wolf Seal of Approval”
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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 companies 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.
Very nice Wolfy 🐺 yip yip yip HOOOOOOOWWWWLLL 🐺
That was fast! Thanks Wolf! Love the whole trifecta thing.