Well, I’ve been looking forward to these financials as much as one looks forward to a colonoscopy from a gastroenterologist who’s got the shakes. The fact this is my sixth review in seven days has played a factor as well.
I first began talking about ZoomD just prior to their Q3 results in 2024 when they were at $0.49. They later became a 2025 Wolf Pick and by October of last year, rose to $2.75.
It’s been a complete round trip down since closing last Friday at $0.50.
If there is good news coming into these financials released this morning, it’s that expectations couldn’t be lower after revenue declines of 51% and 64% in their last two quarters. In my recent August WWW article, I had this to say about these earnings:
With expectations almost as low as possible for these results, how did they shape up?
(All amounts in USD unless otherwise stated)
Balance Sheet:
Despite all of their problems, ZoomD continues to sport one of the best balance sheets on the Venture with a current and quick ratio of 4.3. That consists of $22.6M in cash, $6.5M of receivables and $400k in prepaids overtop of just $6.8M in current liabilities.
I do have to pause here to recognize something. When I reviewed their first quarter it was part of a large “Mother of All Reviews” when I was catching up from vacation. What I didn’t notice last quarter was their revamped MD&A. Not only is it more visually pleasing with easier to read tables, but the company also added some additional disclosures - like one of my favourite talking points, aging reports.
A/R looks relatively good, but anything looks good after reviewing NCI last week. You will notice what happens with their expected reliability of accounts that age over 90 days. 83% of their A/R is current.
ZoomD carries no debt. Zero surprises so far.
Cash Flow:
This is a little gross. The company is basically cash flow neutral through their first half after generating nearly $9M in OCF last year. For the quarter, they burned $500k and you haven’t been able to say operational burn and ZOMD in the same sentence in three years.
I think we can give them a pass on the one quarter miss however. Prior to working capital changes they still generated $1.2M in positive OCF. Due to a big increase in receivables and negative impact of forex, took them to their cash burn situation. Given the decent state of their receivables, it’s very likely their best month of the quarter was June, which coincided with most of the quarters billings.
Outside of $45k used YTD on share buy backs and the forex impact, not much has occurred elsewhere on the cash flow statement.
Overall, their cash position is 2.5% more than they started the year with.
Share Capital:
101.2M shares outstanding, 2% dilution in the past year
131k shares bought back YTD
3.05M options outstanding, all ITM
Approx 15% insider ownership (per Yahoo Finance)
No insider activity on the open market
The last bullet may be the saddest statement here. After this monumental drop in share price, nobody is reaching into their own pockets. Adding insult to injury, the company awarded 1.28M options and 1.25M RSU’s a week after this quarter. Not a great look IMO, particularly the RSU’s.
The company slightly ramped up the NCIB in July and we have yet so see the August numbers which could come out at any minute. It still feels like a game of “just the tip to see how it feels” though. It feels damn good. Give’r.
Income Statement:
Here is where things continue to go dramatically south. Revenues were down 61% from $19.6M to $7.7M in the quarter following the trend of their last two quarterly performances. Margin stabilized after a dip last quarter and increased by 30 basis points over last year, but that still resulted in total gross profit dollars being down by over 60% as well.
You can say a lot of negative things about management over the last year, but one thing you cannot accuse them of is being poor operationally. Expenses were down 7.3% and that helped secure some profitability on the operating line of $450k (down 91%).
Net finance income due to their cash position was $780k, which more profitability than the rest of their business generated. This helped drive $1.23M of net income vs $6.1M last year.
YTD numbers mirror much of what transpired in Q2. Their Q2 metrics were slightly better which pulled them out of the profitability hole from Q1.
Summary:
So, for the third straight quarter the income statement was equivalent to a swift kick to the gonads. The difference this time around is we were all wearing our cups.
The conference call may have offered up some more clarity on their historical two largest customers. Finally investors get the news that one appears gone for good, and the other was suggested to be coming back in a big way. Once bitten, twice shy, but I guess I’ll believe it when I see it.
Looking forward, ZOMD longs have one more painful quarter to ensure. Their Q3 ends in a month and we’ll get a chance to see those results at the end of November. For retail investors mental health and to be more rational, until we get to their Q4 I feel we should be looking at their performance on a QoQ basis. And there was some glimmer of improvements when you compare their Q2 with Q1.
Pegging a potential valuation is a tough ask today. The market is pricing them currently around $50M CAD market cap with $31M of cash in the bank and no debt. Despite their woes on the top line to last year, they still remain relatively cash flow positive and profitable.
But if you were to price them based on their last three quarter using a P/E, cash flow or EV/EBITDA metric, they would look expensive. You also have to account for managements communication surrounding the drama of their two largest customers. To be kind to them, it was not good.
I’ve beaten up a lot of companies in the past week, so maybe I’m getting a little soft. But I did get an optimistic sense that the future looks brighter now than I have felt in the last six months.
I also committed two faux pas and broke two of my typical investing rules. I bought in the first 15 minutes of a trading day, and I added to a losing position.
After their annual filings, I gave ZOMD one of the largest downgrades I’ve ever given a stock. 4.25 stars down to 3. That’s where they remain for now.
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.
NCIB... perhaps after 'playing just the tip'... now is the time to go all-in.