Take away from C-rad q2

2015-08-17 13:42, Edited at: 2015-08-17 13:45

A mixed bag! Q2 is historically a weak quarter for C-rad and this year was no difference. The most important number is the order intake and that was one of few bright spots, came in at 16,3m +48% y/y. The sales number was weak at 15,1m due to longer duration in the order backlog. It seems like C-rad get the orders at an earlier stage than what we are used to, increasing delays between order intake and delivery of the product and billing. The bottom line was -6,2m and that is of course a bit dissapointing.

The combination of weaker sales and higher operating costs (staff, travel and R&D) are hurting the bottom line, but boosting the top line! According to the conf call, the board has given Tim a mandate of grasping the opportunity to establish the products rather than generating profits. Profits will come but ramping up a global sales organization is expensive, (C-rad have added 3 new sales people so far this year). The full impact of this investment will start to show during 2016. It would make sense for a company with an established global sales organization, which target the same clients as C-rad does, to buy C-rad and just add the products to their existing portfolio. Companies like GE, Phillips, Elekta, Raysearch, etc...

As a result of the massive increase in order backlog, the need for working capital and high receivables are draining the cash flow. This issue will continue as long as we see strong order growth combined with long duration of the order backlog.

The Cyrpa deal

The terms for the remaining 71% of Cyrpa where released. If I have got it right it looks very attractive. We will pay 120k EUR + 2,5% of sales above 4,8m EUR during a period of 36 months. Cyrpa is in a period of strong growth, historically Cyrpa has had an annual sales of 1m EUR, lets say Cyrpa will grow with 50% (in line with C-rad), that will generate a total of 7,125m EUR over 36 months (1,5+2,25+3,375). Based on this the cost would end up at 120k EUR + 58k EUR = 178k EUR. If Cyrpa continues to grow this is a good deal and lower than my expectations. The payments are spread over 3 years so it will not generate any liquidity issues. Have in mind that C-rad lent 4,9m SEK to Cyrpa when we bought the first 29% (long term receivable on the balance sheet). This indicates a significantly lower valuation than when we bought the first 29%. Cyrpa numbers will be consolidated from the 3rd.

Bullets from the conf call

Gemini, is moving in the right direction. They made a successful full frame test beginning of the summer and next step is to do a second test. The robustness and stability of the product is now satisfying. I get the impression that the ambition is to have a finished product in Q4. There is demand from some clients already so most likely it will generate the first order in Q4.

Varian interface, is in its final stage. A bit frustrating because we are in the hands of Varian and I get the impression that this interface is not a top priority from Varians side. Have in mind that C-rads products are in competition with products from Varian. This will be done in a near future. According to C-rad, there are 15 sites waiting to be updated with this interface.

GE OEM-deal, this is a much more thorough process than expected and it goes beyond a standard OEM agreement (reads good to me), it's a global scale cooperation and there are 3 persons dedicated to this process within C-rad so it is definitely a very exciting project. Timewise Tim didn't say anything new, so Q4 or Q1 next year should be realistic.

Catalyst approval in China, slow process but should have a clear signal during Q4. C-rad have also started the process for Cyrpa lasers, should be a process of 6-8 weeks.

Skandion order

Tim was surprised, as all of us, that it was appealed once again. No further info. This is getting ridiculous according to me…

Beamocular

First pre hearing was held in June, no further date is set but C-rad is very confident is this case. Most likely this will end in a settlement during 2H 2015. It would be best for all of us to get rid of this issue…

Outlook

When I look at the second half of 2015, it looks like if we get the Skandion order we should end the year with total orders of around 100m, so far for 1H was 38,4m, q3 should be around 25m and q4 around 35-40m (order intake on rolling 12m is 81m). That should lead to sales of around 75-80m. I don't think that will be enough to reach breakeven (a bit disappointing). But if the momentum in order intake continues we should reach around 150m in orders and 115/120m in sales for 2016 (small neg revision) and with a small profit.

All in all a dull report but a clear indication of things moving in the right direction, think 2H will be an exciting time for C-rad!