TradeWindow founder and chief executive AJ Smith. Photo / File
Analyst research, released after TradeWindow revealed it had raised just a quarter of its capital raise target, painted a challenging picture.
The results of the rights issue, which was not underwritten, were filed on Monday.
“TradeWindow announced that it raised $5.4m under its non-underwritten capital raising. This falls well short of its target of $20m despite some key investors participating in the offer,” Forsyth Barr analysts James Lindsay and Will Twiss said in their note issued on Tuesday.
The analysts held their fire on a re-rating on the maker of a software trading platform for exporters, which incorporates blockchain technology.
They noted: “TradeWindow remains engaged with potential strategic investors to provide additional capital and is exploring alternative funding sources ... No timeframe has been provided.”
Lindsay and Twiss say that if TradeWindow fails to find fresh funds - and they note it is a “difficult market for technology company capital raises globally” - it will finish its 2023 financial year on March 30 with around $7m in cash.
“We estimate TradeWindow’s prior cash burn was around $1m per month, and the fact that it had almost fully utilised existing cash means that these ongoing discussions are important to the future direction TradeWindow takes,” the analysts said.
In the event, the analysts’ re-rating was interrupted. ForBarr announced early this afternoon that, “We discontinue coverage of Trade Window with immediate effect. As a result, our previous valuation and earnings forecasts can no longer be relied upon by investors.”
TradeWindow founder and chief executive AJ Smith told the Herald his firm’s monthly cash burn is already “down from the $1m level, by a double-digit percentage, due to revenue increasing and cost actions already taken of the last couple of months”.
“If current strategic investment discussions do not work out for any reason, we have a lot of flexibility to slow down R&D and can sweat existing products, which generate good revenue,” Smith said.
“It’s important to note that more than 63 per cent of costs are related to R&D costs ... this can be decreased rapidly with our development from the Philippines that started in the last quarter 2022.”
Smith said TradeWindow currently has around 100 staff across the Philippines, New Zealand, Australia, the US and other areas.
He added, “None of these options will affect the core operations, we can still expand our product development, just a bit slower [than] planned.”
Smith told the Herald that negotiations with potential strategic investors for extra funds will take “two to three weeks at max to conclude”.
The CEO said non-disclosure agreements meant he could not name investors who had participated in the rights issue, or those who could potentially tip in more funds.
ASB Bank is TradeWindow’s single largest investor, according to a Companies Office filing (yet to be updated for the $5.4m rights issue), with a 22 per cent stake. The next largest shareholder was Smith with a 15 per cent holding.
Before TradeWindow listed on the NZX (in November 2021), ASB actively promoted that it had taken a stake in the young firm, touting the security of its blockchain-based platform, which it said would “digitise and improve the trade process for our customers”.
This week, the bank refused to comment on whether it had participated in the rights issue, or was one of those involved in the current talks.
“As TradeWindow is a listed company any comment ASB has to make about its relationship with TradeWindow will, appropriately, be made via the NZX,” the bank said in a statement.
TradeWindow’s FY2022 annual report listed a $1.8m term loan from ASB, at a 5-6 per cent interest rate, maturing in January 2025 (the firm also listed a $419,592 loan from Crown agency Callaghan Innovation at 3 per cent, maturing in 2030).
Its FY2023 Interim Report said ASB had provided capital of $1.8m in exchange for 2.6 million shares as part of capital raise. On July 14, 2022, TradeWindow said it had completed a $9m private placement, supported by new and existing shareholders, at 70c per share - a 30.7 per cent discount on its July 11, 2022 closing price.
Smith had total remuneration of $391,876 in FY2022, according to TradeWindow’s annual report.
Would he take a pay cut as part of the cost-cutting that will take place if the currents fail to bring in new funds?
“I would of course share the pain, lead by example and take a pay cut,” Smith said.
“I am completely committed to bringing TradeWindow through this phase to the success that we know the market expects of us and that customers and the export and freight forwarding sectors need from us.”
In its FY2022 annual report - following a $10.8m net loss and negative operating cashflows of $8.5m on $4.9m revenue - auditor KPMG flagged “material uncertainty related to going concern” if TradeWindow was not able to achieve its financial forecasts and raise sufficient debt or equity to fund projected cashflow deficits.
On November 17, TradeWindow reported a first-half loss that widened 18 per cent to $7.1m on revenue that rose 16 per cent to $2.4m for the six months to September 30, 2022. The directors again acknowledged material uncertainty around the firm as a going concern, but also said, “The directors consider the group to be a going concern and believe that the group will achieve its financial forecasts and secure projected funding requirements such that the group will be able to meet its contractual obligations in the foreseeable future.”
In a January 13 trading update, the firm lowered its FY2023 revenue guidance from $6m-$7.5m to $5.5m -$5.8m, saying “Some implementations continue to take longer than expected. This means revenue previously expected in FY2023 will be pushed into FY2024.”
TradeWindow expects revenue guidance to be around $10.4m for FY2024 and about $20.2m for FY2025, the firm said in a market filing.
It is targeting breakeven by the end of FY2025, with the proviso that its forecast is “subject to ongoing geopolitical and environmental uncertainty including the impact of ongoing supply chain challenges, and the timing of customer decisions and implementations”, according to the January 13 update.
This week, Smith said, “We have the $5.4m in now and cash burn [has] already come down significantly as per our financial model. We had prior commitments on these funds and the company was never at risk, it was more a case of running a well-governed process of raising the funds.”
TradeWindow shares were down 2.5 per cent to 39c in midday Thursday trading.
The stock is down 80 per cent for the year.
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