My Review of the Memex Q1 2016 Earnings Release

On late Friday Memex (OEE.V) filed its Q1 2016 numbers and this morning released its Press Release to accompany those numbers. Don't be fooled by the "Q1 2016" designation as Memex has its own fiscal year and does not operate on a calendar year. 

As I have written about before, with tiny nanocap/microcap companies there are two things I look for quarter over quarter that I consider to be the most critical:

1. Are revenues growing? (i.e. is there market acceptance of company's products?).
2. Will the company have a foreseeable need to raise capital? (if so, it's critical to evaluate the impact that may have on you as a shareholder). 

Keeping the above two questions in mind, let's take a look at the Q1 2016 highlights:

  • Q1 2016 marked the 4th consecutive quarter of revenue growth with 23% YOY growth, and 7% QOQ growth. 
  • Gross margins were 27% higher than same quarter in 2015. 
  • The company added 3 US-based Sales Reps which helped the company achieve bookings of $876,000 QOQ. 
  • Cash on hand is roughly $2.9M.

The numbers above speak volumes. Revenues and bookings are growing and the company has enough cash to continue with its business plan without any need of an immediate capital raise. The company reported an overall loss as they continue to incur expenses relating to the buildout of their Sales efforts. So, while SG&A costs are up substantially, they are up for the right reasons. Short-term pain to overall expenses for (hopefully) long-term gain.

Subsequent to Q1 2016, we saw a customer, Kuss Filtration, order an additional 43 MERLIN licenses as part of a multi-plant rollout in the US, China, and Brazil. I believe this is a trend we will continue to see when it comes to MEMEX initial test of the product and then when results are achieved, which happens quickly, there will be additional orders to follow. Remember, with he current customer base alone MEMEX has the opportunity to go after $30M in total revs if MERLIN can be fully rolled out to each customer. 

In summary, my investment thesis is well intact. Revs growing with customer acceptance and demand of MERLIN and there is enough cash on hand for the company to continue its growth efforts without the need for additional capital. 

Note: I received an email from a reader about the mention of "Primary Capital" in the company's MD&A. Read this release from back in March 2015 to understand who exactly "Primary Capital" is, but essentially they were brought on to help the company raise their last round of financing in mid-2015.