The title of this piece comes from an interview with Getswift (ASX:GSW) executive chairman Bane Hunter. He’s spot on:
Hunter has a clear message for all startup founders seeking US investment:
“Data talks, bullshit walks,” he says.
He advises founders to “be conservative and over deliver” when speaking to investors, because “everything you say is going to be recorded and measured”.
“When you come back 6-12 months later everything can and will be used against you when you raise,” Hunter says.
I’m looking at Getswift’s latest quarterly. At first glance there’s a fair bit of ‘walking’ going on. Or to quote another prominent elder statesman figure, Marshall Mathers:
“It’s quicker to count the things that ain’t wrong with you, than to count the things that are.”
- Cash flows lag revenue and the difference has blown out this quarter
- Cash flows fell despite ‘geometric’ revenue growth
- Interest payments don’t correlate with cash balance. (Getswift paid $15k in interest expense despite having no debt and $26m in the bank.)
I can think of 4 possible explanations, and I’m going to throw around a few ideas:
- Getswift could be booking revenue on free trials that goes unpaid when clients discontinue. This could explain revenues running ahead of cash flow but does not explain interest expense.
- Getswift could be recording revenue at its ‘headline’ delivery fee (26-29 cents per delivery) but only getting paid cash at the fee rate it’s negotiated with clients (much lower than the headline rate – ~13 cents or so). This matches the below table, and could explain revenue and cash flow but not the interest expense.
- Getswift could be running free trials, recording revenue and financing the subsequent receivables (via debtor finance) to show cash flow. This could explain the revenue/cash flow difference (lenders won’t finance 100% of receivables) as well as the unusual interest expense.
- Getswift could be counting the interest on its cash balance as ‘receipts from customers’. That would be pretty unconventional but the numbers roughly fit. That could explain cash receipts but not the interest expense.
Sure, that’s just speculation on my part, but there are some meaningful discrepancies here – and how would you know otherwise? Company disclosure is less than zero.
Quarterly revenue vs cash flow:
|Quarter||Revenue||Cash receipts from customers||Delivery #s||Fee per delivery (revenue basis)||Fee per delivery (cash basis)||Net cash difference (compared to prior quarter revenue)*||Cumulative cash difference LTM|
|Q218||$321,000||$160,000||~1.2m||$0.27||$0.13||-$95k||-$70K (8% of Getswift’s LTM revenue hasn’t turned into cash)|
(IPO 9 Dec)
|$62,850||not stated||~0.34m||$0.18||not stated|
(note that figures above have been rounded off and are not precisely correct)
*To see if there was a payment lag I subtracted cash flow from revenue in the prior quarter. For example Q218 cash receipts are $160k, vs Q118 revenues of $255k. Even if actual cash payment falls through into the following quarter, there is still a huge hole not being filled.
A more concerning implication is that, if you assume that 100% of the revenues booked lead to cash flow, up to ~$80k of this quarter’s receipts from customers could be due to last quarter’s revenue. Last quarter, Getswift had $255k revenue but only $175k receipts, i.e., $80k was unpaid. If that $80k got paid through in this quarter instead, then Getswift only earned $80k in receipts from customers in Q218. Overall cash flow also declined vs last quarter. I can only guess that Getswift is accruing revenue that it does not earn.
Getswift is reporting ‘geometric’ revenue growth but cash flows persistently fall short. This is surprising because Getswift’s revenue recognition policy from the 2017 annual report states:
“For contracted customers, the revenue is recognised on a monthly basis, when the group is able to reliably estimate the underlying value of service provided for the period. This is determined based on the number of task deliveries and SMS values tracked.”
However “For pay as you go customers, the revenue is recognised at the point when the cash payment is received from the customer.”
Under the PAYG model, there should be virtually zero mismatch between cash flow and revenue. Ergo most or all customers must be ‘contracted’. However, Getswift confused the issue in its ASX announcement last week. The company said:
“Regardless of any POC (proof of concept) period, because the contracts are pay as you go, clients that wish to no longer use the platform simply cease using it and this is then reflected in our periodic reporting of delivery transactions and revenue.”
This does. not. make. sense. If the contracts are pay as you go, Getswift should record the revenue when the cash comes in and there should be zero mismatch with revenue. Is it contracted or not? I cannot be sure what to conclude from this, but to me it looks like a yellow flag from a company that is rapidly becoming a byword for poor disclosure and overly optimistic statements.
Getswift turns Chinese
$26.5 million cash at bank at the start of the quarter (the big capital raise came right at the end of December and so likely did not contribute anything). Zero debt. $0 interest income. A net interest expense of $15,000. Getswift is Chinese, apparently.
Where’s the cash? Where’s the interest income going? 2.5% interest on $26.5m = $663k per year. Divide by 4 to get a quarterly figure = $166k. Getswift’s receipts from customers for this quarter was $160k. Coincidence that those numbers are so similar? You tell me. Surely they wouldn’t record interest income as receipts from customers? Surely they wouldn’t keep all their cash in a business account earning 0% when the interest income is so significant relative to receipts? Surely..
Last quarter Getswift recorded $64k in interest which is about a 1% interest rate, but roughly makes sense in context of its cash balance and the timing post- capital raise. I cannot reconcile this quarter’s figure at all.
Where it at?
Also worthy of scorn is Getswift’s raising of $75 million to “advance new product development initiatives and general working capital purposes.” Forecast R&D cash outflow next month is $1m. Forecast staff expense is $1.3m. This company has $96 million in the bank.
And working capital? At a software company? Wot?
Ohhhhh wait, yeah if you know your revenues are gonna run well ahead of cash flow, and you’re gonna spend money and not make any, then you need a lot of working capital. Perhaps that explains it.
This company does not make sense. When revenue runs ahead of cash receipts, cash receipts are declining, and the interest income on $26m in cash ($96m, now) suddenly goes AWOL, those are some pretty glaring warning signs. With zero transparency and numerous unexplained issues – not to mention those undisclosed material facts I keep mentioning – in my opinion Getswift is worth no more than its cash backing per share, 50 cents or so. Not only that, I think it’s totally uninvestable.
One thing I would dearly like to ask management and Getswift’s corporate advisors is “at what point does this transition from poor disclosure and optimistic forecasts into a legal and regulatory issue? Cos I’m pretty sure you’re about to find out where the line is.”
With a totally non-independent board, I think that’s a question that needs to get some serious internal airtime.
I have no investment position in Getswift, and will not be taking any investment position. I have no relationship with Getswift, its management, staff, or corporate advisors whatsoever. This is a disclosure and not a recommendation.