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So what exactly has changed for you to go from full ramp mode to full deramp mode? Are the Newlands no longer an important indicator? Have you changed your mind about the standard of their due diligence given what's happened to the Filtronic share price? Are you no longer expecting an imminent big contract win to lead to a rapid re-rating? Do you no longer see evidence of canny buyers picking up shares from not-so-canny sellers? Or have you taken out a short position and you're just talking your book?

graham-wales - thanks for the link to the note.

Precious little near-term cash generation evident in it. It shows net cash down to just £3.4m by March 2020 with net current liabilities (taking account of the cash) of £5m by that point. That end-March 2020 cash number is even lower than Allenby had it at, isn't it?

So in that context, I can perhaps understand them being reluctant to push the button on a share buyback which would consume some of the cash and leave them more exposed to any unforeseen downturn which drew on cash.

The other side of the argument f15jcm is that a buyback could be used to instil some confidence in the company, which appears to be sadly lacking in the market. If they announced the implementation of a buyback and said that they thought the market was undervaluing the company then that could help to turn round confidence, particularly if directors also bought on their own account once the buyback was underway.

I think this would be particularly true if they could also announce that they expected to be cash generative in the half and for the foreseeable future and that they were planning to limit the scale of buyback to what could be funded by such cash generation.

The higher the shareprice, the fewer shares they have to issue for the paper component of any future acquisitions, so a successful buyback (i.e. one that restores confidence and boosts the shareprice as a result) can also facilitate buy and build.

I wish they would get a cash bridge into the public domain. If they really meant they were cash generative (TU statement) then show what they meant by that.

If they are cash generative then why on earth not launch a buyback together with a statement that the board believes the company is undervalued by the market?

If I had to guess I'd say SPD were exiting - and probably just about out - but it is getting silly. If you add the recent declared positions to those in the annual report you get to a lot more than 100% of the voting rights.

I wonder if the company is tracking this? If not, maybe it is about time they served notices on major shareholders asking them to confirm their current positions.

On the cash bridge, given the revenue-related uncertainty over profit, I think a reasonable methodology is to go with the cashflow statement format:

+$ xm Profit for the period ($xm = $10m-$30m say, depending on revenue)
+$17m Operating adjustments (same as 1H except for forex which could go either way, so zero)
+$ 6m WC adjustments (assume unwind of $6m of the $10m 1H build)
-$ 0m Income taxes paid
-$ 3m Investment adjustments (same as 1H)
-$ 2m Financing adjustments (same as 1H)

To give you $(x+18) m increase in cash in 2H before acquisitions / buyback. So if x=10, cash goes up by $28m to $50m, while if x=30, cash goes up by $48m to $70m.

So estimate $50m-$70m cash at 31st March 2019, depending largely on revenue, and before buyback or acquisitions. If $10m buyback in 2H, then $40m-$60m cash at year end (or $30m-$50m net cash assuming the loan is left as is).

On WC, I have assumed $6m of the $10m 1H build unwinds, as Mark Bonney commented that some of the build was due to the longer payment terms YuMe has with agency clients compared to the base R1 business - so I presume some of this will stick in 2H, assuming YuMe has a better 4Q than it appears to have done last year. $4m sticking is probably conservative, but it makes for nice round numbers in the end-year cash estimates.

I don't know how to model income tax cash payments. R1 has lots of tax losses, but did pay a small amount of tax in 1H, so presumably there are areas where as it makes profits it can't offset them completely with losses. So if profits are significantly larger in 2H, I suppose it is possible there will be a more significant cash tax cost.

Cash bridges start from $37.3m which was the year-end cash balance. $27m was the net cash.

Given their apparent focus on adj ebitda rather than revenue, you can also start from an adj ebitda number (although I don't know what "consensus" is on that) and work down to profit.

$31m D&A should (double the 1H number)
$ 3m Finance expense and share-based payments (double 1H number)
$ 6m Exceptionals ($3.6m 1H, $2.4m 2H maybe - i.e. a bit less)

To give $40m to come off adjusted EBITDA before tax and forex gain/loss.

So if you started from $50m adj EBITDA that would give you $10m less tax/forex adjustments as profit, as hopefully a "low" end of the range, pending seeing some Whitman Howard estimates which might help tighten up the range.

Just to add, the FT, quoting Thomson reuters, is today quoting the $408m mean (high $436m, low $380m) version. If only R1 would quote actual numbers as guidance.

https://markets.ft.com/data/equities/tearsheet/forecasts?s=RTHM:LSE

For anyone wondering where the $408m consensus came from in my post below, it was from reuters, which yesterday was showing this (mean $408m of 2 estimates: high $436m, low $380m). It was showing this with zero revisions in the last week, so I assumed this was the consensus Bonney would have been talking about.

However, I see that today reuters is showing $402m mean consensus (high $425m, low $380m), still with no revisions in the last week, and seems to have reverted to the same set of numbers it was showing in early October.

So have to see whether yesterday's reuters numbers were an anticipation of something to come or just an error.

If they were to do $30m or so PBT that would suggest well north of $60m adj EBITDA (given the $16m D&A in 1H, plus $4m exceptionals).

So need to see the WH numbers for a sense check.

Some very encouraging numbers and guidance out of the results and call, in my opinion. Has anyone else plugged them in to a spreadsheet yet? I'm looking forward to seeing what Whitman Howard come up with when they produce a note. As far as I can see, we have guidance for the full year of something like:

$408m revenue ("continues to trade in line with consensus forecast revenue")
45% gross margin (probably settle around where they are, maybe even a bit better)
$185m+ gross profit as effective guidance

Opex - realised about 50-60% of overall cost reduction through 1H P&L, in 2H should get to 85% to 90%. Here, you've got to decide what the baseline is. I think Bonney is thinking of the adjusted opex metric he used in the bridge. So that's at $58.9m in 1H, but difficult to work out what the baseline is. However, playing around with the numbers I would have thought it reasonable to assume maybe a further $5m or $6m of opex cost saving to come through in 2H.

$148m opex excl exceptionals (i.e. $76.6m 1H + $71.6m 2H assuming $5m further savings as above)
$ 6m exceptionals (assume a bit less in 2H than in 1H)

$31m profit before tax and finance income & expense

And so perhaps about $30m PBT.

Which would be quite the turnaround. Of all those assumptions, I think the one that is most difficult to accept, given the track record, is perhaps the revenue guidance. Can they really get over $400m? But given they must have pretty good visibility over the key 3Q revenue number, and they know 4Q was a bit of a shocker last year, I wouldn't have thought they would give the guidance they have unless they were confident.

Any other views? Any obvious errors in the above?

Steph - very much like that idea of cancelling the notice while we work out what we want to do. Given we have a get out of jail free card (valid for both remoaners and brexiteers) we really ought to use it and have another go, but properly this time learning from the mess that was the first attempt. Why on earth wouldn't we?

It would mean more time before we were actually out (if that's where it ends up) but whichever camp you're in, given the lack of appeal of the May option, surely it makes sense to take advantage of the gift we've been given of being able to reset the clock right back to before the start of the exit process?

Whether the second part of your idea is practical in Westminster (self-selecting potentially non-party teams of MPs for each idea) I have no idea, but it would be wonderful if it were I think - perhaps reshaping the political landscape more broadly as a result. And it's certainly a big enough task to make it worth considering. Would it need someone with credibility away from the main party political protagonists to be seen to be pushing it though, rather than one of the current leaders? Could David Milliband and John Major pivot to that sort of proposal and would they have sufficient credibility/clout in Westminster, given they both have come out in favour or a second referendum but don't have the baggage that Tony Blair carries?

The board gave us an update only a month ago, with publication of the interim results. I think it's largely about execution now. Can they win one or more of these big IUC contracts in the relatively near term, and can they deliver on their hints of improved financial performance in 2H (i.e. continued gross margin expansion and flow through of overhead reduction benefits)?

So I would have thought it would make sense to link any new PR push to one of those events - a big contract win or a TU sometime next quarter around 2H expectations.

Unless of course they can pull a share buyback out of the hat and do some PR around that - saying that they think the shareprice undervalues the company etc. That would also give them the opportunity to set the record straight about cash generation - if they really meant in the TU that they were cash generative rather than just managing cash well - and link a buyback to expectations of further cash generation over the near-term. That would be a nice xmas present to TLY shareholders, I think.

In yesterday's results, SPD listed their strategic investments as of 28th October:

29.7% Debenhams
29.9% Findel
26.2% French Connection
25.4% Game Digital
18.9% Goals Soccer Centres
8.3% Iconix Brand Group

If you look at the current market caps, it appears Findel is by far their biggest strategic interest in terms of value of the equity they hold. So if they have decided against a full takeover, and if they think that they have got what they need in terms of getting their product into Findel as a sales channel, then reduction in their stake would be an obvious way to raise cash if they needed to, or simply to rebalance their portfolio of strategic interests.

Incidentally, SPD had to issue a clarification statement yesterday around MA's response to a question on current trading in their sports retail business. MA had used the phrase "unbelievably bad" to describe November's trading.

So have we abandoned "canny buyers" able to acquire without moving the spread, and abandoned emphasis of how good the Newlands are - how's Filtronic working out for them?

Now it's the company being prepared for sale?

What's wrong with just taking a position and waiting to see how it plays out? Why try so hard to persuade others into buying off the back of dubious speculation? Is it just so you can get out on an artificial spike and onto the next big thing?

The replay is now available. What Bonney actually said on cash was as follows, as I now hear it:

"Significantly impacting our cash in the half was approximately $15m of cash paid out for one-time liabilities incurred as part of the acquisition of YuMe as well as the cash cost of integrating and restructuring in the half. Additionally, approximately $10m was used for working capital requirements as the first half of our fiscal year always requires more investment in working capital and the addition of YuMe extended our accounts receivable as terms with their agency customers tend to be longer than the terms of our base business. Cash typically builds in the second half of our fiscal year and as of our latest full week cash report our cash balance was approximately $31m. We are now beginning to build cash in the business as the receivables for our seasonally strongest period of revenue, September through December, are beginning to be collected and our supply costs for this period have largely been paid."

"...as our stock price is yet to reflect the value we are creating"

is how Mark Bonney finished his prepared remarks, talking about how cash generation would give them the optionality to do share buybacks. Now you would expect a CEO to be bullish, but you don't often hear them be quite as explicit as that in public about undervaluation of the share price and I was very glad to see that used as the justification of a buyback rather than just return of capital to shareholders.

L3Trader - my personal view is that the share price has been punished for past sins (e.g. exposure by the blog, huge write-offs because of poor acquisitions) and shocking investor relations.

On investor relations, the company has not once but twice apparently been unable to offer fund managers the support they needed to continue holding blinkx/R1 shares. Firstly in 2014/15 when droves of institutions sold down (and probably out) including notably (iirc) Oppenheimer who came out publicly in support of blinkx management post-blog but eventually sold down saying they really had no choice in order to protect their investors just in case they (Oppenheimer) were wrong about blinkx. And secondly, in the last year or two when institutions who had bought in more recently started selling down or out - the most notable one for me was Cogefi, who much like Oppenheimer before them, had publicly stuck by R1 (commenting on their position in monthly newsletters) until eventually they capitulated, with fund managers replaced and the new ones deciding to sell down.

So I think there's a multitude of fund managers who either have been punished themselves for holding blinkx/R1 in the past, or have seen other fund managers punished. So when cogefi was selling, for example, I don't think there were many fund managers prepared to take a new position. And I think a lot of fund managers now are reluctant to buy in until they really do see convincing evidence that R1 is sustainably profitable going forwards. Which has left buying largely limited to the big existing holders who perhaps have been able to dictate the price to some extent.

In today's webcast, Mark Bonney acknowledged that the focus of their communications in 1H had been internal as they reshaped the organisation and integrated the different companies. But he suggested I think that they are now ready to shift the focus to external communication, which if well executed should support the share price I believe, as they do seem to me to have a good story to tell now in terms of the move to profitability and cash generation. In that regard, his closing comment (in the prepared part) about the undervaluation of the company was encouraging I felt.

Looking back at my notes of the call, Bonney clarified the WC position. Although it looks like a $26m expansion ($13m increase in receivables, $13m reduction in payables) he presented it (as I heard it) as:
$15m settlement of heritage YuMe one-time liability
$10m WC

I presume the $13m reduction in payables is actually a $2m increase in "WC payables" cancelled out by the reduction of the $15m one-time liability.

So the $10m WC expansion is pretty much in line with last year and we can presumably expect it to unwind in 2H.

There you go. $31m cash as of latest weekly cash balance, I think Mark just said, as evidence of cash generation in 2H.