|
|
Post by castlerockchris on Feb 24, 2023 10:38:08 GMT -5
Yes, negative cash flow from operations of around $2M for Q4 2022. I believe that's the closest they have ever been to a positive position. Can they get there this quarter? If you figure the $9m in royalties should grow to over $13m in Q1 the easy answer is it will be close, and very doable by Q2 23. My projection is that we do not hit free cash flow break even (FCFBE) until Q3 or more likely Q4. My read on MC is that he is a CEO who at this stage of MNKD's life is looking to investment spend. MNKD has several applications in the pipeline which will take more money going forward- BluHale, CIPLA, Inhale 1, Inhale 3, etc. These are going to eat up more cash than was spent against the opportunity in Q4 22. TDPI royalties in Q4 23 should be above $30m, an increase of $21M Y-O-Y. It would be really irresponsible to not hit FCFBE by Q4. The one issue to me that is the real ACE in the hole and frankly, thorn in my side, is why is MNKD sitting on deferred revenue of $38M, which is expected to increase in 2023. I understand this is an obligation of our agreement with UTHR, but in essence, this is making MNKD their banker. UTHR should be carrying the inventory cost on their books, not little old MNKD. If MNKD would have realized only 10% of the deferred revenue in Q4 it would be FCFBE. Bottom line, MNKD is on the verge of FCFBE and going forward, between the increase royalties and the deferred revenue, there is no reason it should not be FCFBE by Q4. MC has the levers to pull that can make MNKD FCFBE any time he really wants, but I think he is drooling over the 100m+ Peds and MNKD 101 opportunities and is going to spend aggressively against them. |
|
|
|
Post by prcgorman2 on Feb 24, 2023 11:57:21 GMT -5
Yes, negative cash flow from operations of around $2M for Q4 2022. I believe that's the closest they have ever been to a positive position. Can they get there this quarter? If you figure the $9m in royalties should grow to over $13m in Q1 the easy answer is it will be close, and very doable by Q2 23. My projection is that we do not hit free cash flow break even (FCFBE) until Q3 or more likely Q4. My read on MC is that he is a CEO who at this stage of MNKD's life is looking to investment spend. MNKD has several applications in the pipeline which will take more money going forward- BluHale, CIPLA, Inhale 1, Inhale 3, etc. These are going to eat up more cash than was spent against the opportunity in Q4 22. TDPI royalties in Q4 23 should be above $30m, an increase of $21M Y-O-Y. It would be really irresponsible to not hit FCFBE by Q4. The one issue to me that is the real ACE in the hole and frankly, thorn in my side, is why is MNKD sitting on deferred revenue of $38M, which is expected to increase in 2023. I understand this is an obligation of our agreement with UTHR, but in essence, this is making MNKD their banker. UTHR should be carrying the inventory cost on their books, not little old MNKD. If MNKD would have realized only 10% of the deferred revenue in Q4 it would be FCFBE. Bottom line, MNKD is on the verge of FCFBE and going forward, between the increase royalties and the deferred revenue, there is no reason it should not be FCFBE by Q4. MC has the levers to pull that can make MNKD FCFBE any time he really wants, but I think he is drooling over the 100m+ Peds and MNKD 101 opportunities and is going to spend aggressively against them. Great analysis. Thank you castlerockchris.
I agree with everything you said with the exception that historically, "spending aggressively" is not a phrase I would have used to describe investment choices made by MC and the Board.
I also agree that there is an anxiousness by management to convert on the trials of Afrezza for pediatric T1s, and clofazimine for Non-Tuberculosis Mycobacterium (NTM) infections. So maybe those will prove too tempting to resist aggressive investment, but if past spending behavior is a useful predictor of future behavior, I think your forecast of FCFBE by or in 4Q23 is very reasonable and as you say, achievable.
|
|
|
|
Post by ryster505 on Feb 24, 2023 12:20:52 GMT -5
Fortunately deferred revenue is still REVENUE.
|
|
|
|
Post by ktim on Feb 24, 2023 12:43:39 GMT -5
Yes, negative cash flow from operations of around $2M for Q4 2022. I believe that's the closest they have ever been to a positive position. Can they get there this quarter? If you figure the $9m in royalties should grow to over $13m in Q1 the easy answer is it will be close, and very doable by Q2 23. My projection is that we do not hit free cash flow break even (FCFBE) until Q3 or more likely Q4. My read on MC is that he is a CEO who at this stage of MNKD's life is looking to investment spend. MNKD has several applications in the pipeline which will take more money going forward- BluHale, CIPLA, Inhale 1, Inhale 3, etc. These are going to eat up more cash than was spent against the opportunity in Q4 22. TDPI royalties in Q4 23 should be above $30m, an increase of $21M Y-O-Y. It would be really irresponsible to not hit FCFBE by Q4. The one issue to me that is the real ACE in the hole and frankly, thorn in my side, is why is MNKD sitting on deferred revenue of $38M, which is expected to increase in 2023. I understand this is an obligation of our agreement with UTHR, but in essence, this is making MNKD their banker. UTHR should be carrying the inventory cost on their books, not little old MNKD. If MNKD would have realized only 10% of the deferred revenue in Q4 it would be FCFBE. Bottom line, MNKD is on the verge of FCFBE and going forward, between the increase royalties and the deferred revenue, there is no reason it should not be FCFBE by Q4. MC has the levers to pull that can make MNKD FCFBE any time he really wants, but I think he is drooling over the 100m+ Peds and MNKD 101 opportunities and is going to spend aggressively against them. I wouldn't characterize deferred revenue as MNKD being the banker for UTHR. It means MNKD has received the money from UTHR, but has some sort of contingent liability. If anything it is the customer (UTHR) bankrolling the vendor (MNKD). Though if this pertains to the actual Aprezza product then it is certainly common practice to pay the vendor even if the contingent liabilities of warranty or repurchase obligations exist. The alternative to deferred revenue would be that MNKD wouldn't get the cash until all contingent liabilities are met. |
|
|
|
Post by ronw77077 on Feb 24, 2023 19:46:50 GMT -5
The deferred revenue relates to revenue for costs incurred for facility expansion and manufacturing improvements which the COO said would be recognized through 2031 - and since it is all in a non-current balance sheet category, none will be recognized in 2023.
|
|
|
|
Post by ktim on Feb 24, 2023 20:10:08 GMT -5
The deferred revenue relates to revenue for costs incurred for facility expansion and manufacturing improvements which the COO said would be recognized through 2031 - and since it is all in a non-current balance sheet category, none will be recognized in 2023. It's not uncommon for those sort of development contracts to have milestone payments which are somewhat arbitrarily assigned to events and often designed so that if a larger customer (UTHR) is funding a smaller vendor (MNKD) the payments are front loaded to alleviate cash burden on the smaller company. Quite often a development contract will require an upfront payment by the customer before any work is even started. GAAP, however, would require the prorata recognition of the payments as revenue based on some reasonable estimate of the % of total work which has been accomplished. That's a somewhat different issue than contingent liability on goods sold, though there also could be contingent liabilities at work in development contracts. |
|
|
|
Post by nxc2 on Feb 24, 2023 22:28:14 GMT -5
The deferred revenue relates to revenue for costs incurred for facility expansion and manufacturing improvements which the COO said would be recognized through 2031 - and since it is all in a non-current balance sheet category, none will be recognized in 2023. It's not uncommon for those sort of development contracts to have milestone payments which are somewhat arbitrarily assigned to events and often designed so that if a larger customer (UTHR) is funding a smaller vendor (MNKD) the payments are front loaded to alleviate cash burden on the smaller company. Quite often a development contract will require an upfront payment by the customer before any work is even started. GAAP, however, would require the prorata recognition of the payments as revenue based on some reasonable estimate of the % of total work which has been accomplished. That's a somewhat different issue than contingent liability on goods sold, though there also could be contingent liabilities at work in development contracts. So from 2024 - 2031 MNKD gets to recognize all this revenue - will they divide it up evenly by year or some other formula? |
|
|
|
Post by ktim on Feb 25, 2023 0:42:26 GMT -5
It can get quite complicated with no easy answer how to recognize revenue (public companies usually get guidance from their accounting firms), though dividing it up evenly over time is almost always the wrong answer. The process is generally described as determining the performance obligations of a contract, allocating transaction price to each obligation (based on relative amount of work involved in each), and recognizing revenue as each is met. Rarely does work proceed in such a steady fashion that this would result in even recognition over time. For instance, if MNKD has completed a submission for FDA inspection of a new manufacturing line that might be meeting an obligation and result in revenue recognition (having required a lot of work over some months), and then they sit waiting for the FDA to perform the inspection, thus not doing something in that period that would trigger revenue recognition.
The general idea of this complex, sometimes vague, system in GAAP accounting is so that the revenue matches up with when the expenses occur... i.e. an accurate picture of profitability over a given time period.
Though a company like MNKD for which a meaningful percentage of their revenue comes from collaborative development agreements, has an incentive to smooth out the quarterly recognition as much as they can without stretching the GAAP concepts to the breaking point.
|
|
|
|
Post by mnkd2253 on Feb 25, 2023 8:04:06 GMT -5
Well Done… Clear & Concise Thank you 👍
|
|
