I attended the annual shareholder’s meeting today and wanted to provide an update. I’ll first give an overview, and then dig down into each vertical.
The meeting was comprehensive and well put together. All directors attended except for one and every member of the executive team was there along with some lower level employees. There were stations setup with equipment, samples, and information on each vertical. Each station was manned by an APDN employee so there was plenty of time to discuss things in-depth with APDN employees. It was especially a privilege to be able to get face to face time with Bob Miglani who is now heading up the pharmaceutics vertical. The meeting did not appear to have any analysts in attendance. The presentation which will be up on YouTube by next week was the best put-together presentation I’ve seen by the company. It was an entirely new slide deck and was much more clear on the opportunities and vision they have for each vertical. With the plethora of information available, it flew in the face of the PumpStopper short piece last year. This is a real and growing company.
Additionally, I’d like to add that very limited time was spent on the new Polyesters deal announced yesterday and CEO James Hayward had a lengthy Q&A session. I also want to mention that Dr. Hayward was in a very positive spirit and while acknowledging the seasonality that affected Q2, he came across as very optimistic and happy with where the company is going in 2016 and 2017 saying “we are in a wonderful spot”.
It’s clear that the best opportunity for near-term revenue growth is cotton and now polyesters. If we see YoY revenue growth this year it will be from this vertical. No projections were provided but any cotton revenue growth will come from growth in marketing Upland cotton. Pima cotton will not be where we will find growth this year as that market is limited at 300M pounds.
Dr. Hayward drew close parallels between cotton growth last year from 5 to 100M pounds and polyester at 5M pounds now. He said polyester tagging with grow in “a fashion similar to cotton”; however, when pressed on the issue he did concede we don’t have the Louis Dreyfus equivalent to push tagging of polyester so growth may be slower. He balked on the idea of reaching 100M in 2016 and would not provide specific projections.
There was broad insistence by Dr. Hayward and employees I spoke with that this vertical remains strong as ever. To be honest, there are too many moving parts here for me to understand and am concerned about the revenue drop in this vertical in 1H2016 but I did speak with one employee who seemed very close to everything and he said it’s full steam ahead. Despite this, when pressed, Dr. Hayward said it’s near-term revenue growth is in textiles.
New to me but may have been disclosed elsewhere, Dr. Hayward said 25,000 units have been sold (since inception). It’s not clear to me if these units include material required for marking vehicles. There was a nice amount of time discussing adoption by police departments and the creation of “DNA protected communities”.
I was very pleased to have a chance to speak one on one with Bob Miglani, the Pfizer executive who left to join APDN 5 weeks ago. He may have been the most popular man in the room. I have good news and bad news to report on this front. Mr. Miglani was first an investor in the company before joining APDN. This is a very bullish piece of information from my perspective. He has the contacts to sell to Pharma. That’s all good. However, what I did learn is we are still very early stage here. He is a one-man show and entirely focused on networking and sales calls now. There is no other APDN staff working on this vertical. I had many questions and most could not be answered. While it’s possible a contract can be announced at any time, it’s my feeling, we are very far away from commercialization. Mr. Miglani mentioned the data is already there from previous pilots so theoretically a company could commit to commercialization right away. However, the company as of now has no idea what pricing would be, or what sort of financial scale-up would be required to service this vertical. This is my basis for thinking commercialization is far off. However, Mr. Migalni’s background and resume is compelling and with commercialization being proven in the supply chains of cotton and polyesters, perhaps this can happen overnight. I don’t believe the pharma opportunity is built into the stock price and any positive announcement here will result in a massive rally.
There was some discussion on entering the cosmetics space but this is very early in the cycle for this.
I was extremely pleased with the transparency the company provided, the availability of APDN staff, and the plethora of materials available to learn about the company. Any shareholder who attended this meeting would come away with a much stronger understanding of the science involved, the vision of the company, and the opportunities available. It’s clear what the short-term vs long-term opportunities are and where near-term and long-term revenue growth will come from. A long-term investor would only be emboldened by today’s meeting but this doesn’t mean the company will perform financially over the next 6-18 months. Even if there is revenue growth, there is always the continued risk of additional dilution. It’s the broad consensus by APDN staff, that this a billion dollar company in the making. Turnover seems very low and employees at all levels are rewarded with stock options. APDN may infact become a billion dollar company and no doubt, we will see several momentum-related cycles in this stock as stories unfold with new verticals and growth in existing ones. However – the big question is – will shareholders profit? APDN can technically reach $1B but there could be so much dilution by then that long-term shareholders may not profit. Or perhaps they will. This is the billion dollar question. Can they manage expenses in a way that is shareholder friendly as the company grows. For this I have no answer. For story and momentum traders, I fully expect additional exciting opportunities where the stock will have rapid growth in short periods of time.
Keep tabs on the APDN website for a posting of today’s presentation. Both the powerpoint and the video of the presentation will be provided if it’s not already posted. Feel free to be in touch with me as well should you have any additional questions.