Buddy Technologies achieves second best month ever in May

Buddy Technologies ASX BUD LIFX smart light switch
Buddy Technologies achieved its second best month on record in May 2020 (on an unaudited EBITDA basis).

Smart space and lighting enabler Buddy Technologies (ASX: BUD) is on track to achieve a record quarter after achieving its second best month ever in May.

The May result was an 88% difference in earnings before interest tax depreciation and amortisation (EBITDA) losses over the previous corresponding period representing a “meaningful improvement”.

EBITDA figures for May were recorded at -$176,000 compared to -$1.5 million in May 2019, which chief executive officer David McLauchlan considered a “remarkable” result given the closure of its US retail locations due to coronavirus restrictions.

“This is a real achievement in the midst of a pandemic, in the typical slow months of the annual sales cycle and with top line revenue materially impacted by the closure of most of our bricks and mortar retail locations,” he said in a shareholder update released today.

“For these middle-of-the-year months, these are remarkable figures to be reporting, and demonstrate that our efforts to overhaul the business and reach the efficiencies needed to be profitable at scale, are working.”

Revenue results

Buddy’s consolidated May revenue totalled $1.8m – down 18% from April’s $2.2 million, and a 25% decline from $2.4 million in the previous corresponding period.

Government subsidies relating to COVID-19 totalled just over $300,000 and are included in these figures.

The May revenue drop reflected the extended impact of store closures worldwide combined with a trailing effect on the company’s supply chain (typically a lag of up to four months).

Ongoing supply chain issues – whereby strong demand is currently exceeding supply due to legacy contractual arrangements – resulted in a reduction in the fulfilment of retail purchase orders and prevented Buddy from achieving profitability in both April and May.

Business margins

Buddy’s consolidated margins for the month were recorded at over 45%, compared to 19% in 2019, and reflected Buddy’s focus on margin growth.

Consumer and commercial gross margins were substantially higher than expected, at approximately 40% and 90% respectively.

For the consumer business, the strong result was due to a reduction in credits taken by retailers following a combination of packaging changes, the closure of physical stores and improved product margins from online sales and lower bill of materials costs.

The commercial revenue mix skewed higher than expected towards service revenue from technology such as resource monitoring and analytics product Buddy Ohm and other recurring revenue streams, and away from the lower-margin commercial sales of hardware such as Powered by LIFX and other lighting.

“While our topline revenue was down on internal forecasts and prior comparable periods, we outperformed on EBITDA by continuing to exceed our margin targets and reduce our expenses,” Mr McLauchlan explained.

Expense reduction

Buddy’s commitment to expense reduction continues to yield “meaningful dividends”, with an almost 18% drop in May costs compared to April, due mainly to a reduction in staff costs and research and development.

“While some expense reductions – such as our employees taking voluntary pay cuts – may not be sustainable over the long-term, we are happy with our expense management so far this quarter,” he said.

“I am very pleased with these numbers – we are demonstrating that we can lift margins, manage expenses and improve efficiencies to drive towards profitability.”

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