Pond President & CEO Grant Smith, speaking at the release of the Q3 2021 quarterly results, called it an inflection point, "The third quarter was the inflection point for Pond. We are in the early stages of proving the strength of our model. The recent validation of our technology by two multi-billion dollar international companies makes us very confident about the future. In addition, the redesigned and amended convertible note with Pond's Chairman is a significant step forward for our financial flexibility, and we look forward to realizing our growing sales pipeline."
Q3 2021 Highlights
Consolidated revenue for Q3 2021 was CAD 2,163,000 (Q3 2020: CAD 1,275,000), an increase of CAD 888,000 (70%). The increase was primarily due to license revenue recognized in the quarter. Calculated over the 9 months ended September 30, 2021, revenues increased by 30% to CAD 4,364,000 (2020: CAD 3,367,000). Management expects revenues in the Carbon and Biotech businesses to fluctuate significantly from quarter to quarter as the Company's commercialization efforts and the nature of signed contracts progress, as the Company works through its sales pipeline and meets milestones related to signed contracts.
Margin for Q3 2021 (revenue less direct costs and expenses) was CAD 903,000 (42%) compared to CAD 175,000 (13%) in Q3 2020. For the nine months ended September 30, 2021, margin was CAD 1,335,000 (30%) compared to CAD 648,000 (19%). The improvement in margin was primarily due to royalties recognized in the third quarter.
The operating loss in the third quarter of 2021 of CAD 557,000 was lower than the second quarter of CAD 733,000 and the first quarter of CAD 1,003,000.
On November 15, 2021, Pond announced that the promissory bill for a company owned by Pond's Chairman Robert McLeese was restated with more favorable terms. A new promissory note in the amount of CAD 1,988,500 replaces the original promissory note in the amount of CAD 2,000,000 dated November 15, 2019. The interest rate has been reduced from 12% to 9.55% per annum and is payable quarterly with the first interest payment due on February 15, 2022. The new bill is due on November 15, 2024.
CONCLUSION: Pond landed two major deals with significant customers or partners during the past quarter. The cash flow from these deals is welcome, but by no means a resting place. The company rightly points out that revenue is not steady. Still, it's a success that Pond's technology has been validated by third parties and is deemed potent. That should attract other interested parties and, by all accounts, already is doing so. Due to past cost-cutting constraints, Pond's staffing is still very tight. CEO Smith is in the process of filling important positions in research and sales. Financially, the company is also still dragging some legacy costs from the past, although CEO Smith has already cleared a lot away. There is still a lot to do, but overall the signs are pointing upward. Chicago based Zacks Small-Cap Research has just yesterday initiated coverage of Pond and argues for a 1 CAD price target. The full research can be viewed here.
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