Revenue for the first half of the year was 33.4m, down by 21% from 42.4m during the same period last year. Losses from earnings before interest, tax, depreciation and amortisation (EBITDA) were 20.2m, reduced from an EBITDA loss of 30.8m during the first half of last year.
Importantly, Monitise expects the second half of the year to generate an EBITDA profit. The firm still has a cash balance of 53.4m and says its well-funded to meet its future plans.
The shares positive reaction will be a relief for shareholders who have seen the value of their investment fall by 92% over the last year. However, I do have some concerns.
Monitise is pinning its hopes for the future on its cloud-based FINkit subscription platform. This is designed to replace the firms older Monitise Enterprise Platform (MEP) in Europe and the Vantage Platform in the Americas.
However, the majority of revenues still come from the MEP and Vantage platforms. FINkit deployment is at an early stage and the level of take-up by existing customers is uncertain. In todays results, Monitise said:
As some existing MEP contracts come to an end, and while we seek to transition these clients to FINkit, we have plans in place to manage the cost base and the potential impact on EBITDA.
This suggests to me that Monitise isnt entirely confident that existing customers such as RBS and Santander will be happy switch from MEP to FINkit.
Can Monitise really make a profit?
One of the ways in which Monitise hopes to achieve an EBITDA profit this year is by continuing to cut costs. However, my calculations suggest this will be quite a challenge.
The firms total costs during the six months to 31 December were 53.6m, 23% less than during the same period the previous year.
Monitise expects to reduce costs by a further 3m per month during the second half of the financial year. This suggests that total costs should fall to 35.6m. This is still more than first half revenue of 33.4m.
Monitise says that revenue is expected to be broadly similar during the second half. That language doesnt suggest to me that the firm expects much sales growth. Yet I estimate that for costs to fall below revenue, sales growth of at least 6.5% will be needed during the second half of the year.
Im not sure how Monitise can be confident of positive EBITDA during the second half when its own forecasts suggest that costs may still be higher than revenue during this period.
But theres plenty of cash
Its true that Monitise does still have plenty of cash. The firm reported a cash balance of 53.4m today, albeit down from 88.8m six months ago.
If cash burn does slow during the second half, as expected, then Monitise will gain time to make a success of its FINkit solution. However, in my view theres a definite risk that sales will continue to disappoint and that Monitise may eventually run short of cash again.
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Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.