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- Defence contractor Electro Optic Systems (EOS) is approaching an all-time-high closing share price today
- The uptake in shares comes on the back of a promising quarterly report
- While the company’s cash flows were negative over the quarter, EOS said the costs comes from an inventory build-up for existing contracts
- This means future cash receipts will likely be strong as the inventory is shipped off to customers
- The company ended the quarter with roughly $78 million cash on hand
- As the market nears its close, EOS shares are up 2.43 per cent and worth $10.53
Electro Optic Systems (EOS) is teasing an all-time-high closing share price today after a promising quarterly report.
The defence contractor December financial figures were similar to the previous quarter’s with both earnings and spending increasing marginally.
Over the December 2019 quarter, EOS earned $25.1 million from customer receipts. In the previous quarter, customer receipts came in at $24.6 million.
Similarly, the September quarter saw EOS spend a total of $40.4 million on operating activities, while in the most recent quarter the company spent $41.7 million. As such, EOS’ cash flow from operating activities for the December quarter was negative by $16.4 million compared to the previous quarter’s $15.8 million.
To explain itself to investors worried about the negative cash flow, EOS said:
“In line with previously released guidance that EOS would increase production for contracts already executed, inventory has been significantly increased during the quarter. This increase will continue through Q1 2020 before running down in Q3 2020 as the company converts inventory to revenue and cash in accordance with the achievement of milestones in the contracts.”
Electro Optic Systems, January 2020.
Essentially, the company is saying it is putting its fresh earnings straight into building up its inventory for its current contracts. Over the coming quarters, this inventory will then be turned into cash as EOS ships off the products it is manufacturing.
This means the company is likely expecting some strong cash receipts in the coming quarters. Further to this, the money spent on inventory build-up will show up as assets in any upcoming financial statements.
Nevertheless, a hefty $85 million capital raise over the December quarter has left the company with a decent pocketful of spending money. After all expenses, EOS ended the quarter with $77.8 million cash on hand.
Today’s report comes just days after EOS shares soared on the back of its $10 million U.S. Audacy Corporation purchase. The costs from the purchase were, of course, not included in today’s quarterly, but the company said on Tuesday it would be funding the purchase from its current cash holdings.
EOS shares saw a sudden dip at midday but pulled things back in late afternoon trade to trade 2.41 per cent up at $10.53 per share. The company’s highest-ever closing price is $10.44 at market close.
