Wearable Health Solutions, Inc. (OTCMKTS: WHSI) filed its 10-Q for the period ended March 31st, 2022. The company’s revenues were down and its expenses were up. This quarterly report coupled with a bearish US market last week led to a 60% intraweek price drop. However, WHSI quickly found support and bounced to close the week at $0.0195 up 70% from its low. Barchart rates WHSI a “buy” with most indicators pointing to long-term bullishness, and some short-term volatility, which is why now is a perfect time to start your research on the company.
WHSI Fiscal Q3 Highlights
- Service revenue increased 7% over the same three month period last year ($207k vs. $192k)
- Cost of sales decreased 26% over the same nine-month period last year ($457k vs. $620k)
- Interest expenses were reduced significantly, down 69.7% over the same three-month period last year and 43.9% over the same nine-month period last year.
2 Key Factors Impacting WHSI’s Q3 Performance
I contacted WHSI CFO Gail Rosenthal to discuss the latest report. Her answers illuminate the numbers in the latest 10Q.
- Supply Chain- Supply chain issues lowered revenues and increased cost of sales, as the supply chain returns to the pre-COVID state the company’s balance sheet will be positively impacted.
- 4G Launch- The anticipated launch of WHSI’s next-generation wearable device led to lower hardware revenue and a one-time increase in R&D expenses reflected in both the 3-month and 9-month periods which were at 0 the previous year. The expenses surrounding the launch are expected to pay off in the coming quarters.
When asked if the company was through the worst of its supply chain issues, WHSI CFO Gail Rosenthal said, “Since restrictions from Covid-related issues have eased up, our supply chain issues are also easing up. We expect our supply chain hiccups to be resolved by July of this year.”
The supply chain also negatively impacted ‘Accounts Receivable’, “With a shortage of product comes delays in revenue. We anticipate our receivables to increase once our 4G supply issues are resolved.”
The launch of the 4G iHelp Max led to a reduction in hardware sales and an increase in expenses. According to Rosenthal, “We are focused on moving forward with 4G technology since 3G technology is sunsetting this year. We want to be able to offer our existing customers an excellent upgrade to their current products as well as provide new customers with cutting-edge technology for their health and safety.”
While service revenue was essentially flat, hardware sales were impacted most, and according to Rosenthal, this should improve, “We have a loyal client base and are retaining most of them. We are expecting new clients to substantially impact our top line, especially new 4G clients.”
When asked what expenses could be attributed to the launch Rosenthal revealed, “4G expenses are primarily located in Research and Development expense on the Statement of Operations. Production and factory reimbursements are all categorized as Cost of Goods. As you know, lead times on components are at an all-time high, so the actual production is directly dependent on supply chain deliverables. Now that supply chains are beginning to return to pre-Covid states, we anticipate our Inventory to revert to standard minimums and our costs to be reflected in the gross profit numbers moving forward.”
Other Q3 Anomalies
Salaries and Wages were up significantly for the three and nine-month periods covered in the filing, Rosenthal speaks to an improvement in this expense, “Compensation contracts are reviewed close to their renewal dates. As such, bonuses and stock awards are periodic. While we cannot say for sure, we imagine adjustments for compensation and performance bonuses to be distributed more evenly throughout our fiscal year.”
- WHSI’s Top Line Revenues Could Significantly Improve in the Coming Quarters
- Improved Supply Chain = Improved Balance Sheet
- 4G Launch = Boost in Hardware Sales and Exponential Increase in Service Revenue
With Barchart rating WHSI a ‘buy’ with an emphasis on long-term bullish indications, this technical setup is in line with the fundamental story behind the chart. Start your research on WHSI today.
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