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Why the Buddy Technologies share price more than doubled in a week

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The Buddy Technologies Ltd (ASX: BUD) share price more than doubled over the past week as sales of its new smart lights gain traction in Europe and the US.

Shares in the IoT solutions group jumped a further 7.7% today to 2.8 cents and is up 180% from a week ago.

Management provided a number of updates during the period, including the launch of sales of its low-cost smart light LIFX White on Amazon.com, Inc. (NASDAQ: AMZN) and Best Buy Co Inc (NYSE: BBY).

Improving earnings loss

The company also reported strong June sales results as shops in the US started to reopen from the COVID-19 shutdown, including  Best Buy’s more than 1,000 stores across the country.

“Consolidated revenue for Buddy was A$2.5 million – up 39% from May (A$1.8 million) and up 4%from June 2019 (A$2.2 million), underscoring that demand for the Company’s products remains strong even while the pandemic continues to be prominent in several territories,” said Buddy’s chief executive David McLauchlan.

However, $600,000 of the total came from government subsidies relating to the COVID-19 pandemic. Its earnings before interest, tax, depreciation and amortisation (EBITDA) was also still stuck in a loss of $266,000.

Best quarter yet

But management was quick to point out that the June quarter’s negative EBITDA is still its best one yet despite the period traditionally being a “slow period” for sales.

“Both topline revenue and EBITDA were down on internal management forecasts due to the slightly delayed shipment of the first order of the Company’s new LIFX White product,” added Mr McLauchlan.

“This product, which was expected to partially ship by 30 June, instead did so in the first week of July.”

Does Buddy have enough cash?

Total cash on hand fell 11% on the prior month to $2.5 million at the end of June. Buddy managed to restructure its US$6 million inventory finance loan into a purchase order financing facility.

This will enable the company to use the facility to fund the $3.8 million initial order of LIFX White smart lights.

“The Company can report no change to its other working capital facility, provided by ScottishPacific,” said Mr McLauchlan.

“This remains a A$20 million facility, where advances are made against trade receivables, and will continue to be used as the Company’s trade receivables permit.”

European rollout

Buddy also announced that it’s rolling out its new point of sale (“POS”) LIFX units in Europe with 15 locations currently on sale at Germany’s do-it-yourself (“DIY”) retailer, Bauhaus.

It claimed that its LIFX smart lights have displaced major lighting rival Osram in the process and the new POS units will gradually roll out to retail partners in France, Russia, Norway, Sweden, Denmark and Finland.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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