With additional contracts in the pipeline, YPB has an opportunity to “transform” its results in the months ahead, CEO John Houston said.

Anti-counterfeit and product authentication company YPB Group (ASX:YPB) has confirmed the recent step-change in its trading outlook with an impressive quarterly update.

The company announced it booked cash receipts in the September quarter of $207,000 – a big 73% jump from the previous quarter and further evidence of its strong recent operating momentum.

The $207,000 figure also marked the highest quarterly total across both 2020 and 2021 year-to-date, and was driven “almost entirely by re-orders from existing customers”, YPB said.


Commercial upgrade

Amid a busy quarter of growth, YPB’s recent momentum was highlighted by the signing of a paid commercial trial for its proprietary MotifMicro1 (MM1) platform — a forensic anti-counterfeit solution readable by an unmodified smartphone.

Announced in early September, the deal with Opal – one of Australia’s largest producers of recyclable cardboard packaging companies – will test the performance of MM1 “on a variety of coatings and substrates across Opal’s product range”, in order to identify the highest value applications for the highest value customers within a reduced time frame, YPB said.

YPB said it occupies a unique niche in the market by successfully executing on paid trials.

While many companies find it challenging to secure revenue up front, paid trials are “foundational in YPB’s MM1 commercialisation strategy”, the company said.

When key clients have skin in the game, it facilitates “high customer buy-in, increasing the probability of successful outcomes, and they allow YPB to efficiently allocate resources to the highest probability opportunities”, the company added.

As evidence of that, YPB Group secured another paid commercial trial post quarter-end (October 7) – this time with Malaysia-based printing company Holographic, which serves a client suite of large government customers.

Commenting on the update, YPB Group CEO John Houston highlighted the company’s operational momentum with two commercial trials underway.

“Ongoing discussions with other parties are encouraging and the value creation that can flow from moving into full commercial relationships with such high-volume players is significant,” Houston said.


By the numbers

Along with YPB’s growth in cash receipts, another highlight was the strength of its operating margins – which has been a feature of all of its recent quarterly updates.

Ongoing discussions with other parties are encouraging and the value creation that can flow from moving into full commercial relationships with such high-volume players is significant.

Operating cash gross margins came in at 98%, in line with the prior two quarters and “reflective of the proprietary IP content of the company’s products”, YPB said.

While revenue increased, the company also executed on key cost-reduction strategies which flowed through to an 11% drop in cash operating expenses to $857,000.

Cost reductions were driven by R&D efficiencies, lower lease costs pertaining to a move of the company’s Thailand office, and a 65% reduction in marketing spend after a jump in the previous quarter coinciding with the global launch of MotifMicro1.

Looking ahead, Houston said he expects the recent upward trajectory of cash receipts to be maintained, even while the company navigates some headwinds stemming from COVID-19 restrictions in the Chinese market.

“YPB has a powerful, pertinent product suite and a range of suppliers to FMCG and governments globally are recognising the relevance, ease and effectiveness of YPB’s solutions to their clients’ counterfeit problems,” Houston said.

With tight cost controls and strong margins, conversion of additional opportunities in YPB’s customer pipeline has the capacity to “transform our financial results”, he added.

This article was developed in collaboration with YPB Group, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.