SP 1yr low... low margins and high overheads..., page-5

Hi Drone Digger

I take issue with a couple of your comments here.  First though I agree, agency business such as the SUAS tends to be low margin but this has always been so and is generally accepted.  As someone pointed out, this is like car retailing where the margin on the sale is low but the customer once captured pays more for maintenance, spares etc.  Where I disagree with you is on management costs and business model.

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The CEO's base salary is $305,700 pa (pp 10 & 11 of the latest AR) which seems to me par for the course for a company of this size and nature.  There are incentives on top of that but I agree with miningnut that if management delivers on either XTclave or XTatlas then they have earned their money.

As to business model I see what you say about companies focussing on one main game, but believe there is greater benefit in spreading eggs across a number of baskets.  The XTE model is to pay for day to day operations out of agency business while commercialising proprietary products.  The margins for these is much better and success here added to the base of agency business would see XTE re-rated significantly.  While a single-focus start-up might fly higher if successful I see value in having the agency business there to provide ongoing support.  In fact I would be comfortable if XTE added another line of proprietary product development to extend the current model even further.

To me the sleeper here could well be XTatlas.  It has just been launched onto a large market of operating drones and is relatively low cost. Unlike the composites it does not need big plant to produce and could be rolled out readily if there is demand.  The returns on such software could be significant and swift, provided of course buyers want enough of it.

Regards

Little eagle