EVS
EVS
FY23 Q4 update
Pinned straw:
Envirosuite had some decent numbers for the 4th quarter of FY23.
Full announcement here
Highlights:
- Total ARR up 12% on the pcp, and at a new high following the dip in Q3. (That was a result of a "churn event" -- the loss of 3 Aus. Dept. of Defence sites using the aviation product.). Excluding the loss of that client ARR would have been up 20% according to the company.
- A little annoyed at the communication here tbh. Last quarter they really downplayed the loss of that client and said it only impacted ARR by 1.2% and was not material. Now we have a full quarter without those sites, it seems they were worth about $4.2m annually (If ARR would have been up 20% excluding the loss of those sites, as they suggest, we'd be looking at $63.6m in total ARR vs the reported $59.4. Or maybe they stripped out the contract value from the pcp? either way, it seems bigger than was originally suggested). Look, it's not a deal breaker, but I think the communication is lacking here.
- New sales of $6.8m for the quarter, which is up 13% and a company record. $3.1m was new ARR -- a welcome lift from the flat pace in recent quarters, but in line with what they did in the pcp.
- A record quarter for EVS Industrial, thanks to expanding relationship with BHP. Obviously a lot of potential to expand further with this client, which is also a great reference client, so encouraged by this. The industrials segment showed the best growth and for me has always been the best part of the business -- i wish they had simply remained focused on that. This segment represented 55% of ARR growth, and was up 19% on the pcp.
- Churn remains low (excluding the DoD contract) at 1.9%
- A small win in the nascent water segment of $0.2m ARR, the first for a few quarters. Total ARR from this segment is now $1.4m, up 40% from pcp
- Aviation looks to be doing well in the middle east. 7 new airports added in the quarter. The carbon emissions modelling product apparently getting some interest as companies look to improve their ESG credentials.
EVS reiterated its target for "adjusted EBITDA profitability" for FY24. That was negative $500k at the half, at which point they had just under $12m in cash.
Shares are on about 1.9x ARR. If the underlying growth can be sustained anywhere near the quoted 20% level, and if they can realise some decent operating leverage (there's been some tentative progress here), then shares are probably good value.
There's a briefing at 10:30am AEST if anyone's interested (click here)
Disc: held
@Strawman well said mate. No major disagreements on my end. I tuned into the investor briefing (like you, great question btw!) -- a few more thoughts from the announcement and the briefing:
- Long-term 10-year contract signed with Egyptian Airports Company for 9.8m total contract value, where both Aviation and Industrial solutions will be implemented across five new airports. Further evidence of cross-selling between EVS products, which is excellent to see. There is potential for operating leverage if they continue to sign deals across multiple segments.
- No Aviation churn in Q4 is particularly important after the one-off churn event in Q3.
- The Water segment is a slow burn. A little disappointing, but I am happy to give them some time to market and demonstrate some of the value proposition here. New deals like the NEOM one, albeit small, are important for EVS to establish a reference case for future deals. I wonder if the management themselves are a little surprised about the slow uptake of Water.
- There was a question in the call about how Water Corporation (WA) is progressing. Management state they are pleased.
- Management weren't in the mood to discuss the 'adjusted EBITDA profitability' guidance reaffirmation/outlook. They do state there will be 'significant improvement to FY22's loss of 4m. There was another comment that cash was above 8m. With cash at 11.9m in H1, I am guessing we will see cash outflows of 2-3m? Still burning through plenty of cash despite the fluffy 'adjusted EBITDA profitability' references.
- They closed all the deals they hoped to close in the quarter. With nothing outstanding, this might be a sign that we should prepare for a reasonably underwhelming Q1.
- General thoughts: They are still burning through plenty of cash. This time last year they had around 16m cash in hand. I smell another capital raising on the horizon. If the keep burning through cash at the current rate they will barely last another year without a capital injection.
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