No idea @Hackofalltrades -- when I put that very question to Jason his opinion was that shares were under pressure because of the expectation they would be raising capital. But he was pretty emphatic in the interview that they would NOT be doing this. (See 19min 42 sec mark in the interview. And also see 57min 18sec mark at the end.)

So if they turned around in the next month or so and raised money it would seriously undermine my faith in management, from a trustworthiness perspective.

Frankly, I would love to see the executives and board members buying on market, and in reasonably volumes. Money talks and BS walks!

If I had a nickel every time a small or micro co denied raising capital only to go on and do that then I'd be able to retire young and live off TD interest.

Moral is back your own work on a company not needing to raise as no B&M would ever admit in advance they have to do as such.

Couldn't agree more !

I keep thinking of Jeremy Irons in Margin Call saying it’s not panic if you’re the first one out the door.

Can always buy back in later.

not sure why we even ask them if there will be a potential cap raise…..

They almost always lie.

Taking someone on face value regarding cr’s is incredibly hard….lol

I'd like to think there are honest management in small cap land where what they say is what they actually do. Outcomes are somewhat unpredictable and course adjustments will need to be made along the way. Is this naive thinking?

In terms of EVS I have recently found management overly promotional and excessively optimistic and sold out as a result.

Give it to me warts and all please!

I love that line from Margin Call @topowl

Re EVS potentially breaking their word. I agree they certainly wouldn't be the first (or last), but at least it'd be a potent signal for me if they did.

Fool me once shame on you. Fool me twice shame on me!

@topowl great movie, probably the most realistic depiction of investment bank boiler room, imo

I found it interesting that on their earnings call they said they expected R&D capex to be about where it was last year. That's ~$5.5m. With $8.3m in the bank and $5.2m in unearned revenue a part of that, it doesn't leave a lot of headroom for any WC investment or much of anything really. Looks like they are one or two delayed contracts away from needing to raise capital.

The problem with these promises is the market usually marks the SP down anyway so any advantage they might think they get by talking up the SP doesn't materialise and at the same time they damage their own credibility. I'm not saying that's the case here. I don't know. But it sure does look like a company that will need cash at some point.

What gives me some hope is that it wasn't a flat denial that added capital would be needed, especially as they look to bundle equipment into subscription charges, but that they would look to use debt as opposed to equity. In fact Jason said to expect an announcement over the next few months on that front.

A much better move, in my opinion, assuming financing terms aren't too onerous, and they do indeed transition to sustainable positive operating cash flow as they expect this year.

Perhaps worth also being careful not to equate "their word" with "Jason's word" in these musings i.e. Jason may well believe and publicly stated they won't raise capital, but that doesn't mean "they" (EVS the company + board) won't come to a different decision... would such a circumstance mean Jason is untrustworthy? No... Does it signal alignment issues between him and the board? Yes. Are both equally problematic/concerning? Not sure... maybe? But maybe not... at least doesn't seem quite so clear cut to me.

I had another listen through those key parts of the transcript.

My impression was the first part he wasn't fully convincing in the way he worded the response (but good to see he brought up the debt financing)

• 19:35: Um, to answer your question around a capital raise, yeah, look, we firmly believe that we have got the current trajectory to do that.
• 19:43: Uh, one of the things that we have spoken about is the option of debt, um, and how that debt supports us …
• 20:30: So we believe that, you know, with that debt and we'll make, uh, an announcement within three months, uh, to, to the market on onto what that is and how that looks like. 

I think he was much more convincing that they don't want to do a capital raise in the section you quoted at the end.

I went for a bit of a dig around in the Annual report to try and estimate what sort of level of debt they might need:

• Found the following on Page 36 in the operating cash flow discussion: $2.3m in payments for Property, Plant and Equipment (FY22 $1.8m) which includes investment in revenue generating assets, equipment leased to customers of $1.6m (FY22 $1.3m). So there is already >$2.9m of revenue generating equipment out there ... balance sheet investigation shows 9.7m with net book value of 3.2m.

• Page 64 shows that they have a 5 year useful life on the monitors and sensors so presumably there is a bit of a longer tail of gear also out there as well (which might need refresh as contracts progress into longer term relationships). At cost value this a portion of the 9.7m that would need refresh each year.
• Page 65 also talks about Inventories ... and this is detailed further on Page 74. Interestingly this number jumped quite significantly last year. I'm wondering how much of that is a tail of COVID related supply chain excesses vs how much of it might be building up towards forecast future contracts. At nearly 4m its one worth keeping an eye on moving forward. ...
• Following the bouncing ball. They had 1.691m in Finished goods at the end of 2022. Transferred 1.586m over 12 months (which looks like it lines up with the 1.6m of revenue generating equipment above) onto the balance sheet. With 2.826m in finished goods at end of 2023 is that green shoots of 67% growth?
• Alternatively, have they overstocked and will need to write some of this down?

This little bit of digging has made me look at EVS a little differently (for some reason my mental model had been of them as a pure software business). While software is still the predominantly revenue stream its interesting to see they are capitalising a bit over 5m of software development to around 2m of inventory.

Seeing all this, I wouldn't be too perturbed if we saw them open a revolving line of credit in the range of $10m.

DISC: Held IRL and Strawman

I wasn't even aware they did racetracks! But now you say it @Parko5 it does seem like an obvious fit.

That being said, their lack of focus previously has not served them well. In fact Jason basically said as much, without trying to throw the old CEO under the bus. Still, interesting potential.

Also, I think you're analogy is a good one @mikebrisy and agree that we need to see an uptick in ARR growth. Jason seemed pretty bullish on the prospects in aviation, which have been a deadweight through covid. But the proof will be in the pudding.

Also interesting to hear the level of inbound enquiries were growing. The improvement in "sales efficiency" (as he called it) really can be material to the pace of growth if that continues.

The last question I put to him, and his answer, was perhaps the most interesting overall for me -- he really seemed to be aware that it was the risk of a cap raise that was holding the market back, but he was also pretty adamant that they wouldn't need to do one (barring some kind of compelling investment opportunity). And I'm glad they're open to debt funding for any temporary funding requirements given the current share price.

I'm happy to hold for now, and will be looking for a clear bump in new ARR growth for Q1, plus a continued improvement in operating cash flows. I dare say we'll see a good re-rate should they deliver on that. (or a further slump if they don't!)

@Strawman @Parko5 I think the focus part is key here also. Jason's discussions around the loss of the defence contract were fascinating -- essentially that EVS don't want to focus on the noise side of things too much (loud jets/planes) -- instead they were more interested in focusing on commercial air due to it being scalable, repeatable and solving a real problem. So knowing what we know now about the loss of the defence contract, you wouldn't think focusing on racetracks -- big scary loud engines, not dissimilar to big scary loud military planes -- would be a sensible move based on Jason's comments. In fact one of the two racetracks doesn't even relate to noise if my memory serves me correct?