Excellent points @mikebrisy

It's hard to get a good read on sales order > revenue > cash. A couple of months ago after their Q2 update, i said:

In the first half they have secured just shy of $20m in new sales orders (37% growth), with the second quarter representing 61% of the first half total and representing yoy growth of 39%. There's $8.9m in backlog to be fulfilled this calendar year, most of which is project delivery work -- this compares to a $5.2m backlog at the end of FY23.

This suggests (i think) that most of the sales order intake is converted to revenue relatively quickly (ie they added $19.7m in new sales orders in the 6 months to Dec 31, but the order backlog only increased by $3.7m. (someone please sanity check this assertion!).

So it seems there's not a huge lag, but maybe i'm missing something here.

And I also agree re Telstra. The potential seems good, but we need to see some results. Early days still, but I got the sense Mal was pretty optimistic (but then again, he would be).

Despite the underperformance to date, I feel AVA at 13c today is much better value than it was at 20c a year ago. Perhaps I was too optimistic initially, but with the restructure largely done, some good growth in sales orders, a few notable contract announcements, and a cap raise over with, a ~35% discount to the 52-week high doesn't seem too bad. Importantly, for me at least, this isn't a business that is going backwards, just one where stronger growth hasn't materialised as fast as initially hoped.

But it really is time for the rubber to hit the road

@Strawman that's helpful - thanks. I think I need to sit down and go through the numbers in more detail.

I guess what got me thinking were his references to chasing the bigger orders and then also making reference to bigger projects with longer timeframes, so my question is more to what extent the dynamics of the business are changing as a result of the new commercial strategy.

I think I just need to have a confidence of seeing a few more reports, even if I forego some of the early rich pickings.

Probably the more rational move tbh @mikebrisy

I do wonder to what degree the endowment effect and loss aversion are at play :)

Not really @Jimmy although like most I'm keen to see them start delivering. One year really isn't a long time to restructure a business, refine the product set and shift focus to larger deals (with longer lead times). And I think there is genuine signal in some of the recent agreements.

I said previously it was the technology that always attracted me, and Mal said the same when he first joined. But great tech doesn't count for much if you cant sell it.

The next 12 months will be make or break for me. If they can achieve results broadly in line with their roadmap, I'd probably even raise the valuation. If they can't, i'll consider the thesis busted.

I agree broadly with that analysis there @Strawman and while I'm currently on the sidelines with AVA, I'd certainly consider getting back on board if they begin to execute within the next 12 months, as you have outlined. I am happy with my process that got me out, would have preferred to have exited earlier, but better late than never, and I'm always happy to forego some gains if I'm sticking to a process that works for me and that process is protecting me from significant losses. Love the tech, just want to see more sales. And profits. And no further CRs for working capital purposes.

Mal seemed like a straight shooter to me. He took some curly questions (e.g. - why dividends?) and gave considered but clear answers. Contrast him with the CEOs from other recent Strawman-favourite 'underperformers' (you probably know who I'm referring to) and he gets my character vote. Perhaps that's required to work in the security industry.

@Strawman , good interview.

The key callouts for me were:

• Geographic variation in sales (I just wonder how much of that is a reflection on the sales team that he's developed)
• Starting to see som illuminate being attached to the larger programmatic detect business
• Long term success of this business is ultimately going to align with the success of the detect business ... this seems to be where they have the meaningful IP as well as potential for large deals (the other two "distribution" businesses aren't very exciting and I've got to question the pre-Mal capital allocation to the UK acquisition of the illuminate business, but at least he seem to be managing it for what it is and looking for synergies)
• I'd be interested to see what percentage of revenue from the detect business is recurring ... he mentioned support, digital upgrades and some sort of analytics licenses.
• I found the Telstra discussion interesting in that Telstra has to build models on top of a base AVA capability ... maybe a double edged sword
• If Telstra messes this up then they will struggle with value realisation - a negative
• There seems to be an opportunity for AVA to learn new use cases and potentially commercialise further up the stack at other similar customers if the Telstra reference cases play out ... potential for future value add and software licensing (even if there is some sort of license fee back to Telstra) - a positive but possibly a stretch given he is trying to run a very tight ship from an Opex perspective.

DISC: Still holding (IRL average purchase price of $0.209 and on Strawman) but not feeling confident enough to average down at this point.

Yes I’m not confident enough to average down and buy more either.

Makes me wonder why I hold them at all then…

Since the divestment of the services business AVA has been a slow moving train wreck I hate to say it.

I am fortunate to sell with most of my capital intact just as they announced the special dividend as I thought there was something wrong when they divested the services biz.

I'm still watching on the sidelines though as I keep thinking this could be a mini-Codan.

Yes, my read is that it has been a very difficult company to assess for a couple of years now since that service business divestment.

All the comps looked terrible for a couple of years. In addition to that there were COVID impacts to also try and reconcile and as you point out it’s an inherently different business now … driven by major projects with a tech stack with some IP plus a couple of tech distribution businesses (to help keep the lights on) and under new management.

Assessing it has been really hard (probably in the too hard basket for most including I think me … I’m finding it hard to place an accurate valuation on the business underpinned by results rather than management promise). My position is really a “wait and see” … if management can fulfill its promises I get my money back plus what I will expect will be some market beating growth. If they can’t I get a tax loss to write off against something else.

I should also that the previous CEO left after a short period while I was still holding.

Then shortly after that AVA sold the services business. I seem to recall that this part was also profitable.

At that time I thought the move to divest was a strange move as I thought having a services division would create some cross selling opportunities and synergies with the technology they were trying to develop and promote.

Plus I thought the details behind the previous CEO leaving did not really make sense as it seemed AVA made some progress under his leadership.

Thought I would add to my previous comments on why I got out now I have a bit of time on my hands.

There were some juicy incentives for AVA insiders to sell that services business @edgescape - see here:

Sale of Services Business

In March 2019, AVA advised the market it had received multiple expressions of interest from secure logistics corporations that wished to explore a potential equity investment with respect to the services division. We understand the Board held back dealing with the services business at this time as they wanted to drive further growth in the business before looking to transact. It makes sense for AVA Group to exit the services business to focus on its extensive higher margin technology opportunities (discussed below).

It is worth noting that Ava Global Management are heavily incentivised to complete a sale of the Services business by February 2021. A performance plan allows for senior employees of Ava Global to share in a pooled allocation of up to 32.7% of the exit value of Ava Global in excess of $5m (or the debt and equity funding provided to Ava Global to run the business, which-ever is greater). This performance plan terminates on 1 February 2021.

Industry feedback and comparative sales suggests an EBITDA multiple of 7.5x to 10x might be achieved for the sale of this business. If this was to occur, (and based on our FY21 estimates discussed above) the potential proceeds to AVA are calculated below:

Source: https://arichlife.com.au/ava-risk-group-asx-ava-may-offer-asymmetric-opportunity/ [01 Jun 2020, by Steve McCarthy of DMX Capital Partners]

Link: AVA Risk Group (ASX: AVA) May Offer Asymmetric Opportunity (arichlife.com.au)

[Not behind a paywall]

The AVA Board subsequently extended that February deadline for the management incentives relating to the sale of the Services Business to June 30, 2021, then it was extended again, and then, what do you know...

Ava Risk Group to Divest Services Division [17-Aug-2021]

Here's the 3rd page of that August 2021 Announcement from AVA:

@Bear77

Management

Performance rights

Incentives and pay

Board of directors

And above all else milestones achieved

Proof that there is lots of dross you need to sort through before investing in small cap land. And it is not just AVA but a few others I'm looking at too

Such a good point @Bear77 -- i don't think I registered that at the time. My read was that they saw better economics and growth potential on the technology side of things, and liberating a bunch of cash would help accelerate things.. Maybe that was part of it, or a handy rationalisation, but impossible for a personal pay-check not to have influenced their decision.

@Bear77 well done bringing that up. it was an unusual move at the time, selling the larger profitable biz, and leaving the smaller one. good perspective

too few pieces in the jigsaw puzzle for me with AVA, last result wasn't that great either.