29/01/20 Quarterly Report for Q2 of FY20
Another solid quarter from AER building the base for what will hopefully be an explosive end to FY20. For the core alerting business inquiries were a record high for the quarter after the catastrophic bushfires. I expected this to be the case after tracking website hits.
Confirmation that Esri integration is complete with pricing agreed and sales materials provided to Esri BDM's is great news.
While the actual result was satisfactory, the business looks to be set up for a strong inflection point moving forward.
I think it is very hard for anyone to accurately predict on a macro level how long the current downturn lasts for and the long term effects of it. What we can and should do though is look at individual businesses and assess the impacts to them from the coronavirus, positive or negative.
For AER, I recently spoke to the CEO Kerry Plowright just to get his view on what impacts he is seeing on the business, right now and potentially into the future. He said they have yet to see any impacts from coronavirus with business as usual. He and the General Manager reviewed their customer list and identified two very small clients in the leisure sector who are at risk of removing their subscription, however for most clients AER's service is critical and comparatively very low cost to other areas where customers could cut costs.
On top of that, the alerting platform was originally built to handle viral outbreaks and AER quickly implemented available datasets into the platform and are now providing data to Esri who has integrated the coronavirus into their geographic information system. At the time Kerry said there were only a handful of clients subscribed but it is a very low cost vertical and may grow if the outbreak is unfortunately unable to be contained.
30/1/19 Quarterly Report for Q2 of FY19
AER reported their 2Q cash report. It was weaker than expected with cash receipts of $332k sharply lower than the $474k in the previous quarter. For an annuity business with monthly billing this decline is alarming, however the company did note that the Christmas/New Year period resulted a delay of receivables payments with an increase of $110k over 1Q. Nonetheless, I suspect there has been some small customer churn that was not replaced due to management's focus on the Esri integration.
As forecast in the previous quarter, cash costs spiked $95k to $520k, largely due to extra costs incurred in the Esri integration, however these are now complete and forecast costs for 3Q are $70k lower at $450k.
While the total cash outflow of $218k is not ideal, adjusting for the delay in receivables and one off cash costs of Esri integration and cash flow was essentially neutral for the quarter which is a key part of the thesis for the investment as AER manages their cash flow for growth (essentially increased receipts being used to fund new growth initiatives).
24/04/19 Quarterly Report for Q3 of FY19
A very solid quarter from AER, who reported record cash receipts from customers of $482k, though admittedly helped by collections deferred from the weaker quarter previously. Operating costs were back to normal at $437k after the increase in costs associated with the Esri integration in the previous quarter ($522k).
Commentary also remained positive, with several new clients won during the quarter such as New Zealand Steel, Incitec Pivot, AFCD Port Logistics and DHS. This new business is accretive as all major existing clients renewed their agreements this quarter.
Impressively, growth continues to remain largely organic as the company confirmed that the Esri partnership is still in its early stages and limited to a select number of clients. Feedback has been promising and the company expects full launch and rollout in the future.
25/10/2018 Quarterly Report for Q1 of FY19
AER reported their 1Q19 quarterly cash report. Receipts were $474k, up 8% on last quarter and 44% on last year. For the second quarter in a row AER was cashflow breakeven, albeit very small ($8k). This fits in with the company's short term strategy of essentially managing growth to the cost base. Impressively, the company looks set to grow revenue even stronger than the 30% last year.
In the management commentary, they noted that the first quarter is traditionally their weakest, but they had received increased enquiries due to recent extreme weather. This bodes well as we come into the fire and storm season.
However, the comment regarding a commercial partnership with technical integration into a leading GIS platform could be major news. The GIS partner reaches three quarters of the Australian/New Zealand market and would allow AER to leverage their dataset with no additional costs and clip the revenue on the GIS customer. Management expects a further update shortly.
Tiny SAAS business that offers risk management software for businesses and people potentially exposed to damage from natural disasters. Core product is the Early Warning Network, a comprehensive offering that allows customers to receive customised alerts and warnings when a potential threat could impact their business, employees or property.
Revenues are 94% monthly subscription based, with growth of 27% in FY18. Management stated they believed this growth was "modest" with ambitions for higher growth in FY19. All FY18 clients have been retained with several new clients onboarded in 4Q18 (including AER's first international client in New Zealand) providing the platform for this growth.
International growth is a focus for management, they have stated numerous times the cloud based SAAS model allows them to scale internationally with no additional resourcing (other than potential sales staff). The other focus for growth is the monetisation of the company's rich database of geographical information through established networks with reseller, revenue share and partnership agreements.
FY18 represented AER's first profitable year of $50k (this did require an R&D tax refund of nearly $500k), with 4Q18 being the company's first operationally cashflow positive quarter of $15k. Given the expected revenue growth with the scalability of operating expenses, I expect the company to grow their operational cashflow and potentially be profitable without the R&D tax refund in FY19.
The profitability was largely driven by an operational review in mid-2017 which saw the company re-focus on it's core EWN product and align it's cost base to annuity revenues. By the end of FY18, monthly cash expenses were more than halved to roughly $100k. Monthly annuity revenue has now grown to $1.4m, exceeding the relatively fixed monthly cash cost base. AER's balance sheet remains extremely clean with no debt or intangibles and over $1m in cash.