EnviroSuite Ltd

ASX:EVS — Company Profile

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$0.087

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Strawman
Strawman
Last edited 4 months ago

A founder-led software business with proprietary technology, a huge addressable market, a significant first mover advantage and minimal competition. 

The software product -- Envirosuite (see #Product for description) -- has won several awards, delivers measurable & significant return on investment for customers, and is supported by a recently expanded development and sales team. Following the divestment of the company's consulting arm, management are now able to focus on scaling the business. 

Customers are sticky with the product tightly integrated into client processes/systems. It therefore delivers a large degree of recurring revenues.

Their software provides several compelling advantages to users, including reduced costs, increased efficiency, and better community and regulatory compliance (and hence social license). 

The business enjoys a solid tailwind from increasing environmental awareness and regulation. 

Envirosuite has won work with important reference sites, most notably Thames Water and two major West Coast US regulatory bodies. These wins involved extensive trial periods and very competitive tenders. These reference sites should greatly facilitate future sales. 

The company is presently unprofitable, although should transistion to a cash-flow positive position within the next year or so (if sales grow as forecast). From there, the operating leverage inherent in the business model has the potential to deliver substantial ptofit growth.

Envirosuite is an early stage business, and certainly represents a higher than average risk investment. Nevertheless, if sales growth comes in as expected, the upside is sigificant.

Vneck
Vneck
Last edited 5 months ago

Although the narrative is compelling, there are some good reasons why shareholders may not do well.

Even if there is some good sales traction, the owners could take most of the upside through share/options grants and/or more generous remuneration packages.

The business may just not scale well. with rising costs keeping pace with any revenue increases.

Sales may not come in as expected, and even when they do they will be lumpy. Indeed, being cash flow negative and having a fast diminishing cash balance, any disappointment on the sales front could result in a highly dilutive capital raising. Even if sales come in as the company forecasts (with Annualised Recurring Revenue to double in FY18 & FY19), the business will only just turn profitable before its cash runs out.  

This is just a very early stage company and an incredibly speculative investment at this stage.

Strawman
Strawman
Last edited 2 months ago

Envirosuite Software Value Proposition

Traditionally, clients would employ consultant groups to undertake monitoring and modelling work, who would then prepare reports. A process that was costly, time consuming and one-off. 

By comparison, Envirosuite provides reports in real-time, at a fraction of the cost with the ability to view changes over time, as well as produce reliable and continually updated forecasts. The savings to clients can be immense. Be that through the avoidance of fines, better planning of operations, regulatory adherence or optimisation of plant & equipment. 

According to the company’s cost-benefit analysis, the product delivers a return of 400-600% (see page 6 of 2017 annual report).

A more recent and up to date business overview can be found in their latest investor presentation (July 2018) here

Strawman
Strawman
Added 10 months ago

Customers come from a variety of industries -- regulatory bodies, mines, wastewater treatment plants, hospitals, ports and more. As of 2017, Envirosuite has been implemented in over 40 sites around the world (according to website). Customers include:

Strawman
Strawman
Added 5 months ago

Minimal competition

Company claims that no silicon valley companies or established groups are yet to develop anything similar. (See slide 5 of Septemebr 2017 Investor presentation)

In 2017 annual report, page 4, the company says:

Strawman
Strawman
Added 10 months ago

According to the September 2017 Investor Presentation (see link), Envirosuite has a potential market size of $3 - 4 billion

View Link

Strawman
Strawman
Added 2 months ago

It seems envirosuite have hired a PR firm, and are advertising on HotCopper. They've been doing an investor roadshow and are clearly trying to promote the stock.

And I'm ok with that... in principle.

They are likely to need fresh capital soon, and they have a legitimately good opportunity. The better they can convey the message, the more the true value is recognised in the price, the lower the cost of capital.

And if they get a good ROI on that, all shareholders will benefit.

But, EVS could attract a lot of promiscuous and short term focused shareholders, plenty of which will relentlessly pump the stock. While that may sound good from a speculative standpoint, it does the business no favours longer term. And longer term focused investors could get burnt along the way.

Management are pressured to justify bigger growth ambitions, which can lead to value destroying acquisitions, and poor capital allocation decisions. 

And if the business doesn't live up to potentially unrealistic growth assumptions from the market, and soon, a fickle investor base can desert the register overnight. Potentially at a time when the business -- now with an expanded cost base established to pursue growth -- is in need of further capital.

Plenty of early hopefulls have "grown themselves broke".

Hopefully management stay focused on the existing opportunity, with discipline and shareholder focus.

 

Disc. I own.

Strawman
Strawman
Last edited 5 months ago

Cash burn is a serious concern.

As of most recent Half Year report, net operational cash burn was around $3.5m for the previous 6 months. In the 2nd quarter update, issued 31 January 2018, the compay said it had a monthly cash burn of approx. $425k which was expected to incrementally reduce each month on a business as usual basis. 

Envirosuite had only $5.6m in cash at the time. (the company also expects to recieve a $1m R&D rebate by the end of the 2018 March quarter, and has $565k in escrow from the consultancy sale, which is expected in full by the end of FY18 -- so taken together, that's $7.16m in cash and equivalents)

So, all together, and assuming no changes, they are likely to have burnt through their cash by around April 2019.

The trouble is, any capital raise could be highly dilutive at the current share price (5.1c at the time of writing, or a mkt cap of $11.8m)

Strawman
Strawman
Last edited 5 months ago

RISKS

  • The business may not scale well, absorbing higher revenues through increased cost base. EG. Increased development spend, significant increase in sales force (without concurrent lift in sales), more expensive office space, new offices in other geographies etc)

  • Founders and insiders may extract capital through generous options/equity grants or increased remuneration packages.

  • Fail to focus on existing opportunities and instead broaden the offering -- moving too fast. 
  • Another tech company could develop a better mousetrap.
  • Technology failure leading to reputational damage. Especially if failure results in fines/penalties for a client.
  • Counterparty risks. If consultancy partners do a poor implementation, for example.
  • Liquidity risks -- shares are very thinly traded. Will be difficult to build or exit large positions. Shares will likely be especially volatile.
  • Business runs out of cash and needs to raise capital in a highly dilutive share issue

Strawman
Strawman
Last edited 2 months ago

As of the end of FY17, Envirosuite had $1.574m in annual recurring revenues. (Though that's very unclear from the FY financial statements. The company issued a clarification here)

That's from around 40 operational sites (although some of these are very small in scale, and from earlier validation efforts).

Average site value was around $60-80k, but a big client win can involve dozens of sites. In July 2018, EVS said that there was no longer a 'typical' deal size, though there was some consistency within industires. Their largest contract to date is for about $300k, while some small deals can be $25k 

At the end of the First Half of 2018, annual recurring revenues had grown to $1.85m, an increase of 17.5% over a six month period.

Envirosuite reconfirmed at its second quarter update (here) that they were targeting a minimum of 100% annual growth in anuity revenues for 2018 and 2019 financial years. Based on FY17's result, that would put FY19 annuity sales at $6.3 million.

UPDATE: On July 20, 2018, Envirosuite said that it had acheived it's target for 100% growth in Annual Recurring Revenue (ARR), and reiterated expectations for that to occur again in FY19 and FY20

Strawman
Strawman
Added 2 months ago

June Quarter Update

See here

A fantastic update from Envirosuite, with the business meeting its target to double ARR in FY18, and reiterating expectations to do that again in both FY19 and FY20.

Importantly, sales growth has been accelerating as new sales people gain traction (it takes about 5 months for a new sales person to start to bring in wins). This is expected to continue, especially as partner programs are expanded.

Churn remains incredibly low -- just 1.5% over the past 12 months.

Envirosuite also revelaed it was working with NASA to incorporate satelite data into the EVS platform.

All in all, this is very good news. 

 

Strawman
Strawman
Last edited 8 months ago

Chairman

David Johnstone has held the role since November 2016

Linkedin Profile is here

Was previously CEO of Professional Investment Services July 2010 - January 2011. Seems to be an interim role as the business was acquired by Centrepoint Alliance (ASX:CAF) in early 2010

Previously CEO of Bartercard (ASX:BPS) 2002 -- 2006

Has 1.25m shares and 4m options in Envirosuite

Strawman
Strawman
Last edited 8 months ago

Robin Ormerod

Founder and Managing Director.

Oversees the R&D program Background in meteorology, environmental science and IT.

Was chairman prior to the listing in 2008.

Established the first air quality and meteorology practice in Queensland in 1981

Was the Australian Regional Manager of Air & Noise Services with US-based consulting firm Dames & Moore (Subsequently URS and AECOM).

As of the most recent notice, September 2017, Robin holds 56.8 million shares

He is on a salary of $320k (which includes Super)

His CV can be viewed here

Strawman
Strawman
Last edited 8 months ago

Peter White

Current CEO after a short hiatus. He was formerly the CEO from April 2012 to May 2016. His departure in 2016 was announced here

No real reason given other than creating a better alignment between consulting and technology parts of the business.

Robin Ormerod become the Managing Director after Peter’s departure in 2016.

Peter returned to the company as CEO and executive director in July 2017. So was basically out for just 14 months. See here

His base salary before leaving was $250k. Returned on $300k, including super, plus gets 5% of license fee revenue from new sales for 24 months after his re-appointment. 

Strawman
Strawman
Last edited 5 months ago

Related party transactions

In the HY2017 report, it was disclosed that $157k was paid to a creative/photography company that is run by Ormerod's son.

Robin Ormerod addressed this in a shareholder newsletter (see here)

View Link

Strawman
Strawman
Last edited 7 months ago

Pacific Air & Environment was founded in 1995 by Robin Ormerod and Kristen Zeise and listed on the ASX in 2008 as Pacific Environment. It was essentially an environmental consulting and services business

Software development initiatives began in 2004 within the consulting business of Pacific Environment. The initial product AirXpert was launched in 2008, and mainly used internally as a tool for the consulting part of the business. This product eventually morphed into Envirosuite in 2011, still a desktop based product.

Envirosuite 2.0 (the SaaS version) began development in mid-2014 and went live in Early 2015. More modules were added with a broader product released in August of 2015.

The company changed its name to Envirosuit in December 2016 (see here)

In April 2017, Envirosuite announced that it was selling its consulting Pacific Environment Consulting practice to Environmental Resources Management (ERM) for AUD$15 million, cash.

The deal also saw ERM and Envirosuite enter into a cooperation agreement where, essentially, the two parties would look to cross-sell each other’s product/service. See here

 The website details the history as follows:

Marinos
Marinos
Added 4 weeks ago

Only positive of the capital raise is that by going to sophisticated shareholders, stock price won't be as jumpy.  Company was always going to need cash, and for those that want to buy in current price at 0.08 is pretty close to the mark

Scott
Scott
Added 4 weeks ago

Obviously I am unsophisticated - this wasn't offered to existing shareholders. Good way to make supporters cranky!

 

Envirosuite Limited

(“the Group” or “the Company”) is pleased to announce that it has accepted commitments

of $10,000,000 (ten million dollars) from institutional and sophisticated investors to participate in a two tranche

placement priced at $0.075 per share to subscribe for a total of 133,333,334 fully paid ordinary shares.

Strawman
Strawman
Last edited a month ago

Envirosuite raising capital -- $10m at 7.5 cents per share. See details here.

That's > 20% discount to the last traded price, and the 30-day volume weighted price.

Existing retail shareholders were not invited to participate, and will be significantly diluted. The raise will increase the share count by about 58%, taking total shares on issue to 364.3 million.

Announced target to be cash flow positive in 24 months, and reiterated target to double Annual recurring revenue (ARR) in the current year to $6m

A capital raise was always highly likely, and there is good potential for cash raised to earn an attractive ROI.

I do however question the need for such a huge discount. Although it may seem reasonable when compared with the previous year's price range, the fact is that much of that was priced prior to the significant sales wins in the final quarter. 

It is also very disaapointing that existing shareholders were not offerred the chance to participate. Although that is less expedient, and more costly, it's the right thing to do.

Seperately, founder Robin Ormerod will be selling a further 9.4% of his shares to two other directors, a senior manager and a third party investor. These will be sold at the offer price of 7.5c.  Robin previously sold 9.7% of his shares in December last year, supposedly putting the remaining shares in escrow for 12 months (see here). He now holds around 46.5m shares.

Here's a YouTube clip of CEO Peter White speaking about the raise.

Strawman
Strawman
Last edited a month ago

A podcast interview with CEO Peter White. August 2018.

Click here to listen

 

Strawman
Strawman
Added 2 months ago

I attended a briefing with CEO Peter White at Baillieu Holst on 24/7/18.

Some notes:

  • They have 30 people overseas
  • Moving to 17 FT sales staff. Should be steady at that level for at least a year
  • Will be relying more on 3rd party distributors more and more as time goes on, dont want to add sales staff as business scales
  • Distribution partners get 25% of sales in year 1, then 10% each year thereafter
  • They have 50 customers at present
  • Spend about $2m each year on R&D, they get a govt. rebate for a lot of this (expecting about 600-800k in FY18)
  • They get 85-90% gross margin
  • Sales people have a target of $300k in sales each year
  • Odotech -- only transitioned s small number of customers across to new platform, still >60 to go (potentiallly). A lot fo them are rather small.
  • Reiterated expectations for 100% sales growth in FY19 & FY20. Budgeting for this seems reasonable, given this is off a low base.
  • Acknowledged that a capital raising is a real possibility, but wouldnt be drawn on exactly when or how this would happen. Depends a lot on what share price is at the time. Some people at meeting stressed that they would like this to be done in a shareholder friendly manner.

Strawman
Strawman
Added 8 months ago

Envirosuite provides environmental monitoring, management and reporting software. With data fed through a network of sensors, the platform allows clients to monitor environmental outcomes (such as odours, pollutants, emissions, noise etc) and assets (pipes, vents and other plant & equipment) in real time. 


This enables clients to more effectively manage operations, investigate incidents, predict outcomes, manage complaints and meet regulatory and reporting requirements. 

Clients come from a wide array of industries, including regulatory bodies, wastewater, mining, oil & gas, ports, power plants, hospitals and more. The company has around 30 FT employees and is based in Brisbane. It also has offices in San Francisco and Madrid.

47Capital
47Capital
Added 2 months ago

Contniued traction, 3rd August announced

  • 5th Thames water site
  • 2 new UK water utiliies (Welsh Water & SIG) 

Implied pipeline looks exceptional: 

  • Thames Water operates 348 sites, 10% of which are considered relevant to Envriosuite....so 30 more sites to go
  • 12 Odotech being prepared for migration to Envirosuite (see page 10), with 35 sites targetted globally. ARR range from $25K to $200K+ (say midpoint of $80), ARR of $1m+ FY19 pipeline

Announcement here

 

Strawman
Strawman
Added 2 months ago

Envirosuite announces its largest ever subscription contract, valued at $324k per year.

It is with Brazil's AgroSuper and follows the other significant win announced in early July.

Further validation of the product in the Agriculture sector, and the company's move into Latin America. Importantly, it's another high-quality reference site.

Even with this win, the business is set to report negative operating cash flow for a good while yet. But if Envirosuite can keep sustain this pace of sales -- especially large wins like this -- they will hit breakeven on a cash basis in the next 18-24 months (my estimate)

Announcement here

Strawman
Strawman
Added 3 months ago

Envirosuite has announced a major contract win with Chilean based Sopraval for odour monitoring 5 of its 50 turkey farm sites. Presumably, there is potential for further wins across the remaining sites. 

It is worth A$200k annually for a 2-year initial term, making it one of Envirosuits largest ongoing subscription contracts. It is the first deal in Chili and the first major contract in the agricultural sector.

Announcement here

 

Strawman
Strawman
Last edited 4 months ago

Envirosuite announced a AUD$1.5m deal with a Middel Eastern public works authority, for city-wide monitoring and management of odours. It's the biggest deal ever announced, and represents an initial 12-month period.

The software component is equal to $250k pa, which is expected to remain in place after the first 12 months. The hardware/installation will have a gross margin of around 30-40%.

All told, the system should be up and running in a few months

Beyond the size of the deal, the significance is that it demonstrates the applicability of the platform beyond individual sites. This rollout will cover an entire city involving 40 individual monitoring locations.

Further, it provides another potent reference site, and establishes a relationship with a new partner that likely has other candidate sites.

See full announcement here

 

Strawman
Strawman
Last edited 5 months ago

THAMES Water

History 

15/3/16 - Thames trial announced. Involved implementation at two key sites

(Announcement here

26/4/16 - Thames Update. Initial 12 month contract valued at $300k, and has potential to be rolled out across 30 sites

(Announcement here)

12/7/16 -Thames Update. Basically proceeding on schedule and on budget. Implementation at the two initial sites is complete.

(Announcement here)

28/3/17 - Thames update. Successful completion. Trial yielded ongoing site level contract with 1 of the trial participants. Financials confidential. Other stakeholders continue to access Envirosuite under the head office agreement. A further 20 sites are deemed suitable for the product.

(Announcement here)

Sept 2017 - Says on slide 6 in investor update that both sites resulted in a contract 

(Announcement here)

March 2018 -- third site implemented

(Announcement here)

May 2018 -- fourth site implemented 

(announcement here)

Strawman
Strawman
Last edited 6 months ago

Quarterly Sales Update

  • Odotech platform integrated into Envirosuite Platform

  • New Sales teams established, and supported by new marketing platform 

  • Expect another quarter for sales teams to gain traction

  • Odowatch has 60-70 clients, and EVS expect the majority of these to be brought across

  • New markets identified in Middle East & Latin America

  • A number of new contracts were won, and are expanded on in the update

See the full release here

Strawman
Strawman
Last edited 5 months ago

As of February 2018, there were 230,933,875 fully paid shares on issue. 

In the 2017 annual report it stated that there were no longer any share or options schemes in place. And no options have been granted since 2015. 

BUT there were plenty of options issued in previous years, a large amount exercisable and in the money. 

As of February 2018, there were 29.8m unlisted options outstanding. 18.05 million were exercisable under 10c (or 7.8% of the current fully paid shares outstanding) 

36.7 million were exercisable under 20c (or 15.9% of shares outstanding) 

So there is some serious dilution potential...  

(See note 35 of 2017 annual report -- click here)

(February 2018 ASX announcements on issued shares/options -- cleck here)

April 2018 -- some options expired, so latest share/option count here