EnviroSuite Ltd

ASX:EVS — Company Profile

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$0.066

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Strawman
Strawman
Added 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
Added 3 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
Added 4 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).

Strawman
Strawman
Added 6 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 4 months ago

Unit Economics

Envirosuite sells its software on a subscription basis the cost of which will depend on the requirements of the client and the extent of the services provided. 

It may also charge initial implementation fees depending on the requirements of the clients, as well as for the installation of monitoring systems and any any bespoke configuration. 

An example on their website for a water treatment facility talks of a $100k per year per site subscription fee. However the average contract is for around 60-80k per site, per annum (See pg 15 of 2016 Investor presentation). With commissions for some resellers and internal sales people (including CEO), this can be further reduced.

Strawman
Strawman
Added 3 weeks 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 6 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 a month 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
Added 6 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
Added 3 weeks 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 is still $60-80k, but a big client win can involve dozens of sites.

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.

Strawman
Strawman
Added 6 months ago

The business capitalises development costs. Around $1.6m in 2017 and $1.3m in 2016 There is a significant development pipeline, so costs will likely remain material for some time to come. The below from May 2017 investor presentation (see link)

View Link

Strawman
Strawman
Added 6 months ago

Director Buying/Selling

Robin Ormerod sold 5.5m shares on 12th Decemeber 2017 -- around 9.7% of his total holding.

500,000 shares were sold to other directors, with the remainder going to an institutional shareholder and a new shareholder.

Robin says this was to help repay a debt he incurred in 2010 that was used to help keep the company afloat. He has voluntarily placed the remainder of his shares in escrow for 12 months.

Announcement is here

View Link

Strawman
Strawman
Added 6 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
Added 7 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
Added 6 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
Added 6 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
Added 6 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:

Strawman
Strawman
Added 4 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.

Scott
Scott
Added 5 months ago

Costs are really hard to quantify and the company hasn't made any announcement about when they plan to break even. The employment expense in the in P&L for continuing operations doesn't gel with the current head count of 28. Also, the purchase of OdoTech is likely to cloud the 17/18 half year results.

Strawman
Strawman
Added 2 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
Added 4 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
Added 2 weeks 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
Added 4 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