Ana Rowe has been appointed to the role of Chief Operating Officer. She comes with almost 20 years’ experience in digital product management, strategy, consulting and operations. 

Her background seems impressive, having previously been in leadership roles at SEEK, REA Group and Thoughtworks Australia. As COO, she will oversee all aspects of operations, and is responsible for "identifying areas of improvement and leading required change". Interesting choice of words, with lots of focus on improvement and change.

Ana was a Senior Product Manager in the media line of business at the REA Group (realestate.com.au), managing their content sections and delivering innovative solutions for over 3.5mil monthly visitors, and also looking after native media solutions for customers.

At SEEK Ana was a Product Manager for a number of years, managing the seekbusiness.com.au site, as well as delivering jobseeker products in the areas of search, personalisation and job application process.

Prior to product management, Ana's experience was primarily in marketing and market research roles. She also holds a Master's degree in marketing.

So in short, primarily product manager experience, including experience with reputable, ASX listed companies. Prior marketing experience also. An interesting fit for EVS who really need to encourage adoption of their tech/product suites. Hopefully a good hire.

Colby Manwaring to be appointed as Director

'Colby has had an executive and entrepreneurial career in water and environmental software, covering nearly all aspects of the industry, including software development, sales and marketing, professional technical training, strategic business planning and execution, mergers and acquisitions, and strategic alliances. Starting his career as a software developer he went on to lead multi-national infrastructure analytics software company, Innovyze, with 3,000 customers globally, which subsequently sold to software giant Autodesk in 2021 for $1Bn USD ($1.55Bn AUD).'

Interesting that Colby is a) based in North America, EVS' largest region and b) has a background in water.

Colby was CEO when Innovyze was sold to Autodesk for just over $1b in 2021. Prior to this, he spent 10 years as CEO of XP Solutions -- another US based business -- which was eventually merged with Innovyze in 2017. Innovyze is a global leader in water infrastructure software. When the acquisition took place, Autodesk stated it positioned them 'as a technology leader in end-to-end water infrastructure solutions from design to operations, accelerates Autodesk’s digital twin strategy, and creates a clearer path to a more sustainable and digitized water industry.'

Very, very interesting. Colby will presumably add significant value and subject-matter expertise around the water segment and bring an established network with him to the director role.

Hugh Robertson to step down

Having served as a director since September 2018, Hugh will step down effective 1 September 2023. There is no justification given for his exit. On paper though, Colby seems a much better addition to the board, so I am not complaining..

Another good meeting. My notes are below:

• Recap of results -- best results the company has ever delivered according to Jason.
• Suggested Q1 likely to be weaker as suspected. This is due to this period being holiday time for a lot of the regions they service and it is typically their weakest quarter.
• Provided a little bit more context around the churn of the Defence contract. Jason almost suggested the move was mutual – Defence need a focus on noise (loud planes/jets etc) – Jason suggests they aren’t going to be doing too much on the noise front to help them moving forward, a ‘strategic direction’ with the company, given they want to focus on commercial aviation due to it being ‘scalable, repeatable’ and ‘solving a real problem’. 
• I just made a separate forum post to @Parko5 and @Strawman suggesting this is likely why they don't play more of a role in servicing racetracks.
• Jason indicates ARR is the key EVS metric to track and judge them on.  
• Goal to transition to operating cash flow positive in the backend of FY24
• Firmly believe they will avoid a capital raise. Considering debt options. 
• Transparent views about water – openly stated that water has not grown to the rate management expected due to additional information they have learnt throughout the journey – mainly around evaluation and procurement criteria, and the nature of their customers (utilities etc). Jason maintains the problem they are solving is scalable and real, it is now about evolving the business model so that customers can transact quickly and that they target the right customer segment. 
• Just on water as well, and this does NOT relate to the interview but instead the results call – Jason suggested FY24 would likely be the year Water ‘takes off’ for the lack of a better term, in his view anyway. Lets see what happens over the next 12 months. 
• Jason was more bullish on aviation than I expected – yes it is his job to spruik his own segments, but it genuinely sounds like he is excited for their products and the impact they can make on the market going forward. He sees lots of blue sky here.
• Prompted re: SGS alliance – more influential in some areas than others, South America and Australia for example which have strong traction moving forward. They have ‘heavily influenced’ some mining deals won. They are happy with where this is at but would like to see more growth result from that alliance. 
• Some interesting discussion about the Chinese market. In short, there are more favourable markets for them to interact, dealing with business/countries that actually want them to do well. That said, they do still have some exposure to the Chinese market and they are cash flow positive in that region.

@mikebrisy, agree that the ARR result was disappointing, but the reasons for this were clearly articulated, with EVS obviously losing a DOD contract. This was elaborated on in the call -- a Dutch company was favoured over EVS. This is disappointing (obviously) but management have downplayed it indicating defence is not their target market. Whether you want to believe this or not is one thing, but their past record suggests their product is actually quite sticky and they rarely have these major churn events so I think it is worth giving them the benefit of the doubt. In fairness to management, they didn’t run away from this, and they were transparent about what occurred.

You could also argue this was offset with the multi-year contract with Aena, the world’s largest airport operator by passenger volume – 12 airports for three years, adding 4.8m to ARR. They also added additional services, providing further validation.

Generally speaking, I actually thought the result was reasonably strong, with the exception of the DOD contract churn. With a market cap of under 150m, and trading on a P/S of 2.4x, they don't need to grow like the clappers as they aren't priced to do so. If they can achieve (or grind) 15-20% annual growth, and do this consistently for many years, they will be a sound long term investment. New project sales saw a nice rebound, with one of the stronger results in recent quarters, with 2.2m added. With Q4 traditionally EVS’ strongest quarter, and management continuing to reference a strong sales pipeline – particularly in aviation and mining – I expect a strong result in the next reporting period. Hopefully that one won't be impacted by a churn event!

Water remains the one to watch. Lots of promise, but they no traction/progress, at least in terms of revenue. They did report six customers going live in the reporting period. Management remains bullish on this sector, so I am expecting some results here over the next six months. Management was asked about delays on the call and indicated the worldwide aspect of their dealings – particularly when dealing with such big companies, many of whom aren’t used to SAAS – simply takes time. This still remains an unknown for investors, with several large Australian utilities still trialing SeweX. We likely won’t know for some time yet but there is lots of blue sky if they get it right. That said, if the trials don't amount to anything that would be a serious red flag for the water segment.

It was a good result for Omnis (now renamed Industrial, which makes sense) – strong sales and a reduction in churn. The Americas seems to be one to watch, with new US legislation allegedly driving demand. This contributed to over 50% of new ARR.

While the DOD churn is obviously disappointing, this reporting period is still consistent with the thesis. If the water segment can close some major contracts, that will be a bonus and a re-rate is likely to occur pretty quickly.

Disc - held

Catching up with quarterly reports, starting with EVS.

I have used the word ‘grind’ to describe EVS in the past, and this report is no different. In total, 2m of ARR was added in Q2, while new project sales were 1m.

It was a strong quarter for aviation – a record for the business in fact – with 1.4m added. This was somewhat fortunate, because Omnis growth was only 0.6; a disappointing result considering its strong last few quarters. Even worse, EVS Water recorded no ARR growth. That said, management notes that several major client ‘prospects’ approach final stages of due diligence, and are forecast to close in H2 FY23. They reference a POC with Evoqua Water Technologies, and three new SeweX sites being delivered to Watercorp in December 2022. They also note they have increased the speed at which SeweX can be deployed for new customers, and introduced new functionality for larger, more complex sewer networks. All good signs, but we need to see some of the alleged demand/pipeline converted into sales.

More broadly, we are told that ‘several large deals progressed to near completion in Q2 are anticipated to be signed in Q3. Based on this, Q3 should theoretically be a strong one.

Management provide us with some insight into cash burn. EVS ended FY22 with 16.2m in the bank, and we are told that cash on hand was 11.9m at the conclusion of H1. Based on this it appears cash burn (in H1) was around 4.3m.

On the face of it, H1 figures don’t look like they will be particularly impressive. We are still seeing steady enough growth – and small steps are clearly continuing to be taken in the Water and Omnis segments – but as with previous years the growth is more of a grind than bottom left to top right. Further, they are still churning through cash. I maintain that patience is required here, but I am looking to see an improvement in H2.

On initial impression, this report isn’t nearly as impressive as their previous quarter (Q4 FY22, which was a belter). Q1 sales was a modest 3.4m, which pales in comparison to the 6m recorded in Q4. That said, there were some real positives.

Highlights

• ARR 55.2m, a small increase on the 53m previously reported
• Another 18 new sites added, eight of which were from existing customers. Once again, Omnis did the heavy lifting for EVS, winning 13 of the 18 new sites.
• Omnis signed a ‘global strategic alliance’ with SGS. More on this below.
• Continued cross selling between products – 'land and expand' strategy
• Small increase to churn Q on Q – increasing from 2.5% to 2.8%

New contract win – SGS

This is a multinational company which provides world-leading inspection, verification, testing and certification services. With more than 90,000 staff, 2600 offices and a 2021 revenue of more than $6b (CHF), this appears an impressive ‘get’ for EVS.

So what exactly does the alliance consist of?

‘The agreement sets out terms that will see EVS and SGS work together collaboratively to promote, market, and sell bundled services that combine SGS’s testing, inspection, and certification services with the EVS Omnis environmental intelligence platform to provide complete compliance and operational optimisation solutions for companies in a range of sectors globally, including the mining, heavy industrial and oil & gas sectors.’

EVS anticipate the partnership – essentially the bundled services – will expand global market opportunities and accelerate revenue growth.

Yes, the expected revenue growth is excellent, but a company bringing in more than $6b per annum in revenue wanting to bundle their services with EVS (Omnis) suggests 1) EVS is clearly doing something right, and 2) confirms the unique point of difference Omnis provides. For SGS to sign this agreement, you would expect they are confident Omnis will provide strong value add for customers.

It is hard to gauge the impact this will have on EVS’s top line – and when we will see this occur – but I would have thought this is well and truly material for the business. In addition, it should provide EVS exposure to new geographical areas where they don't currently service; the beauty of bundling services with a global behemoth in their respective industry!

Product suite breakdown

More of the same for EVS. Again Omnis leads from the front – the agreement with SGS suggests to me this will be a common theme going forward. Some other points below:

• WA's Water Corporation, a current EVS customer, became an Omnis customer – highlights 'land and expand' strategy at work.
• The growing adoption of EVS Water continues with the signing of the first sewer network with SA Water. This further validates EVS technology and somewhat offsets what is otherwise a mediocre quarter for EVS Water (in terms of revenue). I think it is important to remember this signing only refers to one water catchment, so the validation here the most important factor for me.

I will tune into the investor presentation and report back with any significant commentary.

Highlights

• Record new sales in Q4 of $6.0m up 27.7% on PCP with strategic customer wins and expansion from existing customers across all three product suites
• Q4 sales comprised of $3.1m new ARR up 34.8% on PCP, and $2.9m in Project Sales up 20.8% on PCP.
• Strong land, expand and scale performance with 20 customer sites added in Q4, of which 10 new sites are from existing customers
• This takes total ARR up to 53m, up 14% PCP.
• Churn remains low at approximately 2.5%.

Impact on product suites

• Aviation – 85% increase in new ARR QoQ
• Water – 12.9% contribution of new ARR in Q4
• Omnis – 1.4m in new ARR and responsible for over 50% of the group’s new ARR in FY22.

The above breakdowns were provided by the company. It annoys me that they swap and change the metrics for all suites. Keep it simple management, we don’t need the fluff! The below provides more indication of their progress this FY:

I largely agree with @Strawman. All in all, a strong quarter for EVS – saving the best for last. This will provide some much needed % increase for the FY22 report. All three product suites reported increases to ARR, with Q4 being the most successful quarter across the board.  

Omnis continues to carry the business, with Q4 being another impressive quarter. Aviation was the big surprise – Q4 figures were almost more than Q1, 2 and 3 combined. Hopefully this is the turning point for renewed optimism and confidence in the aviation industry. But alas, I am with Strawman once again – this is the least exciting of the three suites and will likely see the least growth over the next five years. Water continues to grind away, with more wins secured across Q4. I was initially disappointed to see the water figures but reading the report and putting it in perspective I have had a change of heart. I don’t think it will take long for this part of the business to scale, provided they continue to win new contracts and perhaps more importantly enhance their reputation in the industry. They appear to be doing this, and to their credit they continue to expand every quarter. This in itself demonstrates progression -- good things take time! I recommend those interested in the business read the update in full, particularly the water update – they are clearly establishing somewhat of a foothold in the industry (with some impressive wins) and that is great to see. Pleasingly, these customers are increasingly government or community related – councils, cities, townships, primary water suppliers etc – sticky customers that won’t go out of business.

Interestingly, as Strawman notes, management pointed out some cross-selling benefits that were evident this quarter. The example provided was water combining with Omnis to deliver a solution for a Spanish water organisation and the US City of Kalamazoo. This validates the land and expand strategy and could potentially lead to some serious scale benefits.

Looking forward to getting stuck in to the EOY financials. Without any unexpected surprises, EVS will probably get a pass mark for FY22.

Have I been living under a rock? Looks like I missed this – it wasn’t announced by ASX, presumably due to their announcement crackdown put in place to prevent ramping. Apologies to those that were already aware, but I figured it was worth posting.

In late March, EVS signed a contract with Singapore’s national water agency to implement its Water Optimiser as part of its broader water management practices. It is a 16-month contract term. The company reported that the SaaS-based terms of the deal will yield a ‘material increase in the annualised recurring revenue of the high margin EVS Water business’. The deal is the largest contract signed to date for EVS’ water solution.

For those that aren’t aware, the company’s Water Optimiser assists clients with being able to determine the optimal dosage for coagulants – compounds which removes impurities such as bacteria or dirt – to maintain water quality. The data is provided to clients in close to real time. More here.   

A few thoughts:

• As we know, Singapore is innovative and often world leading. It is a good sign that a country that looks years ahead has chosen to adopt EVS capabilities.
• Further validation of EVS’ water solution. Even if the value of the deal is relatively small compared to EVS’ total revenue (although this is not yet known), continued validation is important.
• A material increase in EVS’ water platform is presumably still a very small amount given the low base – I am also guessing this is why the announcement wasn’t officially released on the ASX and marked price sensitive.

The company should be releasing their quarterly in the next week or two; their last update was a little disappointing so it would be nice to see some additional growth reported – particularly within their water division. 

@Afrowest, thanks for posting the interview mate. I thought I would provide a quick summary.

Most of the interview focused on EVS’ business model and their role in the industry - nothing new for us here. There was also a bit of discussion around the recently announced NASA deal. 

Discussion around revenue expectations and business activity commences around 14.00 mins into the video.

• Significant ‘pick up’ (of business activity) in Europe and Americas in the last 6 months – customer interaction is starting to accelerate deals – attracting more enterprise customers through this engagement. 
• Strong year last year, 24% growth on EVS’ omnis platform. Jason Cooper expects FY22 growth will exceed this (24%) in FY22.  
• On the back of the water solution, the business is targeting 27 new sites this year. Cooper states they are on track to achieve this – he is confident with how the water part of the business is tracking.
• Global resurgence occurring with international air travel – this should provide bullish growth to the air sector of EVS’ business. Jason discussed longer term benefits here – more ‘modest’ growth expected in FY22 – bullish forecasts are for years down the track. Based on this I would expect aviation growth will probably be the more disappointing of the three sectors throughout the year. 
• Omnis and water solutions flagged as the two to watch in FY22. 

Disc: held

Overview

Envirosuite (EVS) develops and sells environmental management technology solutions. It provides industry with SaaS and Solution as a Service in managing and mitigating environmental impacts in relation to noise, vibration, odour, dust, air quality and water quality.

EVS uses its proprietary software to help customers minimise cost, optimise operations and meet compliance responsibilities through the use of environmental intelligence.

EVS’s three software product suites

• EVS omnis: a cloud-based platform designed to make complex environmental data interpretable for the mining and industrial and waste and wastewater markets. It is installed at 207 sites (as of the FY21 annual report) and delivers the company 14.6m ARR. 
• EVS aviation: world-leading airport management solution. The platform, ANOMS X, delivers aviation analytics and insights which are used to reduce environmental impacts and demonstrate compliance, while improving operational efficiency. This is installed at 160 sites (as of the FY21 annual report) and delivers the company 31.8m ARR. 
• EVS water: a cloud-based engineering solution – provides predictive and real-time advice to design new infrastructure, avoid water quality incidents, reduce operating costs and achieve regulatory targets. This product suite is in its infancy, with solutions installed at three sites (as of the FY21 annual report). There is a lot of opportunity for EVS in the water treatment market, so this is the one to watch closely. 

I won’t delve too much into customer base, other than to mention that both omnis and aviation are used by some significant players in their respective fields – Fortescue Metals, BHP, Veolia; and Heathrow Airport, Amsterdam Airport Schiphol and Airservices – further validating EVS’s products.

Its customers are diverse – both in industry and geographic location. EVS breaks down its target audience into three target regions: Americas, EMEA and Asia Pacific. Each are as significant as the other, with over 100 sites and material ARR received in each of the regions. 

Thesis

My investment thesis is based around ESG tailwinds; EVS is well placed to target and address increasing demand – more capital continues to be invested into socially responsible companies, with investors increasingly placing more value on making the world more sustainable.

There has been a significant shift in the way both countries and big business consider climate and environmental issues impacting communities – think mines, airports etc. and their ‘social licence to operate’. Further, Joe Biden recently announced a 2.3 trillion infrastructure plan to address climate change and trigger an EV revolution; this should amplify growth in EVS’s field of expertise.

I also like:

• First mover advantage in environmental intelligence and a point of difference in the market
• Debt free, with a reasonably healthy balance sheet of 17m.
• Insider ownership is sitting at around 10%, this isn’t standout by any means but is satisfactory.
• Sticky customers with low churn.
• Ties to natural disasters and their impact on airports – studies suggest 3 out of the top 5 global risks are led by extreme weather. Australia and surrounding regions in particular are susceptible. EVS is well placed to service airports (and other markets) using their Environmental Monitoring Units, which are capable of continuous and remote weather monitoring.

Despite ESG concerns arguably being the 'flavour of the decade', EVS still needs demonstrate they can be a profitable, reputable, business in time – that targets environmental concerns and positions itself at the forefront to address this demand. There are still significant risks in EVS eventually achieving cash flow positive.

Risks

• Inexperienced CEO and BOD: I have seen no red flags in EVS’s CEO, Jason Cooper. But the reality is he is reasonably new (hired in March 2021) and doesn’t have a lot of experience within the company. His performance is something to monitor and keep an eye on. This also extends to the BOD which I wouldn’t consider experienced (approx. 3 yrs average tenure).
• Unprofitable, and likely won’t become profitable in the next two-to-three years.
• Shareholders will likely have to prop the company up; dilution needs to be expected, probably many times over. In the past 12 months total shares outstanding grew by more than 15%.
• EVS’s globalised presence results in the company being exposed to foreign exchange, including the negative impact of strengthening AUD on the translation of foreign currency revenue.
• Duration and severity of CV-19 and the impacts this has on EVS’s aviation-related products, although this risk appears to be easing.

Key metrics to monitor

In the short to medium term, I want to see sales growth gradually increase; which should demonstrate growing interest and demand in EVS’s suite of products. I am also keeping a close eye on the cash burn rate, particularly with a new CEO at the helm.

Churn levels (and installed sites) are also important, which currently sit somewhere between 2-3%. These levels are impressive and provide me with confidence that EVS services are important to customer operations, particularly during a pandemic, where many services that weren't mission critical were dropped for cost-cutting purposes. As someone that doesn’t have experience in this industry, churn is also a great measure of product – this helps me mitigate some of my concerns around my lack of industry-specific knowledge. 

I think the most important factor over the next few years is EVS continuing to solidify and expand their strong foothold in the environmental intelligence thematic while using its cash efficiently.

When to consider selling

• Stalling growth
• Significant insider selling
• High levels of customer churn, particularly EVS’s marquee customers.
• Cashburn levels too high
• Any subsequent issues with reaching cash flow positive (this isn't anticipated in the next few years, so this point is arguably 3-5 year forward looking)

DISC: Held since June 2021