RocketBoots announces multi-year contract extension with Suncorp

In March, RocketBoots reported Suncorp would extend their subscription for another year, pre-paying the 12 month extension upfront. This was reported to be $185,000 in almost all ARR.

Yesterday RocketBoots announced Suncorp has further extended their contract for an additional 2 years through to June 2025. The $275,000 will be paid in full in advance and is reported as licence, maintenance and support services revenue suggesting it is entirely ARR. Despite articles claiming Suncorp has anywhere from 70 – 93 branches remaining, manually searching by state through the Suncorp website shows 45. RocketBoots report ARR per site for retail banks to be $3k. $275,000/2 years at $3k per site gives 46 branches so it appears RocketBoots offering is now installed in all Suncorp branches.

Suncorp committing to an extension through to FY25 is a great sign for the company. However, ~$140,000 in ARR per year highlights how many more customers are required for these revenues to begin dropping down to the bottom line. Considering they are cash flow negative, it’s a positive they were able to get paid in full upfront.

The Suncorp extension is a great sign for RocketBoots offering within the retail banking sector. With 40-50x more retail bank branches in the US, I’ll be looking to see if the company can win any NA customers. CEO Joel Rappolt is currently in New York to address this.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02539184-2A1383753?access_token=83ff96335c2d45a094df02a206a39ff

 Management was kind enough to ring me (July 4th, 2022) to discuss a few questions I had.

Q Hardware revenue – how is this generated? My understanding is ROC have a customer’s own system integrator order and install hardware and that ROC doesn’t buy any hardware themselves?

A ROC do buy hardware as needed and take a small clip on this. Usually they use a customer’s existing network of cameras but occasionally these are not positioned properly or they require additional.

Every site requires a small box at ~$1,000, which has image processors in it that processes some of the edge software algorithms and connects to the cloud. 100% of sites require this box (hardware).

They have pre-bought some hardware recently (assuming this is d/t supply chain issues?) which they can on sell or lease out to a client who will then need to buy if they continue on with ROC.

Large companies, such as Bunnings, won’t let you come onsite, you have to have this fit out done through their pre-existing/approved system integrator.

Estimates they supply new cameras (hardware) for 50-60% of customers.

Historically, they bought hardware as required and (possibly?) delivered directly to client. Now this is delivered directly to the customer’s system integrator (they don’t deliver stuff).

Have held some hardware on as inventory recently due to GPU shortage; however, they won’t ever need much inventory.

Q Gross margins - assuming you don't have a hardware expense, I'm curious why your gross margins as reported in the prospectus would be in the ~45% range? I would have expected this to be much higher based on my understanding of how you generate revenue, for example above 70%. I'm curious what I'm missing here?

A Margins should be in excess of 70% but aren’t for a number of reasons. They are not yet at scale. Gross profits are bought down by small site numbers etc which runs through COGS. Revenue is a mix of enablement and ARR and is skewed towards the former which is lower margin.

Their ARR should be in excess of 70% as you’d expect with a software company but this won’t come through while they’re swamped with one-off enablement fees.

Example: Win 100 sites with ANZ, $1M in site enablement at, for example at 20% gross margin, but ARR might be $400k at 70% gross margin. But next year there’s no one off lower margin revenue, instead higher margin recurring revenue.

Because of this they’re trying to disclose to market ARR so investors can track that. Still happy with enablement revenue as it extends their runway.

Q Competition – what are your thoughts on competitors who offer cashierless retail and how this may impact on your retail offerings, specifically your checkout monitoring applications?

A They do have products with no competitors and others with direct competitors. Their basic offering (believe he was referring to Beehive Basics) a lot of people can do this – it’s very commoditised. However, if the client wants it and they already have a box onsite, they can implement this at minimal cost.

3 options retailers are moving to – self-checkout, register and no touch. They have solutions for the first 2. Register fraud, returns fraud, self-checkout solutions.

NCR and Everseen have directly comparable offerings to ROC. They believe their offering is better (they have training data in great detail) and are slightly cheaper. States they don’t* have competitors in (staffed) register fraud and can provide a cross store solution.

Q Strategy - With 70 additional IP offerings not in commercial use, I'm curious how you decide which opportunity to pursue? For example, what made you decide to pursue retail banking over one of your other IP solutions?

A They have 70 modules that are undeveloped, NOT 70 products (probably 7 of those 70 are products). For example, they have a product for casino anti-fraud which they’ve had some interest in but this is not a priority.

It’s all about their focus. Their focus is on core products and to get to profitability. There are 40-50x more retail banks in America than Australia – that product alone could be $100M ARR for them – but stressed he was not forecasting this and it’s purely blue sky potential.

They have deep progressed trials for loss prevention with retailers across NZ and Aus (some disclosed some not).

They have strong relationships with large Australian banks.

Strategy – money is hard to get at the moment. They are tight asses with cash. First step is to profitability and expect this at around $5M (may have even mentioned $4M) revenue. They don’t expect to have to scale staff much to get to this.

Want to enable people in US for when they win trials and contracts.

This is where their focus is before doing more products (e.g. casino anti-fraud mentioned above).

Q Incentive plan - I was unable to find the conditions that needed to be met for the STI’s. Are you able to provide these?

A This is because they didn’t need to disclose in prospectus. Two things to note:

1 Joel & Robyn are co-founders and heavily involved with ~5% equity, E8 have a deal for consideration shares to be issued. This major SH can issue part of their deferred consideration shares to Joel and Robyn if they hit certain milestones. States this is ~1 or 2% to each. Believes they are hugely incentivised, which is why no LTI in place at the moment.

2 $40k cash STIs are linked to gross profit. Reason is they want to make sure they’re pricing it to make sure it’s profitable. He noted that the board retains control over cost base at this stage, Joel and Robyn not really in control of cost base, they are but nothing happens without the board.

Q Declining revenue past 3 years

A Through that period, ARR has been growing. Previously focused on up front revenue to get trials and enablement out there. ARR growing consistently through that period.

During Covid many banks put them on hold meaning their larger enablement revenues were put on hold. For example, they’ve deployed boxes in 200 CBA branches at the moment but they are not turned on. They’re waiting. Not saying they will win this back but they do have boxes deployed in these branches.

Miscellaneous comments

Believes RocketBoots core platform is a strong advantage.

Once they have 1 product app into your site, easy to deploy or cross sell new products at basically no cost. Can offer more integrated solution to customer, easy to roll out and can price competitively if needed (don’t need to at moment, not much competition), get more data etc.

Before IPO, 6,7,8 years development of IP with over $12.5M spent. Business never raised external capital, was funded by wealthy gentlemen out of Sydney – E8; who are IT specialists. They drip fed into this business, it’s never had $5M in bank to make sure marketing is good, they can hire correct sales staff etc or even supply all the hardware. Business is now capitalised where you can win those bigger contracts.

Problem – some of these contracts take a long time to win due to huge roll-outs $1M - $2M in one hit. Pipeline is large but hasn’t dropped yet due to Covid. Have also started to see cross sell. Existing customers ordering new sites and applications.

Analogy he used: We’re coming to your site to install an iPhone and then can add more applications, generating more revenue.

ARR wins expected to be chunky, a couple hundred thousand at a time instead of $10k or $50k. A bank with 500 sites may trial 10-30, progress to 30-100 before progressing to all 500. So if they win one of those banks you may initially see $1M ARR which could double or triple further down the track.

Thoughts

He used the example that $1M in one-off site enablement fees might equate to $400k in ARR. In the future, I think it’s possible we could see falls in total revenue related more to fewer customers being won, generating larger one-off revenues, than customers leaving, who pay smaller but higher quality recurring revenues. Lack of customer signings is still concerning but those who aren’t familiar with this subtlety may overreact to any slowing or small falls in revenue. One-off revenues are still valuable and extend their cash runway but consider the importance of these on the company now, unprofitable and free cash flow negative, versus when they’re more mature, profitable and free cash flow positive.

Revenue is a mix of lower margin one-off site enablement and higher margin ARR and is skewed towards the former. There will be a lag before higher margin ARR is seen on the financials for two reasons. The sales cycle has to start with lower margin one-off revenues and customers may only start with 10-30 sites before progressing to 30-100 and then all 500. For those unfamiliar with the unit economics (e.g. $1M enablement equating to ~$400k recurring), the sales pipeline, lack of scale and the lag effect higher quality, higher margin ARR will have before it flows through to the financials this could be massively off-putting. I imagine investors could take a surface level look at a software company with 45 or 55% gross margins and move on. Another nuance to this company is the fact that while total revenue has declined, ARR has grown.

I believe these points are what make up the variant perception – a higher quality recurring revenue ‘division’ is being hidden or masked by their higher value but lower margin non-recurring site enablement ‘division’.

It sounds like he gets comments regarding management being poorly incentivised often as he made a point of highlighting this. He stated E8 can provide an additional 1-2% equity to the co-founders issued through part of their deferred consideration shares. If I understand correctly, it sounds like both co-founders could have a larger shareholding without further dilution but I would need to confirm this.

It was interesting to hear they have boxes in 200 CBA branches not currently turned on.

An additional metric to monitor will be retail banking client wins in North America.

*I disagree they have no competitors here (see Risks and Competitors straw – NCR).

Bull vs Bear Case

What To Like

With $4.56M cash and a $4.6M market cap, RocketBoots is trading at close to cash backing. However, as they are cash flow negative, there is no guarantee the cash spent will see a return.

With an annual recurring revenue (ARR) of $500,000 and a $4.6M market cap, they are trading on an undemanding P/ARR of 9x, albeit off a tiny ARR.

Shares are tightly held with a significant amount held in escrow until Dec 2023.

Potential for low cost cross sell opportunities with 70 additional software products, developed through internal R&D, not yet commercialised.

Potential to serve multiple clients across multiple industries and geographies, diversifying their revenue streams.

Scalable.

RocketBoots software appears to be hardware agnostic with their offering being compatible with all clients edge hardware to date.

They’ve spent $12.5M on internal R&D to develop their IP with a further 70 offerings not yet in commercial use.

They are founder led with a strong and well aligned management and board. Most staff stay with the company long-term suggesting RocketBoots is a desirable company to work for.

There’s a long runway for growth with a large addressable market forecast to grow at a 16% CAGR to 2030

What Not to Like

Low (proforma) historical margins of ~45% for a software company.

The focus on an enormous TAM in prospectus and investor presentations.

Customer concentration – there are customers that make up >10% of revenue.

The name of the company.

Decline in revenue over the past 3 years.

Minimal recurring revenue of $500,000.

To be monitored - CEO may be over promotional with immaterial NVIDIA and AWS announcements released recently.

Why the Bull Case Wins

My variant perception is that the proforma gross margins cited (~45%) are not reflective of where they will be (70-80%). Additionally, while revenue is taking a hit in the short-term, their shift in focus to ARR over larger one-off sales will serve them better long-term. As with any cash flow negative early stage growth company, one of the risks is having to rely on additional funding in the current environment should/when they run out of money. They have the potential to be a scalable and a sticky software offering with low cost cross selling opportunities. A P/ARR of 9x, a market cap of only $4.6M and trading at near cash backing provide some safety from the valuation side.

However, with only $500,000 in ARR there’s no evidence they’ve “crossed the chasm” yet and as a result the company is still very high risk. The fact all 4 major Australian banks were/are commencing trials gives confidence the company has a valuable offering; however, the thesis mainly relies on hopes and dreams at this stage and a belief in management’s story. Regardless, I think the Bull Case beats the Bear Case by enough to take a small position. As management execute I’ll consider adding to the position.

Reasons I might sell include

•Lack of ARR growth/customer wins which may include:

-Inability to sign up at least 2 or more of the big 4 Australian banks

-Inability to expand overseas (CEO currently in NA addressing this)

•Cash burn significantly faster than 18-20 month runway CEO quoted

•Gross margins not improving

•Expenses outpacing revenue growth

•Significant insider selling

•Valuation gets ridiculous

•I lose faith in management or key management/founders leave

Competitive Advantage

The RocketBoots prospectus lists several competitive advantages. They suggest their growing library of relevant training sets for machine learning (ML) allows them to quickly evaluate problems and develop software solutions, speeding up their innovation cycle and creating a barrier to entry. A large enough data set and enough of a head start could provide a moat but keep in mind they’re only generating $500k in ARR which accounts for approximately 150 sites; not yet a significant data set.

RocketBoots list their highly scalable and secure technology as a competitive advantage. The company does have a backlog of IP and offer a breadth of solutions for customers with the potential for future cross selling opportunities at minimal additional cost.

As RocketBoots become embedded within a customer’s operation, they should be able to leverage switching costs and cross sell opportunities. Additionally, the large portfolio of software offerings addressing multiple client needs could create a barrier to entry for competitors lacking multiple offerings. As RocketBoots grow their portfolio of IP offerings this could further strengthen this advantage.

For now, RocketBoots moat is narrow and consists of a first mover advantage and IP developed through internal R&D. However, if the company can execute their moat should widen.

Culture & Management

Culture

RocketBoots has less than 15 full time employees, most of whom have been there greater than 5 years and many over 10 according to the CEO. The company has no Glassdoor reviews but the fact the majority of staff endure so long suggest the company is a desirable place to work. A check of Linkedin showed 2 employees with over 5 years tenure, 6 with 10 years and a handful with less than 5 years.

The company has no current job listings but looking back at previous listings from 2018 and 2020 provides insight into company culture and what it’s like to work at RocketBoots:

In 2018,

Staff were described as “14 pretty excellent people from diverse backgrounds” with the company allowing work from home on a “regular basis” and claiming to be experiencing “unprecedented growth”.

Interestingly, they stated they wanted to hire additional staff to help get onto some of “the cool ideas kicking around in our backlog”. This likely relates to the $12.5M in IP the company has invested and 70 software prototypes developed but not yet in commercial use.

In 2020,

Staff were described as a “close knit bunch” and “who invent and work with a mix of interesting technologies, and team members get involved in everything from original research to solution architecture design, development and deployment.”

The company values staff dedicated to continued learning and excitedly, or arrogantly, claimed to be “…quietly rolling out stuff at scale that other companies are only talking about.”

Finally, there is a good mix of gender and ethnicity amongst staff.

Management

RocketBoots have an impressive management and board. They are fairly paid and founder led, with founder Robin Hilliard acting as CTO and CEO Joel Rapport having helped co-found the company’s Beehive Technology. Key management and directors are well aligned with shareholders owning over 40% of the stock (33% by NED Karl Medak). Management possess the appropriate expertise and passion for the industry with the occasional evidence of philanthropic work. No fraudulent dealings by any of the board or management could be found and it appears any negative links from the company’s previous listing as E88 are behind them (see “History” straw).

Joel Rappolt CEO $180,000 + owns 2.25M shares 3.73%, STI $40k cash

Joel joined RocketBoots in 2007, took over as CEO in 2012 and is a co-founder of the Beehive Technology.

He is fluent in Japanese and graduated with merit with a Masters in International Business from the University of Sydney.

Robin Hilliard CTO $180,000 salary + owns 2.25M shares 3.73%, STI $40k cash

Robin Hilliard founded RocketBoots in 2004. He led the design and development of major web applications for companies including Flight Centre, Fairfax and Telstra Wholesale.

He graduated with a Bachelor of Science, majoring in Computer Science and Pure Mathematics from the University of Sydney.

Described as passionate by co-workers, this can be seen in any of the presentations he’s given.

Some of his interests include programming, space and choir/opera. His Twitter page shows a charitable side with the occasional small charitable event or contribution.

Leslie Smith CFO & Secretary P/T ~$54,000

Leslie has been CFO and company secretary of NGE Capital Ltd for over 6 years and has over 30 years of experience with financial and company secretarial positions.

Extensive experience with:

Listed and non-listed companies

Corporate governance processes, due diligence for M&As and security exchange admittance

Preparing annual reports and directors’ and annual meetings

Regulatory compliance for ASX listed companies

Risk management, treasury activities, corporate finance and business system implementation and design

The Board

Hugh Bradlow Independent Chair & NED $60,000 + owns 50k shares 0.08%

Hugh worked for Telstra for over 22 years, spending 3 years as Chief Scientist and 8 years as Chief Technology Officer.

Named a top 100 most powerful executives in the global telecoms industry, by Global Telecom’s Business, 2 years in a row.

President of the Australian Academy of Technology and Engineering.

Hugh’s presentations for CEDA, AATE & others show a strong passion and knowledge for a breadth of technology applications.

Karl Medak NED $50,000 + owns 20.5M shares 33.94%

Karl has ~40 years’ experience within the ICT sector working for Telstra, Ericsson, Lend Lease communications as well as some of Australia’s largest corporates and government and defence clients.

As head of Frame Group’s consulting practice, he provides advice to improve organisational performance, return on investment and increase competitiveness.

He has been a NED of RocketBoots since 2007 and an indirect shareholder through a 15.79% interest in the E8 Group and an additionally through a Super account.

Pang Ming Wee $55,000 + owns 134 shares

Pang is a qualified chartered accountant with 20 years Finance experience. He graduated with a Bachelor of Commerce from the University of Queensland and has 8 years of Audit Assurance experience with KPMG and BDO.

Has worked with advisors in the IPOs of iCar Asia Ltd, Ensogo Ltd and Frontier Digital Ventures Ltd.

Has been the Finance Director for Catcha group since 2012.

Pang was appointed a director of Ensogo Ltd in June 2019 in a management and administration role while the company wasn’t operating and was seeking suitable investments. See “History” Straw for more details on Ensogo.

His Linkedin show interests in collectable cards, NBA, Formula 1 and that he is a retired Magic the Gathering professional player.

Cameron Petricevic $55,000 + owns 3.75M shares 6.22%

Cameron is a director at Kentgrove Equity Partners and has over 17 years’ experience in the financial industry with roles at AMP and Acorn Capital.

He has extensive investment banking experience, including valuations, mergers and acquisitions and portfolio management.

He holds a Bachelor of Commerce and a Bachelor of Engineering (Electrical) from the University of Melbourne, with First Class Honours.

He is the Founder/Treasurer of a Royal Children’s Hospital auxiliary charity.

Cameron is indirectly a shareholder of RocketBoots through his interest in PSF group.

Risks & Competitors

Risks

Funding: 18-20 months of cash runway and minimal revenue mean there’s a real chance the company will need to raise capital. There’s no guarantee they’ll be able, particularly in the current economic climate.

Inability to execute: The company’s success is dependent on the ability to win new contracts and gain market share while retaining existing customers.

Reliance on third-party IT suppliers: An interruption to cloud computing services, for example, would negatively impact the company’s ability to carry out their offering.

Reliance on third-party hardware providers: Any hardware or customer site related issues require the Company to liaise with customer approved procurement providers to visit sites, diagnose and change hardware.

Supply chain issues: Prolonged disruption to supply chains could impact the company’s ability to undertake new trials. The CEO states they can handle up to 2 months of delays for larger site rollouts (100+) as there are a number of steps to pass first. The company has demo stock they are able to loan to customers as well.

Hardware related issues: Any problems (breakdowns, recalls, hacks) with the edge hardware clients use could impact their ability to provide services to clients.

Competition

Checkout Theft

RocketBoots offers Beehive Sting, an application to combat loss prevention at registers and self-checkouts. Companies using computer vision and AI to address the same issue pose a threat to the company.

Direct competitors include StopLift and Everseen. StopLift analyses video and POS data to differentiate between genuine and dishonest behaviour at checkouts with suspicious activity flagged in real time. They are able to address the same issues RocketBoots does, self-checkout loss, sweethearting and basket based loss. Their list of clients appear to be predominantly smaller and mid-sized American grocers. StopLift was acquired by NYSE listed NCR in late 2018. Everseen appear to offer a similar solution.

Cashierless stores also pose a threat to RocketBoots offering. As per thepourquoipas.com¹, the cost to set up cashierless stores is huge. Hundreds of cameras are required, as well as shelf sensors such as weight sensors, load cells and pressure sensors all to improve the cameras confidence in what it is you’ve picked up. The Amazon Go store in Seattle has a line to enter, which questions the whole purpose of skipping the check-out queue. Could there be real demand for cashierless stores or is it a novelty? It’s possible Amazon or others may license this tech out but due to the prohibitive cost, and retailers such as Woolies or Coles already operating on thin profit margins (ie 2.5%), I don’t see cashierless stores as a threat to RocketBoots checkout monitoring software for grocery stores. However, it could pose a threat to checkouts at higher margin retailers.

*Image courtesy of thepourquoipas.com

Other company’s offering cashierless stores include Accel Robotics, Grabango, Bossa Nova, Trigo, Zippin, Standard AI, and AiFi. AiFi claims 99% accuracy using computer vision to track shopper activity and purchases and 12 months to achieve a ROI. They also list Aldi as a customer. Trigo remove the need for checkout lines by allowing customers to scan products directly using their smart phones and just walk out (JWO) when they’re done. In addition to providing checkout free shopping, Standard AI provide real-time insights into product performance and inventory levels.

While not cashierless, Japanese based Brain Co Ltd’s technology is able to identify and calculate the total price of unpackaged breads. This appears to assist the checkout person not to replace them. Also, unlike bread at a Japanese bakery, the majority of our food comes packaged with a bar code.

While cashierless stores may seem like the next big thing, Adrien Book sums it up well:

“…most companies first need to concentrate on optimizing physical retail as it is (workforce training, supply chain, pricing…). God knows there’s a lot of work.”¹

If correct, this bodes well for RocketBoots workforce management solution, Beehive Dance, already in the trial stages with all 4 major Australian banks with the potential to expand to other sectors.

Adrien brings up privacy issues and the need for vast amounts of data, stressing that “…knowing how to gather it, clean it, and use it is far from easy!”¹. RocketBoots has identified all of these issues in their recent investor presentation. The head start they have in collecting that vast amount of data could position them strongly against competitors.

Retail Theft

RocketBoots has a solution to improve covert scheduling, improving the chance a covert team is on premise when a high risk or repeat offender arrives. Companies using computer vision and AI to address retail theft pose a threat to the company.

Japanese startup Vaak provide a similar cloud based computer vision offering using customers security cameras to detect suspicious behaviour. Deployed in 50 stores, Vaak Eye analyses body movements to detect suspicious activity with an alert being sent to a staff member once a certain threshold is reached. It appears both Vaak and RocketBoots are able to achieve this anonymously without putting customers privacy at risk. However, I’d argue Vaak has the superior offering as it’s achieved without any additional covert scheduling. Where RocketBoots could win out over a competitor such as Vaak is through a larger portfolio of offerings. If a customer is already using RocketBoots for self-checkout monitoring it’s more likely they’ll choose them for a shoplifting solution as well, assuming the solution is of similar quality.

Large companies such as Walmart are also using AI-enabled surveillance cameras to eliminate shoplifting from their stores.

Do It Yourself

Companies such as viso.ai offer no-code computer vision platforms for businesses to create and deploy their own applications. They also enable pre-built computer vision applications and integrations to be imported from a marketplace and customised to the customer’s needs. There are likely others with a similar offering.

Should a company desire to tackle their computer vision related business problems themselves, this poses a threat to RocketBoots. The downside to this option is the lack of knowledge, expertise and experience a company such as RocketBoots could provide as well as the time and headaches saved by having someone else develop this for you.

No direct competitors in the retail banking space could be found. Based on the number of companies offering computer vision and AI solutions, I’d expect it’s more likely I’ve missed them.

Other areas RocketBoots is not currently addressing but may in the future (store layout improvement, inventory management etc) are also very competitive.

Finally, the company states many of their indirect competitors provide potential channel partner opportunities and that they’ve already had several referrals from some of these.

Competition, execution and funding appear to be the biggest risks facing RocketBoots.

The massive addressable market and its attractive forecast growth over the next 10 years has drawn a considerable amount of competition and I expect this to continue. Last year Forbes claimed, “A Wave of Billion-Dollar Computer Vision Startups Is Coming”². In addition to the competitors identified, I suspect there are many more I’ve missed.

While RocketBoots does an ordinary job highlighting potential competition they appear to have the correct strategy. Their goal is to be leaders, capturing a major share of the addressable market with a focus on strong fundamentals - growing their ARR. In addition, it appears they have correctly targeted segments with the least competition.

References

1 https://www.thepourquoipas.com/post/a-simple-guide-to-computer-vision-in-retail

2 https://www.forbes.com/sites/robtoews/2021/02/28/a-wave-of-billion-dollar-computer-vision-startups-is-coming/?sh=b627f773f4cb

https://revolveai.com/best-computer-vision-companies-and-startups/

https://www.merantix.com/blog/computer-vision-startups-disrupting-the-retail-industry

Financials & Valuation

Ideally a discounted cash flow would be done to value RocketBoots. What makes this difficult is a lack of financial history, with the company only listed since December last year. They haven’t reported revenue or given guidance and all I could find is $500,000 in annual recurring revenue. With a market cap of $4.6M this puts them on a reasonable P/ARR multiple of 9x.

With $4.56M cash they are trading at close to cash backing on a fully diluted basis. Shares are tightly held with a significant amount held in escrow until Dec 2023.

They report having 18-20 months of cash runway with low cash burn. This is reasonable given the 2021 historical cash flows provided in their prospectus as well as their most recent 4C.

What’s troubling is the fact pro forma historical revenue has significantly declined over the past 3 years (below).

The company reports this is a result of Covid with product trials being postponed due to shutdowns and an inability to win new contracts. At the same time, RocketBoots have shifted their focus from larger one-off enablement work to annual recurring revenue which they claim has impacted revenue. The company reports ARR booked for the 2 months from June 20^th, 2021, to August 31^st, 2021 already exceeds ARR booked in the entire FY21.

Also of concern is the company’s gross margins (below).

For a software company, I like to see gross margins in the 70-80% range. Revenue sources for site enablement are listed as configuration and hardware. As hardware is installed and provided by the customers pre-existing system integrators and no hardware expenses are listed in RocketBoots historical financial statements I’m unsure how they generate revenue from hardware. Based on the business model and unit economics, I expect gross margins to significantly improve moving forward but it's also possible I'm missing something.

How They Make Money & What Customer Problems They Solve

RocketBoots want to be market leaders, focusing on growing fundamentals; specifically annual recurring revenue (ARR). They quote a massive $259B global total addressable market, with $113B immediately addressable with their current Beehive products. The computer vision market is projected to reach $41.11 billion by 2030, a CAGR of 16.0% from 2020 to 2030.

Their ideal customer is a Wells Fargo bank with 5,000 branches. RocketBoots would offer Wells Fargo a low cost of $3,000 per year per site but get the revenue benefits of having this multiplied across thousands of sites from the single customer. A rollout across 1,000 sites would give the company a $3M boost in ARR.

RocketBoots sales are made up of one-off Site Enablement and annual recurring License & Support revenue.

Site Enablement revenue ranges from $4k - $15k per site and comes from hardware (edge devices) and configuration services.

License & Support revenue ranges from $2k - $10k per site and comes from application licensing, platform subscription and maintenance & support.

RocketBoots work with a clients existing system integrator who already possess a selection of cameras they can buy from. These are bought from and installed by the system integrator. RocketBoots themselves are not involved with any of the hardware installation.

Sales Cycle

The sales process is either led directly by RocketBoots internal sales team or through channel partners. Historically, CEO Joel Rappolt has been the only internal sales and project management resource for the company.

Most clients undergo an 8 week Proof of Technology (PoT) Trial involving a few sites where key software features are demonstrated.

If successful, this is followed by a 12 week Proof of Value (PoV) Trial involving 25 sites where key software features, benefits of using the software and potential return on investment if rolled out across additional sites is demonstrated.

Depending on the number of sites, Roll Out can take 3-5 months.

Ideally, this leads to 100s to 1,000s of sites from a single customer with an annual license and support contract and cross sell opportunities available. Not only does this cross sell capability allow the size of the contract to be grown but it comes at nearly no cost to RocketBoots.

Historically, the company was unknown so their pipeline was 1,2,3 site trials. Prior to Covid their offering was getting popular winning all 4 of the major Australian banks for trials. Covid put these on hold and they are only now restarting. 46% of their pipeline opportunities are now beyond PoT and at the PoV or roll-out stages. Could this be a sign RocketBoots is ‘Crossing the Chasm’ of the technology adoption life cycle; from early adopters to early majority? It may be too early to tell but it does provide some market validation for their offering.

Contract Lengths

Contracts have traditionally been 1 year + 1 year but RocketBoots expects 2 and 3 year contracts to be the norm moving forward. While they can’t roll out all of a customer’s sites at once, they true up, meaning they try to align the renewal dates for all of a single customer’s sites to the same month. They don’t report any seasonality to contract signings.

Problems Being Solved

Retail Banks: Digital transformation has already changed how people bank with many customers transacting online. If traditional banks close branches they become indistinguishable from online banks, losing their competitive advantage. Proof of this can be seen in JP Morgan Chase planning to open 400 new branches across the U.S.^1,2. While this branch network is a critical point of difference, it’s more important than ever to ensure they remain cost effective in the face of increased competition from online banks.

With regards to staffing, a bank has to use out of date transaction-based metrics that are complex and sometimes impossible; for example having someone physically sit in each branch to record data. This results in poorer schedules and difficulty proving their effectiveness in terms of cost and customer service satisfaction.

Using RocketBoots software, data such as entry counts, arrivals, touchpoint utilisation, handling times etc can be collected within each branch to deliver more cost effective and customer service oriented schedules. Underutilised staff can be identified and staff costs shifted from the physical branch to digital channels. In other words, unoccupied staff at a branch can be redirected to serve online channels such as digital chats or call centres. This reduces the cost of operating the branch network and allows the client to keep the branch around longer.

“We met service levels and reduced weekly schedule by six hundred hours across the branch network within three months of installation.”³

Retail: Increasing online retail competition is reducing already very tight margins for traditional brick and mortar retailers. Many are using self-service technology to reduce costs and improve customer satisfaction. With self-service checkouts come theft and fraud challenges and additional cost and staff time to monitor.

RocketBoots software enables self-checkouts to be monitored and supervisors alerted via tablet or mobile app when there is a risk of theft. The software is highly accurate in detecting swapped price labels, unscanned products and other dishonest activity. The result is reduced loss from theft and a reduction in costs associated with monitoring this.

“Customer theft and staff fraud at the register are the biggest contributors to shrinkage, making a considerable dent in retailer margins. In 2019, shrink was estimated to have cost retailers an eye watering 1.62% of revenue. In Australia the cost was $2.5B and, in the USA, $61B.”⁴

In addition, RocketBoots can optimise workforce and customer service by gathering data on inadequate register staffing, register idle time, falling customer service levels and use this to improve staff productivity, register management and scheduling and customer service.

Face/License Plate Recognition: car parks, law enforcement, fuel station theft monitoring, persons-of-interest identification, site access control and general security matters are all possible use cases for this technology. The software allows for the identification and alerting of appropriate staff to anyone that may pose a risk to customers, staff or stock.

1 https://media.chase.com/news/chase-expands-retail-branches-to-all-lower-48-states

2 https://www.reuters.com/business/finance/jpmorgan-chase-opening-bank-branches-200-down-200-go-2021-06-02/

3 https://www.rocketboots.com/beehive/retail-banking

4 https://www.rocketboots.com/beehive/beehive-for-retail

What They Do

“Applying the power of machine learning to fundamental business problems.”

RocketBoots is a software company that collects physical activity data through a customer’s pre-existing cameras and sensors. If the appropriate cameras and sensors are lacking, RocketBoots customers use their own system integrators to have the hardware installed. The company uses proprietary computer vision based machine learning to collect and analyse unique data sets; data sets customers are not able to measure themselves or even aware that they should be. Having spent years analysing this data they’re well placed to leverage it to their customers advantage.

RocketBoots has a portfolio of applications for the retail banking, retail and workspace sectors. For example, their software collects and analyses data using a retailer’s cameras to tell them how to improve their covert schedule - people hired to go undercover and look for theft. The likelihood of a covert being in store when a high risk individual arrives is 11% at random, 6% after a recent theft and 33% using RocketBoots technology. This results in 3x more loss prevention events per day. Through a clients self-checkout camera, RocketBoots software helps detect fraud (people swapping bar codes) and theft or ‘sweet hearting’ at checkouts, where a checkout boy/girl doesn’t scan product(s) because they know the customer. Through a retail banks cameras their software can identify poor staff utilisation and shift them to online services such as call centre or digital chat tasks. This reduces the cost of the operating branch network, allowing the branch to survive longer despite increased threat from online banks. RocketBoots can achieve a massive amount from just a single installed camera.

RocketBoots IP consists of three main components:

1 The Beehive Applications are a suite of software products addressing concerns of specific industries. This is software that interprets video and sensor data and presents the results in mobile or web applications.

Beehive Dance – Workforce Management

•Improve staff productivity

•Improve customer service/scheduling

•Improve covert schedules (as mentioned above)

•Reduce public liability incidents (PLI) through better clean schedules

Beehive Sting – Loss Prevention

•Reduce self-checkout theft

•Reduce staff register fraud

Beehive Swarm – Property Optimisation

•Reduce leasing costs

•Reduce costs of refurbishment

Beehive Recognition – Automated Security

•License plate & facial recognition

•Respond to repeat threats & improve security

Beehive Basics – Physical Space Data Sources

•Multiple data types collected from physical spaces to provide customers usable information while also giving RocketBoots new ideas to grow its portfolio.

2 Beehive Core provides software modules implementing advanced ML, computer vision and high-performance computing capabilities.

3 RocketBoots Core consists of software modules enabling secure, scalable deployment and management of a globally distributed network of edge hardware from a central cloud environment.

Having invested $12.5M in IP, the company has over 70 additional software prototypes developed from internal R&D.

For each site, RocketBoots uses edge hardware to carry out processing tasks onsite. The hardware is backed by centralised cloud processing. For example, computer vision work can be performed on a customer’s premises with the summarised results forwarded to the cloud, minimising the impact on customer network traffic and privacy risk. This has been compatible with all existing customer deployments so far.

RocketBoots is able to remotely configure, deploy, operate and support edge devices across hundreds of customer locations. This enables fast rollout of their Beehive Technology at scale and low cost without significant installer training. This also enables easy cross selling and quick deployment of additional applications.

The company’s processes have passed the strict security expectations of leading bank and retail organisation’s IT security reviews. This includes extensive penetration testing on Rocketboots’ software commissioned by a major Australian Bank.

History

RocketBoots – A Very Brief History

ASX listed Ensogo Ltd (E88) was incorporated in 2013. Following the boards decision in 2016, the company and it’s subsidiaries was entered into voluntary liquidation. Over the following 3 years the company would complete the liquidation of its assets. The ASX would delist E88 due to its securities having remained in suspension for 2 years.

In May 2021 Ensogo would execute a share sale agreement to purchase 100% of the issued capital in RocketBoots from its current owners, E8 Group (Karl Medak), Robin Hilliard, Joel Rappolt and PSF (Cameron Petricevic) in consideration for shares in the Company. The proposed acquisition is considered a reverse asset acquisition as the existing shareholders of RocketBoots are effectively acquiring E88.

The reverse acquisition was completed in November 2021 with Ensogo acquiring 100% of RocketBoots Operation Pty Ltd (ROPL) and would list in December 2021 under the ASX symbol ROC. Ensogo managed to liquidate their assets for $80k and would leave the newly named RocketBoots Ltd with $1M in cash.

What happened with Ensogo and more importantly has RocketBoots acquired any of the rot?

Ensogo – A Brief History

Originally called iBuy Group (ASX:IBY), Ensogo provided the eCommerce of products and services through its websites in Hong Kong, Singapore and Malaysia. It was co-founded by Kris Marszalek (CEO), Patrick Grove (NED) and Lucas Elliott (NED). Both Grove and Elliott continue to have a small interest in RocketBoots through their link to Catcha Group which holds 2.37% of ROC shares. Mr Grove is the CEO, Chairman and major shareholder of Catcha Group. Kris Marszalek would be appointed CEO of iBuy with a salary of $300,000 and short and long term incentives up to an additional $300,000… to run a company that was unprofitable and cash flow negative.

Catcha Group invest in disruptive technology companies around the world with a particular focus on Southeast Asia and Australia. They have investments in Instahome, iMedia, ASX listed Frontier Digital Ventures, Hitchbird and have exited businesses such as iCar Asia, iflix and iProperty Group.

Who is Kris Marszalek?

Early Days

In 2004, Kris started a consumer electronics design studio and grew it to $81 million in annual revenue within 3 years. He would set up local subsidiaries in China and Hong Kong as a result which would eventually lead him to launch Beecrazy in 2010 – an eCommerce platform. Beecrazy would be bought by ASX listed iBuy Group in 2013 for $21 million.

With his track record of success, I wonder how many investors would be smitten at the thought of Kris leading their company?

Marszalek would join iBuy Group as its COO and oversee their IPO on the ASX with the company eventually rebranding to Ensogo Group. Kris would get promoted to CEO of Ensogo in 2014 and step down just 2 years later. During his 2 years at the helm, Ensogo posted a $67 million loss, up 11x from the previous year, and an $80 million loss; all while earning a salary of $300,000 + short and long term incentives up to an additional $300,000. To add salt to the wounds of shareholders, it appears his $2 million loan (to Middle Kingdom Capital Group – a related party) in 2013 was never repaid.

Only days after stepping down, Ensogo would halt its operations in Southeast Asia leaving its platforms customers and sellers stunned and with losses in the hundreds of thousands. That included Beecrazy with sellers claiming fraud and wrongdoing.

According to Viktor of productmint.com:

“What made the whole situation worse – and possibly illegal – was that Ensogo, in April, had announced that it intended to expand its marketplace across the globe after experiencing strong growth in Southeast Asia.”¹

One frustrated customer stated:

"It seems to us that they wanted to make huge business from us one last time before they closed down."²

Marszalek claimed no wrongdoing as it wasn’t his decision, he only had a 3% ownership stake and he didn’t hold a board seat.

Years later, shareholders were left asking why Grove, Elliott and Marszaleks’ zombie company still existed and what was taking so long to liquidate it and return their money? Director Mark Licciardo was asked:

“…why Ensogo chose to spend millions on administrators in Asia when it had apparently severed financial links with the businesses in 2016, Licciardo said he wasn't sure and would need to check. He didn't call back.”⁴

As if things couldn’t get worse, the Philippines Bureau of Internal Revenue (BIR) would file tax evasion charges against Ensogo.⁵

When you consider what Kris would proceed to work on, it’s little surprise he left the struggling ASX listed Ensogo Group…

Crypto.com

Kris then became involved with Monaco, headquartered in Singapore and founded by himself and associates from his Ensogo days - Rafael Melo, Bobby Bao and Gary Or. They would enter the crypto space through an initial coin offering (ICO) nearly a year after his departure from Ensogo. For those unfamiliar, an initial coin offering is essentially an IPO for a cryptocurrency. Over $20M was raised for MCO tokens with the promise of ‘credit cards’ to be issued allowing users to spend Monaco tokens (cryptocurrency) as you would regular fiat. Those cards never materialised despite claims of an existing partnership with Visa³ and never really made sense in the first place – why would VISA undercut itself?

Further questioning the morals of the Monaco team were rumbles on Reddit that Monaco ripped off the white paper from TokenCard, stealing their work and trying to pass it off as their own.

In mid 2018 Monaco would purchase the Crypto.com domain name for $12 million and rebrand to the latter. Shortly after, they announced they would shift their focus from MCO tokens to CRO, planning to conduct a 20 for 1 token swap. The news sank the MCO price and drove up CRO. Exacerbating this was the fact Crypto.com suppressed the MCO price by no longer buying MCO in the open market. MCO holders had already taken a 40% hit when the company had removed smart asset contracts from its roadmap the previous year. As a result, a 0.002% MCO holding would drop to a 0.00001% CRO holding; shafting MCO holders.

None of this would stop Crypto.com from growing into one of the world’s leading cryptocurrency platforms. This is the same company that paid $700 million for naming rights to Los Angeles’ Staple Center, have a 10 year deal with the UFC worth $175 million, sponsored Formula One for $100 million and launched a $100 million advertising campaign featuring Matt Damon and others.

Monaco entered the ICO space at peak euphoria and like many ICOs looks to have taken advantage of a space lacking regulation.

Back to RocketBoots

Should RocketBoots shareholders be worried any of the rot from Ensogo or its founders still remain? It appears the only links are a 2.37% holding by Catcha Group and a 1.13% holding by Middle Kingdom Capital Group, linked to Grove and Elliott and Marszalek respectively. Considering the hundreds of millions Crypto.com spends on marketing, as well as a reported personal net worth of $150 million, it wouldn’t surprise me if Kris has completely forgotten about his investment in RocketBoots.

1 https://productmint.com/crypto-com-business-model-how-does-crypto-com-make-money/

2 https://www.thestandard.com.hk/section-news/section/11/170732/Anger-as-BeeCrazy-buzzes-off

3 https://www.bloomberg.com/news/articles/2017-10-02/cryptocurrency-gained-695-on-deal-with-visa-that-didn-t-happen

4 https://www.afr.com/markets/equity-markets/why-does-patrick-grove-s-zombie-e-commerce-company-still-exist-20200224-p543v1

5 https://www.rappler.com/business/industries/83058-cashcashpinoy-ensogo-bir-tax-evasion/

https://jacobking.medium.com/heres-why-you-should-avoid-crypto-com-ponzi-scheme-459bf0776863

https://www.reddit.com/r/CryptoCurrencies/comments/7wl4u1/monaco_card_looks_like_a_big_scam_a_warning_from/

https://www.reddit.com/r/CryptoCurrency/comments/i2t327/stay_away_from_the_cryptocom_scam_they_cheated/