Turns out that EU contract was much more baked in than I thought it would have been given; how prolonged the process was, and; how much the co avoided talking it up or in specifics outside of saying it was transformational and could unlock the broader EU faster. I get the sell but down to 81c seems extreme.

There is a need to find out who won and reassess the competitive landscape.

Good points by @Scott already, thanks for sharing mate. I'm sharing my quick thoughts.

Overall, the results are positive, although it would have been ideal to achieve profitability. The company's EBITDA of $2.5M indicates a healthy future trajectory, especially considering that the cash position remained stable at $21M compared to the previous period. 

Furthermore, the fact that EBITDA is growing at a faster pace than revenue is a positive sign. Additionally, the pending recognition of the SA contract and a few others in AU, with the anticipation of a the potential very significant tender in Europe are expected to contribute to future growth. 

The upcoming release of the guardian product, along with secured contracts mentioned in the announcement, further supports the expectation of growth in the coming years. They offered revenue guidance of $50M, representing a 20% yearly growth rate. I think they may be playing a little conservative here.

The thesis is well on track.

The share price of this one has increased rather substantially with the broader small cap rally since I took my initial position in October last year, so not inclined to add just yet.

ACE just reported.

Result

• Revenue +25%
• EBITDA +35% to $2.5M
• Cash burn of $3.6M. Still have $21.2M in bank
• NPAT loss of $0.2M

Outlook

Full year revenue just over double half year to $49-51M. EBITDA $4-$5M.

Expenses have increased and will continue to be elevated as they invest for growth. They have taken on additional sales people in UK and US and are setting up 24/7 level 1/2 help desk.

My thoughts

I like that it has tailwinds with OS expansion looking promising. I don't know what their revenue could grow to. I feel like costs might keep increasing and they will keep the business break even for the foreseeable future. They have $21m in the bank so it will be easy to keep using that to go for growth. They are also capitalising at least some R&D.

I'm interested, but not at the current price. It's forward EBITDA multiple is 35. I'd be interested closer to 90c.

Two interesting things here, the law was passed unanimously and secondly, the fine for speeding in a work zone is higher than most other types of speeding fines in the state. The US is known for having poultry fine values for personal drivers and automated enforcement can be iffy in many places still. 

https://www.lhsfna.org/liuna-affiliates-integral-in-unanimous-passage-of-work-zone-speed-camera-legislation/

https://legiscan.com/WA/bill/SB5272/2023

https://www.courts.wa.gov/court_rules/pdf/CLJIRLJ6.2.pdf

Acusensus (ACE) is a tech co that provides automated traffic enforcement solutions with a specific focus on distracted driving/mobile phone use. ACE’s solutions are fixed camera or portable trailer based cameras which can detect a range of traffic offenses with the company’s IP in their Algos and knowhow of optimal detection set ups. Whilst ACE’s tech has been predominately used for mobile phone detection, it has been deployed for speeding, seatbelt and more recently, tailgating awareness in QLD.

ACE was founded and is lead by Alexander Jannink who owns ~13% of the company. Alex founded the business off the back of a friend who was killed by a distracted driver and whilst this as good a driver as any, Alex was formerly responsible for research and development as the Head of Future Product Group for Redflex Traffic Systems Limited (previously ASX:RDF). RDF was an Australian based traffic enforcement business which was ultimately taken over by Vera Mobility in 2021. I also note the board and management own/control ~30% of the business with the Chairman controlling ~16% via Ador Powertron Ltd.

Distracted driving is increasingly presenting as a major cause of serious collisions and deaths on the road and is becoming a new focus area globally for authorities in reducing road trauma. Use of a mobile phone whilst driving is of most concern and the key distraction type that is being legislated with the TAC stating that “drivers are 10 times more at risk of crashing if they are texting, browsing or emailing on their mobile phone” and “Taking your eyes off the road for two seconds or more doubles your crash risk. At 50kmh you will travel 28m in 2 seconds, that’s about the length of a cricket pitch”.

To date, enforcement has been challenging and considered resource intensive from a policing perspective and as such, has required technology advancements, such as that from ACE, for widespread enforcement to be possible. Technology providers like ACE not only enable broader enforcement, but they have also been used to better understand the extent of the problem through data collection programs.

ACE’s solutions come in 3 versions with:

-The flagship being Heads Up which is the fully automated captures system which can identify drivers speeding, using phones, not wearing seatbelts etc… and comes as either fix cameras or trailer based mobile units.

-Heads Up Real Time which is a trailer version which flags an infringing motorist to a police car down the road who enacts the enforcement. This solution is focused on the US market where automated enforcements can be tricky politically.

-Harmony is a basic version of the core system that offers a lower price point for speed capture solutions.

The revenue model is simple. The company wins contracts from government authorities and is paid for providing the requested enforcement solutions of the tender charging a fixed monthly fee per deployment.  The contracts are akin to a MSA which means variations and ongoing expansions of enforcement coverage can occur without retendering. Tenders are typical 3-5yrs with options to extend. As they are service contracts, ACEs own all gear, IP/data and the contracting party only tells them where to put cameras. ACE is not paid for rate of offences captured.

Since being first to go commercial with their camera technology in 2019, ACE has won multiple contracts for mobile phone enforcement in Australia as well as a speed contract in NSW. In addition, ACE has established a presence in the UK and US with regular deployments of their technology being used to collect data and test pilot the efficacy of the solution. ACE was awarded its first contract in the US in June 2023 in North Carolina and although it is a small contract, it is a stepping stone to accelerating adoption across further US states.

I believe ACE has and retains a global first mover advantage against the competition with Jenoptik winning in VIC (head to head) and Sensys Gatso winning in TAS (extension of a speeding contract), with the underlying tech for both from a small start-up called Onetask AI. Other technologies have been tested in the UK and Europe however there have been no broad enforcement contracts conducted to date in these regions. Whilst others have been used, I note that in the UK, ACE’s tech appears to be the most used and tested solution with the company having 5+ trailers on rotation across 15+ constabularies. However, ACE’s competition are larger and more established traffic enforcement solution companies thus one can’t discount their ability to close the competitive gap.

ACE IPO’d in Jan 2023 raising $20m ($24m total cash post IPO) to provide funding for long term growth and currently has ~$25m cash on hand to fund future growth whilst on a pre-capex basis, the company has lived within in means spending only the incremental growth. This provides a long runway for ACE to maintain its growth potential and see that growth compound and reflect in the share price.

As for growth, I think ACE is capable of delivering revenue of $50m+ in FY24 whilst in FY25, revenue could be close to $60m with a high case potential closer $75-80m which the high case being driven by a significant European contract win expected to be awarded in the second half of FY24. This growth will be profitable growth as well but how much flows through to the bottom line depends on how much incremental investment management decide to put into the business (i.e. major success offshore likely precipitates large investment).

I have a base case target price of $1.40/sh based on 15x (current multiple) EBITDA on FY25 ($1.97/sh on the higher case), on a fully diluted share count of ~136m. Another way to consider valuation is what is a “cash cow” which is if the company abandoned growth spend and maintained existing contracts. Based on FY24 revenue and reducing opex by ~$6m and using a 10x multiple, this gives a target price of $1.16/sh.

Between the global thematic tailwinds and the near term prospects of the company, I think the risk/reward is skewed to the upside from here.

Catalysts

·      South Australian tender award 1H CY24

·      Further NSW contract variation award 1H CY24

·      European tender award 1H CY24

·      Western Australian tender award CY24

Risks

·      Competition catching up tech wise and outcompeting in tenders which; reduces overall growth potential, and; can create pricing pressure and reduces margins

·      Contract cancellation (noting a gov can cancel a contract with 30 days notice)

·      US market risk on economic funding model beyond existing infra spending funding pool.

@edgescape I found this recently which you may be interested in. Have had a very brief look at them - didnt find a reason for the stock split and not sure why you would split to make the share price under $1. Any ideas?

Acusensus broker report OCt 2023.pdf

On a side note I believe I did see the results of their work - a mate of mine was pinged in Qld 3 times in quick succession for having his phone on his leg and not in the console of his car!

Nessy

ACE released their results confirming a beat on their IPO forecast as announced previously for FY23

Nice to see that no one sold off the results for a change.

One point I need to fact check is whether the high barrier of entry for their market is valid.

[held]

Found the answer to the share price weakness.

Hidden somewhere near the back of the prospectus and it was quite hard to find.

I admit I missed this when I went through the doc a month ago.

Below gives an insight into how funds were raised before the IPO and prices the seed investors paid before the IPO that would not be on this list.

On average seed investors must have have paid around $2.00 per share pre split before the IPO when Acusensus was still private.

Also the aggregate summary value of all these options was not on the FRONT of the prospectus which helps the investor find out if the IPO is good value or not. However I'm not sure if it is compulsory to put that value in but all the ones I've seen have done that.

Taking a step back, I think most of the selling below $3 happened in February. So maybe it is over?

At least the subs in the above haven't sold ... yet. Only the employees, Bell potter and others not listed above.

On that note, if business momentum is maintained then maybe the selling will stop.

[held]

Not a bad quarter for a technology company that is capped around 80m.

Revenue edging off but at least not volatile

Still struggling to find out why seed investors still want out and what they want to buy instead of Acusensus

Net operating cashflow too and just cashflow positive.so I doubt cash is needed.

Thought I'd go against the flow and take a nibble before the split last week

[held]

Talking about IPOs again and this is one where retail were the losers.

IPO prospectus

There are a few red flags I could see in the prospectus. One obvious one is Pre IPO equity vastly outnumber the equity available to retail.

The few positives about the company is the business (traffic safety camera monitoring), upward revised guidance and low market cap.

With more shares coming out of escrow in the next few months, I think it can head lower even with the revised guidance and business momentum.

Seems like the Pre-IPO holders aren't showing much conviction in the business as in February 23 the share price dived to $3 on release of the HY23 results. I'm assuming it was the Pre IPO holders since shares were removed from escrow after the release of the HY results.

There is also an upcoming stock split (5 for 1) in the next month.