You can see pretty clearly that costs are ramping faster than income.

Recent dilutive / expensive debt deal to keep the lights on.

Something needs to change very quickly for AD1...

Full report here

Record high receipts but this achievement offset by rising costs previously flagged as they implement the Apply direct off the shelf option for smaller entities. Interestingly Q1 usually the low for the year for receipts which would imply full year revenue of 8-10million which is pretty impressive growth actually.

Notably they have dipped into some leverage to help manage operating capital.

Capital raising to fund earn out tranche of AoM acquisition diluted holders somewhat and because the funds are already spoken for doesn't address the stressed balance sheet. Probably indicating that another capital raising is required.

Looking forward I think it is likely there may be a cashflow positive quarter Q2/3 or even both especially if R and D rebate is received.

Obviously running on fumes at the moment but just a glimmer of optimism visible in these results I think.

Report can be found here.

Some more good news here. Although calling it news is a stretch because both of the contracts mentioned have been previously announced.

They provide the insight 2.3 times the same period last year and 94% up on the previous quarter. Which is good provided the other segments are doing ok (probably due to contracted nature of revenue).

They suggested in the recent presentation that a US SaaS mentoring company had raised significant capital recently. 

Thoughts: I have noticed when small business founders are released from the grind of accounting and other distractions that come with running a small entity that growth can quickly ramp up due to them having more time to focus on and sell the product. Maybe that is what is happening here. As to why there are so many price sensitive announcments with the same information... well I've stated my thoughts on that many times.

Found here.

Corporate overview.

More talk Re: Advanced negatiations with channel partners.

High quality presentation from a company where IR was non-existant. 

Thoughts: TAM talk is obviously dumb. US expansion is usually dumb. 2 out of 3 divisions whitelabel SaaS products perhaps this is the plan for the USA expansion with AoM could be a low risk revenue share type situation.

More promotional activity...

CEO interview on FNN

Snazzy new website brochure

AoM department of defence win

Art of Mentoring update 

60% increase in August YoY revenue

12% increase in total number of logos in the last 7 weeks $600K in new client wins ($160K for FY22)

100% renewal rate since 1 July 2021 with LTV expected to exceed $500k

I think an unneeded update. Not really sure what the game is here especially with another recent non-price sensitive update about AoM. (Maybe a string of positive announcements preceeding a raise?)

For those counting I think they would like you to assume 1.6mil annual revenue for this division (although this would assume August was the up the same as other months). That generally renewals are going well.

FY 21 preliminary report:

Significant growth of 65% YoY in revenue for ordinary activities, contributed by both organic growth and business acquisition.

Whilst true I think a capital raise is called for. 

The next 4C should be resonable with R&D rebate + (hopefully) delayed receivables. This should push in income past 2mil and be positive CF. Still wont be enough for a further 12 months especially to retain staff + grow and the new CEO will need resources to make any difference.

It's becoming easier to be an investor in this company as it can be reasonably pitched as a nano cap software company growing revenue at 65% through organic growth and roll up strategy of small private software companies. Currently priced at a P/S of 4 (hardly demanding in this market).

Last raise was at 5.3 cents which was well above my expectations lets see what they get this one off at. 

Report is here.

Key highlights & business update: 

Cash receipts for FY21 were $5,066,000 + receivables balance of approximately $661,000 as at 30 June 2021, which represents YoY growth ~ 52.5%.

Net operating outflows for FY21 were $649,000, a reduction of $1,533,000 (70%) compared to the prior year. (Sure if you exclude software development costs)

ApplyDirect off-the-shelf product expected launch in the September 2021 quarter.

Art of Mentoring (AoM) as per recent announcment + "we look forward to some positive announcements soon."

 During the quarter, meters under management grew by approximately 5,000 (an increase of 10% QoQ). 

 Debt facilities of $2,000,000 in place to support its working capital needs. These were not drawn down (yet).

Thoughts:

Concerning that LPE contract implementation not discussed in my opinion.

You can see by shifting  costs into investing line items and taking out the debt facility they have avoided having to answer manditory questions Re: Capital raising. However, it's pretty obvious they need more cash. At what price is the interesting question. I almost wonder if they have intentionally shifted recievables into next quarter to buff it up prior to going back to the market for some more cash.

Full report here.

Non price sensitive announcement Re: AoM division

Client base by 63% YoY. 24 new clients acquired since the start of the financial year with 20 new clients acquired since the acquisition

83% renewal rate since the start of the financial year.

 Notable customers signed during the year include Toyota Australia, Aurizon, Royal Australian Navy, Equiti Group, Australian Dental Industry Association, Murdoch’s Children Research Institute, NSW Publlic Service Commission, Infrastructure NSW and ABC Connect.

Achieving a YoY revenue growth of approximately 35% (ie ~$350k hence not really price sensitive)

Thoughts: If the thesis was a division with smaller contracts with a shorter sales cycle as pitched at acquisition AoM seems to be fufilling that promise. Not sure why this couldn't wait to be released with the 4C. If I had to guess I'd say they want to raise more cash and want to put out a series of positive announcments (seasonal high on receipts typical of 4Q 4C), implementation of LPE contract etc... then cap raise.

Full announcement here.

The Board has appointed Mr Brendan Kavenagh as the successor to the role of Managing Director and Chief Executive Officer of AD1 Holdings effective immediately. Mr Chandra will remain with the business during his six-month notice period to facilitate a seamless transition to Mr Kavenagh.

Thoughts: My impression is that AD1 leadership are looking to drive sales and growth moving forward which may be better served with a CEO with these skills. Mr Chandra had more of an accounting background being internally promoted from CFO. I cautiously think this is a positive move. My assumption is this is a move driven by the board (but that is a guess). AD1 is a software company trading on price to sales of x3-5 an undemanding multiple in todays market. I think they should be able to bump this up prior to a credit raise which they look like they will need either to continue to roll up small private software companies or just to get through to +ve cash flow. Also managment incentives are all aligned to getting the share price above 10 cents in the next few years which is a goal I can support.

Time will tell....

Recent presentation by LPE on Coffee Microcaps youtube channel bodes well for AD1's deal with LPE. They expressed optimism over user growth and discussed a new technology roll out that would allow them to scale more efficiency without growing staff numbers. This is almost certainly USS's software and demonstrates the value proposition for energy retailers who don't have the time or resources to develop thier own unique software for handling management of billing, meters, data handling, consumer relations and customer portals.

Presentation here. Comments around minute 28.

80% YoY revenue growth (hard to interpret because of acquisition of AoM) 

Ramp up in staff cost likely due to acquisition.

Sounds like next six months will be building out some customer solutions in utilities and Apply direct divisions likely resulting in positive cash outflow. Debt facility in place presumably to get them through the next six months.

Be interesting to listen to the Q & A.

Just wanted to clarify in my mind the managment incentives over next 12-18 months from options and LTIs:

Assuming the share price gets to $0.10 by Dec' 2022

CEO's Profit $112,500 (has to be $0.10 by July 2022) 

Management total profit: $248,533

And after $0.10 things start to get interesting because of the more recent options grant for every 1 cent increment each director will make $250k and CEO will make $60k. This is just from options and does not include their ~30% insider ownership.

I suspect that in the near future we will see more promotional activity, presentations etc to try and achieve this price appriciation. 

AD1 signs 5-year $10 million agreement

Key points

- Based on LPE’s current customer numbers, AD1 is expected to generate total revenue of approximately $10 million over the term of the agreement (approximately $2 million per annum), more than doubling its current revenue with this customer.

- “The additional revenues under this contract will commence post implementation, anticipated to be completed during the July-September 2021 quarter, increasing the Company’s recurring SaaS and Managed Services revenue by approximately 50% compared to FY2020.”

Thoughts:

- While this is a positive development they continue a trend of opaque announcements which really don't tell you anything. For example SaaS and managed services revenue in 2020 is not a disclosed figure that I am aware of. "More than doubling the current revenue with this customer" also unclear. This is a pattern with the announcments and it is worth taking the figures with a grain of salt especially seeing as thier incentives and aquisitive strategy rely on a higher share price.

Announcement can be found here. 

FY21 Q2

Highlights

- $1.39 mil Revenue (46% increase on FY 20)

- Excluding acquisition costs outflow of $1.43 mil (27% decrease)

- New metric for USS 'meters under managment" which grew 5000 (12.5%) which I guess means they have ~45000 total.

- Positive commentary regarding growth with existing customers and winning new business

The announcement can be found here.

Thoughts:

Things looking very promising for a cashflow inflection point in FY21 or early FY22. Put together a graph of the last two years of 4Cs and you can see some seasonality (I guess that makes sense with government work) revenue in Q3 may be a bit down and Q4 previously strong.

AD1 recently provided an update on it's AoM acquisition (for more information Re this acquisition can see relevant straw.)

Highlights for me:

"AoM has performed well on both fronts adding 15 new customers to its portfolio since the start of the financial year. Importantly, eight (8) new customers have been acquired post the announcement of the acquisition demonstrating the sales momentum of this business. AoM has built a strong sales pipeline, which is expected to continue to support its new business momentum. In addition to growing its customer base, AoM has successfully renewed all 16 clients that were due for renewal since the start of the financial year."

Notable customers include: Toyota Australia, Fair Work Ombudsman, Aurizon and Royal Australian Navy.

"As a result of the above, AoM is trending approximately 80% above its revenue for the same period in the previous financial year."

Expect to have to pay some earnout tranches but altogether an encouraging update.

Full announcement here.

Insiders have purchased 1,572,162 shares over the past week or so at an average purchase price of $0.046 for $72,000. This is about 25% of the volume traded over this time period.

Be aware at the upcoming AGM management plan to grant themselves lots of options.

The propaganda:

Over the last 18 months the Company and its key people have worked tirelessly to ensure that the Company becomes profitable and cash flow positive as soon as possible. As these objectives are realised the next objective is to create substantial shareholder value by significantly increasing profitable revenue and the intellectual property base of the business. The ultimate goal is to increase the capital value of the company as reflected on the market as quickly as is practicable in its operational jurisdiction. The Company's Managing Director and each of its Non-Executive Directors have been at the forefront of this turnaround. As it relates to (insert director here) he has made significant unrewarded time commitments and all current Non-Executive Directors have been directly and actively involved in the Company's business to a far greater extent than is standard and usual for a non-executive director of a microcap listed company, for no additional remuneration. It is expected that this dedicated approach of the Non-Executive Directors towards the future success of the Company will continue well into the future. The intended result of this continuing involvement is to significantly increase the market capitalisation of the company over the option period if these options are granted

For the three directors 65,000,000 Options each:

The Options are to be granted at a nil issue price with each New Option having an exercise price as follows:

For 25,000,000 Options (Tranche 1): $0.10 per Option

For 20,000,000 Options (Tranche 2): $0.20 per Option

For 10,000,000 Options (Tranche 3): $0.30 per Option

For 10,000,000 Options (Tranche 4): $0.40 per Option

For CEO 15,000,000 Options

For 6,000,000 Options (Tranche 1): $0.10 per Option

For 4,000,000 Options (Tranche 2): $0.20 per Option

For 2,500,000 Options (Tranche 3): $0.30 per Option

For 2,500,000 Options (Tranche 4): $0.40 per Option

Five year expiry

Vesting conditions

For (Tranche 1): No vesting conditions. These will be issued as vested Options

For (Tranche 2): The achievement of audited consolidated revenue of $10 million or more or audited consolidated EBITDA of $5 million or more

For (Tranche 3): The achievement of audited consolidated revenue of $20 million or more or audited consolidated EBITDA of $10 million or more

For (Tranche 4): The achievement of audited consolidated revenue of $30 million or more or audited consolidated EBITDA of $15 million or more

Thoughts:

Pretty generous and it truncates the right tail. I’d prefer if they chose buying on market as a method for linking their wealth to the company’s success. The upside would be for any of these to matter the share price would have to at least double. 

Best case senario: Seeing good things in the business and quick value grab prior to rapid improvement in financial fortunes.

Worst case senario: Insider circle jerk options bonanza just in case things work out.

AD1 is no longer a value pick and I thought I should update the bull case.

AD1 holdings is a holding company with three distinct divisions

ApplyDirect:

-       White label this employment portal with relevant branding and provide ongoing managed services

-       Target market is large employers who require a direct employment portal, think government and multinationals.

-       Cross sell opportunity with AoM

-       Customer examples: NSW government, Victorian government, Pharmacy guild of Australia

-       Website: https://www.applydirect.com.au/

Art of Mentoring (AoM):

-       SaaS Product that provides structured mentoring software program to large employers

-       Target market is large employers who want specific software to implement a structured mentoring program, think government and big companies

-       Cross sell opportunity with ApplyDirect

-       New acquisition and yet to see the effect

-       Customer examples: ATO, Toyota, NSW government

-       Website: https://artofmentoring.net/

Utility Software Services (USS):

-       SaaS solutions, business process outsourcing and consulting services.

-       Target market is the energy retail market

-       Services include management of billing, meters, data handling, consumer relations and customer portals. Presumably most of this is also white labelled.

-       Customer examples: iGeno, Powerclub and 3P energy

-       Website: https://www.utilitysoftwareservices.com/

Financial situation is acceptable

-       Close to consistently cashflow breakeven

-       Around $1.6 million in the bank, no debt

-       Under new management have managed to reduce costs over the last year by ~40% while simultaneously growing revenues organically at also ~40%.

AD1 has stated that its strategy will be to:  

Grow existing divisions, keep costs under control

o   It seems that they are demonstrating that they can succeed in implementing this although in a highly competitive SaaS market they might want to make sure they are investing enough in the business as a few of their websites look a bit shabby.

Grow through acquisition

o   They are looking to aggregate small SaaS businesses that are likely too small to attract attention from larger companies.

o   This can lead to marginal businesses becoming profitable through sharing expenses such as payroll, IT support, accounting etc. As well as accelerating revenue growth through cross-sell opportunities and freeing divisional managers to work on selling and product delivery rather that the more mundane aspects of the business

o   There is a real private to public arbitrage that they can exploit where these small SaaS businesses are likely going to be valued at a higher multiple on the public market Vs what AD1 has to pay for them on the private market.

Insider ownership is significant with the board collectively owning around 30% of the company.

CEO incentives seem reasonable and aligned to shareholder interests as they are simply share price targets.

-       Provided Mr Chandra is still employed three years from the offer date (i.e. on 24 July 2022) and the relevant Target Share Price for a particular tranche of the options is met or exceeded on that date, all of the options in the relevant tranche/s shall vest. The Target Share Price and Exercise Price for each tranche of the Unlisted Options is as follows:

o   Tranche 1: $0.05

o   Tranche 2: $0.075

o   Tranche 3: $0.10

There is some of this optimism currently priced in currently. However, there is an emerging significant right tail to this company’s valuation if they can execute on their strategy.

FY21 Q1

- Cashflow positive for the second time in a row to the tune of 153K

- This was mainly due to the R&D rebate of $450k

- They did say there were some delayed recievables that may have brought them to neutral cashflow even without the rebate

- $613k in the bank (note this has been subsequently boosted by the capital raise

Thoughts:

AD1 has stated that its cost rationalisation program has completed and that means efficiency is as good as it gets currently. They now need to grow revenue faster than expenses if they want to get to cashflow positive Ex government assistance. A few more contracts and success of exisiting ones should get them there probably not by next quarter though. I was surprised they were cashflow positive this quarter and I will be shocked if they are in Q2.

Successful completion of $2.5 million placement

• Strong endorsement by investors with an oversubscription of the underwritten amount approximately five-times

• Placement underwritten by the Company’s Non-Executive Directors to $1.5 million (non-cash 6% underwriting fee in options expiry in 2 years with exercise price $0.077)

• Two new small-cap fund managers participating in the placement

• Firm commitments received to raise $2.5 million in a placement to professional and sophisticated investors at an issue price of $0.052 per share

• Funds raised be used only for the acquisition and integration of Art of Mentoring, and as reserve for future acquisitions.

Thoughts:

I have to say this has greatly exceeded my expectations. 0.052 is a great price and above my fair value estimate. Oversubscribed 5x is also nice if unexpected. Provides a much more secure balance sheet going forward.

Interestingly we as also treated to a small comment on new referrals between business segments (I do think there is some synergy between AoM and Applydirect divisions with similar target customers if nothing else)

Full announcement here

Acquisition of SaaS platform Art of Mentoring

- AoM is Australia’s leading (well I can't name any others can you?) mentoring program provider that delivers best-in-class programs through an intuitive SaaS platform.

- The Acquisition is expected to provide significant benefits to the Company, including the addition of a diversified recurring revenue stream of approximately (ie less than) $1 million with excellent growth outlook and significant sales synergies with the Company’s career- platform offering (probably true).

- The share sale and purchase agreement provides for the Company’s 100% acquisition of AoM (on a cash free, debt free basis) to be funded by an initial upfront cash payment of approximately (more than) $1 million (more cash than I thought they had) and scrip component of approximately $500,000 of new AD1 shares (I like this bit). The agreement provides for further cash and scrip based earnouts over two tranches, which will be subject to the achievement of revenue growth targets (Bit light on detail...).

- Issued shares will be escrowed for 2 years

- Founder comes across to lead division

- Commenting on the Acquisition, AD1 CEO, Prashant Chandra, said: “Increasing shareholder value through EPS accretive acquisitions is an important priority for AD1 and we believe the AoM acquisition delivers on that priority. (Don't think this matters too much as AD1 seems to be valued on a revenue multiple now...)

- Some commentary about doing more aquisitions in the future.

- OK so for 1.5mil (~5% of market cap we increased revenue by ~25%) No idea Re: expenses

- I think there probably are legitimate synergies in terms of customer base with ApplyDirect probably not USS.

- Terms are encouraging with 2 year escrow and fair chunk in stock which is (IMO) overvalued

- No idea where the cash comes from?

Overall I'm feeling neutral Re: this acquisition not great not terrible on the surface. Keen to see the details. If share price keeps going up I'm probably going to trim a bit.

Announcement here.

AD1 signs three-year contract with Powerclub. An energy utilities provider.

“The contract commences in the current quarter with the implementation of the solution, and is expected to materially add to revenue over its three-year term. In addition, the Company also expects to continue its new business momentum with strong pipelines across both utilities and recruitment-platform divisions.”

Given its a master services agreement hard to gauge the size as it likely depends on the continued success of Powerclub. Materialness is also in the eye of the beholder.

Positive development but no idea how positive. 

Optimistic language Re: future business.

I still expect a credit raise soon...

AD1 signs Managed Services Agreement with 3P Energy

3P Energy with its full suite of SaaS solutions and related managed services to enable customer acquisition, fully compliant billing and operations, and customer analytics platform. The initial term of the agreement is three years and is expected to be revenue generating in the December 2020 quarter.

3P Energy is wholly owned by National Solar Energy Group (NSEG) which owns several businesses which provide a range of industry leading solar services and solutions throughout Australia. NSEG’s largest business trades under the name of Sunboost and is Australia’s largest provider of solar technology to the residential and commercial markets.

Thoughts: AD1 is creating a solid contracted revenue base through the next three years. A few more contracts (commentary is several are in late stage negotiations) and they will balance costs and will hopefully then demostrate good operating leverage given their software/web services business model. As they lock in contracts a capital raising becomes easier and I am increasingly optimistic that this will be able to occur at a good price.

Highlights

- Positive cashflow of $217,000 (only +35K if you exclude grants and tax incentives)

- Operating expenses have benefitted from the cost rationlisation program (yet to see a full year's effect of this)

- Cash in bank $460K

-Some late stage contract neotiations to come

Assuming 30% growth in receipts over the next twelve months ongoing government grants and relitively aggressive cost control for the next twelve months AD1 is still looking at around negative 1mil for FY2021. With only 400K in the bank a capital raise is required. Now on an improving trajectory with multiyear contracts they should be able to pull this off at a price hopefully >2cents/share. Looking out slightly further I remain optimisitic that this company will be profitable within two year and possibly significantly so within three. 

Two recent annoucments confirm ongoing contracts with the NSW and Victorian government. This is central to the thesis as it provides the revenue base for expansion into profitibility and removes some of the near term concentration risk. 

I think the the share price has gone a bit bonkers and suspect that fair value is around 2 cents (market cap ~10m) as I have previously stated.

However, if they can now raise at a high share price and use that money to fund business expansion and the aquisitions murmured about this share price rise might be in time justified. Its also placed the stock on a lot of people's radar which is helpful. Unless it goes full stonk I'm inclined to be a holder here at ~ 4cents.

The quarterly should look good as well as there is some seasonality to cash flows. 

Announcments can be found here and here.

I’ve been considering the possibilities here. The fact is despite looking good for breakeven this company has no cash (less than 1m). They have said they will explore “non-dilutive” funding to meet cashflow requirements.

Option 1. Cap raise – Colour me sceptical regarding their reluctance, if they need the money they will do it. Likely this will be proceeded by some positive news most likely the quarterly (likely to be their best this year) accompanied by a rosy outlook. Against thisn possibility would the buy in by the Smedley family office at 1.5 cents last year to be a cornerstone investor and now director. They are unlikely to want to see their investment diluted at a lower price than they paid. Due to the share price I also feel this would be a mistake but if it appreciates to ~2cents or more then it is much more appealing.

Option 2. Loan (either from bank or related entity)– I actually think this may be the best funding option. It certainly seems to be what the commentary in the reports is implying. If the company is able to go to a cashflow positive situation in FY21 then a loan for working capital makes sense. A major shareholder may also front up this cash and I’d want to look carefully at that deal.

Option 3. Cap raise for acquisition + a bit extra – Has also been mentioned in commentary and new “strategy” hence the name change to AD1 holdings. Potential targets mentioned in passing without elaboration. If EPS accreditive as implied may not be terrible option. However, acquisitions tend to introduce a lot of risk to businesses and often are less than value creative. Given the related commentary this may be the most likely option.

Other possibilities that I consider less likely

-       Advance payment by customers

-       Sale of utilities billing business

-       Just scooting along with barely any cash buffer

Cornerstone investor and director Mr Smedley buying $15k on market at $0.01 / share. Sounds like not much but thats all the volume there is.

Essentially whitelabels employment portals for nsw vic state government and now pharmacy guild. 

Thesis:

- Profitability inflection point.

- Reasonable balance sheet. (1mil, no debt)

- Pre COVID stated good pipeline of projects

- Current customers are very defensive (government / pharmacies)

Too early to give an specific valuation  but with a current enterprise value of 4m any profit is likely to result in dramatic upswing in the market cap. Most of CEO’s incentives are tied to share price that is significantly greater than the current one.

Risk

Without going into a lot of detail the recent history of this company has not been kind to shareholders and a merger with one of the board members other companies was highly dilutive to the common stock. You have to have a bit of faith that going forward management will be kinder the common stock holders. This is more likely in my opinion due to a recent private cornerstone investor as an addition to the register. However, take that with a grain of salt because if you do a search on that guy you find out he inherited his money, used to be a banker and otherwise seems to be only known for some domestic violence accusations (point is I’m not sure I’d trust his judgement).

Any customer loss would be a significant blow but this seems unlikely as government customers tend to be sticky clients and changing your employment portal would be a significant headache.

Scroll down to the bottom of any of these pages to see the “powered by ApplyDirect”

Company Website

https://www.applydirect.com.au/

Pharmacy Guild Career portal

https://www.mypharmacycareer.com.au/

Victorian government career portal

https://careers.vic.gov.au/

NSW government career portal

https://iworkfor.nsw.gov.au/