The story was fading, and then took this odd turn. I'm glad I exited at more than double current prices over a year ago.

From Market Matters -

Adacel Technologies shares fell by a third on Wednesday, 23 October after announcing its intentions to voluntary delist from the ASX. The company specialises in simulation and training systems, primarily for the aviation and defence sectors. 

Why delist – The announcement cited the following reasons:

1. Limited trading and liquidity – ADA shares have been relatively illiquid, with only $14,740 of average daily turnover over the past six months
2. Valuation – The Board believes low trading volumes have had an adverse impact on the share price and its current valuation is “materially lower than the true value of the business”
3. Capital raising – Any further capital raisings at the current valuation will be highly dilutive and further reduce the share price
4. Cost savings – Delisting will result in approximately $626,000 in annual savings
5. Management time and effort – A significant portion of management time is currently being dedicated to matters relating to the company’s ASX listing

While these are all valid points, Adacel’s earnings history has been rather volatile over the past few years, including $9.2 million profit in both FY16 and FY17, breakeven in FY23 and a $6.6 million loss in FY24. 

This volatility has been underpinned by various factors such as lumpy project-based revenues, market cyclicality and the pandemic.

One question on your mind might be – Why did the stock fall so much?

As illiquid as Adacel may be – Investors can still buy or sell shares on the ASX. The ability to do so attracts a liquidity premium. Going private is another ball game to buy or sell equity.

Adacel released their managements Long Term Incetive Plan. This applies to the:

- CEO

- Vice President of Business Development & Strategy

- Vice President of Operations

The company has agreed to issue 406,000 performance rights that will vest after FY24 results are relased.

Management are required to achieved an annual return on invested capital (ROIC) of 26% or greater over 3 years (25% rights vesting).

Managerment are also required to achieve an annual growth rate in revenue of 10% or greater over the 3 years (75% rights vesting).

Nice straw from @Dominator, with a lot of valid points raised.

However, one can argue that the current price of the company (even after the 4x from last year's lows) already accounts for the sluggish, lumpy growth and industry characteristics, by awarding the shares a multiple that is considerably below the market average (around 13x now after the post-earnings pop). In other words, they can continue to expand in their smaller niche and clip the ticket on service/project revenues in the meantime.

The renewed board and management seem to have righted the poorly managed ship of years past, and the company seems to be gradually returning to the market's good books.

They are coming off multiple earnings upgrades in FY21, and while guidance is a bit tepid for FY22, there is scope for the upgrade cycle to continue as the year progresses with the new found conservatism shown by the current operators. The company's financial position is also sound with ~ 11m of net cash on the balance sheet.

As someone who works in the industry I was surprised to find a listed ATM system provider listed on the ASX. I thought I would share my views as to why I won't invest in ADA to help other members better understand the industry.

ATM systems are not replaced very often due to the safety, organisational change and capital requirements of an ATM system. System lifecycles are normally at least a 10+ year commitment (for basic systems and 20+ years for complex) and will undergo continual upgrades during that time. 

Adacel seems to play at the very bottom end in terms of scale and capability. There is definately a market for smaller Air Navigation Service Providers (ANSPs) to have off the shelf type solutions. However, once you get to an ANSP with any level of decent traffic the system is built to spec as per the ANSP requirements from a baseline software. For example, I was blown away that Seychelles can replace their current ATM system for only $3.6 mil US. Much larger providers would be spending 100x this to upgrade a system.

There are only so many of these small ANSP providers, with the long product lifecycles of the systems purchased from Adacel, long term growth is very limited in my opionion.

Adacel's simulators seem extenstively used worldwide including Australia. These appear to be very popular and the most interesting part of the business to me. However, again, there is only so many simulators required. Most ANSPs that need simualtors will already have one. There is no new market you can create so growth longer term is limited to replacement plus industry growth in the training of ATCs.

General observations:

• ATM is a very speciallised industry, however, the board only appears to have a founder with experience in the industry. I would like to see some more relevant experience.
• The simulators appear to be a great product.
• The Aurora ATM appears very basic (which suits smaller ANSPs due to lower cost). For example, the interface looks a bit backyard operator like compared to other systems used by large ANSPs. 
• Adacel is competing against some very large engineering companies that have already deployed their very advanced systems to multiple ANSPs and have the skills, knowledge and personel to keep improving their offering.
• There is just not enough of a market for Adacel to become a fast growth company. If growth is achieved it is unlikely to be maintained long term as they will run out of customers imo.

Following up on the FY2021 results, my concern is the lack of both revenue growth and earnings growth guidance for next financial FY2022.

However, this sounds like it's related to increased spending in order to drive growth:

"Having solidified Adacel's operational, product, and financial foundation, this year we will invest in our sales capabilities to drive future growth. Moreover, we will continue to drive shareholder returns through our balanced capital management strategy, including dividends, share buybacks, and potential M&A activity."

I will continue to hold until I see any issues with this business statergy.

Adacel doubles reported PBT in H1 FY2021, increases guidance for FY2021 and declares interim dividend

Highlights:

•  Profit before tax for H1 FY2021 doubles to $4.2 million
•  As of 18 February 2021, over 100% of Adacel’s original forecast revenues for FY2021 are either booked or in backlog
•  The Company declared an interim dividend of 2.75 cents per share (unfranked)
•  The Company updates its FY2021 earnings guidance of profit before tax between $7.00 million and $7.3 million.

Presentation;-

https://assets.website-files.com/5da4a6db96a90c56ae7991c7/602e6e7b9734847a6224cbd8_H1-FY2021-Investor%20Presentation.pdf