I covered my AIM thesis in this video with Mark Tobin at Coffee Microcaps:https://youtu.be/RtVN9C4VgEg?si=TeN2Yg31vueUCebx

But I'd be remiss not to call out the brilliant @mushroompandafor bringing AIM to my attention so I recommend reading his Straws. Like most of the market, I was asleep to the transition from a human based Services business to an infrastructure led Technology one until he pointed it out. On top of the transitioning business model, the financials are also muddied by an elevated amortisation bill from previous acquisitions. As @mushroompandapoints out, on a cash basis the business is already profitable and scaling very nicely.

Over the medium to longer term the key for AIM is to capture the growing pie of live captioning, not just convert their existing customers to higher margin Technology solutions. Given the cost of a human stenographer many uses cases were prohibitive and customers were generally those legislated to provide captioning for accessibility purposes. However with automated captioning now overtaking humans in quality at ~10% of the cost, it is opening up use cases away from traditional live television broadcast such as conferences, large events, places of worship, courts/tribunals and large enterprise meetings.

CEO purchased $1.5m worth of stock on market at $0.31 taking his holdings to 16.9%. https://announcements.asx.com.au/asxpdf/20240618/pdf/064nxhfbzh5rd9.pdf

Previous to this, around 1.5 years ago, he purchased $1m worth. https://announcements.asx.com.au/asxpdf/20221129/pdf/45j5m9b1sh00x3.pdf

The size of the purchase is not what you typically see in ASX microcaps.

I went back and watched the interview with CEO Tony Abrahams from 2 years ago. It’s amazing how much of it is still relevant today. Back then, it was a captioning services company that had just made an acquisition of a captioning technology business (EEG) and was pivoting hard in that direction. The services business was impacted by free captioning offered by the likes of Zoom and Microsoft Teams and saw a horrendous -25% decline in revenues. The transition from services to tech is now two years on, so what does it look like?

In that period, Tech has gone from 28% to 48% of revenues and now accounts for nearly 2/3 of the group’s gross profits. It’s now not only backfilling, but over-powering the declines in services and is powering revenue growth at the group level as well. Tech has much higher gross margins (80% vs 40% with services) and has improved the overall gross margin from 53% to 63%.

The bottom line has also improved and has now inflected into profitability and FCF positivity. The amortisation of previous acquisitions and the historically higher capex spend is suppressing the statutory numbers. My normalised EBIT number (EBITA minus current capex spend) is my preferred metric for underlying profitability and that’s now well in the green.

It’s currently trading at 1x revenue and 19x EBIT, and the market clearly doesn’t believe this to be growing tech business, with improving margins, inflecting into profitability and who’s largest division by gross profit is growing at 40%pa.