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.

Ai Media shared an interesting announcement today that they’ve signed a 3 year contract with Google for up to $5M TCV. 

Rough math would indicate this might end up being ~$1.5M/Year. For a company on a revenue run rate of $60M, it’s not necessarily material. But the value of the Google logo is a big hit. This appears to cement comments the CEO made when he spoke to us ~6 months ago; that they had the best product for automatic speech recognition.

The business might be an interesting inflection point now; the CEO had mentioned at the time they were in the process of pivoting their business from services (humans were doing the speech writing), to Saas (Lexi software does the speech writing). 

Interesting one to look at in the next few quarters to see if they can maintain this momentum. 

Announcement Link here

Interesting discussion with their CEO Tony Abrahams on Coffee Microcaps 16th July.

This company provides realtime / near real time closed captioning, incuding translation, through a B2B model. 

Their commercial and business model offers differing levels of accuracy to customers based on the level of intensity of human involvement in the closed captioning and customisation of 'libraries' based on analysis of an individual's voice.  They have some cool ideas such as retaining their own speakers who repeat a stream of dicussion into a libarary that is tuned to analysing their voice (as opposed to an unknown's voice broadcasting say... the news)

It's interesting to learn from this founder CEO about their journey from 2003 with Foxtel to where they are today.

A significant pitch around the value proposition is that accuracy is important; that even the most minor of errors is unacceptable to a deaf viewer that needs closed captiononing, or perhaps an employee of a multinational company participating in a teams / zoom meeting with live translation taking place on the fly.

My hesitation with this one is that whilst these guys may be market leading now, and will likely continue to be market leading for some time; with the trajectory of AI I see companies like Google being able to beat these guys in the long term.

Google for example has millions of hours of media content stored.  With the development of AI / ML, and the Google's position in the market, I wouldn't be surprised if they could crush the likes of AIM in the future if they decide they want to get good at Closed Captioning.

Incidentally I watched the presentation on youtube with google's closed captioning turned on.  It wasn't 100% but it was pretty good.

I'd therefore be apprehensive stepping into this one.

Ai-Media delivers strong first-half revenue growth, tracking ahead of full-year prospectus forecasts

Highlights

•  Strong revenue growth, with H1 FY21 Services revenue of $22.7 million, up 26% on the previous corresponding period (pcp) and tracking ahead of FY21 prospectus forecast2; Services revenue on a constant currency basis up 29%
•  60% of revenue now from higher-margin Live Enterprise business, up from 50% in the pcp
•  Revenue growth in all regions, with the key North American market up 38%; offshore markets now contributing 61% of revenue, up from 50% in pcp
•  Total captioned minutes up 37% to 7.1 million, with Live Enterprise minutes up 40%
•  Gross profit of $8.8 million in line with FY21 prospectus forecasts2; gross profit margin of 38%, with an improvement expected in H2 FY21
•  Cash balance at 31 December 2020 of $8.8 million, providing a strong position to pursue additional growth opportunities
•  Normalised EBITDA loss of ($3.8m) excluding IPO and restructuring costs
•  Remote working and regulatory tailwinds continue to drive customer acquisitions
•  Repeating revenue rates of over 99% and success in competitive tenders
•  Reaffirmed FY21 prospectus forecasts, including revenue of $43.8 million, with the contribution from recently completed acquisitions providing further upside