Here's the transcript from today's session with Mal:

AVA_Transcript_May2025.pdf

The big concern among most observers has been the slower than guided for pace of growth, so I asked chatGPT to highlight any comments from Mal that touched on this:

Summary: Mal Maginnis on Revenue Guidance Revisions and Early Expectations

1. Revenue timing slippage

• Mal acknowledged that while H1 FY25 was very strong, Q3 slowed, and some projects slipped into Q4.
• He noted that even small delays ($2–3M) have a substantial impact on a company of Ava’s size.

2. Overestimation of market adoption speed

• Mal believed the market would adopt Ava’s sensing technology faster than it did.
• He underestimated the lack of depth and readiness in many industries for this type of infrastructure sensing.

3. Historical baggage around fiber sensing

• He admitted not fully appreciating the skepticism in the market, caused by previous issues with high alarm rates and poor performance from older fiber sensing solutions.
• This created more resistance and longer sales cycles than anticipated.

4. Program sales cycles longer than expected

• Large project sales cycles are now expected to take 12–18 months (sometimes more), versus the 12 months or less initially assumed.

5. Macroeconomic and geopolitical impacts

• Global uncertainty caused major clients to delay capital spending.
• Some deals were pushed out by 3 to 6 months, affecting FY25 revenue recognition.

6. Pipeline disruption during team transition

• Mal acknowledged that changes in the commercial team led to parts of the pipeline falling away or being revealed as less real than initially believed.

7. Guidance was aspirational, not fixed

• He clarified that the original $42.7M–$55.2M FY25 range was not firm guidance, but a directional aspiration.
• He acknowledged that some investors may have treated it as a hard forecast.

8. Mitigation strategy going forward

• To address variability, Ava is now focused on:
• Growing recurring revenue
• Building a deeper pipeline
• Expanding backlog to smooth revenue over time

9. Nature of the business

• Ava is a program-based technology business, not a fast-moving consumer goods company.
• Sales are lumpy by nature, and even with strong products and execution, quarter-to-quarter predictability is limited.

For better or worse, I tend to think the technology is sound, the offering is compelling, and the opportunity remains significant. That said, management has clearly been too aggressive in setting expectations. Twenty-eight months in, Mal appears to have made a number of sensible but also highly material changes. He replaced more than 30 people in a team of around 40–45 non-manufacturing staff, effectively overhauling the commercial and client-facing parts of the business. He also shifted the development focus away from bespoke, one-off solutions and toward a more scalable, productised platform.

Those kinds of changes tend to disrupt a business before they improve it, and it takes time for their full impact — positive or negative — to become clear. When you layer on slow-moving customer decision cycles and capital deferrals in key sectors, it’s understandable why many of the early expectations haven’t been met. Still, there’s a meaningful distinction between underestimating timelines and being wrong about the opportunity itself.. and I think Mal’s misstep lies more with the former. The underlying opportunity hasn’t gone away. With much of the heavy lifting behind them, the next phase is about proving that the groundwork can now translate into consistent, tangible results.

But, as ive said, if we dont see decent traction emerge very soon, I'll have to admit there is not as much substance as I had initially hoped for.

Another contract announcement for AVA: 06jrxlmy2605nz.pdf

$1.1m for deployment of Aura Ai-X on an oil and gas filed for Abu Dhabi National Oil Company. Again they say deployment will occur this quarter.

Nice to get a 7-figure contract. And great names being added to client list.

Like the announcement 2 days ago for the India gas field, I'd like to know split of hardware/software, one-off vs ongoing revenue stream, how much revenue will be recognised this quarter.

Still, regardless of details, a strong couple of recent sales.

New contract for AVA in India monitoring a gas pipeline. Contract value A$0.9m.

They mark the announcement as price sensitive, which feels questionable, but reflects Mal's past tendency towards overstatement. Still, a nice win.

I'd like to know breakdown of contract between hardware and software deployment, and one-off vs ongoing revenue stream.

They say delivery is expected to occur in the current quarter. That seems ambitious for hardware deployment across > 1000km of pipeline. There are some details missing to be able to make full sense of this announcement.

06jp924hbwnr30.pdf

Just as we speak/write . . . trading update from AVA:

https://announcements.asx.com.au/asxpdf/20250430/pdf/06j7sqqrsc9rnh.pdf

Ava Risk Group is in the business of protecting critical infrastructure and high-value sites from physical threats. It does this through smart fibre optic sensors, high-security access systems, and intelligent perimeter lighting and detection technologies. Its customers are governments, utilities, and large organisations that need to secure important assets.

The business has evolved a lot in recent years. It divested its logistics-focused services division (at a pretty incredible ROI, although the profits were essentially all paid out to investors rather than retained) and shifted focus to its in-house developed fibre-optic sensing tech.

This technology turns fibre optic cables into smart sensors that detect movement, digging, or climbing along a perimeter. It sends light through the cable and analyses microscopic changes in the reflected signal to classify activity in real time. (For the physics nerds: it uses Rayleigh backscatter and interferometry, with machine learning layered on top to turn raw signal data into actionable insights.)

The result is low power, high durability, and the ability to monitor long distances from a single system. Better yet, it can often be deployed over existing fibre infrastructure, avoiding the cost and disruption of new trenching.

That’s a big advantage over traditional perimeter security methods like fence-mounted vibration sensors, buried coaxial cables, or cameras, which usually require power at the sensing edge, have limited range, and are more prone to false alarms from weather or wildlife.

Alongside its core sensing business (Detect), Ava operates two other divisions: Access and Illuminate.

Access is all about high-security access control. Think biometric readers, encrypted smart locks, and secure systems for things like government buildings and prisons. Ava picked up this capability in 2014 through the acquisition of BQT Solutions. While Detect covers the perimeter, Access handles the internal entry points (doors, gates, restricted areas).

Then in 2022, Ava bought GJD Manufacturing, a UK-based business with expertise in perimeter lighting and detection. GJD makes things like motion sensors, ANPR cameras (for reading number plates), and IR and white-light illuminators -- hardware often used with CCTV to boost visibility and deterrence. Crucially, GJD tech allows you to trigger lighting or alarms in real time based on detection events, which ties in perfectly with Ava’s sensing capability. More recently, GJD released a LoRa-based wireless platform that can connect up to 500 devices without running cables, which is a big plus for complex sites.

Together, Detect, Access, and Illuminate make Ava a multi-layered security solutions provider. Think integrated systems that can detect, verify, and control access across some of the world’s highest-risk environments.

All of this sounds pretty compelling, but for a while Ava was really just a collection of standalone technologies. After the services divestment, it had some great IP but lacked cohesion. The segments operated more like parallel businesses. There wasn’t a unified go-to-market strategy. Internal systems and processes were a mess.

Then came Mal Maginnis. He joined as CEO in January 2023 and brought decades of defence and security experience. His job: get the machine working. That meant aligning products with customer use cases, building the sales and delivery backbone, and putting in place the systems needed to scale. Since then, Ava has become a much more focused business with a clearer strategy.

These changes take time. But it seems to be working. Revenue has grown steadily, hitting $30.2 million in FY24 (up from $28.6m in FY23) with FY25 forecast between $37 and $41 million.

More importantly, the quality of revenue is improving. Annual Recurring Revenue (ARR) hit $2.4 million in H1 FY25, up 20% year-on-year. The company returned to positive EBITDA in the latest half, with a $1.7 million profit (a $2.6 million turnaround). Cash flow has stabilised, and a $4.3 million equity raise has help strengthen up the balance sheet.

A key thing to note is that the internal systems have now been overhauled, commercial reporting sharpened, and the go-to-market model rebuilt. The sales team, especially in North America and EMEA, has been beefed up. The business is now focused on high-value verticals like border security, transportation, telecommunications, and energy infrastructure.

Cross-selling and bundling are now at the core of the strategy. The aim is to combine sensing, locking, and lighting into end-to-end solutions. That makes deployment easier and the value proposition stronger. Existing customers and distribution channels are being used to expand into Europe, North America, and the Middle East. The product set has been mapped to real use cases (eg borders, transport, utilities) allowing Ava to pitch for larger, more complex jobs.

In short, Ava’s shifted from clever tech to real-world commercially viable solutions. The product suite is far more integrated, and we’re beginning to see early signs of faster top line growth and expanding operating margins.

And that's the key part of the thesis -- after two years of investing in internal systems, commercial teams, and product dev (which did weigh on margins), Ava now has the foundations for scale. Management believes the current cost base can support much higher revenue and we’re seeing early signs of operating leverage. H1 FY25 revenue was up 20% year-on-year, margins improved, and the business returned to EBITDA positive. It's a start, but we need to see this continue.

The hope is that earnings growth begins to outpace revenue growth, especially as recurring revenue lifts and more big contracts land. That growth is underpinned by a stronger product offering, growing list of reference sites, and deeper enterprise and government relationships. Larger customers bring longer sales cycles, but once Ava gets in, the revenue is stickier and more repeatable.

Meanwhile, recurring revenue is building. Multi-year support, monitoring, and upgrade contracts are adding predictability and smoothing cash flow.

This is the latest management guesstimate from February 2025:

This shows the business moving from modest top-line growth in FY24 toward a more profitable, scalable model over the next 12–24 months.

At 10.5 cents per share, Ava has a diluted market cap of about $30.5 million and an enterprise value of ~$27.9 million. That puts it at around 7× forward EBITDA on the low end of FY25 guidance. But that’s a little misleading because the business is subscale and right on the edge of breakeven. The cost base has been engineered to handle a lot more revenue. If that growth materialises, operating margins should expand meaningfully. If not, well, the economics would remain pretty average..

At scale, this should be a business delivering 10–15% net margins (at least). And that’s the bet: that Ava can grow into its cost base and scale profitably. If that happens, the upside is big in percentage terms. Even more so from a stock price perspective if success brings multiple expansion.

In that case, the stock is ridiculously cheap.

Of course, the risks are real. If growth stalls or costs creep back in, shares will likely languish under 10cps. But there does seem to be real asymmetry here -- more upside than downside.

The market clearly isn’t pricing in much success. Which, i suppose, is the opportunity.

So why the ‘meh’ valuation by Mr Market? Part of it is liquidity. Ava trades under $100k a day, which limits institutional participation and depresses multiples. But also, there’s a fair bit of market fatigue. Ava’s been talking up its potential for a while, and while revenue has grown, earnings haven’t really followed through..yet. The unexpected capital raise in FY24 probably dented confidence in the company’s ability to fund itself.

That’s why the next 6 to 12 months matter. The hard stuff has largely been done; internal systems, sales capability, product integration. Now Ava needs to execute. That means growing revenue and lifting margins in a visible, sustained way.

If Ava even gets close to its FY26 targets, a 25 cent share price looks entirely reasonable. Maybe more, if there’s real revenue momentum. If it doesn’t deliver, the stock likely goes nowhere.

So why to a lean towards an optimistic stance? Because business transformation takes time, usually longer than markets are willing to wait. Ava’s spent the last two years doing the boring but important work. That phase looks done. Now we’re seeing early signs of execution: revenue is rising, margins are improving, and EBITDA is in the black.

I’m also patient (stubborn? naive?) But what I see is forward momentum. Contracts with Telstra and UGL aren’t speculative pilots, they’re commercial validation. Moreover, the order book is growing and ARR is rising. They seem to reliably convert the sales backlog into cash flows.

I think there’s also a tailwind here. Whether it’s border control, energy infrastructure, or general geopolitical instability, the need for scalable, intelligent perimeter protection is only going up. Ava’s well-positioned to benefit.

So yes, it’s a bit of a turnaround story. And one I was admittedly too early with. But it’s a turnaround that’s showing signs of working.

Strong IP. Streamlined and rebuilt operations. Improving fundamentals. Potential for meaningful operating leverage. And a valuation that barely reflects any of it.

That’s the setup.

Some strong numbers from AVA, some of which were already revealed in the January trading update.

Still, 20% revenue growth to $17m at an EBITDA margin of 10% ($1.7m compared to a $0.9m loss in the previous first half) was nice to see. Gross margins improved 3% to 64% thanks to a favourable segment mix (Detect has the best margins by far). Contracted annual recurring revenue was up 20%, and represents around a third of all sales orders for the half.

AVA saw a sales intake (signed but not yet delivered) of $16.3m, which is below the $19.7m pace received in H1 FY24 (but part of that was a big order from the Access segment as distributors built inventory). The sales backlog more than doubled to $7.6m and they reckon there is a $100m sales opportunity with close dates in this calendar year. $8.5m of this is seen as high probability and there is $26.6m of sales opportunities in progress.

A big part of the thesis has always been the ability for the business to realise some good operating leverage, and after a lot of restructure after Mal arrived, it was good to see operating expenses dip $0.3m and still see strong revenue growth.

Detect was the star of the show -- and this has always been the most interesting segment -- where revenue rose by 57%, and represented 71% of all first half revenue.

Access segment actually saw a dip, but the comparable period including initial stocking by resellers. So that's not too concerning. Still, will need to see some growth from here. Illuminate was also slightly down, but good to see that there is increasing cross-sell/bundling with Detect sales.

FY guidance is for revenue between $37-41.7m -- which would be ~30% up on last year at the midpoint, and suggests H2 revenue growth of almost 40%. According to their outlook, they expect an 11-15% EBITDA margin on this revenue, which is expected to further improve in FY26

All in all, great to see good sales momentum and expectations for further growth, with a stable cost base and rising gross margins, not to mention being EBITDA positive with $4.7m in cash in the bank. They also broke even on a statutory basis, so hopefully they really are at an inflection point.

The market just cant get excited about AVA, but another half or two of continued progress like this and it will be very hard to ignore, and I suspect a decent re-rate would be likely. I mean, they are on an EV/EBITDA ratio of 5.3x, which strikes me as dirt cheap for a business that is growing the top line at 20-30%, and is breakeven with rapidly expanding operating margins.

Of course, we need a strong second half for this to be true, and maybe that falls short. But if not, you'd have to think AVA could command a share price somewhere in the 20-30c range.

It's certainly been one to test the patience, but I think Mal has done well to reposition the business and it remains somewhat of an asymmetric bet -- much more upside than downside.

[Held]

a

Q2FY25 Update

2924-02904699-3A660053

The Good

• Reiterated H1 revenue guidance of $17m which is right in the middle of the range previously provided along with being EBITDA positive.

The Not So Good

• No update on Telstra deals or products. Previously indicated trials to conclude and others to start within Q2. If the $5 to $10m of adjacencies revenue is to come through, then we will likely need to see some orders coming through in Q3.
• Although AVA is forecasting an uptick in revenue for H2, sales orders were down to $7.4m in Q2 which is concerning for the work in hand yet to be recognized as revenue which sits at $7.6m. As this is expected to be delivered in H2, a further $12m needs to be won and delivered within the next 6 months to hit the bottom end of the full year guidance range.

Watch Status

• Hold

Valuation Status

• Review at H1FY25

What To Watch

• Progress toward full year guidance
• Telstra Updates
• Detect subsea trial to start in Q2
• Illuminate pit trial to conclude in Q2
• Mobile Tower security

A promising update from AVA, who look like they are on track to hit stated guidance (something the market has seemed sceptical of).

Full update is here: AVA_ASX_Q2 FY2025 Trading Update_1737412500.pdf

H1 revenue: $17m (+20% YoY).

Positive H1 EBITDA expected.

Q2 sales orders: $7.4m (H1: $16.3M).

Order backlog: $7.6M, including $2.4M recurring revenue (+20%).

Gross margins: 60–65%.

Stable cost base.

(Held)

There are 2 items, not sure which is more significant:

1. 3 little Aura Ai-X contracts, 2 with repeat customers (Dubai airport and an Eastern European border). The border was only a recent new customer who has asked for more so that seems good). New customer - San Diego airport.
2. Also, a sales executive resigned and will not be replaced, instead regional leads will report directly to Mal.

Announcement

Are there green shoots of growth?

Q1 Update and Presentations

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02874837-3A654561

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02875345-3A654645

The Good

• The business is really building itself around the Aura Ai-X technology with a decent pipeline of potential detect contracts for FY25. (Everyone loves a good pipeline graphic, just ask DRO). What is promising is the range of sectors that the sales are coming from.

• FY25 Guidance of $42.7m to $55.2m provided which is a solid jump on the $30.2m for FY24. What is a bit deceiving is breaking this into core revenue and adjacencies. (Telstra?) Given Telstra is likely a slow moving beast, guidance should be the core revenue range of $37.7m to $45.2m which is still an improvement of 25 to 50%

The Not So Good

• Ok sales order intake for Q1, with detect doing most of the heavy lifting again. Slight improvement in access with its best quarter since Q1FY24. However sales orders will need to increase to meet the revenue guidance. In previous years sales order intake has been lumpy.

Watch Status

• Slight improvement in sentiment due to guidance range and growth in the detect market.

Valuation Status

• Review at H1FY25

What To Watch

• H1 Revenue Guidance of $16.5m to $17.5m
• Telstra Update
• Detect subsea trial to start in Q2. Events like the recent damage to subsea cables in the Baltic are likely to provide tailwinds in this area.

https://www.euractiv.com/section/politics/news/finland-sweden-plan-joint-investigation-of-possible-submarine-cable-sabotage/

• Illuminate pit trial to conclude in Q2.
• Mobile Tower security - TBC
• LoRA product line in illuminate launched in the quarter. Expected to contribute to improvement in sales orders for Illuminate.
• Would expect a high likelihood of winning the remaining Sydney Metro contracts given AVA were awarded the first one, unless they have had substantial issues during the commissioning, for this type of project, it is unlikely to have multiple technology providers installed across the same type of scope. SRL is also being delivered by the same groups of contractors.

Overall, pretty good I think. Not that you'd guess it based on the markets reaction (but you cant read much into that when there have so far only been 6 orders valued at <$7k in total!! In fact, looking at the recent trading history, one may well speculate there was a bit of leakage and the market has already reacted -- shares are up ~40%-plus in recent weeks. hmmm)

Anyway, Ava is saying to expect 16-23% growth in the current half (they grew only 4% or so in the pcp), and to expect a much stronger second half. In recent years the 2nd half has typically been 10-12% better off than the first.

If that pattern holds, they'd be looking at 18% top line growth for the FY. Q1 Sales orders are a good amount above prior first quarters, and the third highest on record despite what is typically a slower period. So there does seem to be a good amount of traction.

I thought the growth in sales orders for the detect segment were especially pleasing, and it sounds like Aura-Ai-X is seeing a bit of traction. And Access had its strongest order intake since the initial stocking by distributors, which gives some sign that there's been a decent (and growing) uptake.

Importantly, they expect to be EBITDA positive in the current half, continuing on from the preceding half. Given many reiterations for a stable costs base, which has largely been borne out, I dont see any big risk for a further raise (barring an acquisition), and in fact we should *hopefully* start to see a bit of a jump in operating cash, which tipped positive in H2 FY2024.

I'll let people read the latest announcements, but it looks to me like Mal has done well to reposition the business over the past 18 months and laid the foundations for growth, which are really starting to emerge. They are building up a lot of reference sites and expanding their customer base, the business appears to have passed breakeven on a sustainable basis, and there is plenty of opportunity to be captured.

It's on 1.1x sales, which is a super crude metric but if you assume they can build a 10% or so net margin in the next few years, which seems very doable, AND continue to grow at double digit rates in terms of revenue, well, it doesn't seem too expensive at all.

Happy to maintain my holding.

Latest presentation here

Bit of a long bow but who knows what comes of this. My understanding the trials with Telstra were underwater cables out of Darwin and urban fibre network in Melbourne. Maybe the 5G haters could provide an opportunity. Possibility? or clutching at straws? I’m unsure.

https://www.smh.com.au/national/nsw/phone-towers-tumble-in-incredibly-dangerous-spate-of-attacks-20241004-p5kfww.html

held IRL

I just got off the AVA call.

Key takeaways:

Mal emphasized that FY24 was a transitional year, completing restructuring, launching new tech/products, and setting a firm foundation for FY25. It was a tale of two halves, with things accelerating in the final quarters.

Margin drop was due to a shift in segment mix -- Detect has the best margins, but strong growth in Access was why group margin eased back. Should normalise going forward.

Detect is really the core business, and Mal described this as a program or project based business, one that can have long lead times (3-12 months)

A $100 million pipeline, particularly strong in the Detect segment, is noteworthy. Mal repeatedly emphasised these leading indicators and you can see from the latest outlook table that they continue to expect high revenue growth against a relatively fixed costs base

At the mid point, you have ~62% revenue growth expected in FY25 and an EBITDA of ~$20m -- a 42% operating margin.

(interesting to hear Mal say "I know you've heard this before")

Aura AI-X has been transformational since its launch, contributing to improved detection and lower false alarms. The strong sales of over 100 units and Cobalt 2’s 48% growth in Access orders demonstrate successful product adoption and integration across segments

There was discussion about H1 traditionally being weaker than H2, with specific references to Q1 (northern summer) and Q3 (holiday season) slowdowns, aligns with their operational cycles.

Illuminate’s expected move to break-even or profitability in FY24

There was a noticeable shift toward emphasizing predictability in revenue, seen in their focus on bookings, pipeline, and backlog as core metrics.

Its a fractured and competitive market, and AVVA is trying to distinguish itself by focusing on the tech and aligning with bigger customers.

Company well funded, no expectations to raise capital. Board happy to commit to paying 30% of EBITDA as a dividend, which they think leaves ample room for growth investment.

Could FY25 finally be the year where things take off? Cost base and operating segments now set, good momentum in orders and sales.. Maybe. If they get anywhere near guidance you'd have to assume something of a rerate.

A do or die year for me.

Potential Competitor?

An ad for this product randomly appeared in my google feed (let's not get into why google thought I might be interested in buying fiber optic sensing equipment)

https://www.hawkfiber.com/

This is the main companies website https://www.hawkmeasurement.com/products/fiber-optic-sensing/ - looks like it is a new direction this company is foraying into.

Not sure if anyone else has looked into on this company or its product in comparison to Aura Ai. It is a private company unfortunately...

Curiously, they state the following:

I think the underlined has just been poorly worded - all systems will ignore false alarms PROVIDED they know they are false.

Anyway, I think would be good to get Mal's view on this company, and their claims next time we meet him.

tl;dr -- It was a good final quarter, but H2 revenue was at the very bottom of guidance issued in April and FY revenue was up only 5.6% for the full year. EBITDA was positive (but unquantified) in H2, compared with -$900k in H1. Positioned well for accelerating growth -- according to the company -- but no guidance given at this stage.

Here's the key figures:

• Q4 sales order intake of $9m, second highest on record (pro forma), 50% above preceding quarter and 17% above previous 4th quarter
• The company brought in $35.3m in sales across the full year -- 14% up on last year
• The sales order backlog of $8.5m compares with $3.5m a year ago.
• FY24 revenue of $30.2m compared to $28.6m in FY23, representing growth of 5.6%
• At the end of Q3 in April, they said they were expecting $16-20m in revenue for the second half. Given they did $14.2m in H1 revenue, the result was at the very bottom of the range
• Telstra supply agreement disrupted a bit by restructuring within Telstra

My view: good to see a decent lift in sales orders and the partnerships with some big clients seem to be progressing well. Nice to see some cross-sell wins, and extensions to previous contracts. But material growth remains elusive.. Still, at 1x revenue (pre market open) it's not exactly priced for much growth. With the *potential* for good operating leverage, and some major trials in the pipeline, FY25 could be the year we finally see some good earnings growth.

If not, I'll concede defeat and move on.

AVA has managed to scrape into it’s FY24 sales guidance of $30.2-34.2m (Core Revenue) with $30.2m… wow, some sweety palms around the board room on that number. Was it luck, skill or creativity on interpreting sales recognition, not sure, but the order back log lifted from $8.3m last quarter to $8.5m, which suggests that sales flow is solid even if there was some pull forward.

Order intake (the key KPI other than sales) bounced back to $9.0m for Q4 following the dismal Q3 of $6.8m which was probably the best news. Also good to see was that Detect made up a solid $6.5m of that, being the highest margin part of the business, it’s growth is the real driver of profitability.

On profitability, well not quite, positive EBITDA in H2 tells us that full year will be negative following -$1.1m EBITDA for H1 and I am sure that had the full year figure been positive Mal would have let that little factoid slip! The last item on the Strategy & Outlook is a nod to profitability “Scalable cost base generating positive EBITDA”, I just hope this isn’t in priority order.

Updates on the UGL contract suggest positive credential outcomes in receiving Safety Integrity Level 2 (SIL2) certification. Important for this customer and possibly opening up others.

The Telstra supply agreement was disrupted “slightly” by their restructuring (mass sackings), which has just plan killed deals in other companies I am connected with, so it’s nice to know that it’s still progressing.

So, in all, it’s a bit of a relief of a result from my point of view, if sales order intake had been under $8m and they hadn’t just scrapped into their FY target sales then I would have considered my investment to be under major threat. Jury is still out, but this is a step in the right direction.

The market will be voting on the result shortly so grab your popcorn…

Disc: I own RL+SM

A new contract win. Not a lot of detail, but the ASX announcement is here

AUD$700k isn't huge, but not insignificant either. The more interesting thing is that the counterparty -- Johnson Controls Inc -- is quite a big company. It's listed on the New York Stock Exchange under the ticker symbol JCI, and valued at $45 billion.

From what I can see, it is extensively involved in the management and security of various types of critical infrastructure, including electricity substations. But I cant find an exact number. The related segment generated around $2.8b in revenue in FY23, so I assume it's a lot more than the number of sites associated with the AVA contract. Moreover, it looks like they manage a significant portfolio of infrastructure assets and buildings.

Johnson Controls manages a large portfolio of buildings and infrastructure, with a substantial focus on security. The Building Solutions segments contribute significantly to the company's revenue, driven by a wide range of security and building management products and services.

If they like what AVA provides, there is potential to substantially broaden their use of the Aura tech. And it seems there's an increase in intrusion and vandalism at sites across the US.

I wont extrapolate too much, maybe this is just a bespoke, one-off type deal. But it's encouraging.

The market, of course, is like "meh" :)

@Strawman personally I think the SP is loss of confidence in management although tax loss selling might be part of it… what would help is management loading up on cheap as chips shares to show a bit of confidence and skin in the game! If they don’t buy in at 1 x sales, why should anyone else?

Blimey -- AVA really can't catch a bid.

It's very thinly traded, so maybe I shouldn't put too much weight on the drop today, especially in the absence of any news (at least any that is ASX disclosed).

Anyway, shares are basically trading on 1x sales! And that's with the business reaffirming guidance at the latest quarter for a 20% lift in H2 sales (at the midpoint) and positive EBITDA. Not to mention the much touted operating margin expansion Mal reckons he can deliver.

This thing is either super cheap, or management's grand plans are built on nothing but unfounded hopium..

Time will tell, but I'm continuing to hold for now.

The SPP has closed oversubscribed ($1.34m Vs $1.0m) and the board has decided to allow for that oversubscription rather than scale back, which is good.

However, they only needed 34 shareholders taking up the maximum $30k for the SPP to be fully subscribed, so while I welcome the fact AVA got the cash they need, it's not a massive vote of confidence. It also helped that trade in shares bottomed at the $0.13 price (only a few trades below this), they would have struggled if the share price fell below it for even a few days while the SPP was open.

Conclusion - ok support at $0.13, company has a little more cash than they say they need and now the market can get back to thinking about the real value of the company rather than anchor on the SPP price.

Disc: I own RL+SM

Agree @Strawman, it’s a mixed result. 

I was very disappointed at the sales order intake which is the guide we have been told they use and should use. The emphasis on YTD order intake is a disturbing attempt to distract from the quarter on quarter drop from 12.0 to 6.8m or -46% and on a 12 month rolling basis the growth is 11.4% which is below the YTD comparative of 15% but I will note that previous quarterly updates have focused on YTD, so it is at least consistent.

After I got over the initial shock in the drop in order intake I checked the chances of them reaching the target $16-$20m in sales for the half and hence reach their FY24 $30-$35m target range and it looks possible. Given order backlog only dropped $0.6m in the quarter ($8.9 to $8.3) then Q3 sales should be $7.4m (0.6 order drop plus 6.8 new orders), leaving $8.7m in sales required to hit the $30.4m bottom of the guidance range.

If the estimated $5.3m of open orders expected to land in Q4 happens this leaves $3.4m of new orders required in Q4 that are filled in Q4. This seems reasonable and the $8.7m sales in the quarter is not much above the previous 2 quarters of $8.3m (Q2) and $7.4m (Q3). Its a step up from $6.0m in Q1, but if they have the momentum they say they do then it’s not an unreasonable expectation.

It’s going to be lumpy, no illusions on that but the play book seems to be in tacked and as such will participate in the SPP.

Disc: I own RL+SM

Not a terrible Q3 update from AVA, but not great either.

Sales orders are up 15% comparted to the same time a year ago, and they have $8.6m in order backlogs (2/3rds will be converted to revenue this financial year).

The company still reckons it will do $16-20m in H2 revenue (the wide range due to the timing of project delivery). They did $14.2m in the first half of FY24, which means the full year figure will be between $30.2m-$34.2m. That's exactly what their 3 year outlook calls for, and the outlook is unchanged from what they said in March.

Still, this picture is worth a thousand words:

Growth may be 15% for the FY-to-date in sales orders, but it was Q2 that did all the heavy lifting, and the most recent quarter is down on what they did in the previous corresponding period. Detect was underwhelming due to project timing, and Mal said he expects to finalise various opportunities in the last quarter.

So, it's great to see they are on track to hit their guidance, but what we really need here is an acceleration in sales. You have to give some slack for the variability of revenues, but the market probably wont move much until there is some very clear evidence of growing traction.

[HELD]

Cap raise inbound!

Let's wait until we see the details, but i suspect the cost of capital could be up there. And if it's just for 'working capital purposes it's more difficult to swallow. Perhaps another situation where a line of credit would be more appropriate? Anyway, getting ahead of myself.

We will see.

AVA in a trading halt prior to cap raise, it is absolutely absurd capital allocation to pay a meaningless dividend and then raise a couple of months later....will be very interested in the purpose....it better be a good one or this will go on the exit list for me (despite all the promise of a really good product offering)

The Good

• Sales orders up substantially on prior quarters to $12m. This annualises out to $48m which indicates that if sales can be maintained then revenue forecasts for FY25 are achievable.

• Wide range of projects signed over the quarter which is a positive for the technology base, in particular, Aura Ai-X.

The Not So Good

• Illuminate unit still struggling to show growth, Q2 slightly up which is potentially showing signs of turning.
• H1 revenue of $14.2m is flat over the last several periods, however, it was within the guidance range provided.

• Costs increased against this, which has resulted in a $2.3m loss for the half.

• The cash position at the end of December was precarious with only $1.78m and a negative free cash flow of $3.5m for the half. Unless there are some payments coming in, money will be running out very quickly.

Watch Status

• Neutral - Negative financial offset by slight improved outlook

Valuation Status

• Increased chance of Bear Case. Need to review forward revenue projections to better align with management forecasts

What To Watch

• Further details on sales commitments from the Telstra Agreement. Telstra has a large network of assets that could be protected by AVA products and this is AVA’s first with a telecommunications provider.
• New LoRa product to be launched in H2FY4 which may provide a boost to sales orders.
• H2 revenue guidance of $16m to $20m. Order backlog of $8.9m with $6.8m set to be delivered over CY24.
• Management is confident of improvement in the Illuminate division in H2FY24. (This has been reported previously)

A good part of today's results were known, following the company's Q2 update less than a month ago.

The best parts being strong sales order growth of $12m in Q2. (And I guess the company reckons this is a pace they can maintain given they thought to annualise this in today's preso..) This has been underpinned by some large value contract wins, and there's a healthy sales back log to give some confidence in a decent second half.

The recent Telstra deal was highlighted, and although it was a botched announcement, it's clearly a deal with some interesting potential (albeit one that the company isn't able to quantify).

Still, the detect segment saw a decline in revenue of 8%, following a weak first quarter. As AVA said at the time, that was mainly due to some timing issues with bigger contracts in Q1, and we did see a very strong Q2 in this segment, but overall it was a weaker half compared to the pcp. AVA reiterated it expects a strong second half here. I hope so.

Part of the issue with AVA in recent periods is that one segment seems to always zig when another zags. And it was the Access segment that did all the heavy lifting this half, and that was largely an stocking event associated with the distribution deal with dormakaba.

But Detect is the biggest segment and that meant total EBITDA dipped back below neutral and continued R&D and inventory expansion saw a $1.8m drop in cash -- there's now only $1.8m in cash left. They said the cost base will stabilise at the current level, but the risks of a capital raise are perhaps higher than I first expected.

The biggest new news for me was a revised 'outlook' scenario, which they have now aligned with financial years.

Before it was this:

Now it is this:

So essentially the same, but clearly the real expansion in operating margins is not expected to start showing up until FY25.

Using the mid-points above, you get only a 5% EBITDA margin for FY24, and basically nothing at the lower end. Yes, things start to look very good after that, but they're basically saying to not expect much this FY. Beyond that, you just need faith these targets are somewhat reasonable.

Maybe they are, and I'm sure they're put forward in good faith, but until we see good evidence in the financials there's a good amount of faith that is required.

Later in the deck they again reiterate the target for $70-100m in revenue over the next 3 calendar years, with minimal cost increases. And given what they have above for FY26 ($57 -- 71m), and with a good chunk labelled as 'adjacencies' (ie. currently untapped applications of their products), I'm a bit nervous there's a fair amount of "hopium" in managements outlook.

Maybe they're right to be optimistic, and there really is good growth in sales orders, but we're yet to see this translate into anything exciting in the statutory numbers.

There is potential for some acquisitions to help the company reach it's goals, and that can be good cover for a capital raise, but this type of growth isn't always accretive to shareholders and has all kinds of risks. I don't think their GJD purchase is doing much for them yet.

There's clearly some big potential for AVA, and I know that building the foundations for growth always take longer than you think to build, and for that to deliver accelerating sales traction, but this one really is testing my patience. Especially with some recent communication blunders.

Hopefully we can get a better picture of things when we speak with the CEO next month.

Not a lot of extra info here:

All we can surmise is that the contract is "significant". But it seems there is no minimum spend, and AVA are at pains to avoid mentioning any specific financials.

Maybe there are some commercially sensitive aspects to the deal, but this is frustratingly vague...

AVA has signed a major supply agreement with Telstra, where it will provide its tech to monitor the group's fibre optic network.

AVA will connect its tech to parts of Telstra existing fibre optic network -- effectively making the cable one giant sensor that can be used to monitor and protect the network.

No financials given, other than Telstra has 650,000km of cable. It seems installation should be reasonably easy and low cost -- you're basically adding some detectors to existing cable nodes.

The deal comes after a 10 month of collaboration and trials, and open up a new and significant market for AVA (there is 5 billion km of fibre cabling globally).

So it feels like this is big news, but can't really say for sure without knowing much about the commercial terms. We have a meeting with the CEO in March, so hopefully get some more detail then.

[HELD]

You beat me to it @Bear77 -- agree the update is generally positive, and while we need a solid second half for the company to land in its targeted revenue range ($36-45m), they seem to be suggesting that is very much in play with a "substantively stronger" second half. In Mal's words:

They'll need second half revenue of $22m to hit the lower end of their target range.

In the first half they have secured just shy of $20m in new sales orders (37% growth), with the second quarter representing 61% of the first half total and representing yoy growth of 39%. There's $8.9m in backlog to be fulfilled this calendar year, most of which is project delivery work -- this compares to a $5.2m backlog at the end of FY23.

This suggests (i think) that most of the sales order intake is converted to revenue relatively quickly (ie they added $19.7m in new sales orders in the 6 months to Dec 31, but the order backlog only increased by $3.7m. (someone please sanity check this assertion!).

Still, the reality is that H1 revenue is only 10% higher than H1 FY23, and is at the very bottom of the guidance they issued in October ($14.2-15.2m). The access segment had a great half but this was helped by stocking orders from their channel partners -- we'll need to see some good end-customer sales before we really know how their new Cobalt locks are being received by the market. And Illuminate was flat, albeit with a good improvement between the first and second quarters.

For me, the main game is with Access and Aura Ai-X, which has accounted for roughly 2/3rds of new sales orders. And they really do seem to be seeing some good sales traction there. Group targets aside, even if they 'only' get $18m in H2 revenue, that'll still be annual growth of 15% at the top line. (the previous second half did $15m in revenue, so I dont think that's too much of a stretch target)

Holding gross margins and fixed costs steady -- which is what management have essentially said to expect -- under that scenario you should still get an EBITDA figure that is more than double what we saw in FY23 (from cont. operations) and an operating margin expansion from 7% to ~12%.

The market obviously remains somewhat sceptical (if it wasn't the share price should be easily above 20c imo). But for me I consider the thesis still on track and shares good value. The next 6 months will be telling.

AVA today announced, after market close, that they had won a number of important contracts relating to its fibre sensing business.

In aggregate, it says it is expecting more than $10m in sales orders for Q2, which would be a record for the company and a big improvement on the $8m-odd generated in Q1.

Maybe this will help shake shares out of their malaise when trade resumes tomorrow?

ASX announcement here:

multiple contracts won for ava risk groups aix fibre tech1703050260pdf.pdf

52-week low today.

I think it's pretty indicative of the current small-cap space sentiment that any neutral or mildly positive news is taken as negative and incredibly suspicious by the market.

That other "though shall not be named" investing forum that rhymes with "big bopper" seems like it's going to spontaneously self-combust any second due to other-worldly level negative vibes.

Management of a lot of my portfolio such as AVA are desperately awkward trying to navigate announcements through this sentiment/minefield and are cocking up communication strategies compounding the whole vibe.

Maybe they should all just release quarterlies and nothing else.

Takes about one second for any announcement to be turned toxic by the mob.....lol.

#merrychristmas

This is a bit better -- a $2-3m contract with UGL Ltd for the groups Aura Ai-x product. It includes a 2 year support services agreement and is for a Sydney transportation project.

ASX announcement link here

Barely warrants a post, but AVA have announced a 5 year support agreement with Sydney Trains valued at $500k.

It's associated with their perimeter detection product, which Sydney trains have been using for some time already.

So it's good they extended the agreement, it's nice to have recurring revenue locked in (and I'm sure it doesn't take much work/cost to deliver on given the nature of the product) but it's very small in the grand scheme of things. Will need a lot of these kind of deals if they are to get close to their aspirational targets.

The announcement was marked as market sensitive, which I thought was a bit odd. It feels too small a contract to be sensitive, and if it is, I'd have hoped to have seen a lot more of these sized deals announced!

Mark Stevens today purchased approx $49K of shares on market today.

Have been away from me desk all morning, but I got an alert while I was on the go that Ava's first quarter update was out. A quick check of the price (as you do) and saw it was about 5% higher -- "must be good news", I thought!

Anyway, just got back in the saddle to have a look at the update and noticed the price is now down 7%.

Not sure how many times I need to be reminded how irrelevant the market price signal can be for small, illiquid stocks. In this instance (at the time of writing) we're talking about a price move that has been affected by less than $50k worth of trades, and where the high and low of the day ranges from 19c to 21.5c

Anyway, having now read the actual update, and thought for myself (as opposed to letting the market tell me what to think), I think the news is respectable.

I'll let you read the finer details yourself, but the big picture takeaway for me is that although sales order intake was basically flat ($7.7m vs $7.8m in the pcp, and $7.7m in Q4 FY2023), the Access segment (locks) finally saw a good bump as product certification was received for their Cobalt Lock range and Ava's partner Dormakaba stocked up, and the contraction in the Detect segment (fibre optic perimeter detection) was seemingly a timing issue with new orders expected to close in the current quarter.

(The illuminate segment was again disappointing with AVA again citing difficult economic conditions in the UK. The expectation is for FTY growth here -- we'll see i guess)

So adding that all together, the revenue outlook for the first half is for $14.2-$15.2m, an 8% lift on H1FY23 at the midpoint.

What we really need here is for all the segments to fire at the same time -- But it seems one always seems to zig when the others zag. As Mal told us earlier this year, this is a lumpy business.

Nevertheless, Ava seems to be winning new customers in the detect segment, they now have new products and distribution in America and Europe and, for what it's worth, management remain very optimistic for the full year:

"..management expects that second half revenue will substantively exceed the first half."

Take from that what you will, but given the margin assumptions AVA have previously released, it looks very likely that they will at least double FY23's EBITDA. Frankly, with FY revenue of $35m and a 14% operating margin, EBITDA could grow by 150% or so.

Anyway, thesis seems to still be on track.

HELD.

I spotlighted them in my article this week (https://www.goforgrowth.co/p/10-growers-in-fy23-part-3). For the strawman community most of the article will be common knowledge. I'll just paste here want I think is important over the next 12 months:

• Large Contracts. Following the final report, AVA announced two contract wins, totalling $1.8 million. The vas majority of AVA’s revenue isn’t recurring, so achieving $40 million for the year would require securing numerous such contracts. Ideally, they would also secure more substantial deals ("elephant" contracts) to drive substantial growth. Keep an eye out for those.
• Acceleration of Growth. With the company openly stating its aim to reach $70-$100 million in 3 years, we’ll need to see sustained and even accelerated growth. If this doesn't materialise in the next 2-3 reporting periods, it may test the patience of investors who are already eager. This would not be great. While their current organic growth of 36% aligns with the lower end of their goal, it's important to remember that as the base expands, achieving such growth can become progressively challenging each year.
• Profitability on the Horizon. The market's response, or lack thereof, to AVA's positive results likely stems from the investor's desire for profit and cash flow. AVA didn't deliver these this year. However, the improvements in nearly all metrics above the Net Profit After Tax (NPAT) line, along with management's emphasis on future dividends, suggest that these are forthcoming. Although AVA doesn't provide a 4C report every quarter, they still offer updates. While these updates typically omit the bottom line, I'll analyse them for any subtle hints.

Another contract announcement for Aura Ai-X

Relatively small (A$1m), like the one announced recently, but great to see some traction for the product since its launch 6 months ago.

Held.

You can watch the recording for today's briefing here (passcode: B3@&hDEJ)

Some notes from the call

• Mal has been in the role for 8 months
• Sales order intake is the key KPI for the board
• Detect has the longest sales cycles
• Mal called Access a "world leader" & "outstanding business"
• Illuminate largely off the shelf products
• Access & Illuminate are largely distribution businesses, with much shorter sales cycles. But good channel into the Detect offering.
• Commercial side of the business has been completely restructured in just five months
• Aura AI-X launch has been "very successful" with uptake in "critical European border"
• Illuminate gives a great base for expansion into European market, and is where the group CTO is based.
• Detect and Illuminate as a combined offering is compelling, and enables cross-sell
• Sales order intake has mapped to new revenue well, so it does seem like a credible forward indicator.
• Illuminate gross margins are around 48%
• Neville (CFO) said EBITDA margin effectively double and evidence of how well the cost base can scale
• "really well placed" to see an acceleration in orders through Access segment in FY24 as certifications locked in.
• Significant potential for more expansion in the US
• Higher receivables just timing with Detect orders at the end of the year
• Inventory build-up is very deliberate. And has helped maintain margins as prices locked in.
• Mal said plan to grow was still "fundamentally sound" and supported by second half results.
• Recurring and OEM/Distribution revenue to grow to 60% of the base
• First major sales through Dormakaba in current year
• Huge infrastructure growth in MENA
• Corrections and Energy are growth areas in North America
• Geographic reach is significant, with senior execs in each location
• New commercial team have brought existing contacts with them.
• All 3 tech platforms are market leaders
• The market size is huge, and AVA only addressing a very small part at present
• The "hardening of security" is a tailwind
• Net profit is expected in FY24. On the path to profitability "quite meaningfully"
• EBITDA margin should be "solidly" in double digits for current year (currently 7%), around 14-15%
• July & August have seen "solid" orders for Illuminate and Access, which gives confidence for FY24 growth target of 25-57%.
• Licensing deals seem to be low priority under Mal. More focused on the high-end large programs (where there are a lot of opportunities). Mal doesn't want the one-off deals
• Dividends will commence in the next three years

Ava's FY23 results seem good to me. The market disagrees :)

The highlights from their results update:

If you look only at new revenue from the detect segment (an additional $3.8m in revenue), and ignore Illuminate which added $6.8m in revenue following the acquisition of GJD which was acquired in August last year, you still have a 20% lift in revenue. Indeed, around a third of orders for Detect came from North America, which saw a 20% lift in orders received over the year.

In fact, sales orders were up 36% if you ignore the GJD acquisition (up 71% in total). This is a great leading indicator for revenue growth.

Access was disappointing as the company awaits key product certification for the Cobalt 2 locks. Once received, the company expects that to open high quality distribution channels. We'll see.

Gross margins were essentially flat, which ain't bad given the shift in product mix (Illuminate products are lower margin), but the operating margin (ex restructure costs) was up 3% to 7%. A good demonstration of the operating leverage potential. They maintained their slide that highlights ambitions to growth the EBITDA margin to 14% next year, and up to 25% within 3 years. Also had the $100m sales target, which Mal talked about when we chatted with him recently. Very bold aspirations, but not unreasonable in my view.

At the bottom line there was a $1.1m net loss for the year due to higher depreciation and interest charges associated with GJD purchase. (compared to $0.7m in the prior year, ex discontinued operations).

Cash flow was negative for the full year as the business bulked up its inventory in response to supply chain issues. But op Cash flow was positive in the second half of the year. The company has $3m in net cash, but given receivables from recent orders, non-cash depreciation charges and working capital movements, I don't see a big risk of a capital raise.

At a current enterprise value of $46.8m, the EV/EBITDA ratio is 23.4x. That does not strike me as high given the pace of growth in revenue, sales order intake and the demonstrated scalability of the business.

I missed the briefing this morning, but will try and track down a recording and post here.

Full ASX presentation is here.

[HELD]

Announcement

The Good

• Maintaining FY23 revenue guidance with full year revenue falling around the $28.5m mark.
• $7.7m of sales orders for Q4 which is an improvement on the PCP. Most of this comes from the detect segment with lower sales orders from Access.

The Not So Good

• In Q3 management indicated improving orders from the Access division in Q4 going forward. Whilst there was a small improvement over Q3, order intake is still down on Q4FY22.

What To Watch

• Progress of sales now that the restructure of the sales teams has been completed.
• Certifications being gained for the access division products which are expected to be completed in Q1FY24 and lead to additional sales beyond this period.
• Company is confident of growing orders in the illuminate division in FY24, which have been impacted by challenging economic conditions.
• Growth of recurring revenue from Aura Ai-X and Aura IQ platforms and how this is reported in the full year results. (Carried Over)

Strawman Meeting Notes:

• Building of commercial focus in the business as the technology is sound. Large changes over the first 6 months, turning the commercial group into a single entity under a single manager with four regional groups sitting below that.
• 65% change across the team mostly completed 
• Execution story, still more work to do in getting the technology to market and getting customers to understand the problems that can be solved.
• Against bespoke product development. Develop and sell your own product. Integrate good ideas when they come along.
• Building an online integration platform to ensure all products are compatible and can be integrated.
• Clear focus on the number of larger deals over $1m which need to be achieved by the sales team. More clients, more regions and more applications will help reduce the lumpiness in revenue
• Coming off a low revenue base Mal sees a clear avenue to meeting the mid term sales targets of $70m+
• Not comfortable with a single product in a single market as a basis of growth. Aura-AiX is the next step from Aura IQ into a wider range of applications. Aura IQ is still part of the AVA product range.
• Will continue to develop new unique IP and develop patents on technology.

Some notes from the 4th quarter update today

Looks like AVA will deliver revenue bang in the middle of guidance, somewhere between $28.4 and $28.7m (guidance in April was for $27.6m - $29.6m.)

That means the second half has delivered about $15m in revenue -- 10% up on the first half of FY23 and up 50% on FY22 H2 result.

Sales orders also growing OK -- excluding the GJD which was acquired last August, sales orders increased 13% for the last quarter and were 36% higher over the full year. (up 71% if you include GJD)

Breaking things down across the various segments:

The Detect segment (this is the area that does the fibre optic sensing tech) saw $5.1m in new order intake. For the year, the order intake was $20.7m (an increase of 55%) which was in part driven by the new Aura-AiX product. Still, order intake was $6.4m in Q3, so that's a drop quarter on quarter.

The Access Segment saw a 50% lift in new orders from Q3 to $1.1m, but was down 17% for the full year. Not great, but apparently things have been held up by attaining product certifications in various channels.

The Illuminate segment was very "meh", generating just $1.5m in new sales orders in the last quarter and $6.3m for the full year. The company blamed challenging conditions in the UK.

Sales orders tend to be pretty lumpy, as can be seen above, but I am encouraged to see the Detect segment -- by far the largest -- making some progress. There's been a real dearth of announcements, so it seems this is a story of a lot of small wins, rather than any single large contracts.

If AVA are to hit the lower end of their 3 year aspirational target ($70-100m), they'll need to do at least 35%pa top line growth from here. We need to see increased momentum on an organic basis if they have any hope of doing this. We're speaking with the new CEO tomorrow, so it'll be good to get some more detail. And the full year results will be out in another month, and I'm pretty keen to get a sense of what margins look like.

Disc: held.

This is more a note to myself.... but i thought i'd share the research on the sales / bd new hires:

I've started looking into Ava in the last week or so and I noted that there was mention in various communications, particularly in the Strawman presentation, that R&D investment is sufficent and that further emphasis on global business development was required.

Based on my research on LinkedIN / Sales navigator I see only 4 new Sales / BD headcount in this FY:

Sketch Mohan - National Account Manager - BQT - 2 months

David Macey - Federal Sales - FFT - 10 months

Andrew Holysz - National Sales Manager - FFT - 3 months

Mark Glasser - Regional sales Manager - BQT - 8 months

On the one hand, these new hires will not have a signifcant impact on COGS assocaited with the various 'good-news' reporting we've seen over the last 6 or so months, on the other, it will be interesting to learn how they continue to both penetrate better into existing markets and start to leverage the complementary elements of their various offerings as a differentiator as time goes on.

Disc: Not held

Ava’s update has been covered by the community so these are just some notes for myself

The Good

• Sales orders for Q3 up to $8.3m. Growth is largely driven by the Detect business.
• Sales orders YTD up to $23.1m which is 46% organic growth of the Detect and Access divisions

The Not So Good

• Access sales orders continue to decrease / remain flat. So far the agreement announced with Dormakaba in Dec 2021 is failing to produce any impact.
• Illuminate / GJD was reported to have had revenues of $7.95m in FY21. Based off the recorded revenues so far it looks like it would have been short of that number for FY22 and for FY23.

What To Watch

• H2 revenue guidance of $14m to $16m which would be an improvement over the $13.6m in H1. At the upper end of guidance this is on track with the growth rate required for previous three year revenue projections.
• Management have flagged improved sales orders for Access division in Q4 and going forward
• No updates provided on the Anglo American install progress.
• Growth of recurring revenue from Aura Ai-X and Aura IQ platforms and how this is reported in the full year results

Pleased with the latest from AVA.

ASX announcement here

The number of new sales orders was 47% higher, thanks in large part to the acquisition of GJD. However removing this still shows a 15% jump in the sales intake for continuing operations.

Statutory revenue was up 50% to $13.6m (looks like about 16% higher without GJD). And EBITDA margins rose to 9% to $1.2m (the pcp was messy due to divestment of Services division and IMoD contract, but excluding these the EBITDA margin was 2.5% for continuing operations last year).

All segments delivered growth. And the business seems to be scaling well.

Operating cash flow was -$2.2m due mainly to changes in working capital (increased receivables and inventory due to increased orders and recently completed projects), and also added R&D. There's still a bit of padding on the balance sheet with net cash balance of $4.4m, after subtracting $2.7m in borrowings.

AVA reiterated that over the next 3 years they expect $70-100m in revenue at 25% EBITDA margins. Even at the lower end of that range, and assuming 20% EBITDA margins, that's $14m in EBITDA, or 6x higher than the current annualised level.

If they do that, you'd get a 10% average annual capital gain so long as AVA trades at a EBITDA multiple of 6x or above at that point. At the upper end of guidance, EBITDA comes in at $25m.

Anyway, aspirations are one thing, delivery is another. As of this point, shares are trading at roughly 26x annualised EBITDA.

But i see a business that is growing well, with improving operating margins (and stable gross margins), industry tailwinds, and that is likely to be self-funded (in the absence of an acquisition).

Held.

Without repeating what other straws have posted I remain bullish with AVA risk.

Key reasons :

• Multiple ways AVA can grow revenue to $100m over next 3-5yrs.
• Ability to grow revenues to $100m over net 3years with little cost increases.

Add the rock solid balance sheet and dividend payout ratio of min 35% of EBITDA remains a top 5 position in my RL and SM portfolio

Decent result from AVA it seems.

Revenue from continuing operations expected to be up 50% to $13.6m (guidance was for $13-15m)

Sales order intake up 16% if you exclude orders from GJD acquired in August 22, but 47% if you include. Existing FibreOptic and access control businesses saw sales grow 15% and 21%, respectively. Good momentum into north American energy sector with more sales expected. New CEO says they expect continued growth and operating leverage in second half. Received "strategically" important orders for AuraIQ.

Next half we'll get a full 6 month contribution from GJD, but on a pro-rata basis AVA is on 2x sales.

Growth continuing, strong balance sheet, CF positive, undemanding valuation and doesn't seem to be facing any real headwinds. Valuation, undemanding.

Held.

AVA Risk Group - Trading Update

Doing my due diligence on AVA Risk and feel the need to illustrate this from their last investor presentation. Yep, it is old news from the end of August, but as it had not been explicitly mentioned I thought I should add it in.

They are only barely profitable when you factor out the IMoD contract - which makes any valuation based on their current P/E questionable.

Saying that I still chose to add them to my RL portfolio, but I will be keeping an eye on their profitability (with large contracts like IMoD factored out) going forward.

Disc: Held

$300k to install Aura IQ in combination with a fire detection system at a iron ore terminal in Brazil. Due to occur first half of calendar 2023.

Client is a joint venture between Anglo American and Prumo Logistica.

Again, not overly material, but good to see some orders coming through and that the sales pipeline remains strong.

AVA risk group just announcing another contract for aura IQ in Brazil

ASX Announcement

This isn't overly material in it's own right (in dollar terms), although new deals are always welcome.

Where it's noteworthy is that this is the third implementation for this facility, and is replacing another system. That is, the customer gave it a go, found it superior and is extending its use -- all after only a few months since the first system was installed.

And, as the statement says, more sales are expected down the track.

We know from speaking with Ian Olson from Pointerra that the energy sector is very cooperative in the US (they don't directly compete and there is a large sharing of ideas and solutions). I can imagine this will become an important reference site for AVA in the US utility sector.

Disc. Held.

AVA delivering on their promise of fibre optic expansion.

I first came across AVA through strawman, and really only got properly interested after the recent company meeting a month or so ago. My interest and valuation revolves around this slide and the associated commentary from management about their buisness units. They think they can increase revenue by 2-300% while only increasing the costbase by 50-70% over the next 3 years, if they can do that then they should be worth a lot more in the future than they are now. But the question is how much more!

So far for FY23, they have upgraded guidance for H1 for revenue to be between $13-15M and have said that Q2 was better than Q1 and H2 is expected to be better than H1. So I am running a high and low scenario for FY23 - Low: $30M revenue and High $40M (probably a stretch but possible). Projecting further out I just guess $60M for FY24 and $80 for FY25 to be a bit conservative, but these are really just ballparks for now.

I am assumming a Gross margin of 65% (historically ranges between 65-75%) and their cost base to increase from $10-12M currently to $18M in FY24 and $24M in FY25. Closer to a 100% than the guided 50-70% increase to be conservative.

I have struggled to find what proportion of their EBITDA falls though to NPAT. From the 2022 annual report they have:

-$2.5M of debt and I am assumming 5% interest- so repayments come in at $125K/yr, largely immaterial to the calculation

-$17.5M unutilised tax losses are available for use. Based on them making $10-15M EBITDA then the tax bill will be around $3-4M, so will take a few years to use up the previous tax losses. They also have some foriegn tax credits ($10M) but I have ignored these for now.

-Depreciation and amortisation in 2021 and 2022 for the continuing operations was $1.8 and $1.7M respectively. I am assumming these will be similiar in FY23 and will scale at a similiar rate but will revisit this when the next report is released.

So from my best estimates in FY23 the ITDA should add up to be around $5M, based on what I think EBITDA will be means that to get from EBITDA to NPAT is between 50-70% conversion rate give or take, so I will just work with 60% for all years.

The numbers look pretty reasonable for 2023 and value really depedns on whether they hit the low or high side of revenue numbers. Going forward I don't have high confidence in these numbers but I think the ballpark they re in is about right and if they keep delivering in there day to day buisness units and also get a few more of the 90% margin licence deals to come in like they have spoken about then the 2025 numbers don't seem to crazy.

Maintaining costs and scaling revenue what a combo!

I would appreciate people tearing this apart and telling me why some of my assumptions or what I have done is garbage

AVA Trading update out.

AVA Q1-FY2023-Trading-Update.PDF

Appears Ok.

Disc Hold IRL & SM

Looks like Rob Broomfield is retiring.

I'm not sure of his exact age, but he started his degree in 1978 so i'm guessing he'd be around 65. He's staying on for a further 3 months, will be doing consulting for a further 12m and the Chairman had a lot of nice things to say about Rob in the announcement -- so it all seems very amicable. He also said he remains a "committed shareholder"

Given they already had a replacement lined up, I'm assuming the board knew this was coming.

Rob will be replaced by Mal Maginnis, formerly the president of Rapiscan Systems, an airport security firm which did close to A$1b in revenues in FY22. Mal has 35 years experience in the security sector.

It seems the team at AVA have some history with Mal, having known him for some time. I've also heard from a broker that Mal was the person who recommended the recently appointed global head of sales Jim Viscardi -- whom he worked with at Rapiscan. So the chemistry between sales and Chief Executive is well established

The remuneration package seem appropriate for the role and size of the company. $330k pa fixed (Singapore dollars, which is about $360k AUD). Plus he gets 1,000,000 shares vesting annually in 3 tranches over 3 years -- about $185k at today's share price.

He'll get another 500,000 shares per year for 3 years, if the share price is 20%, 40%, and 60% higher from his start date.

ASX announcement here

Let's see if he can kick some goals.

Really enjoyed the meeting with Rob. I find him a well-considered person and enjoyed hearing the insights into the progress of the company.

I think with the AURA IQ product, if it works like it's promoted to work, then the sales will come from word of mouth. The professionals at the mine, like the engineers, need annual CPD and they usually go to an annual conference somewhere to get it. The conference organisers usually ask the delegates for papers to present and, sooner or later, someone will present how AURA IQ has increased productivity at their mine. I think that will be the catalyst for a flood of enquiries. A successful proof of concept trial is key, but it sounds like they've almost cleared that hurdle.

I also see massive potential coming from the databank of information they have to mine and train their systems.

Happy to keep my toe in the water with AVA both IRL and SM.

A few notes from the management call:

• The support agreements have potential to be a significant contributor to earnings. The company has a near term target of 250 systems, each of which they expect $20k per year from. ie they are hopeful of initially building this to $5m in revenue and expect it to be very high margin (i took it as north of 90%). Most of the support is essentially systems upgrades which can be delivered remotely, and don't require any changes to hardware.
• Rob acknowledged the disappointing pace of progress with AuraIQ, and said it was essentially a function of the how fast the Proof-of-value trials were within existing mine sites (ie. he seemed to suggest this was outside of their control). That being said, future sales will point to reference sites and won't need to go through a POV trial. Rob said he expected a "significant uptake in FY23" for AuraIQ and also reiterated the target of $50m-plus in annual revenue from this system.
• There remains huge scope for this type of product across 'smart cities' and Rob emphasises that these weren't pie in the sky aspirations, but rather things they have already demonstrated and even had existing customers for. The group's domain expertise in this area was unparalleled, according to Rob.
• In terms of licensing sales, existing clients (both in India and Brazil) were keen to do more of these, but the company wanted to see them successfully implement existing sites first. They said they "wouldn't get out of bed" for any licensing deals that weren't in the "millions of dollars".
• Cost base, as it stood at the end of FY22, and including GJD, was "representative" of what it would look like going forward.
• The company expects operating margins to improve significantly as it scales. The CFO suggested "double digits" compared to 4% at present.
• The company was very optimistic about GJD as an acquisition. It provides material distribution capacity for BQT products in Europe and GJD's existing product set was very complimentary to FFT. Importantly, they expected minimal integration effort/cost.
• AVA is not focused a lot on other acquisitions, but where it made sense there could be 1 or 2 strategic purchases in the coming years.

AVA reported revenue of $19m, in line with what they suggested at the last quarterly update. That's a 25% drop from last year, even when you exclude the now sold services division, but it's a 12% improvement when you take out the license fee revenue for the Indian Ministry of Defence (IMoD) and covid grants.

nb: We shouldn't easily dismiss the IMoD revenue from previous years, but this type of (extremely high margin) license revenue is always going to be lumpy. So stripping them off does offer some insight into 'core' operations, which pretty much seem to be chugging ahead nicely. Hopefully we see a few more significant license fee deals -- and in fact there's one due to start in Latin America this year -- but we shouldn't extrapolate too much from them.

It was also good to see the gross margin lift to 65%, especially in light of the current macro backdrop. This was a feature of more sales from the higher margin FFT segment. So overall, again focusing on core, continuing operations, gross profit was 14.1% higher.

Moving further down the income statement, added expenses saw EBITDA drop 10.4%, with the operating margin moving from 5% to 4%.

This was because R&D, sales and marketing, office and travel costs were all higher -- about 63% higher to almost $3m for the full year. That feels like a lot, but all told it's an extra $1.2m and this expense is to help penetrate into new markets and underpin future growth.

Indeed, revenue for North America, which is the stated priority region, saw revenue double for the year.

Operationally, the business is investing further in machine learning processes to help improve the efficacy of detection systems, and increase the attractiveness of long-term support contracts. Indeed, AVA has 52 support contracts signed -- up from just 4 last year. This will hopefully become a good source of recurring revenue and improve client retention by ensuring they are getting the most out of installed systems. In fact, they have 2,500 customers in their existing install base, so there should be a good deal of low hanging fruit here.

There wasn't much on the new Dormakaba agreement, other than there was "significant momentum" in performance as of the end of FY22.

Management did warn that although they had navigated global supply chain issues successfully, they expected the situation to remain challenging in FY23.

Although the company distributed $38.8m back to shareholders during the year (due to the sale of the services division), the balance sheet remains in excellent shape with $15.2m in cash and no debt.

All told, we have a business that looks to be at a decent inflection point. With the company now firmly in the commercialisation phase, and with some encouraging momentum, there's good potential to scale from here -- something that should multiply any top line growth. And, importantly, this is cash flow positive, with a strong balance sheet.

$66m market value (at time of writing) gives a 3.5x sales multiple, or EV/EBITDA of 64.

I'll dial into the results call and update on any insights.

disc: held here and in real life

AVA has announced that it has secured 2 new contracts to supply and install its Fibre Optic Intrusion Detection system within the US Energy sector. In total, these contracts are worth US$800k and will be fulfilled in the current quarter.

For context, these sales represent about 6% of total technology sales for FY22.

The first contract is for US$500k and is a rollout for a second site from an existing customer. When the first order was announced in June, it represented a record energy sector sales order.

The second is for US$300k, and is for a new customer.

Always good to see an existing client deepening their relationship -- it's a strong signal they are happy with the value prop.

Also encouraging to note that AVA reckons it has identified other critical assets in this space and are currently pursuing these. Here's hoping the expanded resourcing in North America continues to pay off.

AVA has acquired UK based GJD Manufacturing, a security equipment designer and manufacturer focusing on intruder detection systems.

The equity value of the deal is A$7.82m, of which 60% will be paid in cash ($4.7m using the current cash reserves of $15.2m), and 40% in AVA shares (11.8m shares worth $3.13m, or 26.5c per share, with shares being in escrow for 12-24 months).

in FY21, ending September 2021, GJD did A$7,95m in revenue and A$1.6m in EBITDA. So the purchase price was 4.9x EBITDA.

You can dig into the details here, but it looks like the idea here is mainly to gain access to GJD's distribution and customer network, with AVA able to compliment the existing product set with FFT and BQT products.

At a high level, it seems a reasonable multiple was paid, there's less than 5% dilution, and no discount to the market price for shares. It's hard to get a clean read on AVA's normalised EBITDA after the divestment, and while the business is still driving towards scale, but a simple pro-rata of the first half results would suggest there's a significant multiple arbitrage here, and so using equity to fund 40% of the deal seems like a prudent move. Especially to help align the incoming management team, and it helps keep the balance sheet in a very sound position.

The real question is just how much sales of AVA products are boosted through the improved access to the UK and European markets.

Released at 4:10pm

On a Friday

On the last trading day of the quarter when most small cap crappy companies with crappy quarters are waiting to the last second to release their crappy quarterly reports

I knew this would be negative the moment I saw it

There are positives though:

1. "Strong uplift in sales order intake with confirmed orders of $5.5m during Q4 FY2022. This represents the strongest quarterly sales performance since the onset of COVID-19 related business disruptions."

I just wish two things of any company's management:

1. Be conservative in your forecasts. Better to underforecast than overforecast.
2. DO NOT RELEASE DOWNGRADES at 4:10pm on a Friday afternoon.

AVA has *finally* secured its fist Aura IQ contract with a "leading global manufacturer of conveyor systems" (this is the product that monitors conveyor belt systems -- see here)

The contract, however, is tiny, clocking in at $300k, although noteworthy in the sense it is commercially ready and something of a milestone.

CEO Rob Broomfield said "Additional contracts...are progressing through procurement processes and are expected over the remainder of calendar year 2022".

The company has previous said that this is a $50m pa opportunity (annual sales are presently around $20m).

Interesting to see this news being released the day after a 10% spike in the share price..

Full announcement here

I just watched their presentation on coffee microcaps and in the Q & A they said that the first commerical order for the Aura IQ fire integrated product is now in the final stages and they are hopfeul that it will be signed before the end of the financial year. They also said that they had a good pipeline of orders for Aura IQ that are at various stages. Nothing really knew was mentioned but commentary was fairly positive for the 4Q numbers.

AVA Group chairman, David Cronin, bought an additional $100k worth of shares today.

He now holds 33.3m shares, or 13% of the company.

Ava has won a $0.7m contract to supply its intrusion detection system to a major US energy facility (see here). It should be fulfilled this year, and I estimate it represents roughly 4-5% of pro-rata sales wins for FY22.

So, relatively, it's fairly material in size, and also noteworthy for being the largest win in the energy sector -- an area the company is targeting and has so far won $1.8m in sales year-to-date.

Excluding divested operations, the company remains on track to generate in excess of $21m in revenue this year with 66%-odd gross margin -- a roughly 20% lift from FY21 when ignoring the IMoD contract -- and is presently being valued at $46m by the market.

On the eve of the approval of the 0.03114c capital return and what i assume will be a quarterly business update i continue to top up at prices of 26-27cents.

Looking forward to see business updates and whether long awaited revenues are materialising.

Growth in revenue of 20%+ per annum will no doubt revalue AVA as the year unfolds and the fact its profitable goes well in these turbulent times.

Having endured the pull back in MP1 today the markets across the globe have no tolerance for subpar growth when prices of companies reflect growth targets of 20% plus.

AVA isn't valued in the same way and thus upside on positive news may occur as a result.

As I'm currently unable to view the ex capital return date would someone be kind enough to tell me the last day we can purchase to be eligible for the return?

Thanks kindly

I hope you found the discussion with Ava's CEO Rob Broomfield useful (recording here if you missed it).

Some key takeaways for me:

• The services business was very successful, but continuing to grow it would have required a lot of capital investment. Rob said that selling the business for a good price and focusing on the tech operations (which have better economics and growth potential) made more sense. With much of the money being returned to shareholders, I think that demonstrates a tight focus on return on equity, shareholder value creation (senior management and the board are large shareholders) and management's optimism for the potential of the remaining business. You don't sell a profitable, fast growing segment if you're pessimistic over the rest of the business.
• I think the focus on partnerships and licensing also shows great capital discipline. Leveraging these means a lower share of the end-customer spend, but it's very high margin (100% in terms of IP licensing) and means the business doesn't need to ramp up expenditure on sales, manufacturing etc and gives very fast access to new markets.
• Sales cycles can be long, but once a customer is onboarded they are very sticky and often have a lot of upsell potential in regard to other sites.
• The secret sauce of the FFT business is really the IP associated with extracting a reliable signal from the cable network. With machine learning and AI enhancements in recent years this advantage is being further entrenched, and the company enjoys the benefits of being a first mover in this space and having access to a lot of data for ongoing optimisation and training.
• The technology can be augmented onto existing fibre optic networks, making it more cost effective and significantly broadening the use case
• in regard to BQT, the Dormakaba agreement is set to substantially grow revenues -- and all at significant margin. EG they have 80 sales reps in the US alone. Previously this delivered less than 500k in annual sales, but over time should be significantly enhanced.
• The cost base should be fairly well contained, so I'd expect operating margins to be substantially higher at scale.
• Have a long-standing a capable core development team, but will outsource some work that is not IP sensitive.
• Covid did prove challenging in terms of running trials and access to customers, and also in access to components.

I might have missed a few other things, so please feel free to add any observations.

Full disclosure, i own AVA on SM and in real life and I plan on adding to my position. So I'm biased, and would really welcome any bear case arguments.

Overall, i think this is a business with an outstanding, long-standing and aligned management team, with a strong balance sheet, growing sales, capital light structure and attractive economics.

Sales will be lumpy though, and given covid, the IMOD contract and Services divestment, this full year probably wont be that exciting. But in the years ahead i see significant growth opportunity. I have a conservative valuation of 33c (20% above the current price), but there's more upside over the next 3-5 years if they execute well.

Preamble

A really interesting business with interesting technology and run by managers who put shareholder interest first. To top it off it is a small-cap with a market cap of around $100M. Very unusual behaviour from a small-cap to not sacrifice capital for all outgrowth. In fact, they are doing the opposite by returning capital back to shareholders via share buybacks & special; dividends.

What do they do?

Actually surprised no one articulated their offering but what they actually do depends on which industry their customers operate. They provide solutions to protect high-value assets and critical infrastructure. The business is currently structured under 2 divisions: Future Fibre technologies and BQT Solutions.

Future Fibre (Perimeter Security)

• perimeter intrusions (Military, Energy)
• pipeline intrusion (Oil & Gas)
• condition monitoring (not sure)
• data network protection (Energy & Telcom)

BQT Solutions (Access control solutions)

• Access control readers, high-security locking, custom encryption, biometric solutions (These would be industrial-like office buildings)
• Smart door lock companies like Dormaka & Assa Abloy signed the contract with Ava Risk for US and European markets.

Can you predict revenues with confidence?

Very hard to predict, I would say impossible. That is a concern as revenues are contract dependant and unlike SaaS businesses where you can track ARR with a high degree of confidence where churn rate < revenue growth rate, Ava's revenues are unpredictable. FFT is the main revenue driver for the business which means there is potential upside in the BQT division not reflected in current financials.

Speaking of financials, you have to dig deep in the Appendix to see the revenue breakdown and how the accountants define revenue. In the previous half-yearly report, we saw nearly all of the revenue recognised at the point of time and not spread out like in a SaaS contract.

What would be the investment case?

Entrepreneurial management with a track record for generating shareholder wealth. They sold the services division at multiples of revenue after growing the business internally for many years.

They provide solutions to critical assets that are mandatory for operation. The business does not operate in demand cycles when they win the contract. However, the time to win the contract varies. Ava's customers do intensive QA & tests before deploying solutions to their operations. The contract is not signed until they can successfully integrate. The time for that to happen varies between customers. The thesis is that when Ava wins a contract they are in and very hard for the customer to say no as switching costs is inconvenient from an opportunity cost perspective.

The solution according to Ava is scalable, I can't see it in the financials so far but these guys are entrepreneurs, I don't doubt management. I believe Ava is saying from a hardware sense they are scalable but they could also say it from a software angle.

Their client base is impressive and we are talking about a small-cap company:

Concluding thoughts

Asymmetric upside but the financials look patchy from a YoY basis as some revenues are recognised while others get recognised in the subsequent financial years. In saying that, these guys are business builders and I don't think investors give them credit for what they do (growing from scratch). They could have rested with $55M of cash but they decided to return that capital to shareholders and start again. Entrepreneurial grit.

Finally an update from the ATO on AVA's proposal to return $39.2m back to shareholders.

Unfortunately, the ATO was only prepared to treat $7.567m of this as a capital return (a mechanism that would allow shareholders to defer any tax). That's equivalent to $0.03114 per share. They will seek shareholder approval for this at a special meeting on the 22nd April.

As such, AVA will distribute the rest of the money as a special dividend of 13c per share. Sadly, this will be unfranked (they simply don't have any franking credits to distribute given they have barely had to pay any tax due to the use of carried forward losses).

The record date for the dividend payment is 28th of February, which means anyone on the share register at that stage is eligible. Given the settlement period, that means you need to buy shares no later than the 26th to be eligible.

Obviously, a full capital return would have been the most tax effective method of returning excess money given AVA's situation, but there's little they can do if the ATO isn't going to play ball. Still, the fact they are returning this capital, and are not tempted to invest it on an acquisition or new capex shows a good bit of discipline to my mind.

This was a solid result from Ava (see here)

The group's technology division -- now the core focus after the divestment of the Services business -- received confirmed sales orders of $4.9m, a 63% improvement on the previous second quarter despite some covid related impacts. Year to date, Ava's tech division has generated $10.2m in the first 6 months of the year, a 42% improvement.

The FFT segment was the key driver of the improved result, with significant growth in the US market, up 150% year to date. Military installations and solar farms were called out as especially strong.

The company also has a confirmed order backlog (awaiting fulfilment) of $4.2m -- the majority of which is expected to be realised in FY22. Note that this excludes the Indian Ministry of Defence (IMOD) contract, which the company doesn't expect any material contribution from for the remainder of the year.

The new Dormakaba agreement came into effect at the start of 2022, and an initial order is expected before the end of January. I expect the blue part of the chart above to become more meaningful as this starts to ramp up.

The balance sheet remains insanely strong with $55m in cash and no debt, although $39.2m of this will be returned to shareholders (about 16c per share) as soon as they (hopefully) get a favourable ruling from the ATO. As a business delivering free cash flow, even after the return of capital, the balance sheet will be in very good shape.

The company also reaffirmed guidance of $20.2-21.2m in H1 revenue and EBITDA of $2.2-2.5m. This will include 3.5 months contribution from the divested Services segment. Still, removing this and accounting for the 16c cash return, you have a high margin, fast growing, profitable, well funded technology business, with an attractive market opportunity, that's probably on a Price to Sales of roughly 3x.

Will be good to get a "clean" set of results, but the business just seems good value to me.

The global agreement with Dormakaba announced today, was foreshadowed at the AGM and has been a stated strategic goal.

While there was already an agreement in place, it was limited to just a few countries and generated less than half a million per year. This new agreement opens up all the markets that Dormakaba operate in, including new ones in Europe and the US. (Dormakaba's website says they operate in 130 countries)

Details of the revenue share weren't disclosed, but obviously AVA is taking a cut to gross margins in order to leverage Dormakaba's distribution. In principle i think that's a smart move. As management have said, they expect operating expenses to remain steady, and will only need to fund extra working capital for production and inventory.

The alternative would have been a big ramp up in new offices and staff costs, higher risk and a longer timeframe.

Sales are expected to start as soon as next month.

Disc:held

AVA Risk Group ASX:AVA

• Focussing on their Technology division now following AVA Global Logistics divestment. Technology division made up of BQT solutions and Future Fibre Technologies (intrusion detection for high value/critical infrastructure).
• Divested AVA Global Logistics in August 21, process completed October - proceeds largely returned to shareholders at 16c/share, rest of it used for shares buyback.
• High insider ownership - board owns ~ 45m shares.
• No debt, $17m cash.

Q1 FY22 update:

• FFT: Revenue 30% down vs FY21 quarterly average. Order uptake 43% higher vs Q421
• BQT: Affected by lockdowns.
• Expecting H1FY22 rev between $8.7-9.3m. VS H1FY21 $35m - Strawman has already posted on why the big drop.

Watching for any updates closely:

• Strong sales pipeline, growing backlog and increasing customer demand
• Generation of meaningful revenue from the partial conversion of the $50m sales pipeline (3-year value) for the Aura-IQ systems which are being commercialised via the “Proof of Value” program
• Expansion of sales capacity and revenues in the USA commenced with new America’s VP onboard
• Leveraging a go-to-market strategy with Dorma Kaba to deliver material sales in the US
• Increase in post-COVID-19 sales to Assa Abloy in Europe under our existing signed contract
• Further IMOD style licensing transactions • Further sales for powerline monitoring solutions via the Group’s low cost, high profit, industry partner model
• Increase in contracts from the large install base of thousands of systems to expand annual maintenance and remoting servicing solutions and grow annual recurring revenues.

Disclosure: Not a holder at the moment, technically looks like it may struggle to hold the $0.425 support level, so I am watching for an entry closer to $0.365.

It wasn't a great quarter for Ava, with revenue for the first 3 months of FY22 down 7.7% on the 'normalised' first quarter of last year (removing impacts of large contracts, FX and covid impacts) to $15m.

That's down ~12% from the statutory Q1 result from last year, which came in at $17m (73% higher than Q1 FY20).

Group EBITDA, including the now divested services division, was just $2m, compared with $7.7m last year. That's in part due to the gross margin dropping from 49% to 38% as a result of Indian Ministry of Defence (IMOD) license fees, and weaker margins in the services business.

Looking ahead, the company gave first half guidance for $20.1m-$21.2m in revenue and $2.2m-$2.5m in EBITDA, that's compared with $35m in revenue and $12m in EBITDA for the previous corresponding period.

It's a BIG drop, but there's a bit of nuance needed here.

The current quarter will only include 18 days worth of contribution of the services division -- a segment that delivered ~$10m in revenue for Q2 last year. So on a like-for-like basis, completely stripping out the services division for the first half of last year and the current year, the first half revenue guidance represents first half sales in the remaining technology segment of $7.6m, down from $16.6m last year.

That's still a big drop, but the first quarter included zero licensing fees from the IMOD (last year it generate $7.8m in total for the group). Big deals like this and the Australian Department of Defence will naturally lead to some lumpiness.

The good news is that the order intake for the core Future Fibre Tech (FFT) business was up 53% on last year and up 8% on a strong 4th quarter of FY21. The order backlog was also up ~50%. Again stripping out the IMOD contract, FFT quarterly revenue just reported was up 40% from a year ago, and 23% above last year's quarterly average.

The BQT segment was impacted with site closures due to covid, but here the outlook is also encouraging -- especially with their licensing agreements. This model gives them less revenue per sale, but is much more scalable and yields 100% margins, and allows them to leverage of partner networks.

Overall, i can't see any structural issues with the business and in fact see AVA as well positioned to capture further growth. They have a strong position in a large and growing global market, with long-standing, top tier blue-chip clients, a highly scalable business model, with an expanding use case, aligned management a rock solid balance sheet.

All that being said, we need to see some good sales momentum build in the coming year.

AVA Completes Divestment of Services Division

Sale price of US$46.4 million (A$62.6 million) with anticipated net cash proceeds of US$31.1 million (A$41.9 million) after closing adjustments, and payment of management incentives and FY2021 accrued bonuses

Net cash investment return to Ava Risk Group of circa 587%

Ava Risk Group now comprises of leading security sensing solution provider Future Fibre Technologies, and high security access control and electronic locking provider BQT Solutions

As announced on 30 August 2021, following the completion of the Transaction Ava Risk Group is expected to hold $40.2 million in excess capital. The Board’s intention is to use the excess capital to undertake the following capital
management strategies:

1. Capital Return to Shareholders: $39.7 million (circa 16 cents per share); and

2. On-Market Buy Back: $1.0 million, which has commenced (refer to ASX announcements
for updates)

file:///C:/Users/Canad/AppData/Local/Temp/02437551.pdf

AVA Risk Group reported FY2021 results:

• Revenue increased by 41% to $65.0m
• EBITDA improved by 116% to $16.0m ($8.3 million from FTT and BQT technology)
• NPAT improved by 178% to $13.7m
• Net operating cash flow increased by 195% to $17.6m
• Cash as at 30 June 2021 of $17.3m with no debt  and divestment of Ava Global Logistics for ~A$42.4m in Oct 2021

Following up on Ricks post below regarding AVA Risk Group divesting its services division.

The services division is why the company is valued with low multiples in the market.

They seem to be on the right track to creating a more lean and tech-centric business.

Although, the services division generates a huge chunk of revenue for AVA; 18m but this only translates to a 3.8m EBITDA. We expect revenue to decrease in the upcoming year which would make the company look unatractive at first glance.

PE for 1H21 is ~6.8x (includes service division)

Estimated PE for FY21 would be ~12-14x (excluding service division)

Current market cap 104M

For FY2021, 17.2m in cash plus upcoming sale of services division of 42.4m after adjustments.

Disclosure: held

AVA CEO Rob Broomfield interviewed on Ausbiz today on the FY21 update:

No risks ahead for Ava Risk Group on ausbiz

Bad Half, Good Year:

AVA’s trading update today focuses heavily on PCP and YOY comparatives which look good but hide a very poor Half on Half comparison.  None the less they have landed very close to the forecast in my valuation and without further information on a likely sale value of the Service Division, I will leave my valuation as is for the moment but would like to shout out @Rapstar for his valuation thoughts which are quite sound. Any variance to my IV is about future growth potential which is guess work.

Update Key Points: (unable to attach announcement due to file size…)

·         FY21 Sales $64.8m (+41% YOY), EBITDA ~$15.3m (+107% YOY), EBITDA Margin ~23.5% (+46% YOY), 17m cash and no debit.

·         Tech Division (FFT + BQT) $24.7m (+17% YOY), but this means that Q2 revenue was $8.0m Vs Q1 revenue of $16.7m (-52.5%).  $5.8m in Backlog and Delays were cited, of which if added still leaves H2 sales down 17% on H1.  FY22 success will be based on the up and coming Aura-IQ system revenues which is going through proof of value programs.  $50m of sales pipeline over 3 years is expected to start contributing in FY22… We will see.

·         AVA Global Logistics Division (Service Division) $40.1m (+60% YOY), Q2 revenues of $21.7m Vs $18.4m in Q1 show QoQ growth of +15.7% and save the year.   However this is the division that is up for sale and management incentives to sell (about 1/3 of the net proceeds) it have been extended until 30 June 2022.  After management incentives and cost of sale AVA will probably realised around $30m for this division or about 1/3 of current market value.

·         Cash position of 17m is an increase of 4m on the end of H1 which shows the business remains FCF positive but again H2 generated about half the FCF than H1.

The bull case remains that they get a good price for the Service Division, Aura-IQ system revenue takes off and grows strongly and they are able to replicate the IMoD licence fee revenues to some extent going forward.

The bear case is mostly that the bull assumptions don’t happen, which means AVA’s Tech Division becomes competitively week and fails to grow.

The market likes the news (+12% as I write), but an update is always welcome and AVA may have been beaten down a bit with tax loss selling…  I continue to hold

Coffee Micropcaps Presentation

Hang around for the Q & A - interesting colour regarding the pipeline. 

AVA Services main competitors are, or should I say were, Brinks and G4S. Brinks acquired G4S for $860 million. G4S had adj. EBITDA of $115 M, which tranlates to a valuation multiple of 7.5 times.

AVA Services are on track for EBITDA of at least $8M in 2021, and would be worth more than $60 million going by the valuation multiple Brinks paid.

Getsmart outlined the numbers.  But some of my observations are:

1) Revenue was not broken out for technology and services business.  I suspect the technology revenue fell, and the services business grew over the quarter, given the change in gross margins outlined below. They stopped breaking this number out in Quarterly reports back in Q2.   Bit of a red flag for me. 

2) Gross margins fell to 43%, meaning the services busness is performing strongly in comparison to the technology business. 

3) AVA said:  "The Company progressed commercial negotiations and expects to enter new contracts to deploy Aura IQ to multiple sites during Q4 FY2021."  This is the litmus test for management, and the future prospects for the business.  AVA will be a sell for me if there are no contract announcements by June 30........

DISC - I HOLD

$1.8+ million Multi-Site Rail Contract Award

Ava Risk Group Limited (ASX: AVA) (“Ava Group” or “Company”) is pleased to announce that its world leading Aura Ai sensing solution has been selected to be deployed for a multi-site program to upgrade security at certain major rail facilities in South America:

•  Security upgrade program with total award value of more than US$1.40 million (A$1.84 million).
•  Multiple Aura Ai-2 systems will be fully integrated with the customer’s existing video management software and CCTV system.
•  First purchase order received exceeding US$0.47million (A$0.61 million).
•  Initial deployment at first sites in early Q4 FY2021 with the balance of sites expected for deployment before the end of Q4 FY2021.

Disc; I hold....

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02357253-3A564166?access_token=83ff96335c2d45a094df02a206a39ff4

I have sold my small holding in AVA. My half-year reporting review provided me with some questions that presented new risks that I don't completely understand or are not aligned with my thesis. There is some serious upside and downside potential for Ava Risk Group but I can't say which is more likely at this point. I only like to hold if I have high conviction and I don't at this point so I am selling on that basis.

Risks/problems causing negative views:

• Basic mistakes:

  • Yet another announcement that needs amending because of a mistake. Makes me wonder if management has it all together? Do they miss the finer details? Are they taking other shareholders seriously? I counted 5 errors since 28 July 2020. All since the old CEO left.

  • Emails to investor email account bounces. Online form to contact the company doesn't work.

• New details I wasn't aware of or fully accounted for:

  • Chairman's company receives payment from AVA (stated as arms length, could be a benefit but I don't like the look).
  • Potential sell off of services division. Management gets up to 32.7% of the value above $5.3 mil USD. Management has extended this agreement even though it was due to end Feb 2021. I wasn't aware of the risk here when purchasing. If the services division is sold for a inadequate valuation the rest of the business is highly overvalued (if no new IMOD style contracts come through). Management potentially takes a massive slice of the pie... Why extend this deal past 1 Feb 2021. How is it in the interest of ordinary shareholders unless they can get a price around 80% of current market cap? I wanted the services division as part of the company, its revenues are increasing nicely and this section of the business is strongly profitable.
  • IMOD is looking like a potential one off boost to profitability.

Valuation - the guessing game:

Selling of the services division at a 10x EBITDA multiple (figure based on what I've seen thrown around as reasonable):

EBITDA multiple of 10x for services (1HFY21 services EBITDA x 2 x multiple) = $3.8 x 2 x 10 = $76 mil.

Take away potential management profits @ 32.7% over USD$5.3mil($6.8AUD) =  $53 mil valuation of services division to share holders

Cash at bank = $13.4 million

Market valuation of Technology = 135-13.4-53= $68.6 million

Here is the problem for me, taking out IMOD I think this is very expensive and hoping for the best with Aura IQ. If another IMOD comes along this is super cheap....

What would I miss by selling?

• Aura IQ is a raging success. There is time before the effects come through. By then my question marks around the services division will be answered.
• They don't sell the services division or they get a great price for it.

Conclusion

Given the current market turbulence and my lack of conviction I have sold out. However, this is not a sell and forget. As things pan out I will be more than happy to jump back in as my concerns are answered. I just can't tell if this is a massive winner or loser at this time and price...

H1 FY21 Results out and are as flagged mid-January (others have quoted), additional information & points of note:

·         IMOD contract saw sales in India grow 241%, about 40% of the growth YOY – not a surprise

·         Europe accounted for 47% of growth YOY and remains the largest market at 44% of sales.  I suspect this is linked to the 101% growth in the Logistics business.

·         USA sales dropped 50% and now account for just 7% of sales – disappointing.

No change to valuation, FY21 full year forecast is under baked but until we see more contracts like the IMOD, there are gaps to fill for future sales

Half Yearly Report

AVA released their half yearly report this morning

Highlights:

Revenue up 72% to $35M
Licence fees from IMOD project make up $7.7M of above
Profit up 1,071% to $11M
Special dividend of 2cents/share payable March 10th
Strong balance sheet with $13.4M cash

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02347126-3A562418?access_token=83ff96335c2d45a094df02a206a39ff4

 Correction statement to February 2021 Investor presentation

Ava Risk Group Limited (ASX: AVA) (“Ava Group” or “Company”) wishes to advise of a typographically error on Slide 13 of the investor presentation released to market yesterday. The 3rd bullet point which read “Total contract value estimated at US$11.9M+ (A$16.7M+)” should have read “Total contract value estimated at US$11.9M+ (A$15.6M+)”. The error was due to use of a prior, rather than current USD/AUD exchange rate. Management apologies for the error.

INVESTOR PRESENTATION INCLUDES PRELIMINARY H1 FY2021 

HIGHLIGHTS:

STRONG REVENUE GROWTH

• FY2020 revenues $46.1M, increased by 46% over PCP

• 1H FY2021* revenues $35M, increased by 70% over PCP

HIGHLY SCALABLE MODEL

• Multiple new customer wins in both Services and Technology Divisions

• Significant conversion of repeat customers upgrading products on multiple sites

• FY2020 generated $6.0M net operating cashflow, 1H FY2021* generated $8.2M

STRONG COMPETITIVE ADVANTAGE'

• Highly defensible competitive position, breadth of product range, performance and blue-chip customer base

• Experienced leadership team, with broad global industry knowledge and deep market sector understanding

GLOBAL EXPANSION OPPORTUNITIES

• Expanding technology and services sales efforts into several new attractive markets globally

• Highly competent global sales force with significant pipeline of known technology projects, and increasing addressable customer spend for provision of valuable logistics services

• Thousands of products installed in more than 70 countries

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02336851-3A560484?access_token=83ff96335c2d45a094df02a206a39ff4

DISC: I hold in strawman and TRW

Ava Risk group has reported net operating cash flows of $4.4m for Q2 -- up $0.7m from the proceeding quarter and up $4.6m from the same time last year.

$2.6m was from the Indian Ministry of Defense (IMOD) and the same amount is exected in the current quater. After this, most of the contract value will have been paid but the business should remain cash flow positive.

AVA has $13.4m cash at the bank. 

14-Jan-2021:  As @Rapstar has mentioned here in both the AVA General Forum and in his "Services Division" Straw for AVA today, AVA is held by DMX Capital Partners, a division of DMX Asset Management.  Their monthly newsletters are free to access from here:  https://www.dmxam.com.au/monthly_archive.html

I do see that in their September 2020 newsletter that they've said:

Management meetings

We are pleased to share below a summary of our notes and insights taken from meetings with management of several of our disclosed portfolio positions. We share these insights to showcase four of our holdings where we feel our discussions with management have highlighted some interesting aspects to the business, that are perhaps not well understood by the market.

------------------------------------------------------------------------------------------------------------------------

AVA Risk Group (ASX:AVA)

Meeting with David Cronin (Chairman) and Rob Broomfield (CEO)

As previously noted, FY20 was a big year for AVA, as it delivered an impressive turn-around. In speaking with management, we were keen to focus on FY21 and whether that momentum could be sustained. Key insights are discussed below.

• AVA’s logistics business (“Services”) recorded $3m sales in July 2020, with EBITDA in excess of 15% (compared to FY20 EBITDA of ~9%). Management confirmed they expect revenues to remain strong for the remainder of FY21, as it benefits from the full year contribution of client wins during COVID-19 (in 4Q20). AVA also expect Services to maintain its EBITDA margin of ~15% for the balance of the year. With the Services business due to be sold in the next 12 months, Management are looking to target an EBITDA sale multiple of 9x to 12x, given the capital light nature of the business. AVA are happy to take a commercial approach in relation to the timing of the sale in order to maximise the sales price.
• Technology revenues for FY21 are tracking ahead of the same period in FY20, while management continue to expect at least $11m from its Indian Ministry of Defence (IMOD) contract this year (at close to 100% margin).
• A key feature of the FY20 result was the margin expansion resulting from both revenue growth and reduced operating expenses. AVA expect to maintain FY21 OPEX at similar levels to FY20.
• Management are particularly excited about the progress they are making with their powerful fiber optic technology. We believe this is a key part of the AVA thesis that is under appreciated by the market. AVA are positive about the commercialisation of AuraIQ (using fiber optic cables for conveyer belt monitoring) where one potential deal is currently progressing its way through a customer’s CAPEX approval process. In addition to AuraIQ, AVA has been applying its fiber technology capabilities incrementally into other non-security applications such as condition monitoring for roads, rail lines and power cables. Potential distribution partnerships are being worked on for some of these use cases that are in early stage validation. One such example is monitoring the impact of wave motion on power cables in the Hudson River in New York.
• Management expect publicity around a similar focused company, chaired by technology entrepreneur Bevan Slattery, to drive further interest in what AVA is doing with its fiber technology.

In summary, we took a lot of confidence from our meeting with AVA. Its Services division has significant momentum, and when sold, we think has the potential to generate sales proceeds to AVA of $50m to $60m (before Management profit share is accounted for). Its technology business will grow in FY21 underpinned by the IMOD contract. AVA’s fiber technology offering perhaps hasthe most upside, and its potential least appreciated by the market, but we acknowledge it will take some time for this potential to play out.

--- end of excerpt ---  [to read the notes/insights from DMX's other 3 company management meetings (with PTB, EGH & UCW), click here.]

While I can't find any reference in there (or in any of their newsletters) to AVA extending their own management performance plan termination date to June 30, 2021 (from Feb 1, 2021), I'll take @Rapstar's word for it; it sounds right.  I do note that they (DMX) stated: "With the Services business due to be sold in the next 12 months, Management are looking to target an EBITDA sale multiple of 9x to 12x, given the capital light nature of the business. AVA are happy to take a commercial approach in relation to the timing of the sale in order to maximise the sales price."

Onwards and upwards then.

During the past 12 months, DMX have mentioned AVA in their February, May, July, August, September and October newsletters - all can be accessed from here. 

Their December newsletter had not been uploaded to that webpage when I typed up this straw, but I expect it will be shortly, once they publish it.

[I hold AVA shares.]

Services Division performing strongly and on track for EBITDA of $8.4M for FY2021.  Given management are hoping fro a sale price of 9-12x of EBITDA, a sale price of $75 - 100 M is hoped for.   Management will pocket 33%, so shareholders can expect $50-70 M in captial returned........18- 26 cents per share. 

Management are hoping for sale by June 30, 2021, as per DMX September monthly report. 

Relentless selling

If anyone wants to find out why AVA is trending down, one of the subs is selling heavily

They are a little known company in Dubai called "Alkasab United Company"

I couldnt' really find much about this company though.

I hold but the selling by the substantial holder is getting me a bit worried. I did top up recently around 0.53.

30-Oct-2020:  IMOD Project Update

Indian MOD Data Network Protection Project Update

Ava Risk Group Limited (ASX: AVA) (Ava Group or Company) today provides the following market update and clarifications with respect to the large-scale supply of FFT’s SecureLink technology to protect data communications cables for the Indian Ministry of Defence (IMOD):

• Large scale supply of FFT’s SecureLink technology to protect more than 40,000kms of data communications cables for the Indian Ministry of Defence
• FFT licenced technology to in-country manufacturing partner SFO Technologies Private Limited (SFO)
• Total contract value estimated at US$11.9M+
• SFO’s Bank Guarantee to Ava for US$2.1m (A$3.0m), to cover the 120 days payment terms remains in place.
• Contract establishes FFT technology in growing cyber security market
• Fulfilment and licencing model providing low working capital, low risk and high margin GTM approach

FY2020 Recap:

• US$3.2 (A$4.8) million in revenue recognised
• US$0.1 (A$0.2) million in tax credits recognised
• US$1.0 (A$1.5) million in cash received

Q1 FY2021 (unaudited):

• US$2.4 (A$3.6) million in revenue recognised
• US$0.3 (A$0.4) million in tax credits recognised
• US$1.0 (A$1.3) million in cash received

Updated Forecast:

• Contract balance of circa US$5.9 (A$8.2) million (revenue and tax credits)
• Q2 FY2021 revenue expected to be A$3.3 – A$3.8 million
• US$1.8 (A$2.6) million in cash due to be received within Q2 FY2021
• Additional revenue from subsequent seven-year spares and maintenance contract with an estimated value of a further US$3.4M (A$4.8M)

Historical A$ amounts are based on actual USD/AUD exchange rates achieved. Forecast $A amounts are based on the current USD/AUD exchange rate at time of release. Actual final A$ amounts achieved may differ depending on exchange rates achieved at the time.

[I hold AVA shares.]

Smashing result announced.  Key takeaways:

1) Revenue up 73% on pcp.

2) EBITDA of $7.7 Millon, up 522% on pcp. 

3) CASH UP 50% FROM JUNE 30 2020, to $11.6 M.  

Services Division - Revenue of $8.1 Million, down from $7.7 M in Q4 2020.   However, gross margin expanded to 33% , with expansion plans for Asia flagged.  Bad news fo rthe Strawman classic - Incentive scheme extended to June 30 2021, so a sale of the Services division will not occur during the Classic :(.   Noting the the busness is likely to sell for around 8x EBITDA, he servies division is worth about $51 million at the current EBITDA rate.  

Technology division is generating high margins courtersy of the IMOD contract.  Maangment flagging a healthy pipeline of opportunities.   Something to watch closely as the IMOD contact phases out in Q4.  

CEO, Rob Broomfield will be presenting today at a Reach Markets event - register here. 

The promo says:  "This week we will hear from: Rob Broomfield, CEO at Ava Risk Group Ltd (ASX: AVA), a fast-growing Australian RegTech firm, with an exciting recent win in the banking and mining sector."

I am keen to see Rob present - I think it may be his first presentation as CEO. 

AVA Risk released an investore presentation.  In it there was a FY2021 guidance,  Strangely, the announcment was not marked as market sensitive.  Perhaps there is an earlier announcement, but I am yet to find it.  Here are the key takeaways:

1) Forecast Q1 2021 revenue:  +$15.5m - up 58% on pcp. 

2) Positive cashflow for Q1 2021, and an improvement on the $0.9 M reported on pcp.   It will likely translate into $3-4 millon in positive cashflow for the quarter. 

3) Repeated the IMOD $11.7M revenue forecast to be booked in FY2021 - remember, this is 100% gross margin licencing fees. 

4) AURA IQ pipeline is reproted to be +$49M, with another 6 proof of values deployments underway.  Forecast recurring revenues for this new product in FY2021.  

5) $14.6 M backlog as at June 30, 2020.  It was just $6.0 millon a year ago.  

AVA Risk are on track otearn +$60M in revenue this FY, and around 15-20% profit margins.  IT still looks remarkably cheap at this price.  

DISC - I HOLD ( a lot)

Key takeaways:

1) $4 M positive cashflow for the quarter ! 

2) Company again highlights it has 100% margin revenue of $10 million forecast for FY2021 (no one seems to be listening!)

3) Services division reported strong growth in Q4 - previously reported. 

4) Technology divison reported winning a defence contract (no value provided)  and advised there are several "Proof of Value" trials for its Aura IQ conveyor health monitoring solution. 

5) Gross margins were above 50%, despite the services division GMs running at 25%.   

Very profitable 2nd half of the year, resulting in $5.7 M free cashflow generated for the full year, or 2.3 cents per share.   

If AVA can execute on sales of its Aura IQ product, it looks very cheap at the current share price.  

AVA Risk report their Services Division report seperately, as they are seeking to sell this non-core division ove rhte next 6 months.   They reported the following performance:

1) $9.7 M revenue for the quarter, achieving $25.1 M in revenue fo rthe full years, representing 57% growth in revenue.  

2) Threefold increase in clients over the year.  

3) Gross margins increased to 25% from 21% over the year.  

4) EBITDA of $2.3 M for the year.   

5) Merger of largest and 2nd largest competitors creating opportunity to expand market share.  

The group is on track to achieve $40 M in revenue this FY, and to double EBITDA to around $5 million.   This would value the business at around $20 Million at a 4x EBITDA multiple.   Given AVA has a market cap of around $40M, the sale of this business could unlock a lot of value, given the core technology business is high margin, high growth business, with $23 million in revenue.  

Highlights:

1) Q4 revenue beat by 17%. 

2) FY2020 estimated to be $45M, $2M above previous guidance. 

3) FY2020 EBITDA forecast to be $6.8M (noting the ITDA will be around $2.4M). Meaning profit after tax of $4.4M.  

4) Big news:  Scott Basham, CEO has resigned.  Rob Broomfield, COO of the technology divison will take over.  

5) Technology Division is experiencing order delays due to COVID-19, with staff WFH on reduced hours & pay, but some improvement over June.  

Great result, but losing Scott, after turning the ship around, is a loss.  

If AVA can continue to grow revenue, and execute, they are very cheap at these prices, however, there si some uncertainty as a result of Scott's departure.   

•Strong management team surpassing expectations in a short time

•Management has 5.8% stake with significant increased insider buying recently

•Provide a number of different products, servicing multiple markets and customers in multiple countries

•Possess a strong moat/competitive advantage with their patented products and tech

•Strong balance sheet and fundamentals – gross margins of 19% (services division) and 79% (tech divisions), trading at 1.1x annual revenue and 2.6x gross profit with an EV of $34,858,000.

•Zero debt

•Profitable

•High-quality B2B customers - recent contracts with Australian DoD and Indian Ministry of Defence and other current customers including NATO, US Dept of Homeland Security, Lockheed Martin

•Strong tailwinds with cyber terrorism on the rise and the U.S. implementing strict cyber security measures, rolling out as early as next year, for anyone along the supply chain dealing with defense contracts

Having so quickly reached positive cash flow and profitability under new management, Ava Group appears to be hitting an inflection point. High growth potential and undervalued.

Disclaimer: I hold a small position in AVA