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

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.

https://www.afr.com/companies/telecommunications/telstra-wants-edgier-funding-for-telecom-connections-20240814-p5k2fl

Found this interesting article covered in AFR this morning. Here are some interesting highlights.

Not sure AVA’s role in this process. It might be something big or just a desperate move from a drowning giant. Interesting to watch either way.

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" :)

Apperantly I have mixed fundamental analysis with stalking, but anyway, here's some more details about those Telstra trials I've found recently.

In the Feb annoucement, AVA stated that one of those trials was monitoring fibre optic networks in metropolitan Melbourne. I recently heard that the University of Melbourne has some deep research coorporation with Telstra, so I found this website.

https://eng.unimelb.edu.au/partnerships/telstra/research-projects

One of those researches was "Fibre Optic Sensing Technologies and their suitability for Telecoms Fibre Networks".

Here's the description:

Currently, Telstra is enhancing its fibre network with an intelligent fibre sensing capability. This technology detects above-ground vibrations via light pulses transmitted through underground fibre, processed by smart devices in Telstra exchange buildings. Leveraging machine learning and AI, Telstra aims to develop models for detecting vehicle movements and other relevant events. The project focuses on assessing the technology's applicability for diverse applications and refining the machine learning capability for broader implementation across Telstra's fibre network.

Based on the description, there is a very high chance that this was how Telstra had been using AVA's technologies. Therefore, I decided to dig a bit further.

From this photo on the same website, we can see that this research, conducted by Renata Borovica-Gajic (UoM) and Gilbert Oppy (Telstra) and presented in Feb 2024, was about "Connected Freight Vehicle Prioritisation at Signalized Intersections".

With this information, I was able to find this news press from 2023:

https://research.unimelb.edu.au/strengths/updates/news/smart-traffic-sensors-that-reduce-gridlock-and-unlock-the-economy

It looks like Telstra has benn doing the similar research with UoM prior to the AVA trials in Wollongong, utilizing only sensors from traffic lights and technologies developed by Telstra. The data collected was dumped into Australian Integrated Multimodal EcoSystem (AIMES), runs a couple simulations and generate insights.

Although more details about the trials with Telstra are not available, I do believe it's likely that Telstra has been using its fibre optic network and Aura-Ai seris technologies to collect and tag much more data than using just cameras and traffic light. Based on AVA's recent investor presentation, we can see that AVA has done much more than just monitoring freight vehicles. It's possible that Renata and Gilbert have been moving on to validating other capabilities from integrationg machine learning, sensor and fibre optic networks.

But still, I think the real money maker is in the subsea fibre. No hard evidence yet, it's just my gut feeling.

Lots of suspecting here, definetly not investment advice and not even a good story. Let me know what you guys think.

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.

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]

So what did we think?

Some of my notes from the meeting.

In regard to the Telstra deal:

• The supply agreement with Telstra is material and fundamental for AVA. Telstra is one of the biggest fibre operators in the region and the 10th largest telco in the world.
• The due diligence process with Telstra was extremely thorough, taking 7 months, which gives some confidence that it is a solid commercial deal. 
• The agreement covers all of AVA's product SKUs across its three divisions. AVA expects one of the divisions to see commercial impact first (in a "surprising way").
• As part of the deal, AVA and Telstra have a major program review each month to go through every opportunity. The agreement is with Telstra corporate, giving AVA access to every Telstra business unit.
• No minimum purchase quantities are defined as it is a supply agreement. But Mal emphasized that Telstra would not go through the arduous 7-month process if they didn't intend to purchase.
• The deal gives AVA credibility with other large customers globally. Other companies have already engaged with AVA as a result of the Telstra announcement.
• AVA is providing Telstra the base fibre monitoring data on which Telstra can build its own application models and services. AVA monetizes through its hardware, software and support.
• Mal portrayed it as a landmark deal for AVA that provides significant growth opportunities, credibility, and a long-term revenue stream, even without guaranteed minimum volumes.
• He clearly thought the ASX was unreasonable in it's "please explain" -- saying that a supply agreement was exactly that, and he couldn't easily add more specific financial detail.

In regard to the capital raise:

• The board and management considered various capital options, including the raise, debt facilities, and trade financing. The decision to raise capital from shareholders and institutions was deemed the most sensible approach to underpin the company's growth.
• The capital raise was driven by the success of large deals and to ensure AVA had sufficient capital to support that growth. McGinnis emphasized that the raised capital was not needed to run the business but to give them an extra buffer.
• The $20 million in sales order intake during the first half of the year had an impact on capital requirements. While the company is currently well-positioned, the raise provides additional firepower if any large opportunities arise.
• The dividend paid out after Q1 did not have a material impact on the capital base and aligned with the board's stated dividend policy and commitment to shareholders. In total, the special dividend amounted to <$500k so it wouldn't have made a difference if they had kept the money.

In regard to the tweaked 3-year outlook:

• When Mal joined AVA, he set a 3-year strategy based on calendar years, but this caused confusion (which he said was an error on his part)
• The reason for providing a range in the outlook is due to the timing uncertainty inherent in AVA's program-based business. The low end of the range is based on higher confidence levels from existing backlog and near-term opportunities, while the high end factors in less certain, longer-dated projects.
• Contracts in the latter part of the second half of each fiscal year, particularly those in the second half of FY26, are difficult to predict accurately for forecasting purposes, hence the range.
• He emphasized that the change in the outlook range was primarily a function of the timing adjustment from calendar to fiscal years and the inherent challenges in precise forecasting given AVA's project-based revenues, rather than a fundamental change in the business trajectory.

Miscellaneous:

• The fixed cost base is set at $19m for the foreseeable future, although if justified by sales this could increase by a further $3m in FY26. But he really doubled down on this and stressed the operating leverage of the business.
• His focus was all about driving sales orders and turning that into free cash flow
• He put the share price performance down to negativity in the small cap space, and that the market likely wanted to see some real runs on the board.
• AVA is working on integrating its products across divisions, with the LORA illumination product connecting well with the detect fibre business
• The company is looking at opportunities 3-4 years out and targeting large infrastructure projects. AVA's pipeline is 3-4 times the size of its revenue, giving management confidence in future growth.

I think Mal gets it -- he needs to deliver some tangible results, but believes that after his first year the company is now well placed to execute. Let's see!

[HELD]