Envirosuite successfully raises $3.80m under the retail entitlement offer.
This totals to approx $14m in the recent capital raising (June 2021).
The company will be using proceeds to:
1) Strategically accelerate the development and distribution of EVS Water.
2) Expeditie Envirosuite’s product roadmap.
3) Invest into the North American region to grow the Company’s market position
4) Improve the operating model through investment intro transformation projects.
5) Strengthening the balance sheet to support the growth in underlying sales.
Interview with CEO of EVS
Envirosuite has launched a capital raising, seeking up to $14m via an institutional and non-renounceable rights offer. ($13m after costs)
Investors have the opportunity to buy new shares at 8.5c -- a 19% discount to the last traded price. Existing shareholders can buy 1 new share for every 14.5 shares already owned.
The deal will add an additional 165m new shares, taking the total share count to approx. 1,193m shares. That's a ~16% dilution.
Once complete, EVS cash balance will increase from $9.7m to $22.8m. The funds will be used to accelerate sales in the Omnis and Water products, as well as geographgic expansion.
So... is it a good thing?
Well I think the offer is too generous -- 8.5c per share values the business (pro-forma) at just over $100m, which is just over 2x forecast revenue, or 2.4x Annual Recurring Revenue.
As such, the dilution impact is greater than it needed to be in my opinion.
That being said, the business has taken a big knock from covid due to delayed project work and discounted pricing to support airport customers. FY21 guidance for $48-49m in revenue represents a big reduction from the $58m in the previous year (pro forma, assuming the EMS business was held for the full year).
Similarly, the company has so far failed to pass EBITDA breakeven (although that's targeted for the final quarter). The move into China hasnt appeared to have delivered much to date, and the business looks to have walked back from earlier targets of $100m in revenue run-rate by FY23. Plus, the CEO left recently.
So perhaps a higher offer price may have been difficult...
At any rate, the business is on track to post a cash spend of ~$10m in FY21, and with $9.7m in cash held before the raise, and supposedly on the verge of breakeven, i'm not convinced there was a great urgency to raise capital -- especially with the depressed share price. If they were confident of a solid 4th quarter, and delivering on their EBITDA positive target, I suspect they could have raised at a much lower discount in a couple months.
But then again, perhaps the timing says something about this...?
I genuinely like the company's offering and potential. There's a very large addressable market and they have a market leading position. I'm convinced there is a strong and growing need for the kind of solutions they offer.
After a painful first half, new ARR sales have essentially doubled in the second, and if you remove the acquired airports business (much more mature), the core EVS product (now called Omnis) has essentially doubled its ARR in the last 2 years.
The massive EMS acquisition and the impact of covid make it hard to cut through to a clearer 'normalised' performance picture, so it's hard to know how much poor execution is to blame for the recent stagnation.
Still, if I don't see signs of improvement in the coming quarters, i'll likely consider my thesis busted and sell out. I want to see sustainable positive EBITDA by the end of Q1 FY22 and a material pick up in new ARR sales.
For now, there's enough negativity in the price to compensate me for the risks, and the capital raise at least puts them on a much firmer footing.
You can read the Capital Raise presentation here.
Envirosuite went from forecasting last year that they would be cashflow positive by March 2021. To holding their hand out for more money from shareholders in May 2021 - and not yet cashflow positive (in fact they seemed to completely ignore that target in their half yearly report and Q3 trading update.)
This would just be frustrating for shareholders.
Envirosuite has appointed Alberto Calderon as an advisor to the CEO. This is a guy that used to be CEO of Orica, and prior to that was very senior at BHP and the CEO of Cerrejon (Columbia's largest mining company).
His brief is to assist with strategic development, but for me the real value is the introductions he can fascilitate with some of the world's largest mining and energy operations (he appears to be very well connected).
What's interesting is that his remuneration is in the form of 10m unlisted options. These allow Mr Calderon to buy shares at 20c each (half he can exercise now, with the rest exerciseable in 12 and 18 months).
With the market price currently <13c, these options are effectively worthless at present. So this is potentially indicative of the board's and Mr Calderon's optimism.
ASX announcement here
Envirosuite delivers record quarter, $2.1m in ARR
8 April 2021
Strong Q3, delivering $2.1m new ARR
Is the recent dip a great buying opportunity?
Envirosuite presented today at the NWR Virtual Investor Conference.
Presenting for Envirosuite were Jason Cooper (CEO), Matthew Patterson (CFO) and Andrew Barron (Head of Product).
The CEO Jason opened with one customer story per the 3 segments within which they operate, giving us some details on their most common use cases. Andrew dove deeper into the 3 layers they tend to grow in each segment: comply, predict, optimise (don’t quote me on this). And Matthew went over recent results and looked at the wider market size for future opportunities.
The biggest question to many is about growth; can they sustain an-above average growth rate expected with high-margin Saas companies?
I was pleased to see the CEO get asked that question. They are focused on a 20% yearly growth rate. If they execute consistently on this, they will become a very dominant and powerful industry leader, and their stock will no doubt be massively re-rated.
At current, with the recent sell off, giving us a market cap of $143M, and they expect a yearly ARR of $43M, we have a P/ARR ratio of 3.3. Many would consider that a bargain.
Like many of their investors, I’ve not worked with product. To look at product I default to their churn rate, which at <2% is very impressive.
There’s a lot of the future will tell us, but at current, it appears EVS might be a good case study of patience paying off in the markets.
Interesting interview with CEO.
Investor briefing questions 11 March 2021
Envirosuite Limited (ASX:EVS) advises that following the release of its H1 FY2021 results on 26 February 2021, CEO Jason Cooper and CFO Matthew Patterson presented a series of presentations and webinars with investors and analysts. For the benefit of those unable to attend, EVS provides the following summary of questions received by investors and accompanying responses along with other questions put to the Directors and management.
What gives you confidence to increase sales in the second half considering the lower sales in the first half?
Our forecast for Q3 is based on deals that have reached the negotiation phase of the sales cycle by the end of February and that we believe will close during this period.
Whilst sales from the first half of the year were affected by COVID-19, as well as the impact of bringing two businesses together, we have seen a steady increase in deal volumes and pipeline for the second half of the year, with business confidence increasing as vaccination programs are rolled out.
Can you quantify the impact of discounting in the airports business across the first half?
Due to COVID-19, the impact of discounting was approximately $1m on the first half reported revenue, however, discounts for some of these customers started to unwind in December 2020.
At your current scale, what gross margin improvements do you expect from the initiatives outlined on page 8 of the presentation?
The gross margin will be impacted by various factors including revenue mix across our three main product lines, the mix of recurring and non-recurring revenue, as well as overall revenue growth. However, we expect that based on our current level of business, that the cost initiatives should provide a gross margin of ~50-55%. As the mix of revenue shifts more towards the EVS Water software solution, we expect the gross margin to further improve.
What sort of incremental margin do you expect on new revenue?
EVS management focus on a metric called ‘contribution margin’ which is revenue less the direct variable costs and excludes internal overheads (gross margin includes the allocation of internal overheads and non-variable external costs related to supporting customer). The contribution margin is what we view as the incremental margin on new deals and assumes we can leverage our existing overhead cost base in relation to customer support. The contribution margin that we achieve on new recurring revenue deals is ~80% and should continue to improve the gross margin.
Envirosuite Limited 1 Suite 1, Level 10, 157 Walker St
North Sydney NSW 2060
(ASX: EVS) ACN: 122 919 948 www.envirosuite.com Phone: (02) 8484 5819
Given your outlook, are there any changes to previous revenue and EBITDA targets for the next few years? Has there been a change to when EVS expects to be breakeven due to COVID-19?
Over the past 12 months the results have been affected by two main factors: foreign exchange and COVID-19. The Australian dollar appreciated ~10% against the USD during the 6 months ending 31 December 2020, which has meant our reported revenue has been reduced by an equivalent amount for those contracts based in USD (~25% of total revenue came from the North America region of which the majority was in USD). COVID-19 has seen a reduction in the discretionary expenditure (one-off projects) by airport customers, and this has led to a temporary decline in our profitable non-recurring revenues. In addition, EVS has elected to support some of our airport customers, particularly in the EMEA region, with temporary discounts, some of which started to unwind in December 2020.
The above factors have slightly pushed back the timeframe for EBITDA positive result but EVS still expects, based on current operations, and forecasted recurring and non-recurring revenue to be EBITDA positive in Q4 FY21.
What is your view on the role of China in your future plans?
The China market is rapidly evolving and has the potential to be a significant market for Envirosuite’s products with its increased focus on environmental protection and digital transformation across water, air, and noise. EVS is still exploring the optimal pricing model, go-to-market strategy and overall product mix to take advantage of this growing market.
China continues to represent a vast opportunity for our Airports, Industrial and EVS Water solutions noting China’s most recent 5-year plan. We are mindful of ensuring that our products are the right fit for the market in China and that we can be successful in that market. This includes leveraging our existing operating model as well as relationships that we have with our existing global client base that have operations in the China market.
Historically, the focus has been on six sectors, why has that reduced recently?
As part of our strategy review the Company has decided to focus on 4 major sectors: Airports, Waste, Mining and Water. This will bring discipline and focus for our product, sales, marketing, and operations teams to ensure we build market and product leadership in these sectors. We will continue to explore opportunities in other sectors (such as construction or cities) as we can address them with our existing solutions, but we will not proactively pursue these opportunities.
Tell us a bit more about the buying cycles of the sectors that you’re focusing on? Which sector will lead the charge as Airports have a long cycle?
Buying cycles are typically dependent on the sector. Airports typically buy via a procurement and tender process, and plan budget cycles annually. Typical lead times for new opportunities are therefore approximately 12 months. Lead times for upsell of solutions at existing airport customers can be much shorter (3-6 months). This is balanced by the long term committed revenue that airports offer (often 5-year contracts with additional options).
For Industrial (Waste and Mining), lead times vary by procurement method, but typically are in the 3-6-month timeframe. For our EVS Water solution we have already seen that lead times can be much shorter for non-government entities (2-4 months), as the cost benefit analysis for this product is obvious and drives quick acceptance.
Envirosuite Limited 2 Suite 1, Level 10, 157 Walker St
North Sydney NSW 2060
(ASX: EVS) ACN: 122 919 948 www.envirosuite.com Phone: (02) 8484 5819
How much revenue is exposed to Airports?
It is important to note that our customers are Airports and not airlines. Airports have regulatory requirements that we address regardless of flight volumes. At the moment, we have approximately 65% of our revenue from the airport sector. Whilst we see further growth in airports, we expect our Water and Industrial portfolios will grow at a faster rate.
Are all your products on a single platform? If not, when do you expect this to be the case?
With the recent appointment of Andrew Barron as our Head of Product, we are developing our product strategy to build products that delight our customers and allow them to access the full range of our solutions.
The major driver of cost in our products, and the greatest opportunity for convergence, is the infrastructure layer. We are currently executing our ‘One Cloud’ strategy which is migrating all of our applications into a common cloud platform. Whilst we do expect to have a hybrid approach to our infrastructure, our cloud migration will be complete in the next 12 months and benefits will be realised during this time.
Jason, given you’ve had 8 months with Envirosuite before stepping into the CEO role, can you outline your focus for Envirosuite?
One of the compelling reasons why I chose to join Envirosuite originally was based on our vision to harness the power of environmental intelligence so industries can grow sustainably, and communities thrive. We have strong product market fit and there is an increasingly strong need for what we do across the world.
My time in Silicon Valley working in high growth technology companies has helped me to understand what drives global, scalable businesses. With a deep understanding of the business within operations and reflecting on our vision the key focuses for me are to improve our discipline and focus across sales and marketing, optimise our global operations, invest in our product to build world-class technology that continues to solve customer problems across our focus sectors and move us deeper into their operations, and continue to build out the leadership team with experienced talent.
11.5c is support on my chart
Agree with the sentiment below; all in all it was a pretty underwhelming half year update (allbeit maybe we need to cut them slack because of COVID, but their flashy forecasts don't help).
I thought the new CEO spoke well. He sounded polished and aligned with the company, and hopefully he can drive the sales growth needed. I also didn't mind the narrowing of focus and positioning. I agree with his sentiment that EVS doesn't need to be everything for everyone; the highest margins will come from scalling the product, being displined, and executing well for customers.
I have downgraded my model and forecasts though, and lower my long term price target to $0.25. Still believe in the product and the thematic is only stronger post Biden win, but need EVS to get some runs on the board to rebuild investor confidence.
EVS has announced a few things on the ASX recently. Here are my thoughts. I will start with the not so good and end with the good.
Not so good:
EVS mention a couple of tailwinds worth mentioning:
In summary, not overly excited by any of the recent news but I will be monitoring closely in the near term. I still like the company and I believe the growth is in the construction, mining and industrial sectors but the change of CEO has me on edge a little.
I'm not thrilled about Peter White stepping down as CEO of envirosuite.
I've met him a few times and he always struck me as honest and capable. He really took the company a long way in his 8 years at the helm.
What's happened behind the scenes could be a falling out with the board, concerns for the future or just simply some benign personal reason that has nothing whatsoever to do with Envirosuite's prospects.
The market seems to have taken a negative view of it, as is it's want.
To be fair, people generally don't step aside from a business when it's poised to see substantial growth, and when you're holding a bunch of performance rights and options (as Peter does). Eg. He was entitled to get a further 500,000 shares after June 30 this year, just as part of a retention incentive. If the share price got above 50c before FY23, he would have got another million shares and had 5m in-the-money options.
Peter will be on the board after he steps down as CEO and still has 9.2m shares in the business. But it was a surprise to see him go, and for better or worse it has raised some questions.
Jason Cooper, Peter's replacement, seems qualified anough, but has only been with the company for 8 months and is a bit of an unknown quantity.
Time will tell I suppose.
On its own, it doesn't materially change my expectations for the business. But it has raised the risk profile for me.
If I don't start to see some good traction from here, I'll consider my investment thesis in need of some harsh adjustments.
For the first half of FY21, Envirosuite reported a 17% lift in revenue over the preceeding half (HY20, which only had a 4month contribution from the EMS acquisition). Normalising for this, revenue would be flat, to slightly down on the preceeding half.
Operating expenses were however down due to savings measures, and gross margins improved significantly from 32% to 41%. So overall the adjusted EBITDA improved from -$6.9m to -$3.5m
Recurring revenue, as a percentage of the total, also increased from 77% to 85%, due to the covid related deferral of project work, which hit non-recurring revenue.
Envirosuite has $9.7m in cash, having burnt through $5.8m in the half (exclduing acqusition related costs), this is expected to reduce in the current half, although they didnt offer more clarity than that.
Importantly, management are forecasting a much improved second half, with new ARR sales orders expected to double in the second half. Recurring revenue is expected to grow 4-8%, the rest will be related to project delivery from new contract wins.
The business will still report a negative EBITDA for FY21, although will be improved in H2 on an adjusted basis. But the company reiterated that it still expects to report a positive EBITDA in Q4 (although will be dependent on timing of non-recurring revenue).
All in all, the business has been pretty resilient during covid, but it's definitely been impacted by it in terms of non-recurring project work and some discounts to airports. Project work in China also took a big step back (although this was associated with lower margin equipment sales), and the business says it is looking to focus more on higher margin subscription contracts there. There was a lot of potential promised when they first moved into China -- but there's not really much to show for it as yet...
Outside of airports, recurring revenues were 18% higher, so the original part of the business seems to be still doing well. This was always the part i liked the most.
The EMS integration and Covid make an effective comparison against earlier expectations more difficult. But when trying to normalise for this, I still see a business that should deliver lower double digit revenue growth in the coming years, and sustainably move past breakeven. (Hopefully another capital raise isnt needed, but it is a definite possibility).
Some good contract wins and achieving their target for psoitive EBITDA by Q4 is essential to drive the price materially higher from here in my opinion.
26-Feb-2021: FY 21 Half Year Results Presentation plus Half Yearly Report and Accounts (click on the correct announcement from the list under "Company Announcements" on the EVS website - which is where those links will take you.)
I'll leave the commentary to Andrew (Strawman) as he follows this company a LOT more closely than I do. I do hold EVS in one of my RL portfolios and they are also one of the larger positions on my Strawman.com scorecard/portfolio.
I do not see anything particularly nasty in the numbers or in the immediate retirement of Peter White. With the current COO taking over as the new CEO, it seems like an orderly transition.
Interview with Peter white of EVS, check it out!
14 Jan sales update to 30 Dec 2020
$1.1m in new ARR added during the quarter with 19 new clients across all EVS’s major sectors of Mining, Industrial, Airports and Water. Average ARR per site of $60,000. $3.0m in new non-recurring revenue (hardware and services) awarded of which approximately $2.0m was in the Airports sector. 37 contract renewals totalling $2.7m with a churn rate of less than 0.2%. $12.0m of new ARR in unweighted pipeline (over $2.5m weighted) identified for Q3 FY2021 with over 150 opportunities being pursued.
Envirosuite's sales update for Q2 2021 isnt as clear as I would like, and requires a bit of detective work to see how it aligns with earlier expectations.
In the groups FY20 Results presentation (August 2020), the company provides a chart (pg 13) that shows targeted ARR growing by approximately $11m per annum, or about $2.75m/qtr.
In Q1 ARR grew by $1.2m, and then $1.1m in the quarter just reported. That's well below pace.
The company didnt provide total sales figures in the recent two quaters (only new ARR, renewed contracts and non-recurring), so it's hard to know how likely they are to achieve their targeted $65m in sales.
But with at least 2/3rds of income generated offshore in FY20, and likely more in the current year, i suspect the strengthening AUD will provide some headwinds.
It was encouraging that management still expect the business to be EBITDA positive on a run rate basis by the end of the current quarter. That will be an important milestone if that can be achieved sustainably.
Similarly, encouraged that Churn was very low (<0.2%), and that the airport sector appears to be holding up well despite covid.
Will be awaiting the half year results before making any further judgements -- but really hoping to see the pace of ARR growth accelerate, and to see if the expected cost reductions materialise.
Envirosuite Reports Q2 FY2021 Sales Update
EVS is an environmental technology company that captures, stores and displays environmental data to produce actionable insights in real time. Their products are very user friendly, meaning the user doesn’t have to be an expert just to use it. EVS also provides a stakeholder platform to manage stakeholder engagement.
EVS provides technology to monitor air, noise, vibration, dust, water and ouder to the following sectors:
Although EVS sell their own instrumentation, their technology is device agnostic.
Proven resilience in revenue from airport contracts as they must continue to monitor noise levels to comply with regulatory requirements
Have various industry leaders as clients including BHP, Rio Tinto, Glencore, LAX and Heathrow
Globally diverse clientbase over a variety of products
Genuine leaders in their niche
The focus on environmental impact is increasing which may lead to stricter regulatory requirements and/or public pressure for companies to reduce their impact. This could mean a greater emphasis on environmental monitoring
EVS products can provide real time and predictive data to avoid incidents and community complaints (quick anecdotal note - A complaint can take a lot of man hours to close out and environmental incidents can take many many months to resolve, putting a halt to works. Which means potentially large fines, delay costs, missed KPI’s and other indirect costs)
Provides end-to-end solutions over a variety of sectors
Management have made smart moves by acquiring EMS Bruel & Kjaer, AqMB and negotiating the Sewex licencing agreement which has greatly increased their sales outlook
75% recurring revenue
$24M in cash and cash equivalents with ~$12M as residual to fund operations
Mr Zhigang Zhang intends to retire from his role as non-executire director at the 2020 AGM
- See Attachments for more details
ok i Know many others have noted this on the PET coloumn of straws, but this is just a a reminder for those looking into this stock to check out Zhigang Zhang, he was a director at PET, who have been suspended accordingly to alleged fraud and acounting discrepncies. EVS gave this dude and his enity 50 million shares, to help run the chinese side of buisness. Now i own some EVS, and this has shook my vlauation completlty, it may be time to re-evalueate for those who have never seen this info before
Envirosuite has provided a sales update for the start of Q2.
In the first week of the quarter, the company has secured over $1 million in new contracts.
These include the first sale of EVS's Smart Water Product, which was developed following the acquisition of AqMB last year.
Another win was a new 6 year odour management agreement with Veolia France -- which already is a customer of EVS. And the final contract mentioned is a 5 year noise management contract for Istanbul Airport.
In total, these three contracts will contribute around $200k in annual recurring revenue.
A good start -- let's see if they can continue the sales momentum!
ASX announcement here
Envirosuite CEO Peter White has entered into a new remuneration agreement.
While the base salary of $300k remains unchanged, Peter will be eligible for an additional 30% of this as a Short Term Incentive (STI) "based on a broad number of financial and non-financial performance measures" including EBITDA (although no figures were detailed).
Personally, I really dislike vague and subjective performance measures. More than happy for management to receive big rewards when they deliver for shareholders -- but these kinds of STIs just leave too much to the board's discretion.
Anyway, without getting into a debate on executive remuneration, I did find the Long Term Incentive (LTI) component very interesting.
If EVS shares hit 50c by June 2023 -- and remain above that level for at least 30 consecutive days -- the CEO will get 1m shares for free. He'll get a further million if shares hit 75c and another million if they hit $1.
This may seem very generous, but I doubt shareholders would be upset if these thresholds were met. After all, the lower tier represents approx. 50% compound annual growth rate in the share price over 3 years!
Again, we can debate how reasonable these levels may or may not be, but I note that if EVS hits its target of $100m in revenue by 2023, a share price of 50c would put the business on a Price/Sales ratio of ~5x. Not too unreasonable at all given the required growth rates.
A cynic would argue that boards do not set targets that they think are unreasonable -- if it's about feathering the nests of insiders, you want to set a very low bar.
Of course, none of this guarantees anything, but i find it very telling in relation to the board's optimism.
[updated to fix incorrect P/s ratio]
[I own EVS shares]
Came across this article published by the AFR stating that BHP (an existing EVS customer) are planning to spend ~$1.37b over the next 5 years to achieve its new emissions reduction targets. Although this isn't exactly huge news for EVS, I see this as positive as it could open opportunities to sell their product to new mining giants if they are pressured to follow suit. It can also open the door to upselling opportunities to existing customers.
Under the ''capital allocation framework'' that governs all of BHP's spending decisions, the first priority for spending is on maintenance, to ensure its mines are safe for workers. BHP said spending to achieve the new emissions targets would share that rank.
In light of this, EVS may benefit from assisting BHP (and possibly others) in monitoring their efforts for emissions reduction.
Linke to article: https://www.afr.com/companies/mining/bhp-s-1-3b-of-climate-projects-more-important-than-dividends-20200910-p55ue8
Envirosuite has provided an edited transcript of analyst and investor questions following the FY20 result.
Announcement can be seen here
It was a very busy year for Envirosuite, with the (massive) acquisition of EMS and the move into China the most significant events.
It makes a comparison with prior years difficult, but in relation to FY19 revenue was 209% higher while EBITDA (adjusted) loss doubled to -$12m.
Envirosuite reckons it can take a further $11m in costs out of the business due to duplicated roles and systems, and still expects to be EBITDA +'ve by March 2021. Forecasts provided suggest expectations for a fairly stable cost base going forward.
It is targeting revenue growth of around 170% this year (the first full year with EMS on board), with ~20% top line growth per year through to FY23. Around 3/4 of all revenue will be subscription based. And the company expects operating margins to grow rapidly as the business scales -- they're calling for a 15% EBITDA margin in FY23.
Where is all this growth going to come from?
Well, the company now has a far deeper and richer offering, a broader geographic presence and a strengthened sales team that is targeting a $2.3b global market opportunity.
There's a big structural shift in the gathering and reporting of "environmental intelligence", and most companies that have these considerations will inevitably shift to a digital solution in time. It's simply far cheaper and more effective than previous methods. Moreover, there are very real regulatory drivers here that will require companies to focus more on these issues.
That doesn't mean that EVS will be the winner, but they are very well positioned as a genuine market leader, have a solid existing customer base that offer some cross-sell/up-sell opportunities, and they have a good first mover advantage thanks to years of R&D.
With the acquisition of EMS out of the way, the next few quarters will be critical in determining if the company can deliever to its ambitous targets.
The early growth in China, which has already contributed $3m in revenue to FY20 and has announcved $5m of new deals is encouraging. And it's good to see the resiliance of revenues from airport customers (which have a regulatory requirement to montir noise levels).
The SaaS caharacteristics of the business -- low churn, high revenue visibility, strong operating leverage -- remain very attractive, and should really come to the fore if EVS can drive strong top-line growth.
Envirosuite has around $24m in the bank, with around $12m available to fund operations. Given their cash flow trajectory, this should be enough to sustain them through to breakeven.
It ticks a lot of boxes for me, and I think there is a good deal of upside if they can deliever anything close to their long term targets.
That being said, I see this as a higher risk investment and expect plenty of voliatility. EMS was a big mouthful to swallow, and although airport revenues have held up so far there are some real risks if covid has a sustained impact on travel. We're also yet to see if the necessary organic sales growth, post merger, will eventuate.
Results presentation here
Envirosuite has announced $14.5m in sales since March (since the acquisition of EMS).
$8m was for new business, with $6.5m in renewal contracts.
If you annualise the past 5 and a bit months, that's a yearly run rate of ~$32m in total revenue.
The pro-forma revenue for the combined group was about $55m in FY19 -- though a direct comparison is difficult due to factors like seasonality, timing of sales/renewals and the fact we extrapolating a period which includes the worst of the COVID disruption.
EVS said that it had seen resiliance across all sectors and geographies, as well as new sales in its key markets.
Over half of renewals came from the airport sector and EVS has retained all of its customers in this segment (one that is amongst the hardest hit due to the virus). As CEO Peter White stated "noise monitoring is required as a license condition for all contracted airports, regardless of flight volumes".
So i think it's generally an encouraging update, but EVS will certainly need to see an accleration in sales over the coming year. The company reckons it has a $30m sales pipeline, so if they can convert even half of that this year they should achieve low double digit revenue growth.
Importantly, EVS reiterated guidance for positive EBITDA in Q3 this year, and the $100m revenue target for FY23 was mainatined.
ASX announcement here
My heart skipped a beat when i first saw "acquisition" -- something that could drain cash, prolongue breakeven, or worse require a capital raise.
But the purchase of AqMB IP looks really smart, and at just $1.35m seems to have little downside (EVS had $24m in cash at the bank prior to the this).
AqMB IP offers a "neural network-based machine learning tool that models chemical and biological processes at water treatment plants". This helps optimise plant operations and can lead to significant cost savings. In a trial, it supposedly saw a 35% reduction in annual chemical and electricity costs.
EVS reckons there's a very big market for anything that can offer a 25% saving or more -- around 25,000 sites globally -- and of course they already have a lot of wastewater customers. Over the coming six months, EVS will be working to integrate AqMB IP into a "smart water" product, in combination with their SeweX technology.
Envirosuite has a good history of smart, low cost strategic acquisitions, so I'm hopeful this is another example of that. The deal offers:
There are always risks in terms of execution, and perhaps in misreading the potential market demand. But the risk/reward to me seems very attractive.
I don't expect this to materially move the dial in the short term in terms of per share earnings, especially given the much broader customer base post the EMS acquisition. So i'm not inclined to alter my valuation as yet. But the return on this investment could prove very satisfactory.
ASX announcemenet here
They planned to have around 15 to 20 million in revenue for this year, last half year was not testament to this, they have said that they received 7.5 million in the new orders in their most recent presentation, whether this includes the first year results i am not sure. however, based of this and the optimistic scale of growth, they may finish this year with 9-12 million in revenue.
They plan to have 100 million in revenue by 2023, very ambitious. Their acquisition has claimed to bring in high revenue, however the statistics for the revenue of EMS was prior Corona, so that may be dimmed. Not sure how much they will count that in on revenue in the yearly report.
Any news for increased in contracts from north America is not the best news for me. because if you see their revenue vs costs here, they make a low very marginal profit. In saying this they are still unprofitable and although 2021 Q 3 is the aim, they still have fairly high costs.
they have high competition globally, their largest and most compatible competition is Cority, their price is minimum 10k for services compared to EVS 5K. They are a Canadian company that has a foot in Australia, for water pollution. No crossover with noise pollution, however they also provide services for water pollution similar to EVS's Thames service (in fact on their website they have almost the same photo the water treatment plant.) they have around 30 - 50 million revenue.
There also plenty of smaller companies that aren’t as steeped in this field but have a service. Enablon is more industry based but does have a service. CH2M Hill is a water management company, not exactly the same but could take market space. Gensuite, not much market crossover, more compliance based. haven’t found many competitive noise pollution reductionist companies.
Their board seems to be ok, not many marketing shills. Adequate experience with running companies and management, not the best SaaS experience, do not know too much about them, but one of them seems to old to have Linkedin. The ownership in the company shot up last year, which is a great sign.
Considering that from 2015 to 2016 they had 17 million in revenue and the price was about the same level, tells me that the price probably is already accounting for the optimistic growth of revenue, however it is definitely is much to low if they do truly reach 100 million and high profitability by 2023. Currently it is very volatile, I think that coming into this yearly report will really tell tale the price. Halving their expectations I still think that this is undervalued, however it must be a long term hold, as if I buy prior to this report and they do receive my except 9- 12 million in revenue I think the price will drop, if its above 15 million it will rise. This is high speculation stuff short term, I do think they are flexible and capable of achieving halve of their expectations by 2023, it will see good growth.
13-July-2020: New Envirosuite (EVS) Company Video
"Envirosuite would like to present to you our new company video where we highlight our offering in Environmental Intelligence. The video has been produced to mark the successful end of our integration with EMS Brüel & Kjær after acquiring the company in January 2020.
"As we move into FY21, we have undertaken an extensive rebranding and messaging exercise to integrate both companies and strengthen our core product messaging with a focus on our powerful offerings in ‘Environmental Intelligence’. "
What is Environmental Intelligence?
"Environmental Intelligence harnesses the power of big data, artificial intelligence and analytics to produce real-time visualisations, predictive modelling and actionable insights that enable companies, governments and communities to make fast, confident decisions that optimise operational and environmental outcomes.
"We look forward to bringing you more Envirosuite highlights and news in the coming months."
Envirosuite has brought forward its target for EBITDA breakeven, saying they expect to reach this target by the end of March 2021 -- 3 months earlier than previously advised.
This is a result of ongoing cost reductions and new projections for one-off and recurring sales.
It will be an important milestone if achieved, and i suspect will help bring about a re-rate of the company's shares.
ASX announcement here
Envirosuite will enter the S&P ASX All Ordinaries Index on June 22.
Doesn't alter the buy thesis, but in the short run it should help support the price as index funds are forced to buy. Longer term it may help with liquidity too.
Envirosuite has announced that it expects the recent (massive) acquisition of EMS to be fully integrated at the end of May -- on buget and on schedule.
This process has identified $8m in cost synergies and a further $3m in budgeted savings. These are expected to be realised by the end of FY21.
If realised, that's quite material. I estimate it reduces cash costs by ~19% (and will boost pro-forma operating margins).
EVS also believs it will boost revenue growth potential, will see a restructure of senior exectuve team from the 2 businesses, and a consolidated product road-map.
Importantly, EVS reiterated its goal of being EBITDA positive on a monthly run-rate basis by the end of FY21.
A group presentation that more thoroughly outlines the new business will be released at the end of May.
Full announcement is here
Envirosuite has announced a binding agreement to initiate its launch into the Chinese market.
The deal is with Mr Zhigang Zhang, the GM of Beijing BHZQ Environmental Engineering Solutions, a person envirosuite described as "a prominent leader in the environmental protection sector". He'll also be offerred a board seat.
Mr Zhang will purchase 50m shares at 8c each ($4m worth). He'll also get 25m options to acquire shares at 15c each, which expire in March 2022 and vest on the condition that a minimum of A$10m in cumulative revenues are received by Envirosuits Chinese subsidiaries before the end of calendar 2021. (for context, EVS is targetting $12m in recurring revnues by the end of FY2020)
Another 15m of options will be allocated to China employees under the same terms.
Much of this is subject to shareholder approval at the upcoming AGM.
The $4m raised is before costs, which include 1.25m options (under the same terms as above) for the executing broker. As a percentage of funds raised, seems like the broker will do pretty well out of this...
Envirosuite said that the $10m revenue threshold was NOT a target or forecast -- rather just a performance hurdle.
Still, the market opportunity in China is obviously vast and the Government there has a clear focus to address air and water issues. Definitely an exciting prospect.
But is it a good deal?
Well, the issue price (8c) seems overly generous to me -- although the strategic value of this deal clearly has big potential. It's hard to do business in China without the right partner...
The deal, in its entirety, will also be reasonably dilutive to existing shareholders. Accounting for all options, there'll be a further ~24% increase in the share count.
Further, the new China subsidiary will undoubtedly extend the cost base. It's entirely possible that any additional revenue earned in the medium term is more than offset by the increased costs.
I expect the market will react favourably to the news when trade resumes, and not without some justification. It's just worth keeping in mind that execution is everything -- and far from gauranteed.
I'll likely adjust my valuation in the coming days, once more is known.
Read full ASX announcement here
Envirosuite provides environmental monitoring, management and reporting software. With data fed through a network of sensors, the platform allows clients to monitor environmental outcomes (such as odours, pollutants, emissions, noise etc) and assets (pipes, vents and other plant & equipment) in real time. This enables clients to more effectively manage operations, investigate incidents, predict outcomes, manage complaints and meet regulatory and reporting requirements.
Clients come from a wide array of industries, including regulatory bodies, wastewater, mining, oil & gas, ports, power plants, hospitals and more. The company has around 30 FT employees and is based in Brisbane. It also has offices in San Francisco and Madrid.
The technology is genuinely world leading, and the business has a huge addressable market, a significant first mover advantage and minimal competition.
Since divesting itself of the old consulting business, the company has managed to grow Annual Recurring revenues at a very strong pace, albeit off a low base. Having doubled ARR last year, they are on track to more than double it again in FY19, and are targeting a further 100% growth in FY20.
Although still cash flow negative, they appear to be scaling well and should be able to fund themselves until cash flow breakeven -- provided they maintain cost discipline and achieve sales goals.
Envirosuite is an early stage business, and certainly represents a higher than average risk investment. Nevertheless, if sales growth comes in as expected, the upside is sigificant.
Envirosuite provided an update on its China venture since it established operations last year.
EVS China now has 10 people, including a local general manager. The previously announced strategic agreements with local partners has supposedly contributed "substantially" to the sales pipeline, the qualified portion of which represents around $12m.
EVS reported a maiden sale of $270k to a wastewater plant, and more sales are expected in the coming months. With the SaaS model still unfavoured in China, new sales are expected to involve a large upfront capital component, followed by a few years of smaller maintainance and software fees.
The recent takeover of EMS gives Envirosuite 4 existing contracts in China for the related solution, and there's potential for further expansion here.
This news is not material from a financial perspective, but at face value it seems as though the move into China has started well.
Management certainly have a lot going on -- ingesting the much larger EMS while simultaneously expanding into a new (and often challenging) geography and overseeing product integration and development is no easy task!
You can read the full announcement here
There's a lot of detail related to this acquisition, and others have already summarised the main points.
Key considerations for me:
I've updated my valuation (see my company report)
Envirosuite has today signed a "cooperation agreement" with BHZQ.
This follows on from the "binding agreement" announced in September.
Frankly, I'm not too clear on the difference, but it appears the recent announcement relates to a more formal agreement that makes EVS the preferred supplier for associated solutions.
(EDIT: Looks like i wasnt the only one who was a bit confused -- EVS released a supplemental clarification on the relevance of the agreement on the 19th Oct. You can read here. Essentially, this agreement was an essential step, profit sharing will be determined on a project by project basis, and that projects will likely require joint input from both parties)
There were no financials or forecasts provided, other than a reiteration of the $10m aspirational target for options conversions, which require $10m in cummulative income from China by the end of calendar 2021.
Still, this appears to be an inevitable contractual step from what was already in train and the initial ~7% jump in shares seemed a bit of a knee jerk reaction.
Good to see progress being made, but I wont be raising my valuation until we see some tangible progress.
The business may not scale well, absorbing higher revenues through increased cost base. EG. Increased development spend, significant increase in sales force (without concurrent lift in sales), more expensive office space, new offices in other geographies etc)
Founders and insiders may extract capital through generous options/equity grants or increased remuneration packages.