RightCrowd proposes divestment of the physical security businesses for $13.5 million and repositions into the Identity and Cyber Security Markets.

• Binding Share Purchase Agreement with Bloom RC Holdings, Inc. (“Bloom”) for the sale of Workforce Access, Visitor Management and Presence Control businesses for AUD $13.5 million.

• RightCrowd to retain SaaS-based Access Analytics business.

• Bloom appointed as an Access Analytics OEM partner for physical security uses.

• Transaction subject to shareholder approval. 

Right on cue, after I sold at 2.1c for harvesting my tax loss. Oh well...

Victim of the day after two mean years of cash-burning tech companies getting punched in the stomach daily, and last remains of tax loss selling continue.

After today's low volume trading, Rightcrowd has got a market cap of $3.95M. In the last quarterly, ARR closed at $11.4m. This puts them at 0.3x ARR. I don't remember seeing a number this low before!

Now, it's blatantly obvious that they have run out of cash, even CEO admitted this in last quarterly: "the Company acknowledges the potential requirement for additional funding sources. It continues to collaborate with its advisors to explore various options and determine the best course of action.”

Let's hope they doesn't kill them completely.

What a difficult situation this company finds itself in.

The R and D credit keeps the dream alive for now but with only 3.9mil in the bank and nowhere near profitable its hard to see how your equity doesn’t get wiped or at least severely diluted.

Very real possibility of a donut here in my opinion.

The CEO puts it well:

“The challenge for the Company is its current cash position and the impact on operating cash net outflows due to customer churn on the COVID-19 related Presence Control portfolio and delayed customer receipts due to longer timelines to finalise new sales and achieve project delivery milestones across the broader portfolio. The Company is working hard to address these challenges and is making good progress. 

The Company recognises that it may need some additional funding sources to support working capital as new customers come on-line and continues to closely work with its advisors to consider its options.”

Thoughts:

I have a very small holding but mainly because the company is so illiquid now its difficult to sell.

Annual-General-Meeting-Addresses-and-Presentation.PDF

Rightcrowd should get an award to produce worst 4C for this reporting season and publish after 4pm on friday - last day possible and downgraded fy22 and fy23 on holders.

Thanks.

A few interesting developments from RightCrowd recently:

1.     Strategic partnerships with large multinational security corporations including Honeywell (Market Cap. USD $156 billion). Sales staff are being trained to market and sell RightCrowd SAAS products alongside Honeywell’s hardware, which will allow RightCrowd to leverage Honeywell’s huge exposure and selling power which has the potential to be significant for little old RightCrowd (Market Cap. AUD $70 million). This sort of relationship also further validates RightCrowd’s products in my view. These 2 companies were supposed to share a booth at the Global Security Exchange conference in Florida last quarter, but it was cancelled due to covid (like everything else).

2.     Addition of CTO & COO placed strategically in North America and Europe. CTO Bryan Jones was a senior executive at Honeywell, based in Switzerland to help expand into the European Market. He will also no doubt do no harm in strengthening the Honeywell relationship. COO Brian McIlravey with previous CEO and executive level experience in this space (https://www.rightcrowd.com/2021/11/02/rightcrowd-strengthens-senior-management-team-naming-brian-mcilravey-as-coo-to-be-based-in-north-america/) based in North America to again have presence in this region which is that of RightCrowd’s major customer base. CEO Peter Hill has explained previously that while overall covid has been a tailwind for the company as they’ve pivoted into the contact tracing space, it has been a challenge for deployment of other RightCrowd security products as they require site access particularly for some of the bigger clients, which has been difficult or sometimes impossible with travel restrictions. 

I always find it intriguing when seniors from very large companies join very small companies.

3.     Launch of new product Access Analytics which will be another revenue stream and upsell opportunity. The first sales are expected to be made in Q2.

Disc: held

Great preso by the straight-shooting CEO from the recent Microcap Leadership Summit. He’s got a clear vision in an emerging space with tailwinds

https://youtu.be/hyY4YqduBhk

RightCrowd:

Market leader in the emerging physical security and compliance solutions space that manage the access and presence of people. Global provider with most customers in the US. Huge addressable market.

The problem & solution:

-       In the past, for electronic physical access security systems to be individualised, data on individuals had to be manually entered into the system. Say for example, an employee isn’t compliant with OH&S safety training. You would manually enter this into the security system to disallow access for that person to enter a job site, until they became compliant, then change it manually to allow access. If you work for a large company or a job site/building with employees of many different companies, plus visitors like clients and subcontractors, this is inefficient and leaves room for error exposing risk to people and assets. RightCrowd automates this process by integrating with the organisation’s ERP.

- Many other applications, and they also provide contact tracing solutions which could potentially become more common for companies “returning to work” as we see that even significantly vaccinated countries are still copping it from covid. Solutions like this would save wiping out big chunks of a workforce through contact exposure. 

-       Recently launched RightCowd IQ cybersecurity platform

Products/services:

-       Visitor management 

-       Workforce access management 

-       Contract tracing wearables

-       Presence control 

-       Cybersecurity

-       (see website for more detail - https://www.rightcrowd.com)

Company Background:

-       Founded in 2004 by the CEO

-       Long period of R&D

-       IPO in 2017

-       Acquisition of “Ticto” in 2018 – wearable security smart badges (https://ticto.squarespace.com/ticto-app). Bought in development phase hence burned through cash. Slowed down path to company profitability. Basically, a digital ID badge that increases security, has social distancing and contact tracing functionalities. 

-       The company holds it cards close to its chest. Doesn’t disclose large clients despite having 5x Fortune 500 clients on the books. One of those is Microsoft though (https://www.rightcrowd.com/2021/08/11/press-release-microsoft-rightcrowd-finalists-for-2021-u-s-outstanding-security-partnership-award/)

-       Very Illiquid stock. CEO owns 25%, ticto founders have 25% and >80% of shares held by top 20 shareholders. Maven bought a cool 8% earlier this year. Ellerston capital own 7% and keen to accumulate (https://reachmarkets.com.au/the-insider-meet-the-fund-manager-david-keelan-alexandra-clarke/). Doesn’t trade some days.

-       I like the understated nature of management

-       See other straw on management

Tailwinds:

-       The big tailwind is clearly the pandemic. Even moreso is the reopening of countries and “return to work” because the risk of infection and transmission is higher compared to when we’re in lockdown. Continual risk of covid viral variants as time goes on. 

-       Ongoing threat of terrorism and civil unrest, both internal and external, particularly in the US

-       Cyber security is a hot space after some recent high profile cyber-attacks. Google the Waikato Hospital cyber-attack in NZ for an interesting one. “RightCrowd IQ” has been deployed at a major Australian Financial institution and is in the process of broader commercialisation.

-       I also think a lot of this technology is a natural progression of upgrading security as we live in an increasingly automated world. 

Competition:

-       Can only find 3 other competitors in the physical security and compliance solutions space

-       The software takes a long time to develop – large barrier to entry

-       Very large market can likely comfortably service all current competitors

-       Apparently the Ticto wearables are the only ones of its kind 

-       There are some big players in the cyber security space, again it’s a very large and growing market. RCW has the ability to upsell through other suite of products 
 

Financials:

-       Market cap $78m

-       Share Price $0.32

-       EV $68m

-       Revenue $15.5m in FY21 and growing ~40% yoy since IPO

-       70% of this comes from North American Market

-       ARR grew >100% in FY21 to $8.1m, now 50% revenue

-       Aims to maintain 40% CAGR to reach $30m revenue in FY23

-       Capital raise $12.5mil earlier this year expected to fund through to profitability in FY23 (https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02356840-2A1288807?access_token=83ff96335c2d45a094df02a206a39ff4)

-       Debt ~$0.6m

-       Cash ~$10m

-       Very low churn

Risks:

-       Execution

-       lack of adoption of technology

-       cash burn in R&D

-       loss of large clients, although historically low churn

-       competition, although large market few players, and high barrier to entry

Overall

- Market leaders in new/emerging tech niche.

- The technology seems like a natural progression in this space to help companies protect staff and physical assets. Imagining myself as a senior in a big company, I can see why these products would be attractive, particularly at the present time.

- Management are aiming for continued ~40% revenue growth and continue ARR growth, with very low churn this should be possible. If this type of technology genuinely takes off this could very well balloon out and adoption by Fortune 500 companies is encouraging.

- Cash burn should slow up soon and head towards profitability in FY23.

- Covid, terrorism, and general security paranoia tailwinds.

- With low-key management and little-traded, tightly held illiquid stock, this company could go about its business and accumulate value with little fanfare, potentially flying under the radar. A lot of potential blue sky ahead, but not without risk.

- Share price as low as it’s been all calendar year.

(Note: I am an amateur trying to learn the ropes so take everything with a grain of salt. Any feedback/criticism always welcome)

Disc. Held IRL

Good straw @bjbart.

I've also done some deep analysis on Peter Hill.

Peter was a former professional basketball player with an understated game. His high 3 point percentage and steals per game ratio indicated that he was your prototypical "3 and D" player, whose skillset would have translated well to the modern game.

Source: http://aussiehoopla.com/peter-hill/

Given the previously stated concerns regarding management, I've been having a deeper look into the CEO Peter Hill while doing some research into RCW. While he does have a conservative approach to investor relations, there's also a lot to like about him. For starters he's the founder and it took good decade of R&D to get the company off the ground. He also owns ~25%, he's paid a relatively modest $250,000, the COO was paid more than him last year, and of the incentive-based shares that were handed out earlier in the year, he received zero and most were given to lower-level employees. They also don't pump themselves up. These are generally hallmarks of a CEO who would act in the interest of investors, including himself. He ticks a lot of boxes. I don't know why the communication is so minimal, but I dont think it's all doom and gloom. 

Hi @thunderhead,

I still like RCW to a degree but have completely sold out of my position for now given my concerns.

However, I will consider buying back even at higher prices if the management can successfully execute and prove me wrong.

Originally had this little compay as one of my undervalued pick for FY22, but some recent developments have undermined my confidence in the managment.

FIrst, the ASX announcement of 16 July 2021 left me with more questions that what the positive headline suggested. In particular, the company had muddled the water with the use of ARR and CRR. To the company's CFO credit, he did get back to me very quickly when I made a query.

Second, the 4C for the June quarter of FY21 was pretty much released to the market near the end of the annoucenment period. Not to my suprise, it wasn't rosey and showed a pretty substantial continual net cash outflow.

My concern with the RCW management really comes down to the fact that the good news was announced to the market not too long before the negative (in my opinion) announcement.  

In my view, both announcements should really be released as one single announcement as to provide all shareholders with the full context.

Maybe I am a little too harsh on the management as it is still a company that only listed on the ASX and may not therefore fully appreciate the important of open communication with shareholders. However, the silence that followed my follow up query on this matter is concerning to me.

Given the right circumstances (improved shareholder engagement and new enterprise wins), I still think than RCW is worth much higher than the current share price.

However, my loss of faith in management and belief that they would need to undertake a capital raise soon to replenish their coffees has led me to reduce my exposure to RCW in recent days.

Hi tech bunny

your posts are funny

can you post another rhyme 

to update us this time

to understand why no one sees

why right crowd is the beesknees 

just read the latest release

and buy this stock - it sure will please!!

A first straw for little right crowd,

so someone says it out loud,

it's losing cash and making losses,

but for organic growth it's one of the bosses.

73% ARR growth in just three quarters,

Beats most of our ASX exporters!