G'day mate, please see below for some of my thoughts.
That said, the market is quite fickle and I still think that total revenue is what the market will focus upon and is what will attract new investors.I agree the market is fickle, and total revenue may well be the market's focus, however, I think the more pertinent questions are who is the market, what's best for sustainable share price growth, and by extension of this, who do we (as existing shareholders) want as new investors?
It appears the Top 100 holders own approximately 60% of existing shares, with nominal recent changes. There's limited institutional ownership, and it appears the current market comprises high net worth individuals, some smaller family office money, SMSFs (most represented in the Top 100) and then perhaps smaller traders/punters who bought during the 2020 hype.
I'd posit the shareholders we would like to see as new investors are smaller institutional funds. If they're more sophisticated and have a fundamentals bent, I think the total revenue will still be important, but less of a focus than customer quality, composition of revenue, customer retention, margins, cashflow position, and profitability - along with share price related features (but less business related) such as trading volumes or market cap.
As I've touched on before, the Australian government has recently been advocating for superannuation funds and institutional funds to invest in the defence sector (
https://www.copyright link/wealth/superannuation/super-savings-should-be-used-to-invest-in-defence-sector-chalmers-20230823-p5dys9), which when viewed with the Future Fund's decision to move towards active stock picking (
Disallowed/news/funds-management/australias-250bn-future-fund-returns-active-equity-management) and also their choice to appoint Maple-Brown Abbott with its Australian small-cap investment strategy (
https://www.copyright link/companies/financial-services/maple-brown-abbott-snares-future-fund-small-cap-mandate-20230922-p5e6tl), it paints a pretty clear picture that we can expect a weight of capital in the equities space where archTIS currently resides.
This is further evidenced by Australian Ethical recently announcing their substantial holding in Prophecy Holdings (PRO), who are another small-cap in the defence sector (also part of the Australian contingent at recent DSEI events).
To put it simply, there aren't many small-cap defence options for institutional funds. To accumulate a substantial holding in archTIS would require approximately 14.5m shares to be acquired. If done on-market, that will significantly move the share price given recent trading volumes.
We need to get up to that $10M annual revenue and if we get there with services then that's ok provided we have a pipeline. I have no doubt that AR9 management have a pipeline of business with which they forecast internally but they will be keeping it close to their chest - understandable when dealing with small low company revenues when a singular (potential) customer can have a high impact on expectations.I've previously commented based on known information at the beginning of the FY, annual revenues just shy of $10m were expected. I can't recall what the revenue composition is, however, I definitely have a preference for it to be licence based, as it attracts the highest margins and hopefully will expedite sustainable net profitability.
Regarding the pipeline, if memory serves me correctly, there are still ~10 outstanding POCs. Further, as I've noted earlier, LinkedIn research indicates L3Harris Technologies is in the process of implementing archTIS' technology. This is extremely interesting to note in the context of L3Harris Technologies recently being awarded a circa $300m contract by the Australian Department of Defence.
This doesn't touch on SAP - which as was pointed out last year, they were hiring roles specifically related to the rollout of archTIS' offerings (explicitly naming them in their PDs); Thales partnership either with NDC, or their CipherTrust offering utilising archTIS' key.
It's a little difficult to see when that $5.2M deferred revenue will be recognised. While it's good to have that deferred revenue I hope it's not viewed as an offset to required revenue going forward resulting in a "slackening" off pursuing further revenue for the next fiscal year. I think the AR9 culture is more mature than that.
As I previously noted, that $5.2m in deferred revenue is in current liabilities, therefore, I expect the total amount to be recognised over the 12 months to 30 June 2024.
I agree with your hope that the momentum is maintained, and no laurels are rested upon. The competition in this space appears to be heating up, with some ex-archTIS employees seemingly at competitors now. Given how structural and urgent the need for ABAC appears to be, there may be enough possible contracts for many mouths to be fed, but I really hope archTIS are able to secure a major proportion of market share domestically, and sizeable portions overseas.
I still remain concerned about a capital raise which would be disastrous without announcement of a significant ($M's) new revenue. The next quarterly should provide some clarity. Re the silence from the company, It will be sad if we have to rely on Twitter, LinkedIn and the like, for company updates.
I think the possibility of a capital raise exists, however, in my estimation, it's improbable. My views on this are predominantly due to the cash position as at the annual report, plus the cash received shortly after closing, and the - at this stage my assumption - likely rebalancing of revenues towards being licence based (I base this on the $5.2m in deferred revenue, which I assume to be all licence based). Time will tell if this is accurate, however, if revenues do become predominantly licence based, I'd expect margins to expand materially, and therefore expect to see overall expenses to start trending down materially.
In the absence therefore of any major unexpected expenses, my belief is the cash position will be such a capital raise is unnecessary.
I also don't think capital raises in and of themselves are always a bad thing. The context makes a big difference.
I also agree there needs to be some improvement in company updates.
Finally, I think if the cash position is as I assume it to be and there are no upcoming potential M&A activity or significant capex requirements - management should seriously consider undertaking an unmarketable share parcel buyback to consolidate the registry, reduce administration costs, and fundamentally improve likely EPS (if sustainable profitability is nearby per my assumption), particularly if other investment options for the business are likely to provide a lower ROIC.
