ACE in the Media, page-5

https://www.intelligentinvestor.com.au/investment-news/watching-and-waiting-acusensus/153683?v=1116966

Alan Kohler here and I'm talking to Alexander Jannink who is the CEO and Founder of a company called Acusensus, ACE on the ASX, it's been listed since the beginning of last year, 2023, but it's started in 2018 and what they do is or what Alexander did was come up with a way of detecting whether somebody is using their mobile phone in the car or not have their seatbelt on. They're selling a service to government and police forces to have cameras by the side of the road that detect when somebody's either using their mobile phone or haven't got their seatbelt on. They've got most Australian states except Victoria which is the state that they started in but there you go, they're suing someone in the Federal Court for patent infringement in Victoria and they're also starting to make some sales in the United States and the UK.

There doesn't seem to be any competition for mobile phone and seatbelt detection in those places so a very interesting prospect I think. It's an interesting story and the company is cash positive, not burning cash anymore, they've got money in the bank. According to the last quarterly they've got $7.8 million in the bank. Interesting business, here he is, Alexander Jannik, CEO and Founder of Acusensus.

Alexander, perhaps the best place to start is in the beginning really, when you started the business or actually before that you joined Redflex as a 21 year old out of university as a software engineer. A couple of years after that they got done for bribery in Chicago which really kind of caused problems in the company. Did that help your career progression in some way?

Yeah, it was an interesting time with Redflex, as you said I came to Redflex straight out of university and worked on a lot of great projects from different speed and average speed and red light enforcement systems in Australia and across the world, got to go to probably 30 different countries with Redflex. Yes, there was that bribery issue in the United States and that sort of caused quite a dramatic shake up of the management team and CEOs changed, management teams changed and mostly new executives were brought into the company and there were one or two who were promoted and I was one of those one or two. I ended up heading up the future product group which is basically head of research and development for Redflex from 2015 to the end of 2017 when I left.

In Australia or around the world?

I was based in Australia but it was global head of research and development basically.

That was a big step up, wasn't it?

Yeah, it was. It was good, it was quite an experience.

Is that when you had the idea of catching people using their mobile phones while their driving as well as speeding?

Yeah, so there were a couple of catalysts for that idea, one was personal. In 2013 my friend, James, was run over and killed by a driver who was impaired and was using a mobile phone. Then by 2015-2016 you can see in the road fatality statistics across the developed world that road fatalities were rising again after decades of declines and that's despite better road quality, better hospital care, basically the only thing that was changing was road user behaviour and that coincided with the rise of the smartphone and so I wanted to try and address that challenge. It wasn't the environment in Redflex to do it.

Did you propose that idea to them?

Yeah, I did pitch the project to the board and a couple of the CEOs and they didn't want to pursue it and so that ultimately led to me finding investment and leaving Redflex, and pursuing this idea myself.

Where did you find the investment from, how did you go about raising that money?

I spent 2017 just trying to work out who did I know who might know somebody who might know somebody who was willing to invest in just a person and an idea because I knew I would need capital to even get it started at all. I was fortunate enough to know somebody in Austrade in India and so I called Kamran at Austrade India and said hey, I want to do this, do you know anybody? He said, Alex, I know exactly who you need to meet, and introduced me to Ravin Mirchandani who runs Ador Powertron, it's a large industrial electronic manufacturing business in India but he's an Australian citizen and has a strong affinity to Australia, so introduced the two of us and he said yeah, I'll back this. Ravin is the Chair of the board right now.

How much did he give you?

That seed round was $600,000.

Right, and how far did that get you?

It was supposed to get us about two years, by the end of 2018 though it was apparent that we would consume capital faster because we probably had traction faster than we were expecting, the New South Wales government was ready to move on this issue and by then we had been through evaluation and selected as the preferred provider to pilot for them. So we sort of did a friends and family round at the end of 2018 and then a series A which was a $3 million series A in the middle of 2019.

Who anchored that?

Some high net worths and then Bell Potter were sort of 2 of the 3 million - sorry, clients, high net worth clients of Bell Potter.

Right, and why did you float in 2021, did somebody want to get out?

We floated at the start of 2023.

'23, of course, sorry it was 2023, that's right.

Yeah, so there was sort of always an expectation under a certain set of triggered conditions going right back from series A that we would list and so there was that expectation from our shareholder base and then by end of 2022 before our different growth ambitions in offshore growth and product growth we would need more capital. Then we decided to take it to IPO, we thought that the market was just open enough. I think we ended up being perhaps the only non-mining IPO of about a 12 month period there so it wasn't exactly the easiest time to IPO a business.

No, and how did it go? How much did you raise?

We raised $20 million at about $100 million market cap, and it was tough to get that because institutions weren't very interested at that point in time investing in a small cap micro cap IPO.

Yeah. Those who came in at the float - because the float was $4 a share, wasn't it?

Yeah, the float was $4 a share. We did a share split in the middle of 2023 so the equivalent price is 80 cents a share after the split.

Okay, so it's down still. What is it now, 69 or 70 cents or something?

Yeah, it's down at 60 cents. It took a while to get people I guess across the story and starting to invest which we did towards the end of 2023 and then in early 2024 we've had very good revenue growth and we've been executing really well. We came to market at IPO time with a $37 million forecast or guidance and then we upgraded that and exceeded it, and delivered $42 million in FY23 and now our guidance for FY24 is roughly $50 million which we're on track for so we still keep growing. We win business through government tenders, so a small number of high value tenders and we've had this very good track record of winning them. I think there's maybe only two or three that we haven't won since inception that we've gone for.

When did you make your first sale and who was it to?

The first sale was to the New South Wales government at the end of 2018 piloting mobile phone enforcement. We were first in the world for mobile phone enforcement by camera, we're also first in the world for seatbelt enforcement by camera, that was with the Queensland Government. When you look at road safety and road user behaviour there's what's termed the fatal five. 94% roughly of fatalities, road fatalities, are caused by illegal or dangerous driving behaviours and they're split across the fatal five. Before Acusensus came along the only sort of non-police intervention for the fatal five was against speed and then the remaining ones are fatigue, impaired driving, seatbelt use and distracted driving. Now we combat from a single asset or deter drivers from three out of fatal five, seatbelt wearing, distracted, mobile phone use and speed enforcement and then we're trying to work out how we can solve fatigue and impaired driving as well.

You do speed as well?

Yeah, actually a lot of our revenue is from speed. We supply 40% of mobile speed camera enforcement in New South Wales and all of the rural regional transportable speed enforcement in Queensland. That came after the mobile phone and seatbelt enforcement. We always had this idea of making one asset that could be deployed that could combat the wide range of illegal and dangerous drier behaviours and that is...

Right, so you're attacking Redflex then?

We're not attacking anybody, we're trying to...

Okay, what I mean is you're starting to replace their speed cameras.

Our intent really is that you provide the most deterrence from drivers doing these acts against the wide range of the dangerous acts and so it's sort of like upgrading, where in the past you might have one speed camera, all it could do was speed, and you'd have to have a person in it. A lot of speed enforcement you have a car there and an operator sits in the car. We came along and said well you shouldn't have a car and a person there, you put a trailer there, the trailer can sit there 24 hours a day, can do the job much cheaper for the client and it can also be targeting mobile phone use which is 20% of road fatalities and then seatbelt non-compliance which is another 20% of road fatalities. You can do a lot more with a lot less money for the government clients that we've got.

Yeah. How many governments are deploying it now, your system?

We're now at the majority of the Australian ones, New South Wales, Queensland, ACT, South Australia and then WA we have a system on the Kwinana Freeway and we piloted so they're going through a tender process at the moment. Most of our revenue is from Australia, 6% of our revenue is offshore now so we've been trying to grow in particular the United States and the United Kingdom so we have employees in both of those jurisdictions and offices and subsidiaries there.

Do you have direct competitors in those places, are other companies solving for mobile phone use?

We don't have direct competitors in the US or the UK that we have seen so in Australia there is one contract that we don't have. We're a Victorian startup but we don't have the contract in Victoria.

Does somebody else have it?

Yeah, that's right, somebody else has it.

For mobile phones?

For mobile phone enforcement, yeah. Victoria were the first jurisdiction not to select us. We obviously innovated the technology in this space, we have a number of patents, I guess I just - for the record we are pursuing in the Federal Court the supplier in Victoria for patent infringement.

Are you?

Yeah.

Right. Are they a Victorian start up as well or are they a big company?

The technology comes from a New South Wales start up but the head contract is with a multinational that subcontracted the technology.

You reckon that they've pinched your technology?

I guess that's what the court case is about.

Very interesting. I think it's outrageous that the Victorian Government has gone with somebody else from New South Wales when you started in Victoria, you must think that too.

Obviously, I'd prefer to supply our technology to lots of different jurisdictions and I think that we have the best offering that can deliver basically the strongest education and deterrent to the population. Road fatalities in Victoria are too high, there is a lot more that can be done in Victoria right now to reduce road fatalities here.

Take us through how your business model works, because you don't sell equipment do you, you sell a service. How do you charge and how does it work?

That's exactly right, Alan. We provide an end to end service. We own all of the camera assets and then we work with our clients, our government clients to deploy them where the client wants them deployed. We'll deploy that, certify that system, maintain it, move it around to new locations, do the first level of human review of the data confirming the traffic offences and then send that confirmed evidence to our client. At the end of the day what the client is buying is prosecutable data or prosecutable evidence. The commercial model is basically a fixed monthly fee.

What's the fee?

The fee is based on basically number of camera assets. For each camera asset that goes out into the field then the client may pay depending what it is doing and how it is being moved around or it can be anywhere from $10,000 to $40,000 a month depending on the services related to it.

What do you do for that money, you provide real time alerts, do you, for police? Where do the policeman have to be to get the alerts?

There's two different ways that we deploy the camera technology. In Australia it's all automated enforcement so the camera will sit by the side of the road, it will collect the evidence and then the driver will get a ticket in the mail basically.

I see, it will take a photo of the number plate as well?

That's right, photo of the number plate and then of the illegal behaviour such as the mobile phone use or seatbelt non-compliance. Over in the United States we have a different model where we sort of pretty quickly worked out that we wanted to approach the market there differently and we supply what we call heads up real time and that's done in conjunction with police. For example, in North Carolina we've had a program there for the last year enforcing mobile phones and seatbelts for heavy vehicles, for trucks. Our trailer is put by the side of the highway and then troopers will wait down the road and they have a tablet and so they get a real time alert when a truckie is coming towards them and the truck is - they could be on their phone, not wearing a seatbelt, whatever it might be, it could be speeding or license plate infraction, and then the troopers pull the track over and issue a ticket there and then.

Why don't they go for the Australian system of automated system, is that because they need to employ more troopers or something?

There's a couple of different reasons for this model. One is just the cultural environment, the political cultural environment, is a bit different. Australia is quite accepting of automated camera enforcement while the US less so. Also there are legislative barriers as well, you often need to pass legislation through parliament to enable mobile phone use to be automated camera enforced. When we're getting police to issue the tickets then that can be done without a legislation change, you're relying on the officer's testimony of the event. It means that we can go and deploy in the case of heavy vehicles all 50 states can be enforcing using this technique. It is quite effective, so if you look at North Carolina the number of tickets issued to heavy vehicle drivers for phone use or seatbelt use has gone up an order of magnitude, between 6 and 10x, and those are whole of state numbers. For the whole of North Carolina they now issue 6 to 10 times more traffic citations for these two offences to truck drivers than they were before and they've only got three Acusensus trailers so it significantly improves their effectiveness.

Do they also in America have a system whereby Redflex, or whoever is providing the technology, gets a share of the ticket revenue?

Yeah that does happen, particularly in communities. There's two types of clients in the US. You can either go to the community level, kind of like a council will be a procurer, a local police force, or you can sell to the states. Our model in the US is selling to the states and so your state highway police or Department of Transport. In state level you don't get clip of the ticket and we as a company are against clip of ticket type models because we want to actually reduce the number of people using their phones or not wearing seatbelts. We ultimately want these numbers to go to zero so that we improve road safety.

It does strike me that clip of the ticket incentivises the company to have more tickets, obviously.

Yeah, it's sort of the wrong way around, isn't it?

That's right, exactly. With the way it works you've got to buy all of the equipment, right? You've got this equipment on your balance sheet, is that right, and how are you funding it? With debt, or equity, or both, or what?

That's right, so we do have to buy all the equipment or build it. A lot of it is our own design. We have quite a lot of capex spend, cash for the capex. We don't have any debt at the moment so we are funded purely through the capital raises that we've done. Also we are cash flow positive from operations so the Australian business is quite profitable and then we fund from that cash generation base we fund new capex to satisfy the additional units we expect to have to deliver in the next six months or twelve months. We also fund R&D in new solution lines.

Just on R&D I noticed you're spending about 5% of revenue on R&D, is that enough?

I don't have the number straight to hand but we've got a team of 20 or 30 engineers here in Melbourne developing new technologies and so that's split across basically three lines of effort at the moment, we've got continuing to enhance the core enforcement solution and then we're trying to provide a solution for impaired driving, so drugs and alcohol, 40% of drivers in Victoria have drugs and alcohol in their system still and then the other solution line is we're trying to provide a roadworker safety solution that provides alerts to roadworkers by the side of the road when they are at risk of being hit by general public vehicles or plant and machinery within the worksite. That's one of the highest risk occupations in Australia.

Do you think you're going to be able to come up with a solution that catches people who have been drinking, taking drugs or are tired, do you think that's going to be possible?

I think it's possible, it's certainly our highest risk R&D project, so it has a higher chance of failure than the others. We have done all the simulated testing so we've put people through simulators drunk and we've put them through sober and so we know what we're looking for and how to look for it. Towards the end of this year we should have a solution on the road so that we can evaluate the efficacy of that solution.

I suppose the win would be significant because you could replace random breath tests.

That's the low hanging fruit I guess there, is for police. A random breath test operation you can have multiple police officers at it and they'll only screen let's say a fifth of the vehicles, it will depend on the road, that go past. If you put our solution in advance of that they can screen the fifth of the vehicles that are most likely to actually be impaired by alcohol so that can significantly up the number of people caught from a random breath test operation. For random drug testing, and right now half of the fatalities come from alcohol and half of them come from drugs. The contribution of drugs to road fatalities has been increasing year on year for a long time and there's not an effective deterrent to that so we don't really have random drug testing like we do for breath testing because it's really expensive, hundreds of dollars a test, and it's very slow. A drug test like a swab test can take five minutes to administer so you can't just stop everybody randomly and hold them up for five minutes.

Obviously, what we're trying to do is then give police the knowledge that this driver is much more likely to test positive than a different driver. The driver who's not going to be positive can just go passed, they're not going to be pinged and then the person who is likely will get tested.

How do you think your camera is going to pick that up?

Broadly, if you think of the thought experiment if you follow somebody on the highway for long enough you can normally tell if they're significantly impaired. Different drugs will exhibit different symptoms but if you think just of drink driving people serve around, they won't have good speed adherence, if you follow them long enough you know that. The question for us is how can we do that in the shortest possible timeframe or distance on the road. As with everything for us this is a case of using some machine learning and artificial intelligence to pick up some really small traits and work them out and do that. For us we're quite well versed in using AI and machine learning because that was what the company was founded on with that premise of doing that back in 2018.

Just back to your finances would it be fair to say that these things, this equipment, it does deteriorate. Does it mean that the depreciation charges are actually real and then do you have to then replace them all the time? So that to some extent cash flow is not a proper - earnings before depreciation are not an entirely sort of accurate reading of what the situation is, that you do actually have real depreciation?

The cameras that we installed in 2018 are still operational. The depreciation isn't really that...

How long do they last, how long does it all last?

Alan, a lot of our capex is in trailers and so while a trailer might be depreciated over a - I think most of them in our books have depreciated over five years but knowing from real world experience a trailer really can last for a very long time. The real world usage will be at least 10 years so I would say our D&A schedule is faster than what our assets can actually be used for in the real world. I guess I don't quite agree, I think that we have depreciated a lot faster than the actual reality of how long our technology and assets can be used for. It's probably worth realising a lot of the technology is in software. The hardware is important and it is custom but still technology that we developed back in 2018 or 2019 is as good or better than anything else that anybody else in this market can actually produce.

Given that, given the cost of setting it up and all that stuff, what sort of margin do you get?

Gross margin varies depending on the type of contract. At the low end we have mobile speed cameras where there's somebody in the vehicle and there's a strong labour component so that might be down at 30% and then when you get up to AI enabled things that will be 50% or 60%.

Right. Is it right that mobile phone detection is AI, is it?

Absolutely, AI based. We'll take photos of every driver that goes passed and then those photos are screened right there and then for mobile phone use and seatbelt non-compliance. Then if our AI systems can't detect any non-compliance then all those photos are just deleted straight away by the roadside whereas if they do detect non-compliance that will go to human review to confirm it. There's multiple stages of human review, one is done by us and then you normally get another two stages done by the government.

Have you thought of other applications of this beyond road traffic detection?

I guess not so much on the core enforcement technology side just because we're quite mission focussed in trying to solve road fatalities. We've been very cognisant that we want the public onside with our solutions and so privacy has been exceptionally important to us from the start and we really limited just looking at the traffic offences. The core IP that we developed, probably the first adjacency that we're going to outside traffic enforcement is the roadworker safety product which is actually using a fair amount of similar or same IP in terms of detecting things automatically and using AI for that, of using traffic enforcement technology to work out where everything is but then using it to deliver an alert to the worker.

That's because your cameras can pick up whether someone is driving towards the roadworkers erratically or impaired.

Exactly. We can detect the behaviour of the vehicle, the trajectory of it, speed of it, work out where they're going to go, work out where all the workers are and then know that there's going to be a conflict. The genesis of this idea - I don't know if you remember the Eastern Freeway crash, it was about four years ago now, where four police officers were killed when they pulled over a Porsche driver and a truck had veered across multiple lanes and run over these two police cars and four officers, and killed them. The current technology we're developing could be installed on a police roof bar or something like that on the vehicle and could give sort of five seconds of alert to officers in that scenario.

Right. That kind of happens a bit when they pull someone over, they're in danger aren't they?

They are, it's very high risk. If you go over to our clients in the US almost all of our clients are police clients and so talking to them this will be a gamechanger for us if you can do it, because I think they do even higher risk traffic stops than Australian police do.

Right. You reckon it'll be five seconds warning which will be just enough to jump out of the way.

Yeah, that's it.

Fascinating. You seem to be saying that you're not proposing to employ facial recognition.

No, certainly not. We've never looked at doing facial recognition and there's no plans whatsoever to have that kind of technology anywhere in our system.

Very good. Okay, thanks for talking to us, Alexander, it's been great.

Thanks very much for having me.

That was Alexander Jannink, CEO and Founder of Acusensus.