Number of thoughts from me on this announcement. There are both negatives and positives. In no particular order:
Reported ARR as at 31/1/19 was $5.1m (March investor pres). This announcement reports $780k in new arr signed and therefore a theoretical total of
$5.88m. Interestingly, this was about the total I was hoping for in this sales update.
Unfortunately we see a higher than normal attrition rate of 9% equating to a reduction of $450k arr. Worth noting that the interim report for half year ending 31 Dec 18 referenced a target of attrition to less than 10% per annum. And they have been doing substantially better than this in recent times so hopefully this is an
outlier quarter moving forward. They attribute a majority of this attrition from the loss of regulatory clients in California. My take is that the regulatory space in this location was always going to be challenging given the difficulties and sensitivities of Government regulation in the States. Perhaps this simply came to pass.
I think the win from this is that they can really focus on their key vertical industries of mining, odour related and smart cities. These all represent significant TAMs so I'm not too concerned about the potential loss of sales in some other verticals. They also highlight a returning focus to our local market and then Asia Pacific which I think is important and am happy to see referenced. Will be a watch-point on how sales progress here and perhaps a good indicator of the value of the envirosuite platform overall.
An adjusted total ARR at Q3 end of
'just under $5m' (say $4.95m). This seems to suggest that more than half of the newly signed arr is still to be on-boarded/first receipts received. Adjusting for this, a more complete picture for arr could be
c. $5.43m.
They have reaffirmed once again their target of $6m arr for FY19 and $12m arr by FYE20. If you look at the last two quarters alone new sales have equated to just over $2m in additional arr (two thirds of the needed $3m to hit $6m total arr). This remains a good sign but we have to remember a significant portion of this likely comes from Odotech migrations.
Table 1 contains new arr wins and upsells in January-March 2019. Comparing to Table 1 from the 1 Feb 19 sales update only Tata Steel (6 March 2019 ann) and Molymet in Chile (where they have an office) appear to be new clients and a second site has been added for Renewi in Canada. I hope to see a greater number of new clients over the coming months.
I'm a fan of the update on e-nose hardware and production and it's nice to see some more images! Looks like the two projects in the Middle East are still on track to be delivered by end of June which should be a good boost to arr.
On today's SP movement. We clearly hit a speed bump but I don't think its going to be the cause for long term concern. We're still trading on a psr multiple of 10x at a 50m MC. The market simply responded accordingly to the lower than expected arr update. Decent volume was moved and the day had a strong finish which suggest people were taking advantage of the discounted prices
Watch this space.
