I had a chance this weekend to catch up with the Chairman of AVA Group. I passed on to him a number of concerns expressed on HotCopper recently, in particular the need for more sales to be recurring revenue. I was quite pleased with the response and thought others here might be interested.
AVA have a short term goal that 10% of group revenues will be from recurring revenues, with the objective of increasing that to 20% over the next 3 years. As the company's sales increase, so will the percentage of them that is recurring. This will be coming from 2 main initiatives, both of which do not immediately require any new operating expenses for AVA (so are approx. 95% gross margin):
1. Support/Maintenance contracts. The customer gets an AVA tech on site for one day per year, plus 24/7 remote support. They will test calibration, install software upgrades, and address any specific customer issues at the site. Some customers have multiple units installed at one site, they pay the maintenance fee per unit but the tech only has to make 1 visit. The average price for this is at least $20,000 per annum, per system. With 2500 FFT systems already in the field, there is potential for this to become quite a significant recurring annual revenue stream - that will increase as sales grow. Dozens of customers have already signed up for multi-year contracts, including one request for a 10-year (the maximum so far). Given the mission-critical nature of the assets protected by FFT, this is a small spend for customer risk management.
2. Cyber Assurance. The new Aura AI-X systems use Deep Learning. De-identified data from this is gathered by AVA from all sites, which means that the system is learning new security threats and always improving detection of nuisance alarms. Customers who sign up for the cyber assurance (annual fee) will get the benefit of their specific systems improving in capability as all the breadth of systems in the field do. This reminds me of Tesla's AI, as more cars drive more miles, the AI develops better learning of every road and every possible condition. Likewise, as more FFT systems process more alarm events, the whole system gets better at differentiating real threats from nuisance alarms. If a bad actor develops a new attack vector somewhere in the world, all systems will now be able to detect this new type of intrusion event. The customer cost to get this continuous improvement is negligible compared to the overall system cost, let alone the potential cost to a customer of a genuine security breach. I can't imagine why any customers installing sophisticated fibre optic technology would NOT want this. The company also offers this solution in a closed loop (non-distributed) form, for example some military/intelligence customers want the deep learning applied across multiple of their own sites but don't want even de-identified data being shared anywhere else. The response from customers to this solution has been extremely positive.
A.I. is red hot right now, I feel that the market does not yet value AVA as an A.I. play. Hopefully the new team will be able to get this message out.
David mentioned that they have just been doing an investor roadshow to introduce the new CEO Mal Maginnis (Singapore) and the head of business development Jim Viscardi (U.S.). Although interest in small caps on the ASX is less than ideal at the moment, there has been a positive response to the strong financial numbers, especially the high gross margins. Mal has already been adding immense value to the company over the past few months with his extensive global Rolodex of security industry contacts, an area where previous CEOs were not as strong. One question that kept coming up for Mal was "why would someone with your experience join a small company like this?"; Mal was able to point to his past success in growing innovative new technologies into large business units.
Whilst it has taken longer than planned, investors were pleased that they had now secured multiple Aura-IQ conveyor monitoring contracts. Importantly, the learnings from the IQ program are benefitting a wider condition monitoring solution. The delays to business growth due to COVID seem to be well behind them, and as a result there is renewed effort in expanding the global sales team. The Illuminate business has made a six-figure investment in their own electronic sub-component production line, to avoid supply chain delays that were an issue before the AVA acquisition.
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