Generall Meeting 2024 - my opinion, page-5

Been keeping an eye on this one after I sold my holding (at quite a bit lower than current price, if that'll soothe the automatic anger I know we all feel when someone declares they sold our stock ) and damn, this is exactly the kind of stuff I got so tired of that made me sell. I love the product and the narrative, and management do seem to do an alright job moving it (obviously the pipeline is a bit opaque given the industry), been in and out (mostly in) since ~2020 when I first looked into defence stocks on the ASX. But it just feels like as well as management wanting to capture so much of the upside based purely on growth and never on profit or on share price performance, they also set their targets around that growth measurement in quite favourable ways:

"...the Company achieves $200,000,000 of revenue or the date that the Company achieves $200,000,000 of customer cash receipts in any rolling twelve month period within 60 months of the date of issue..."
As usual it's two sets of goals, with that nice combination of "rolling twelve month period" and "cash receipts" meaning the $200M figure is much more easily attainable by dragging one's feet and not prioritising receipts until a nice spike of late payments is one day achieved, then heavily focusing on using that as a base to meet the target within the following 12 months by pushing hard for receipts. All exacerbated by how "lumpy" the sector is w/ discrete large buyers.

Quantity of ZEPOs and total remuneration aside, I'd rather they throw out either the cash receipts route or the rolling-12-month route, both of which just feel like they are leaving the back door unlocked for themselves. And with the bonuses being so large they have a very strong incentive to make sure they use those unlocked back doors as effectively as possible. That's what I'd do, anyway, if you were offering me several million dollars to do it, and a structure less prone to being manipulated seems more appropriate than relying on management to be virtuous. I don't have enough experience with the tech sector (to what degree it exists on the ASX) to know if this structure is unusual or the standard but either way it seems inappropriate here.

NB: not making any claims w/r/t future share price movement. As should be obvious i do like the product itself and its narrative and trajectory, just wary of the dampened upside in the medium-to-good case where decent growth keeps getting used as an excuse to skim off nearly all the cream. I'll be watching to see if circumstances look to be changing... Which isn't too unlikely of course given the history