AVA Risk Group Limited (AVA) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Ava Risk Group First Half FY '24 Results Webinar. [Operator Instructions] This call is being recorded. I will now turn the webinar over to Mal Maginnis, the CEO of Ava Risk Group.

Thank you, Alexandra. Good morning, and welcome to everyone. Thank you for giving us your time today. It's enormously appreciated. With me today is David Cronin, my Chairman; and Neville Joyce, the CFO, who will also help me obviously in the part of the presentation and in answering questions. So without further ado, we'll get straight into the presentation. So first thing I want to look at is just to remind you of the leadership team. As most of you will know, I've been here for about a year now, just over a year. It's been an extremely busy year and a very rewarding one. The senior leadership team has been together for that time or about 7 months. The last person to join Dr. Rod Wilson, who's my CTO, but also a reminder, he's the General Manager of the Illuminate business in Manchester. So the team and I have now been together for 7 months or so, and I hope that we'll be together for some time. It's an extremely strong team. We work extremely well together. And the nice thing is we've got locations in 4 different geographies. So we're able to directly help the team commercially and also interface directly with our key clients, which is a real positive. Thanks, Neville. Did I remind everyone of our structure? One of the things we did early last year was to restructure into market-focused segments rather than the individual companies. So Detect is fundamentally a fiber optic intrusion to protection systems. We do some interesting adjacencies at the moment. And I'll talk more about them shortly. But look, the critical issue remains perimeter intrusions. Theft and break-ins in the current economic climate are only growing. And from my customer base, I can tell you that their biggest focus right now is on theft and intrusion. But on top of that, we have the interesting adjacencies growing in all sorts of digital and fiber management. And again, I'll talk about that shortly. This is a program business, and you'll hear me talk about program business through the presentation. The Access business, high security access control technology, really strong point defense security, really well accepted across the business, well led and managed by our team in Auckland, which have done a great job this year. The Illuminate business, a really interesting business, which many of you will remember we acquired in August '22, gives us a really broad suite of specific high-technology sensors. We are seeing some really good integration growing with the Detect business with that. So that's just a reminder that we have 3 divisions within the business. My intention to get all 3 firing. We're getting close, which is a good start. Thanks, Neville. This is just a list of a lot of our high-end users. I put it up to remind people of, even though we're quite a small company, we deal with some very, very large customers. And there's a complexity to that. They can be very demanding. They have very, very strict processes and controls in place. And for a small company, that means we have to comply with what they need. The pleasant part here is we've seen quite a few new large customers coming in. We've seen Sydney Metro, Siemens. And on the next slide, you'll see, of course, Telstra joining our portfolio and dormakaba, ADI, Honeywell. On the previous slide, we also now had UGL. So this is a really great portfolio of clients that we have built and continue to build on, and that is a theme I'll talk about throughout today. So without further ado, let's get into the operational highlights. The strategy for me through this last year has been fundamentally to build backlog. Backlog drives revenue, revenue drives cash. If you don't have any backlog, I can't drive revenue. And more importantly, as a large program business, particularly in Detect, if we don't have backlog, then I can't give consistent monthly revenue. It just becomes too lumpy in its execution. So one of the biggest focus has been on getting this backlog up, and the backlog is driven by order intake. So the great thing is we saw in H1 nearly $20 million in order intake, which is 37% up on the previous year. A second part of our strategy was also to build larger, more sophisticated clients. And we, as I'm certain you're all aware unless any of you weren't paying any attention, we did recently announce a supply agreement with Telstra. And I'll emphasize that. It's a supply agreement with Telstra. This is the culmination of a very large effort by the company over 7 to 8 months. And I'll give you some more details shortly. But it was a fantastic result by the team, and it will be a material driver for us going forward. We achieved our first significant stocking orders from dormakaba. Like Telstra, another major corporation that is very demanding, but is critical to order intake and growing backlog in the business. That has led to an order intake of 80% in Access growth and 60% revenue growth in Access, which has been a really stellar performance in this year. Aura Ai-X. The next part of my strategy was to improve our technology and product offering. I made a comment in our previous presentations that I felt the technology was sound, which it was. What I wasn't happy with was the product execution and offering to the customer base. We focus very heavily on that, particularly in Detect, clarifying the product lines and improving them. And Aura Ai-X we launched in March last year and it has become the single major driver to the Detect growth. And the last part was, I mentioned a year ago too, that for a program business, you need recurring revenue. That is what gives us stability in our revenue stream and predictability to take out the lumpiness of programs. We have seen a really strong growth in ARR. You will have seen the announcement on Sydney Trains, which gave us a 5-year program on a customer. They've been with us for a while, but was actually in the process of going out to tender, and we were able to convince them to stay with us and build a 5-year program. So strong sales order growth. You can see here in all divisions it was a strong growth. Pleasingly, Illuminate recovered from -- as we talked at the financial '23 earnings and also at the AGM, Illuminate had slowly declined over its first year with us, which was not encouraging. I will say that we have turned that around. We have the business now back to where it was, which is great. And therefore, it will support further growth going forward. We've seen a tremendous order intake in Q2 of $12 million. That is where I targeted the business. It's -- that's where we need to focus on the growth going forward. The important part of this is about $9 million in backlog. Many of you will remember when I first joined I commented that the backlog was very small, about 3 weeks. That's quite dangerous for a program business because you're literally living book and ship, which is quite hard. The nice thing with $9 million in backlog, some of it goes out into '25, which is good, but a significant part is in H2. The good thing with this is it's about -- worth about $3 million of backlog forming in the program side of the business. I would like -- sorry, about 3 months. Apologies. I think I think said $3 million. It's about 3 months worth of backlog for us. I've targeted the teams to get me to 5 months, because that will then give us real security in our revenue going forward. But this is a tremendous improvement from a 3-week backlog to a 3-month backlog, and that's really impressive. The other piece that is encouraging was, as I said to the team last year, we had to win large contracts. We couldn't achieve growth on just $100,000 contracts. You just have to sell too many of them. So the positive is that since April last year, we've been winning consistently large orders. And you've seen us release those on both the ASX and in the web and on various other social medias. But the critical issue is we haven't been achieving these large orders with sophisticated large players, which you see the list there. There's also on top of that corrections in America and British -- sorry, EU airports in Europe and various other ones. So it has been a really encouraging growth in both the sales order intake, but also in the breadth and depth of the customer base. So let's talk about the Telstra contract. As I said, I'm sure many of you are pretty aware of this. As I've said, it was clearly announced that it was a supply agreement, and that is exactly what it is. Supply agreements are really important in dealing with large governments and large corporations. Otherwise, as every single purchase order goes through a due diligence process that can be mind numbing in its due diligence. So getting this agreement signed was really important for us to give us a direct interface with Telstra. The agreement took about 8 months of hard work. It included major trials with the subsea network in Darwin, large trials with a digital transformation group in Melbourne. And the entire effort of this is critical because it places our entire product portfolio in all 3 divisions inside the supply agreement. We've already passed all the critical requirements, cyber, due diligence, security, corporate inspections, all of that with Telstra. So none of that has to be done again. As I said, it's a supply agreement. We're now working with Telstra on projects and programs at the moment. And I am very, very confident where this will go. It is a material impact for a large company like this to make a supply agreement with a small high-technology company like ourselves. Going forward, I expect to see more work with their digital transformation and their core infrastructure assets across Australia. So let's go to the operating performance. The loss was obviously not something I would like to see, but it was clearly driven by the lower revenue, which is primarily driven by Detect in Q1. Detect had a very soft Q1, which was disappointing and primarily driven by the Northern Hemisphere. The Northern Hemisphere took a long time to come back out of the summer break, and there appears to be a fair bit of distraction in the economies there. But in the second half, we saw some very strong performance coming out of that area. We're also fortunate in the second half to see very strong performance in Australia, America and Latin America, which was really helpful. Of course, the actual revenue was also helped by the recovery in Illuminate, and more importantly, was the enormously positive result that came out of Access. So the revenue growth of 4% was not great, but it's growth. Very strong Access at 60%, but a decline in Detect. And that's important because Detect is the highest gross margin. So it did suffer a small decline in growing gross margin when you combine it across the 3 divisions. And over the past 12 months, I did focus on investing in our technology and product, as I spoke before, and in the commercial capability. It wasn't a huge investment, but it definitely had a cost. And the important reason for that, we literally changed 70% of our commercial team. And when I say that, it's not just the sales team. It was also application, program and the field service engineering side. That's a very large change for a small business. But we managed that in the 12 months with minimal disruption within the business. But as I'm sure you're all aware, when you do transformation of staff, there is a cost and we did incur costs over that period. There were some also one-off costs in adjusting and integrating the technologies. I would say that I am very confident that when I look at the December numbers, December year-on-year is now about stable and I don't see any further need for large-scale investment going forward. The reduction in cash is directly attributed to the reduction in revenue, and Neville will speak to that, and also the change in the product mix and gross margin. We expect an improvement in both EBITDA and cash in H2, and I am happy to say that I'm seeing that improvement continue at the moment. So I'll hand over at that point to Neville to take you through the details of the finances. Thank you.

Great. Thanks, Mal. Looking at income statement, some of the stuff which Mal has alluded to, yes, there was some modest growth in revenue. That growth was really underpinned by very strong performance in Access, which offset a pretty soft quarter in Detect in Q1. Gross profit, there's a mix issue sort of underpinning what you see there in gross margins. The gross margins that we make on Access and Illuminate are lower than what we make in Detect. So while there was some revenue growth because that growth came out of lower margin yielding segments, that's had an impact at the consolidated level in terms of what gross margin looks like. The underlying margins, which we'll look at in a moment in each of the segments, are still pretty much where we expect them to be. So we expect that consolidated gross margin number to improve through half 2 as some of that backlog that Mal alluded to in Detect gets fulfilled. Loss at EBITDA level reflects really some additional costs across the business associated with the investments in both technology and the commercial capability. There are some one-off costs associated with that restructure work, which basically commenced when Mal started in January last year. There was a chunk that incurred in FY '23. And the last portion of that, about $300,000, occurred across July, August in FY '24. So that's embedded in those numbers and effectively flows through to the profit or gross after tax. You will see on this slide that there is a set of sort of pro forma underlying business performance. But really, there's only 2 adjustments reflected in those pro formas. One is in the Access segment the dormakaba order, which we had a large dormakaba which we received, got spread across multiple shipments. The final of those shipments actually went in the very early piece of January, which ordinarily we would have expected to get away through the first half year. And certainly, that was our expectation when we gave revenue guidance back in October. And the other adjustment is just reflecting the one-off nature of some of those termination restructuring costs, which were incurred across Q1 associated with building out the commercial capability in the business. When we look at segment -- revenue by segment and margin, you can see quite clearly here that Detect's revenue went back 8% compared to the equivalent period last year. As a reminder, the Detect segment is the strongest gross margin segment. The margins which we recorded in Detect for the half still remained around 70%. But this highlights the issue that you see at a consolidated level that the consolidated margin has declined because of the mix change. Access was a really strong story through the first half, underpinned by the initial orders from dormakaba and the successful shipment of those. As I mentioned, it would have been even stronger had that final shipment gone away in the tail end of December than the early part of January. And to Mal's point around Illuminate, we're seeing a lift in Illuminate, particularly through Q2, and we expect that to continue through the second half of the year. And the margins in that -- at that business also remaining stable at around 50%. In terms of the cash flow, so the cash position has declined through the first half year. A couple of drivers behind that. The unfavorable working capital movement really reflects the fact that we didn't put enough revenue through Detect through the first quarter. And it's a direct correlation to the comments that Mal made around the order intake that we had in Q1 and the associated shipment and backlog being relatively subdued in that period. It bounced back quite well through Q2. And importantly, as we have fulfilled orders in Q2 and we've created backlog associated with those orders, we've seen January be cash flow positive. And our expectation is that certainly Q3 will be cash flow positive on the back of the activity that occurred in Detect in Q2. From a development expenditure point of view, $1.4 million invested in technology really across all businesses, right? So that's slightly higher than where we've been historically. Historically, we've spent probably about $2 million to $2.4 million from a full year perspective. And the key driver of the increase there is completion of the Cobalt series locks in Access, right? So the underlying spend in the Aura platform in Detect is pretty consistent with what we've done previously. And we also have invested modestly in some new technology in the Illuminate business associated with what's called the LoRa range of products, which we'll touch on shortly. A few other things from a cash perspective. Yes, we paid a dividend in December, consistent with the stated dividend policy of 35% of EBITDA. The repayment of borrowings relate to the facilities that we picked up with the acquisition of GJD a year or so ago. And there's some finance and tax charges which have been recorded through the period. Looking at the balance sheet, the movement in cash I've just spoken to. Look, the increase that you see there in inventory largely relates to 2 things. One is virtually finished goods associated with the dormakaba order in Access. We're waiting on a final component to arrive, which, unfortunately, only arrived in the early part of January. So effectively, that final dormakaba shipment was sitting in inventory at 31 December. And we also are carrying some finished goods inventory associated with Aura Ai-X units, which we're using for a variety of purposes, including demonstrations to customers and field support. The uplift in intangibles is a result of the continued investments across all 3 businesses that we saw on the previous page in terms of IP development. And there's some movement in other assets and other liabilities really just relating to our lease position on the various properties that we have, which got renewed in the first half year. And under relevant accounting standards, we need to show as a right-of-use assets and the associated liability with that. So with that, I'll hand back to you, Mal. You're on mute.

Thanks. My apologies on mute. So thanks, Neville. So with that, I now want to go into some of the core outlook and strategies that we are continuing to work on in the business linked to what we've talked about before and the completion of H1. So the first one is in Detect Aura Ai-X. Aura Ai-X, we launched last March and is now producing over 80% of the revenue and backlog growth in Detect. It's been really well received in the market. Most pleasing for me, we've ended up with 3 large clients who have done independent third-party testing of the product. And in every case, those tests have come out extremely strong and positive. In fact, one of the customers had planned a 3-month testing regime and he actually ended up doing 48 hours and was happy at the end of 48 hours. It's that type of confidence in the customer base that is really encouraging me. On top of Ai-X, I will -- and already sold, but we will be releasing shortly an Ai-XS, which is a short-range version. While everyone gets excited about 20, 40 and 80 kilometers for the long fiber, we have a lot of customers who have 5-kilometer linear problems. And so we've developed off the back of Ai-X a second product, a complementary product. And that already has sold and is getting very positive feedback from clients. So we'll continue to expand the Aura Ai-X platform as we see commercial opportunities develop. But I'm delighted with where it sits at the moment. It's extremely strong and being received well in the market. In Access, the Cobalt 2 is booming at the moment and supported by the large roller lock of YG80. We are seeing good, solid orders. Now, we obviously told you about the large dormakaba stocking order. The nice thing is we have seen smaller orders, and these are quite important for distribution business, but we have seen them in new countries and with new suppliers, new countries such as Mexico. We've seen activity across Europe. We've also seen a large window manufacturer in Germany give the first orders for our Cobalt 2. This is all part of the strategy in building relationships with these large sophisticated companies. And Illuminate, we have seen cross-selling of combined Illuminate Detect solutions. Illuminate fits very well in filling gaps that are not ideal for the long fiber. And we've seen very good result with that. We've also launched the LoRa long-range wireless, which allows you to integrate the entire suite inside a long-range wireless without significant cabling and digging going on. That has been a real positive and was seen really well at Intersec in Dubai. We've also seen sales in North America and Asia Pacific, and we've just seen our first sales in Middle East, North Africa. So again, the strategy of growth across each segment, growth across all 4 regions is being successful and gives me great confidence going forward. We're well positioned for growth over the next 3 years. We are a small company. We only have 90 or so people. We're spread across the globe. But it's a completely scalable business model. And the key for me is to build this backlog, build the recurring revenue and build long-term partners that we will be able to work with consistently and in a repeat manner. We're seeing growth in key geographies. Clearly, the success recently in America with the corrections facilities was a great boost, and we've seen also some increase in the power supply infrastructure support. We are seeing some nice leverage of the GJD position in U.K. into Europe, and that's been part of the rebuilding of Illuminate. Our Asia Pacific business is doing really well, in particular, our business in Australia. And I see Australia as a real potential, as it should be, for us going forward. We have major infrastructure projects here that we can directly access and support. Sustainable gross margins. I am comfortable that the gross markets are sustainable. Clearly, I would like to see Detect higher in booking and revenue because that boosts our gross margin. But I am very, very comfortable that the gross margin is supportable going forward. The more I can get recurring revenue, the more I can get large-scale supply contracts with major companies. That's going to secure the revenue going forward. And the continued tech development. My thanks to Dr. Rod Wilson. He has done a great job with the team. And people like Dr. Jim Katsifolis and the whole team at Melbourne, that whole team has transformed the way they work. When I joined, we were primarily a sustaining engineering business. We are now a technology and science driving product business. And that has unleashed a lot of productivity for the team, which is why we've seen Aura Ai-X, Cobalt 2, LoRa, et cetera, being released in only a 9-month period. And soon we will see releases of further products such as Ai-XS into the next 6 months. This has been a real strength. And for the sales team, it has given them enormous confidence to go after large-scale companies who are much more sophisticated than the small players. So a clear path to growth. When I joined, which was in the middle of financial year, I gave you a 3-year plan based on calendar year. And that did prove pretty confusing for everyone else. So we've now realigned it to a financial year. It makes a little bit more sense. I see the forecast continuing on the path that we stated. There's a little bit of delay that I've seen as it took us a bit more longer for me to get Detect growing with the new commercial and product lines. But I'm confident in the long-term growth over the next 28 months, and I think that's underpinned by the booking effort that we took and the sales orders that we took in, in the last quarter of this half. And compelling case for investment. We do have a track record of growth and results: sales orders up 37%, solid gross margins, and we have built a collection of really great blue chip companies and government customers. You don't win business with these customers unless you're doing the right things. We have a strong competitive advantage. The Aura Ai-X platform is really performing well, and it's only the start of the journey with our AI and deep learning. So it will only continue to improve as we get more data and more sites and we could learn more from our real sites and customers. We have become a customer-focused organization. That's why I mentioned before the change in commercial to include sales, programs, applications and service engineering on site was a key part of the restructure. A highly scalable model. We are a small business, but I am very comfortable saying that we can support the growth to $70 million to $100 million without significant more investment on the structure or the technology. In global opportunity, you have a look at what's happening in the globe. A well-placed security detection company with multiple technologies in 3 business areas and the 4 key regions is just a real strength. And that to me is a compelling case for investment. So with that, we'll close off the official part of the presentation, which you have copies of available. And we'll be happy to take questions. But I'll hand back to Alexandra, who will moderate for me and assist me in getting my answers to the team. And obviously will be using Neville and David to answer questions depending on the structure and content. Thank you very much.

Thank you, Mal. We've now entered the Q&A. As a reminder, please type your question into the Q&A box at the bottom of the screen. Perhaps a good place to start is the recently announced Telstra supply agreement, Mal. We've had a few on this one. The first, is there anything from the Telstra agreement that is factored into the Q2 sales order intake? And then just adding on to that secondly, is the agreement exclusive or can we approach other telcos?

So in the Q2 numbers, there is no major Telstra booking number in the Q2. We're working with Telstra now. Until you get the supply agreement signed, it's very difficult to get purchase orders from the company. We now have the full SKU product group within Ava. So everything from Access, Detect and Illuminate is in the supply agreement. And the team are working now. They have a monthly meeting -- a high-level meeting with Telstra on budgets and purchase orders, projects and opportunities. And they're working on that at the moment.

Thanks, Mal. We've had a question on the Q2 sales order intake and whether this has been annualized. If so, is that a run rate we can expect going forward for every quarter? And if that $12 million order intake does occur every quarter, then would we expect FY '25 revenue to be above $48 million?

Thanks, Connor. Look, my target with the team has been to go -- to get it to an average of $10 million a quarter. As you saw, we got $8 million in Q1, $12 million in Q2. My target with the team is to grow that $12 million. I see a pipeline of that. The only risk that I see -- this is obviously timing. The larger the contract, the more the variation can hit you. For example, if a customer who was predicting to close an order in February has some issues, then you could end up closing in April. 8 weeks or 6 weeks is not unusual with large customers. So there is an inherent lumpiness. But as far as I can see, our growth in order intake should be continuing to grow on the $12 million path. And from the pipeline, I see -- I would see steady growth on that. I might not see the scale of growth of 50% from Q1 to Q2, but I would like to see steady growth now we've got to the $12 million.

Thanks, Mal. We've had a few questions on the working capital position. So perhaps just to cover those off, are we comfortable with the current cash position? And do we feel we have sufficient working capital to fund into the pipeline of orders?

Look, I'll hand over the detail to obviously Neville and David. But in principle, Neville and I are focused on cash every day in the business. That's the life of a small business, particularly a growing small business. The Board reviews this regularly and is continuing to review it. But I think best I'll hand over to David and Neville to give any additional comment they'd like to make.

Look, for me, we've got sufficient cash to pursue the objectives that we've got. And as I mentioned when I sort of spoke to the cash flow statement, the degradation in working capital was really a Q1 issue, which we're seeing sort of correct itself in the latter part of Q2. And we expect that to continue into Q3. When it's all said and done -- I'm a CFO, so I'd like to have as much cash in the bank as possible. But no, we've certainly got enough fulfillment of the backlog orders that we've got and continue to chase those pipeline opportunities as they present themselves to us.

David, did you want to add anything, mate?

No, I think you guys have covered it fully. Yes.

Thanks. So Alexandra, my apologies. I missed answering one part of that previous question. So I apologize for that -- which was, is the Telstra agreement exclusive. We are their preferred gas supplier on all gas outfits within Australia. We are restricted to Telstra. But the positive thing is Telstra has been helping us both internationally with some of their partners and in areas such as U.K. and New Zealand. So I see them as a key partner, and I'm very comfortable with that. And it's a very strong position for us to be the preferred partner for Telstra.

Great. Thanks, Mal. Just looking at the adjacencies we talked to in terms of revenue opportunities, can we just provide a bit more color around the adjacencies we talked to such as telecommunications? And these are obviously expected to increase significantly from FY '24 to FY '25?

Yes. Thanks, Alexandra. I see John has asked the question at NEXTDC. At the moment, the adjacencies are really driven by the work we're doing with Telstra. They've got a very, very advanced digital transformation group. It certainly gives us tremendous power that I don't have within Ava. Working closely with them is going to really help us with looking at the data centers, transmission side of fiber optics, the rest of the infrastructure that we haven't looked at before. So the whole digital transformation side, because we've got a major partner who is one of the 10 largest in the world on this, this gives us a great opportunity. We're not limited on looking at data center and other customers with that. At the moment, though, I am working closely with Telstra on some of that given their interface with some of these big data center clients.

Do we get any ATO R&D tax credits for the technology spend?

Neville.

Yes. Yes. Look, so in the past, the company has received the R&D tax concession, right, for development work in Australia. And I don't want to get sort of too technical about it, but we -- when you look at our balance sheet, we don't really carry a deferred tax asset for a carryforward loss position or for other protections that the company has accumulated over time. But yes, we have participated in the -- in R&D tax concession. The reality is, in Australia, given the carryforward license that the business has got, whether it's out of the R&D tax concession or those carryforward losses, we won't be paying income tax in Australia anytime soon. And any time soon is the next 2 to 3 years until that loss position gets exhausted.

And the next question is, our receivables for current and collectible, is there any likely provision for write-off?

No. Look, one of the great advantages that this company has certainly relative to similar companies of this size is depicted on that slide that Mal showed, or a couple of slides with the logos. We have a very strong quality customer base, both in terms of the partners who we use, the system integrators who we partner with, and ultimately, the end users. So I've been with Ava, what, 2, 2.5 years now. And in that time, we haven't had any debts that have gone bad, right? So we do carry a provision just based on an aging profile. But as I said, we're quite fortunate that the caliber of the underlying customer base is quite strong. To the extent there's any issues around collections, they tend to be not that the customer won't pay us, but if there's any issues for resolution around installation and so forth, which we sort out and subsequently get paid.

Just on the revenue, 3-year revenue target, we just had a question as to that shift in time frame? And whether we can just kind of reflect on any commentary there in terms of performance in the last 4 months and our outlook for that?

Yes. Thanks, Alexandra. Ian, thanks for the question. Lovely to hear from you, and I appreciate your e-mails and questions over the period. It's been much appreciated. I think I cause a lot of the confusion in this because, of course, I joined midway through a year and then into a calendar year. So at the moment what we're trying to do is bring the forecast back into financial year. That said, the market is softer than I anticipated a year ago, and that's clear. For example, in the large program business where I would expect from 10 to -- 4 to 6 months to execution, I've seen a drift from 6 to 8 months. That's not a reflection on the commercial team. I think if you have a look at the global economy at the moment, you see a real focus at the moment on defense spending and health spending and we've seen a softness in some parts of the security spending. However, I would say that Q2 has really encouraged me because we saw a real uptick in Q2, where people have been struggling with delayed infrastructure spending in security. And I've seen the same going into our pipeline in Q3, Q4. So I think your observation is probably accurate. Ian, it has moved slightly. The biggest issue in my view is the market. I'm pretty confident where we are now.

Thanks, Mal. Just one on the second half revenue and confidence in that outlook, and any color on assumptions made there, such as revenue coming through from the Telstra agreement.

The biggest confidence to the revenue in the second half is the backlog. The more backlog you have, then the more confident I am in revenue not being as unpredictable or lumpy. So for example, we know our distribution business is doing a certain amount every month, and that's not in the backlog, and so we're confident with that. But what we need is confidence in the Detect backlog being deliverable. And that's what we're seeing with now the $9 million backlog in program, which that's what lifts my confidence. Now as I said, I want to get the backlog to 5 months, because the more backlog and the more recurring, the more confident I can be in accurately predicting the revenue position going forward. And I think we're well on the path to that, which is giving me confidence. And I saw one, Alexandra, question before about are we taking the Telstra solution internationally. Absolutely. The IP agreement between us and Telstra is mutual, and Telstra have been assisting us with a couple of big clients overseas, which is greatly appreciated.

Thanks, Mal. Is any sales focus still on the Aura IQ conveyor belt solution?

Thanks, Ian. Yes, we continue with the Aura IQ solution. I'm working with a third party who is more closely aligned directly with mining and who needed that product line to assist. We have had several sales, which has been encouraging. And we'll continue to sell it, but through that avenue. The difficulty, Ian, with that product line, it requires a really big effort from the field engineers and in extremely remote locations. And for a small business, I personally found the cost versus benefit not strong enough. However, it is a good product and we will sell it to a third party, but then they've got the infrastructure to manage that.

There are no further questions at this time. So perhaps just any closing comments from you, Mal.

No, I just want to thank everyone for joining. It has been a really exciting period. Clearly, the big message was Q2. I saw the combined commercial team really get to grips with the market and in new positions, which was extremely encouraging. The signing of the Telstra agreement was absolutely material to a company of our size. And clearly -- and some of you may not be aware, but large frame contracts such as American IDIQs or big contracts with British and German governments where you have frame contracts, these are fundamental for small businesses to be able to grow, because otherwise you're living purchase order, purchase order. So the Telstra agreement was just material to us. The fact that we did it in 7 months is testament to the team's focus and effort. And the fact that we are working so closely with one of the largest fiber providers or the fiber users in the world is again really positive for me. So I thank everyone for the questions. I am very excited and positive in this going forward. We have a strong team and we now need to deliver.

Thank you, Mal. That concludes our webinar for today. Thank you for participating. You may now disconnect.