Envirosuite Limited (EVS) Earnings Call Transcript & Summary

[Audio Gap] [Operator Instructions] I'm going to first start though with a bit of an explanation of who Envirosuite is for the new investors. And just to remind people of the journey, we're very much a purpose-driven company, and we believe environmental intelligence is improving the well-being of people and the planet and also to drive prosperity. We focus on 6 key sectors: aviation, mining, industrial, waste, wastewater and water treatment. And we have 3 product suites within that. We have our Aviation Group, our Industrial Group and our Water Group. The common part that threads all of them through is that science is the core of everything that we build. We're taking environmental events and we're turning that into data, returning that then into information, knowledge and decisions. And from NASA to BHP, we're an intrinsic part of an efficient modern day operations, enabling data to decisions. We do benefit from strong demand driven through ESG principles all around the world. And we are a truly global operation, and we operate in 3 regions: the Americas, APAC and EMEA. Today, we won't be getting too far into the financial details as the full year results will be presented on August 22. So this is going to be primarily focused around the sales update for Q4. So from a key highlights perspective, we had a fantastic Q4, one that I'm incredibly proud of, a truly record quarter. $6.8 million in new sales, up 13% on PCP. Total ARR grew by 12% on PCP to $59.4 million. So let's get into some of those deeper parts or the key parts. The record sales of $6.8 million was made up of $3.1 million new ARR and in project sales of $3.7 million. The total ARR, which grew at 12% on PCP, actually grew this year at 20% growth at the company level when excluding the one-off churn event that we spoke about in Q3. So we're incredibly proud of the 20% growth on the top line through this year. EVS Aviation achieved a record -- sorry, not a record, but a very strong $1.2 million in new ARR. This is an important customer win this quarter that we do want to highlight, which was a 10-year engagement with Egyptian Airports Company with a total contract value of $9.8 million. I'll get further into what that contract is made up of. This is an incredibly exciting opportunity for us. We've made a fourth sale of carbon emissions modeling now across 13 times as the Aviation sector absolutely is being proactive in addressing the climate impact and the greenhouse gas emission issues that it has to deal with. And we will support our customers on that journey. EVS Industrial did have a record quarter, and that was $1.7 million of new ARR, driven by particularly strong growth in the Americas once again as the company's relationship with BHP continued to grow. And that's based on our Land, Expand and Scale strategy. So 2 new sites were added during the quarter with BHP. EVS Water, and we announced this at the Wilsons Rapid Insights earlier in the year, we were successful in signing NEOM. Now for those of you who don't know who NEOM is, there's a link in the release. NEOM is an incredibly high profile city in Saudi Arabia, with a $500 billion investment going through. The engagement is though for 2 of its existing desalination plants, but this is going to be a long-term partner for us as NEOM starts to grow through. There's an annualized churn of 8.1%, which included that one-off event. If you exclude that, our churn is down at 1.9% for Q4. So if we spend time on Aviation, let's get into a little bit more detail on this. The total ARR is now at $36.4 million, which is up 7% on PCP, adding that $1.2 million you can see on the left-hand side of the table. That though is 19% growth excluding that one-off event. Now if you look at the history now of the Aviation segment within Envirosuite over the last 3 years, this is an incredibly strong year. And what is encouraging is we're getting growth in all 3 regions. Certainly, we've had strong in the second half of this year. We've seen strong growth in EMEA, which is which is Europe, the Middle East and Africa, but we've also had strong contribution from the Americas and also from APAC. In this particular quarter, we added sites in Americas, which is Ontario, Portland and Naples. And here, in the APAC region, we added Christchurch. We also -- in the Middle East, we added Abu Dhabi, so 2 airports there. I want to spend a little bit of time though on the flagship win, which is EAC, Egyptian Airports Company. I was actually in Cairo with the customers in June. And it was fantastic to see the way that Egypt is addressing -- at being proactive in addressing environmental impacts. COP27 was held in Egypt, COP28 is moving to Dubai. And as part of the COP27 initiatives, they are being proactive in a way that they want to drive improvements at all levels. This is the first time that we have added [ noise test ] carbon emissions modeling and on this solution into one new airport site. And so that's addressing air quality, noise and carbon. They're being -- they're see now certainly as the leaders in this region, and arguably the world, as to what they're trying to do in addressing their impact and understanding how this addresses the community and their operations. So we're excited to work with EAC. The other part of this, which is important, is it represents a 10-year engagement. One of the strong parts of our aviation business model is our long-term contracts that we have with customers, and we see this as a true partnership. On the left-hand side, you'll see that new ARR is not a linear path, and this is going to be based on sometimes having large project wins, which you will see. But what is encouraging is our Aviation total ARR now is up at $36.4 million, a really strong finish for the year. Moving to Industrial. So strong quarter for total sales, $2.1 million. New ARR of $1.7 million, which I said earlier, which represents growth of [ 19% ] on PCP. It was a really strong continued growth in the mining sector. What we're seeing in FY '23 is continued growth in the Industrial part within Mining, and this is based on a certain need from a customer with a really strong value proposition. As we've highlighted earlier and throughout the year, adding noise and vibration into the ANOMS platform has significantly expanded our reach and the benefit that we provide to our customers. And certainly with BHP now, we're well positioned for a long period of time. And if you think about the mining sector, similarly to airports, who want to operate for 40, 50, 60 years, and so we see this as a very strong business model and a very sticky business model. The Americas contributed 52% of new ARR. And what we are seeing is it's not just mining within the Americas, so environmental justice is certainly driving awareness and driving investment from our customers. We also were able to add a significant customer in the waste sector, and we will see that in the FY '24 growth that waste will continue to play a key part in our growth. What I'm particularly excited about though is the emerging blueprint for cross-selling EVS Industrial into EVS Aviation as air quality becomes a stronger need to address in the marketplace. Whilst we can't name the mine site with BHP, it is a large copper facility, copper mine in Chile. So this is helping them address their environmental risks and identifying when those risks develop and when those risks are expected. And this comes back to the strength of our platform, being strong in our predictive capability. We're able to work with them in a proactive sense. So the platform is helping them think ahead of time, and this is driving a strong operational improvement. Again, another key part of our strategy that we set 2 years ago is Land, Expand and Scale. We've spent time with our customers. We understand what the product can do. It's also fed them into new product ideation and making sure that we have a truly scalable, repeatable and efficient platform to help our customers. Moving into Water. As we said, we added $0.2 million for Optimiser and Designer. So this is looking at desalination plants where we are looking to reduce the energy required to produce drinking water as well as the chemicals that go into the process. This provides a strong return on investment. If you now look at the footprint of our desalination plants, we're being strong in Hong Kong, in Singapore and now in the Middle East. And what we have seen on the back of this announcement with NEOM is a strong interest across the board. A global lead for water Sada joined around 5, 6 months ago. And Sada has been working proactively with key customers around the world, both at an asset level with [indiscernible] of income as well as in the industrial and partnership opportunities. As for the coming quarters, we'll start to see some benefits of the investment that we've made with Sada in that space. The other part though to think about is what we have already done with our customers with Water Corp. and we continue to work with Water Corp., SA Water, SIAAP, DAM, Kalamazoo and Evoqua to work through how SeweX plays a pivotal in them addressing their operations and the risk moving forward. SeweX is seeing significant advancement at a technology level this year. And we're proud in how we've been able to validate the technology and help our customers achieve their goals. We encourage all listeners today to go on to the link on the bottom of Page 5 to have a look at NEOM and what NEOM is wanting to do. By us positioning on the first 2 desalinate upsets and building that out, we are very well positioned to support the significant investment that NEOM will have over the coming years. But importantly, we don't have to wait for these desalination plants to be built. [ They're ] operational today. [ Leading ] up here on project sales. You'll see that graph is a very nice graph where it goes up for the last 3 quarters, finishing with a very strong $3.7 million. That is helped somewhat by the large aviation projects wins that we had in Q4. And you'll also see that this is not necessarily a linear path, so this will be lumpy as we move forward. What we have now seen over the last 2 to 3 years is that project sales are stronger in the second half of the year. At the moment, we don't anticipate that changing, but just to give you that insight. The other part there of project sales is it does drive with the expansion opportunity. And so project sales we see, and been the case over the last few years, is how that supports the ARR business model. The other part of project sales and why it's important for our business, and I'll pass to Justin in a minute to cover some of the financial observations of the quarter, is it does leave them into cash and profit in a relatively short spae and time. I'll finish with the outlook. So look, we do reaffirm our position, our transition to adjusted EBITDA, but we're not going to spend a lot of time on this today because the results will come out in around a month's time. But we did end the year with another record sales event. And we're really proud of how we finish the year on Q4, but we're also into now FY '24 with a really strong momentum. Each quarter, we're seeing stronger lead generation through our marketing platforms. And we have got a strong pipeline within our current key accounts through our Land, Expand and Scale. And we're very targeted in the 6 sectors that we spoke about at the start of the presentation about how we want to drive growth. So we do see strong upward momentum. Also, the other part of that is bringing a product-led organization. We have strong product portfolios, and we have invested into that technology leadership. All of those wins that we had this year, we were actually in competitive situations, which is great to do. But we also were able to be successful getting -- just engaging with the customer directly to help them and take them on a journey. They trust us, and we want to be there as a long-term partner. Our 3 regions now have a mature sales operations and leadership team, and we'll continue to see growth in all 3 sectors. So Justin, I might ask to you now just close off on the financials.

Thanks, Jason, and good morning. As Jason mentioned earlier, we will be providing further visibility on our results and outlook when we release FY '23 later in the year. But again, confirming the transition to adjusted EBITDA profitability. And what we will see is a significant improvement over our FY '22 comparative being a loss of $4 million. In terms of the year, we finished with cash above $8 million, which is in line with expectations. So pleased on that piece. In terms of churn, we mentioned our churn number of 8.1%, including the significant event and 1.9% on the exclusive -- the excluded basis. When we dig a little bit deeper into our reasoning for churn, a couple of the key points that come out on a relatively small population, I should say. Firstly, it's budget constraints in some of our customers where there was no alternative provider of sort, so it provides an opportunity for us down the track. And another thing was the completion of initial phase of the contract, with a potential for future but nothing signed up at this point. And the last one was a change in management and the priorities. So no - none of the churn events that we identified or we reported, there any transition to another provider. So we're very comfortable in those ones as well as providing an opportunity for us down the track. As Jason said, moving to project sales, they are a combination of implementation and instrumentation for some of the major projects in the period. Certainly, [ each of them ] is a significant one for us as is Abu Dhabi where, again, these project sales and [ as well ] shorter-term revenue opportunity will lead to the longer-term recurring growth. Of course, there are, on the project sales, some instrumentation replacement and expansion programs that are operating within our existing customer base that won't have a direct impact on ARR going forward. Lastly, just want to finish off in our implementation activities. They remain well managed with a very big understanding of currencies within the supply chain. We mentioned at the half year that our supply chain has recovered from the pre-pandemic, and we're able to manage those customer -- sorry, the supply relationships very positively. More importantly, we have a very strong team leading our implementation process, and we're confident that implementations will -- or implementation time frames will continue to improve as we move forward. But the highlight, if you like, from the finance piece, clearly, there will be more that we will cover in our next update. What I would like to do is I'll hand to Jason, myself to the presentation team and open up for questions.

[Operator Instructions] Chris Savage from Bell Potter, you should be unmuted now and go ahead with your question.

You hear me okay?

Yes.

Yes.

Great. Just firstly, was Q4 on budget, was it ahead of budget in terms of new ARR and total ARR?

We think it was slightly ahead of budget, certainly a strong quarter there, with some significant wins being in the Aviation and Industrial. Some of those, though, were slightly delayed through the year. just from the procurement part. But if you look at it from a full year, slightly on budget.

Was there anything that slips potentially into Q1?

Not in this quarter. We closed everything that we did want to close in this quarter.

And just the pipeline for '24 across the 3 sectors, if you can?

Yes. What we have seen, let's start with the smallest one in Water. Obviously, with the validation that we've now got with our customers in the 3 regions and also the 3 product sets, we have seen a strong pipeline build up over time. I understand from some shareholders that they want to see the Water go much faster. But I think we have to be realistic with understanding that this is a water utilities that we're dealing with. And it is important to understand that this is drinking water, and so we want to be making sure that we're working with our customers, not pushing that through. But Chris, very excited about the water pipeline opportunity, and that's with a mixture of different cost segments. Industrial, I was reviewing the pipeline as we always do, but really strong in mining, in waste and in industrial. And we know that we've got a strong value up there that we will continue to build through. What we have also seen is through the last 3 months is the transition into, say, a new presales team, and they're functioning at a higher level there. So certainly health efficiency within the industrial part has improved. And aviation, look, on the back in carbon emissions coming in with what we're doing with the [ ASP ] in North America, we are seeing certainly a shift into the greenhouse gas impact. And so the pipeline and the value prop is certainly evolving in aviation. And as a market leader, we're really well positioned [ to pick ] up strong market share as we move forward.

And just back on Water, Jason. What's going on with Water Corp? That seems to have stopped a bit. Any comment?

No, the opposite of that. I think it's a great outcome that we're working with the Corp. and we are -- spent [ more ] sessions with them, myself in Perth and with the team. Really strong validation. They are really pushing SeweX working and bringing it into realization. So we're very, very happy with Water Corp. using that [ much ] and how they're applying it into their business. So we're happy, Chris.

We might just go to a written question before we hand over to the next person that's going to ask live. It's about project sales. Jason, could you just provide a bit of color around project sales, how it's charged to the clients and whether it's on a contracts basis?

Yes absolutely. So the projects sales are -- has a strong contribution margin and a strong gross margin contribution to the business. So yes. Well, there's a combination where we have instrumentation sales. So it could be instrumentation sales to the aviation sector. And also in industrials, we -- industrial is a slightly -- obviously, a slightly different product and one that we are [ I would say ] third-party, so clients and agreements that we're going to see as opposed to the Aviation, which is essentially our designed and contract-manufactured product. But there's also an element of people cost on project sales with the -- or project revenue when it comes to people costs associated with implementations. So there's a mix across that, that we're seeing right at the moment with the strength around Abu Dhabi [ B2B ] on the aviation side, we're seeing that combined instrumentation sales as the lead indicator to the future ARR. And as mentioned earlier, there are a couple of one-off projects where we are replacing the noise monitoring terminals in a couple of instances and also expanding within an existing environment with additional monitors. Again, that's across the industrial space.

Thanks, Justin. We'll go to Ross Barrows now. Ross, if you would like to unmute yourself and pose your question?