Envirosuite Limited (EVS) Earnings Call Transcript & Summary

Good afternoon and welcome to the Envirosuite 2023 Annual General Meeting company presentation. Today I'm joined by Andrew Barron, our head of product [indiscernible]. The format today is we're going to go through 15 minutes of presentation and then leave about 15 minutes at the end for Q&A. As always, what we'd encourage you to do is use the Q&A function that's built in on there. So do that and try if possible to use your name and don't go anonymously because it helps us to [ answer ] the question. All right. Well, certainly very excited to be here today and talk through our company and a little bit of a reflection on what we have achieved over the last 12 months and a little bit more for those who are new to the story, I just want to take you through a little bit of Envirosuite, who we are and why we're here. We're an Australian technology company, an Australian software company. And what we do is we focus on helping our customers, which are the government and industry all around the world and drive forward from an environmental intelligence perspective. Now point here is compliance is just the beginning, but we do help a lot of our customers reach that base level compliance, where we want to be driving them more into the business operations. And so we see 2 thematic starting to emerge: one, which is business drivers and the need to improve operating margins as well as then in the framework around ESG, how our customers are tackling ESG drivers and being proactive to it. And so we have multiple platforms to help different customer segments around the world. We have some amazing customers within our portfolio from NASA in the aviation space into BHP, and we're all aware of BHP here in Australia. And what we do is we take certain events that happen on the ground, and we create value through different [ lines ]. So data, information, knowledge and into decisions. And where we're helping our customers with decisions, they're actually able to make significant improvements into the way that they're operating their assets around the world. Importantly, science is at the core of everything we do. So all of our models in here have got strong scientific differentiation and is truly world-leading technology, and we're incredibly proud of what we as a company have done and how we're helping our customers to solve these problems. We focus on 6 sectors: aviation, mining, industrial, waste, wastewater and water treatment. In aviation, we're absolutely global market leaders in that, and we want to be market leaders in all the sectors that we serve. We're very much a purpose-driven company as well. And this photo shows the planet -- and it's the conscious use of that image. This is not just a problem here in Australia. This is a problem we're solving in all of the continents around the world with the exception of Antarctica. And so we do deliver a strong part around this, and we attract some of the world's leading scientists and engineers into the company to help us solve this environmental intelligence. Importantly, and this is something I think we're all proud of, this is Australian technology we are taking out to the world. Our Americas is our strongest part there, and we've been growing that quite significantly over the last 3 years. And we're structured into 3 businesses -- 3 products, sorry, aviation, industrial and water, and we'll touch on a few of those shortly. If we look back at our FY '23 results, we're proud of what we did achieve last year. Q1, $2.1 million ARR; Q2, $2 million; Q3, $2 million; and Q4, a bumper quarter to finish the year with $3.1 million. And so that's a net new ARR of $9.1 million ARR in net, and that was broken down with $4.2 million from aviation, $4.7 million in industrial and then $0.3 million in water. For those of you -- those who are new to the story, water is certainly our start-up within our business. One of the other important aspects of this is the transformation that we have made in the company over the last few years, taking our ARR from $43 million down to $59.4 million at the end of June '23. Our gross margin has improved from 32.5% up into 51.6%. And certainly, one result that we're incredibly proud of last year is around our adjusted EBITDA result of $0.5 million in the positive. If you take that back to June '20, it's a significant improvement, whilst growing the company as well as bringing a new product group to market, which is the water part. Q1 was again a strong quarter for us. Now understanding we have strong exposure to the Northern Hemisphere, we do see a seasonality with Q1 in there. So for us to achieve that was a good result. And that now has got us to $60.6 million of ARR. And I think it's a really significant milestone for the company. We're certainly now well on that trajectory to -- in the short term, to be looking quite confidently of breaking through the $100 million barrier. And we did see growth across all parts of that, which was great. From the underlying parts here, you'll see our recurring revenue growth into the colored slide on the top there. You're talking about America growing June '21 from $12.6 million to $18.7 million. And we're seeing, again, another strong start to the year in the Americas. Our operating cash flow improvement is another strong part there of a positive $0.7 million into June '23. And so we have been really focused and using our cash and our resources with a real strong focus around shareholder value and creating that long-term customer value as well and seizing that opportunity. Now at this point, I'm going to pass to Andrew to take us through a few new slides that you may not have seen.

Excellent. Thank you very much, Jason. You mentioned EVS is bringing world-leading both in our presence and their industries. And one of the key things that has allowed us to be world-leading is leading our individual industries from an innovation perspective. We have derived a number of first principle science capabilities and build platforms around them and solutions to help communities and industries prosper and grow together. And there's a few key takeaways from this slide that I think we can all take away from it. The first one being that we are innovating with the primary objective of improving the environment and improving the world that the communities around our customers live in. We're not innovating for technology sense, but we're innovating for the betterment of our planet and our customers. All of these innovations have been focused on ESG concerns, social justice concerns, social license to operate concerns, they are backed by science, they're backed by transparency. So they're really for the betterment of the planet that we all live in and the planet that we want to work, contribute and live in. And secondly is we've been innovating for a very long time. Since the very early days of tracking aircraft around the world, we launched a product named WebTrak, which is still in existence today. But back in the day, it was one of the first ways that communities could interact on the Internet with noise and flight tracking data through a web port while they were at home. That forced us to be transparent with information, very accurate information. It's a legacy that's maintained as a foundation of our business today. When we look to the industrial sector, we're first innovators when it came to how we could use meteorology and our experience around dispersion to create ES1, which had automated backwards trajectories that could with just a few button clicks, show customers exactly where the source of a complaints owner may have been and let them determine whether it was on their site or off of their site. That was way back in 2011. But the next part to focus on is that we've continually innovated through organically, through partnerships and through acquisition. We are always looking to find interesting ways to improve our customers' and communities' lives through our technology. Some examples of this are our recent enhancements to our carbon emissions module for aviation, responding to some of the increasing demands of the industry and the communities around them to have greater fidelity and the information and understand more about some of the particular emissions that the planes release, whether it be methane, carbon dioxide and starting to bring those out for some of the world's largest aviation operators. We made an acquisition with the Water Optimiser product and brought an incredibly unique scientific combined with machine learning platform to the water industry to help improve water treatment facilities' efficiency. I think the fourth thing to take away from this is that these technologies are all adopted globally by significant customers by some of the world's largest operators in the airspace. Whether they be aviation customers for the East Coast or West Coast of America and through to the heart of Europe, Asia Pacific looking at some of the largest mining operators in the world, and some of largest industrial semiconductor manufacturing facilities have adopted a number of the technologies that we've innovated on recently. And even looking to our water products some of the large -- across all of the continents that Jason mentioned in Europe, North America and Asia Pacific. But we also have a large foothold in one of the leaders in the Indian market that's using our product to differentiate their services. We see really strong demand growing across all those different sectors. Aviation noise is still regarded as one of -- the biggest constraint to airports today, expanding their operation, continuing their operation in a way it is without curfews or brand new airports. So that is still very much driving all of the purchasing we see. But underlying that, we're becoming a very close second in that regard is the aviation's somewhat recent commitment to net zero 2050, which is forcing them to be much more focused on exactly what's creating the emission and what they're doing about it. So we're helping air service navigation providers around the world to help improve their efficiency in all their flights. We're working with airports to understand their scope 2 and 3 potential carbon emissions exposure, and that's something that's going to continue to improve as we -- or see grow. The industry has to get real about their 2050 and net zero goals. Industrial is another fantastic area of demand. The global demand for industrialization, steel, rare metals for device manufacturing that we probably all have in our pockets to electric vehicles and what have you is driving an unprecedented demand for new mines. There are 9 -- 390 new mines that are required to serve the projected requirement of an EV battery technology as it stands today. And the organizations that are going down, they start facing unseen pressure against how they operate and how they work with their communities that they've never seen before, and they're looking to us to help solve that. The other thing that's happening is urbanization is continuing to grow and where we saw landfill sites that were far and away from communities in the U.S. They are now being surrounded by communities and people are asking for greater responsibility from all those. So the demand keeps coming in all over our main focus areas around the world. And lastly water. Water is a very long and complex industry because it's been at the heart of many industrializations through the ages as to how water gets provided to communities. And it's going to be, if not already one of the most valuable resources in the world. So there's a huge focus on digitization in that space, automation in that space and efficiency and operational risk reduction through that space, all of which are areas that we focus on. So all in all, across all our different technologies, our innovations are aligned to market trends and trends that are continuing to grow and expand.

Very good. Thanks, Andrew, for taking that -- taking us through that. And then from a growth perspective, we come back to our land, expand and scale focus and the products and the market opportunity that Andrew has been talking through really lend themselves to that. Going in with the customer to land could be a basic site to then grow and expand the capabilities over time. A lot of our customers really importantly have been with us for many, many years and have been built out a really sticky business model as well. So we are really focused about identifying customers that want to expand, can expand, have a problem [indiscernible] that we can address and importantly ones that can scale and we'll continue to see development in the product to help certainly scale that out on customer value proposition. We do have a strong leadership, underpinned by diverse experience. And we have Colby, who recently joined the Board, and the Board continues to [ evolve ] on that front. I want to finish off with this slide and spend a bit of time on this one. We are well positioned and the word there is sustainable growth. We have made that transition. We have prioritized around getting to profitability as the most important path for us. And we're certainly on that path, and we won't deviate from that path. But we have with us some strong support. We are the market and technology leader. We've seen that -- both Andrew and I attended the forums that we have with our aviation customers, one in Europe and one in the Americas. And you can see the strong impact that we're having with some of the world's leading airports around the world. If you can think of an airport you've been through, it's probably going to be our customer.

And the impact of that and our hundreds of customers are surrounded in influencing millions of community members around the world.

Literally millions, yes.

Literally millions are depending on Envirosuite to help them understand how they're being impacted and how they can improve that.

Yes, that's important point. We've reached that milestone now of $60 million in ARR. And the other part of the area is growing. We still have a focus on growth. And whilst we have got our primary focus on getting to profitability, the key part there is we are still a growth company. We have a solid business model. We have a very sticky multi-contracts. And in some situations, our customers have been multi-decade. I think it's one of the unique things around our business model that I certainly encourage you to come and have a look at and dig deeper into. We have had these customers. We support them. We want to be looking for assets to operate for 20, 30, 40, even sometimes 50, 60 years and make sure that we support in [indiscernible]. We -- it's not just us, but around the world, there are strong environmental drivers, climate change is real. COP28, is it happening? There is a strong demand for ESG thematic digitization, the term digital twin is driving rapid evolution in many of the industries, which have largely been stale. And if you look at the need within water, it's a huge market opportunity for us in there to help with this digital twin approach. And importantly, we're funded for growth. We have put a model in place that we are sustainable now and we're funded for growth, and we'll support that through. So we feel that we're in a strong position to close FY '24 even better than we did FY '23. We've got a strong team in place. We certainly got a strong team within our [ EnviroNortes ] around the world. I want to thank them for the huge contribution they continue to make all around the world. It's great to have a purpose, and we have got purpose and we're hoping our customers have that impact. At this point, we'll go to Q&A. And there's a couple of points on the bottom there. Certainly encourage people to follow us on LinkedIn. And we do send out a lot of information via LinkedIn around new customer wins and tractions and where we're showcasing our technology. And we're doing this all around the world and should be incredibly proud to support us on that part. We do do a lot of profiles on customers as well and how that impact has been positively perceived. Also subscribe to our investor mailing list. Certainly encourage you to do that. All right. Well, why don't we throw down to Q&A? And I think we've got about 13 minutes left to get us through that.

Excellent. Thank you, Jason and Andrew for that presentation. [Operator Instructions] We have had a question come through. So just looking for a little bit of expansion on the B2B engagement transition that we mentioned on the water slide there. So the question is around that. Can you expand on the B2B engagement transition? What are you doing differently? And what does this mean for the business and the addressable market as well?

Yes. It's a good question actually. Look, so the focus on B2B is more around acceleration of driving revenue through. And so what we can see in certain business operations and Ion Exchange is one great example. I have met the Chairman, the CEO and the President on this one. And they've got grand ambitions about how they can use our technology to improve their business model and their offering into their customers. So they're able to act much quicker than what a municipality is around the world. So it's not that we're not selling to the municipality, but we certainly are focused at the moment around driving traction in the market, and we want to drive rapid acceleration in that. So we -- in Q1, we announced Ion Exchange. And I'm going to tell you in Q2 that there's going to be quite a few other deals that we do announce in that B2B arrangement, which are really positive and certainly validates the technology and also how that helps them with their business model. But we're still continuing with water utilities around the world, and we have got some positive engagement on a couple of those ones as well. They just take longer to go through. So it's certainly a dual strategy. Andrew, anything to add?

Well, we've also -- the change has also helped influence our product strategy, where we were potentially depending prior on end users utilizing [ develop themselves ] and having our IT infrastructure costs to do it. Working through B2B, we get a scalability factor, that means that they can do some of that work. So we've changed some of the tooling to be focused on B2B customers scaling across multiple sites in a much more rapid way than potential site-by-site approach would have gone. So that's been exciting and tools that we can use and customers can use as well going forward.

Thank you, guys. Another question. Could you please provide an update on the carbon emissions modeling -- module in terms of its uptake?

In terms of which product, Jeremy?

In terms of its uptake, so adoption interest in the market.

Yes, I don't have specific numbers. I'm not sure what they would be if you have them, Jason. But we've seen some significant adoption through Aena turning them on and looking for greater fidelity and some of that information. I think they have at least 3 airports, if not greater than that, taken on. Our recent engagement with the Egyptian Airport Corporation, they have taken 5 airports with that, and we're looking at a couple of airports in the U.K. They are looking to take that up. And it's something that we have spoken about at length at our 2 forums in Europe and in the Americas with great interest. And so we're chasing a number of our existing customers that spoke about the pressure that they're getting in those forums very candidly. It's very different energy to what they were talking about a few years past, which has provided us with future opportunities to grow that uptake even further than the recent adoption through the Egyptian Airport Corporation and the likes of them.

Thank you. Next question. Confirming did Jason say that he expected $100 million ARR. And if so, under what timeframe roughly is this achievable. I had a feeling someone might latch on to that one, Jason.

I think $100 million is certainly an ambitious and lofty target there. But if you look at our current growth in each of the segments, we would certainly see that continuing through. So I think you can map that out. I certainly -- I'm not going to give you a date but we can certainly see that in the foreseeable future and certainly in our planning. I think getting to $60 million is a great breakthrough. We know that we've got a validation in our markets. We know that the Americas is growing and contributing quite a significant part of that. And we're certainly continuing to invest into growth and to support the Americas. But yes, we're highly confident we'll get to $100 million. And then honestly, when you see the size of the total addressable market that we have got, we've got significant headroom to grow here. So we feel that profitability is our first target. Let's get to that, and then let's move into accelerating growth beyond that.

Excellent. And then the last question, this question is more of a finance-related question. Potentially, we may need to take on notice and come back with the response. But the question is could you please elaborate on how capitalized spend is tied to new customer acquisition versus maintaining the existing ARR?

Yes. So look, I'll go -- I'll go on that one. So look -- we -- from a SaaS product, right, we need to continue to invest into new models, et cetera. In our land, expand and scale is that there's a certain part here where you land a customer, but as a customer grows and take mining as an example, we now have many mine sites around the world. And so new features that are asked request or that you and the product team come up with, we might go and validate that through customer engagement. What we need to make sure is that we're continuing to add value into that. We also see it as being able to monetize different modules coming through. Same for the airports, so we have 190 airports. And if you think about that, how many companies in the world can say they have access to 190 world-leading airports. It's quite remarkable that we can do that. Part of our idea here is what can we sell more in to support them. It's just not selling for the sake of selling, right? It's got to be a problem that you solve. So we don't have a percentage breakdown on to that one, but recognize, certainly, there's a path of growth for new customers, but importantly, on expand and scale that's essential to our strategy. Anything to add on that?

No, definitely. I mean what we're seeing is a lot of those more interesting cross-sell opportunities to be born out of SeweX and industrial for the odor collection. We're seeing the same thing for air quality and aviation concerns come together as well. So that's lowering that cost and allowing us to differentiate.

It's a good point on the cross-sell rate. We certainly are seeing a much stronger cross-sell from SeweX and [indiscernible] within the industrial portfolio, and we're spending a fair bit of time really understanding that to see how we can accelerate that part. But there definitely is a [indiscernible] on that.

Thanks, guys. That is the last of the questions that have been submitted. No. I tell a lie, there's one more that has come through. Is the company...

We've got 5 minutes. Get all other questions. It's a good discussion today.

It is. [Operator Instructions]. So the question is, is the company willing to put on record when it is hoping to be EPS positive.

Earnings per share positive. No, we are not willing to go on record yet, but we -- as we get further through the year, we may start to give guidance, but I don't want to go on record at this point in time.

Thank you. I'll pause just for another 15 seconds or so and just wait to see if there's any more questions that come through. But if there are not, that will conclude the Q&A component of the session. Jason, I'll just pass back to you for some closing comments.

Yes. Thank you, and thank you for the question. So good. Andrew, thank you for joining. Look, we're certainly excited about the company. It's an absolute passion for us. We see the huge opportunity. I think one thing I would reflect on is just the passion and energy that we're seeing from our customers. The opportunity that many of our staff had within the 2 forums to interact back with our customers. Understanding that we haven't been able to do that for about 3 years, it was a bit of a breakthrough moment for us in the aviation part. Certainly from industrial, our mining focus and waste are probably 2 really strong thematics at the moment. So we do want to bottom down onto that one. And certainly encouraged on the traction that we're seeing in Q2 in water. And as soon as we can make some announcements on that one, we're happy to do that and give you the understanding. But yes, look, we're really excited. I want to thank, of course, our staff around the world who worked tirelessly on this one. It has certainly been a tiring year, but we're going to run hard way up to December 31 and come back on the 2nd of January, ready to do the New Year again. So thank you to everybody on that one. Thank you certainly to our shareholders as well for support.