5 Stragglers 🐌

from Q3’s cashflow report

Whereas last week I commented on strong reports, this week I felt obliged to do the opposite. 

Rather than focus on the ugly results (oh, there were plenty), I thought it would be more useful to reflect on companies with mixed reports. 

I consider all these companies to have good potential. 

I highlight the weakness and (oftentimes overlooked) strengths in their report, and riff on what would be nice to see in the future. 

Here they are:

1. Envirosuite Ltd (EVS) - (link here)

2. Alcidion Group Ltd (ALC.ASX) - (link here)

3. Pointerra Ltd (3DP.ASX) - (link here)

4. Frontier Digital Ventures Ltd (FDV.ASX) - (link here)

5. Vection Technologies Ltd (VR1.ASX) - (link here)

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Envirosuite Ltd (EVS.ASX)

Environmental intelligence software provider Envirosuite has experienced a number of ups and downs in the last few years. 

Through data captured from sensors, they help their clients monitor noise, air, water and dust so they can remain compliant to increasing government regulation. 

Envirosuite has navigated between cashflow positive and negative for a number of years, so has been granted relief from filing a 4C every quarter. They still update the market quarterly with key metrics, which is nice. 

The announcement was titled “Q3 Sales Update - $4.2m in new Sales” which sounded very positive to me. 

What you found when opening the announcement was a slight unpleasant surprise:

“Abnormal increase in annualised churn to 8.8% primarily due to the cessation of revenues in Q3 for three of five sites currently contracted with the Australian Department of Defence.

Excluding this one-off impact, annualised churn in Q3 would be 2.1%, in line with PCP and improved from FY23 H1 churn of 2.8%.”

So ARR unfortunately went down from $56.9M to $56.2M. 

Churn is an unfortunate, but normal part of a software business.

Thinking about it deeper, it would seem to me that the Department of Defence’s airports may be quite different to other commercial airports (the traditional Envirosuite client), so perhaps this can help explain the churn. The product may have been less fit for purpose for a Defence base. The fact that the world’s largest airport operator Aena expanded their contract may support my hypothesis. 

In general though, the question mark on what potential future growth they can achieve remains. We see a lot of quarters coming in at $2M in new ARR, and with the base increasing, this can lead growth to the low teens soon. 

There is potential here as always:

• They appear to be improving with relevant customer-led marketing (here)

• The water segment seems promising

• ESG tailwinds and blowing harder than ever before, so I think this is one to watch despite mixed results

Let’s see how they go in full year results. In future years, the water segment’s growth will be interesting to monitor. 

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Alcidion (ALC.ASX)

The patient journeys software provider Alcidion delivered mixed results this quarter. 

We know the clinical world remains in desperate need of better tools to continue to provide better quality care in a world of healthcare staff shortages. 

New sales for the quarter came in at $4M, which is a little softer than many quarters in recent years. Leadership had also hinted we may expect strong cashflow results, which wasn’t necessarily the case (small negative operating cashflow of $0.8M).

The narrative is now that “Q4 is expected to be the strongest quarter for cash receipts this year”. 

Allegedly, a good reason was provided for slower sales: ““The NHS EPR procurement program is one of the largest of its kind. While sales cycles have extended as a result, our current, qualified pipeline is the largest it has ever been by commercial value and number of opportunities.”

We see from the graph above that the YoY revenue growth this year may not come in as strong as some may have expected.

My background, of having worked in this space, might get me to be overly empathic to the challenge of selling enterprise digital transformation solutions to healthcare. You have to play the long game in this field. Seems like some investors have lost the patience for such a thing. 

In the background, I noted several very positive accolades for Alcidion on LinkedIn:

• Diane Carter, Digital Programme Manager at South Tees Hospitals NHS Trust mentioned: “Significant work went into the analysis of existing forms and developing what was required for the new #digitaljourney and I'm pleased to say it's been an incredible success! Huge well done to the whole team, thank you to Alcidion for their amazing and reactive support (as usual)”

• “I can say hand on heart that the tech support we receive from Alcidion is by far the best we get from any of our software suppliers. All your staff are an absolute pleasure to work with, knowledgeable and an asset to your company. They should be recognised and congratulated for their exemplary work.”

- Elli Chapman, Applications Specialist, North Cumbria Integrated Care NHS Foundation Trust

After the report came out, we also observed Director Rebecca Wilson buying on market. So we’ll see, let’s keep tabs on Alcidion. 

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Pointerra Ltd (3DP.ASX)

Speaking of companies having experienced a rough ride in recent months, enter Pointerra. Last month, I shared my thoughts on why Pointerra was in the dog house (here)

In this quarter’s release, investors were anticipating a clear figure on where ACV stood at. Unfortunately, one wasn’t provided.  The company’s words were “ACV currently stands at between US$19.7 million and US$22.1 million, pending outcome of remaining utility customer contract renewals, and is expected to continue growing during Q4 and into FY24 as ACV growth trajectory resumes.”

Whilst it’s great to hear confidence in future growth after this hurdle is overcome, it appears some are losing faith (perhaps more accurately patience) in the strategy. 

With Pointerra, we have to remember they are an enterprise sales-led company. With these large clients, leading to large deals, the future is always going to be lumpy. 

They did a good job at providing an update for every one of their 6 verticals. They’ve also been fairly impressive at achieving this growth with such lean operations, leading to another positive cashflow quarter. 

We also saw a little more about what’s happening under the hood with public product demos. Here’s the cross sections tool:

It seems they too have pushed the pressure on the next quarter. It appears tailwinds for them too would continue to augment, so I’m keen to see what happens in the next few years. 

I’ve also started working on a deep dive behind the scenes for those that want to understand the software and story in more depth. Stay tuned. 

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Frontier Digital Ventures Ltd (FDV.ASX) 

The “VC type” owner of online marketplace businesses in fast growing emerging markets Frontier has had difficult results this quarter, which have led to the business trading at near 5 year lows. 

The positive news is the delivery of their maiden quarter of positive operating cashflow ($609k in cash surplus).

This good news was largely overshadowed by revenue going in the wrong direction; down 10% across the business. 

Management promoted that revenue was “impacted by FX movements in FDV Asia and MENA. However when excluding Zameen, revenue increased 6% on pcp (FDV % share basis)”

It is true that the instability in Pakistan seems elevated and perhaps (hopefully) temporary, and this is what led to Zameen’s revenue decline by 21% (compared to 43% when reported in AUD). An interesting note on Pakistan is that whilst house sales have been down by nearly 50%, car purchases have remained steady.

From the outside, Zameen appears to remain focused and collected. They’ve made several posts on Linkedin (here) sharing their opinion on current events and real-estate’s position in a nation’s economic stability. 

This quarter clearly highlighted the achilles heel of Frontier; operating in emerging countries comes with its ups and downs. These events are not within Frontier’s direct control and history has proven they tend to pass, so with the sentiment diving into fearful territory, I’m becoming more interested in seeing what happens next with them. 

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Vection Technologies Ltd (VR1.ASX) 

Vection’s products and software helps companies use 3D, Virtual Reality, Augmented Reality, Industrial IoT and CAD Solutions to train employees, conduct design reviews, and forecast in-person experiences. 

Their growing revenue is a healthy proof of expanding demand for such technologies. 

They provided guidance at the beginning of the year of expected $24-26M revenue, and signs show they appear on track to hit this. 

Additional good news during the quarter was the value of the Defence pilot order increasing from ~$1M to ~$2 million. That’s not a small pilot and having Defence as a client is always a strong social proof. 

What remains unclear to me with Vection is when realistically we could expect operational leverage from them. We see from the cashflow report that dollars spent on product manufacturing & operating costs nearly equaled incoming cash ($5,504,000 vs$ 5,674,000).

They would be developing a lot of customisation in these training workflows which can likely keep operating costs high for a while. This is in part what led to the $3M cash burned in the quarter. The market would be questioning if the $11M cash left will be sufficient to reach large enough milestones before a cap raise is necessary. 

What they do remains very interesting, and with use cases exploding, I wouldn’t be surprised to see them deliver more good news in the next few years, so I’ll keep close tabs on them. 

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Conclusion 

That’s a wrap for us on quarterly comments. The next few weeks will be a combination of investor profiling, deep dives, book reviews, and more. 

If there’s anything in specific you would like my thoughts on, feel free to shout as always. Any feedback on what could make this even more useful to you, put it in the comments, I always love to hear from readers. 

Thanks for offering you time and attention folks! 

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