28 May 2019
Reach Markets publish the notes from our analyst meetings with company management. They should be read in conjunction with the research we’ve completed. Reach Markets endeavour to provide self-directed investors a seat at our investment meetings. We publish these notes in a conversational format to get these out as quickly as possible for your consumption.
FIVE QUESTIONS FOR THE CEO
Vivid Technologies reported a 228% increase in total revenue, to $8.3 million, in FY 2018. Following an upbeat AGM, I caught up with Vivid CEO, Sam Marks.
What do you do?
Vivid provides efficient energy solutions to owners and users of commercial and industrial property. More specifically, the company has developed a technology platform that delivers enormous savings on lighting in commercial and industrial facilities. Solutions are available that range from the relatively passive to highly sophisticated intelligent systems which deliver from 60% to over 90% savings.
What is your target market?
The primary target market is medium to large scale, multi-site users and owners of commercial property. Clients are typically blue chip and are highly recognisable including the likes of Coca Cola, Linfox, Goodman and Dexus. The client base covers a wide range of industries although fast moving consumer goods (FMCG) and health and aged care contributed over 50% of revenue in FY 2018.
What is your competitive advantage or differentiator?
The energy savings which the technology delivers are unparalleled and has been achieved in many different operating environments resulting in short pay back periods and very high ROIs. The principal of the Vivid technology is to greatly improve the efficiency of existing systems rather than rebuilding. Other than using specially designed LED lights and some controller hardware, which plug into the existing electrical system, there are no other infrastructure requirements. Further, the technology is an intelligent IoT solution capturing data beyond the meter, both site specific and on the system. “By installing our technology, our customers are installing a system that enables them to be Industry 4.0 ready”.
What are the business drivers and growth opportunities?
The central growth driver is the ongoing upward pressure on electricity prices. Nonetheless, the company’s strategy of aligning with multi-site operators provides powerful leverage for ongoing work once the core proposition has been validated. This is exactly what is occurring with a number of clients and there is a major opportunity to leverage this into regional and potentially global networks. The first client has been secured in Asia and the fully intelligent Matrixx® system which can deliver 90% plus savings has been deployed. Partners and sales channels have been established in in Asia and discussions are underway in Europe to develop similar opportunities. Long term the technology is potentially an industrial/commercial IoT platform with a wide range of smart facilities management capabilities.
What are the sources of revenue?
Revenue is largely sourced from the design, sale, installation and support for each system. Whilst this will be a major source of revenue for many years, an alternate model has been developed which will provide secure, long term recurring revenue. This model involves long term rental and service supply and management agreements which include the sharing of the savings delivered by the technology. Service annuity revenue was modest in FY 18 but its contribution to overall revenue is expected to become much more significant over the next few years as more clients are attracted to its impact on opex and the absence of capital investment. For Vivid, service annuity revenue is predictable and highly stable.
What do I think?
Probably the hardest thing for small, under-resourced, technology companies to achieve is to get the wheels spinning. Vivid now looks to be at take-off and ready to realise the potential of its energy saving platform. Total revenue jumped from $3.6 million in FY 2017 to $8.3 million in FY 2018 but more importantly Energy Efficiency revenues increased by 311% and contributed 72% of revenue compared with 64% in the prior year. With a big pipeline of interest and opportunities, I expect considerable growth in the current year with sustained high rates of growth for the next few years at least.
What do I like?
The company has a deep product range with varying degrees of sophistication to cover multiple price points as well as variety of funding and service options. The value proposition is highly compelling with validated results. The opportunity is global and the strategy to focus on multi-site operators and owners is a sound platform for driving growth. Just as importantly there is virtually no direct competition and no other energy solution that can deliver the savings comparable with the Vivid technology.
What are the concerns and risks?
My key concerns relate to funding and managing growth. The technology and platform is highly scalable and design and implementation can easily be handled by agents, electricians and partners however internal sales, marketing and finance functions will need to expand and overseas offices will probably need to be established. In other words, the infrastructure to establish support for a global platform needs to developed. Further, small high growth companies such as Vivid always seem to be cum a capital raising. Vivid had a $2.8 million operating cash flow deficit in FY 2018 ( FY 2017 $4.4m deficit) and the cash balance as at 30 September 2018 was only $1.0 million. Further capital raisings until the company is cash flow positive would seem to be likely.
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