The Envirosuite (ASX:EVS) share price took a beating in the last few days, falling from 17 cents a share, to 12.5 cents. Don’t forget it was only two months ago when the company was trading at three year highs. So where did it all go wrong, and should you cut your losses?
What is Envirosuite Ltd?
Envirosuite is an environment technology company that has developed a Software-as-a-Service (SaaS) platform with environmental monitoring, management and investigative capabilities. The Envirosuite platform is used worldwide in a range of industries including mining, agriculture, ports, water and waste management, as well as the government regulatory sector.
Will Envirosuite meet its targets?
Envirosuite has been setting itself a 100% Annualised Recurring Revenue (ARR) growth target. The company determined this was the best measure of its performance, given that it is a SaaS business. Fair enough. So how has it performed to date?
Envirosuite successfully doubled its ARR in FY2018, but it will now need to reach $6 million in FY19, and $12 million in FY20 in order to stick to its target. This will be challenging, considering the company reported adding only $780k in ARR during the 3rd quarter of FY19. If you also take into consideration a $450k reduction in ARR due to higher than normal customer attrition, then the net increase in ARR for the quarter is only $330k.
What’s driving the high customer attrition rate?
It appears the abnormally high attrition rate (9% of ARR) this quarter was due to a range of factors, including-
- Shift away from the Californian regulatory market – Envirosuite’s regulatory clients did not utilise the platform’s real time capability, resulting in a lack of uptake (and a one-off loss almost half of the 9% attrition)
- Cessation of client projects – another quarter of the attrition was due to three client projects coming to a conclusion or being halted for external reasons.
- Vertical industries – the remaining part of the attrition, Envirosuite attributes to its rapid growth and its associated experimentation in different vertical industries.
Time to cut your losses?
Personally, I will be keeping an eye out to see if Envirosuite can both meet its FY19 ARR target, and improve its customer attrition rate next quarter.
As for whether to cut your losses, tap into the collective intelligence of the Strawman community and review the consensus valuation before you make a decision:
Disclaimer– The author may hold positions in the stocks mentioned in this publication, at the time of writing. The information contained in the publication and the links shared are general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. For errors that warrant correction please contact the editor at [email protected].
Strawman is Australia’s premier online investment club. Join for free to access independent & actionable recommendations from proven private investors.
© 2019 Strawman Pty Ltd. All rights reserved.
ACN: 610 908 211 | Australian Financial Services Licence (AFSL): 501223