Ann: Sales update, page-47

@jaluma

Sorry didn't get a chance to reply last night.

Good points as mentioned and it requires an understanding of odotech to explain.

Essentially Odotech was a company that sold the e-noses and support for the e-noses which included some basic software as well as maintenance and guarantees etc. This was sold as a package. So the 4.5mil revenue prior to them going under would have been predominantly hardware related at low gross margins (which partly explains why they went into receivership). This is obviously very different to selling software at gross margins of 85-90% on a recurring basis. Customers may have paid 500k thinking they were getting 300k worth of noses plus 5 years of monitoring software which would translate to 40k/year. 

Now EVS is having to approach those clients who are pretty annoyed that there is no ongoing support which.was included in the prior sales, as EVS bought the ip and hardware from the trustee rather than buying out Odotech. EVS are now saying actually we have this software that can link to the noses you have which is superior due to x y and z but it will cost you again. As you would imagine some customers are not happy to have to pay again, but clearly the EVS software is far superior otherwise they wouldn't be able to resell to anyone. 

With the odotech purchase EVS got the e-noses, and also a list of unhappy clients that they could attempt to sell to. Thats why it only cost them 450k for the acquisition. 

So I think there was always going to be a small tailwind this year from the extra possible clients, but revenue shouldn't be looked at as 1.5 (eve) + 4.5 (acquired from odotech).

Having said that, as you said, they've pretty much made 6mil this year (I suspect it will be closer to 7mil) and so 2020 will probably be a similar sales trajectory (finding an extra 5mil ARR in 12 months). EVS has very recently increased its sales force so I think that seems very manageable.

The next tailwind for EVS is likely to be the expansion with current clients (increasing sites covered) and the network effect from clients like thames water. Also municipalities all speak to one another so hopefully sales becomes via word of mouth which is obviously a lot easier. Also big rollout from places like Kuwait Dubai Abu Dhabi doha etc.

What I really want to know, and comes into the bear case, is how scalable is EVS? Can they sell 30mil arr with the current sales force? If not what would be the lowest customer acquisition cost? What is the lifetime value of the customer? These are the key questions for me. I tend to think it is quite scalable with relatively low CAC but I'm yet to have the financials to back that up.

Any other questions feel free to flick them through