icetana (ASX:ICE) investor update, July 2021

Company Presentations

icetana (ASX:ICE) CEO and Managing Director Matt Macfarlane provides an update on the company.

Hi everybody and welcome to the icetana investor update. I'm just going to walk us through our Q4 reporting and to give you a bit of an overview of how the business went for the quarter finished 30th of June, 2021.

I've got a regulatory and legal compliance statements here, please take a bit of a moment to understand these before I dive into the information.

And just reflecting on what icetana does. So first up we are a software company, we don't build cameras or hardware, we're a software company that builds AI driven, so Artificial Intelligence driven video analytics. Our software picks up the feeds from surveillance cameras, learns movement patterns based on pixel movement in front of those cameras and then reports anomalous and unusual movement in real time. So we do that by displaying the events on a black screen interface which you can see at the bottom right of this screen and as the events happen they fade in, they fade out, they catch the attention of the security operators so that security operators in control rooms around the world can respond in real time to events as they're happening.

This is a big change for the security industry so historically, most surveillance cameras were just doing recorded footage and you would use them for forensic purposes after an event has taking place, with icetana we move our customers over to a real time situational awareness scenario where they can respond from the control room as events happen in front of their cameras, we really activate those cameras for real time response. We plug into existing large video management systems already out there in the marketplace, the two leaders in the industry are Milestone and Genetec so we've built deep integrations with both of those. Alternatively, we have our own platform so that we don't necessarily have to ride on the back of the video management systems, we can also take the feeds directly from the cameras.

To give you a rough idea of a typical customer, a typical customer will have between 100 and 1,000 cameras coming into a security operation center or control room, they'll have surveillance operators who are actively looking at those cameras on screens in front of them and responding to incidents as they happen or managing guards who are out in the field, they miss many, many events in the current environment so with icetana they get to start to see events in real time and respond to them.

Let's just talk a little bit about the industry and where we sit within that industry. It is a huge and growing market, there are over 600 million surveillance cameras around the world, the spending on video analytics in particular surveillance analytics is growing at 19% per annum and already in the billions of dollars. If you just look at facial recognition companies for example, there's at least three unicorns, that's companies worth more than a billion dollars just doing facial recognition in this space.

So AI has been advancing really rapidly and more and more companies are thinking about how they are going to leverage the technology and the investment they've put into these surveillance networks. Some of the surveillance networks are around security such as the perimeter around your buildings but some of it is watching their own staff to make sure that they're complying with health and safety, so for example, inside warehouses or in logistics centers, whether forklift trucks are driven in the wrong direction.

Now icetana has been in this industry for 11 years now, we have over 14,000 cameras which are using icetana every day, we're analysing literally millions and millions of hours of footage every single week. At the moment our business is in a really good place for scaling up our product into many, many other markets and we've been transitioning our revenue profile from a business that was largely selling on an enterprise type basis, that is a very high upfront fee and a trailing maintenance fee, into a software as a subscription basis which is an annual recurring fee and we charge on a per camera basis with our customers.

So where do we get value when we go and present to our customers? There are two main areas of customer value that we present, number one, we capture events in real time, so that's all about risk reduction and being able to nip things in the bud. icetana catches a broad range of events, rather than specifically looking just for fires or just for crowding or just for health and safety breaches, we are actually finding a wide range of different events because our system is reporting movement that's abnormal. It doesn't really matter what kind of activity it is, so long as the movement is abnormal we start to report it and the feedback we get from our customers is that it's quite an extraordinary change to have that put into their environment. This is one of the reasons we have extremely low churn, in other words, customers very seldom leave icetana, once they sign up with us it becomes critical to their delivery of their security operations.

The second area that's really interesting and something we honestly have only just learned about in the last couple of years is the efficiency improvements that can come from icetana for a security monitoring business. If you run a guarding services company and you are bringing a lot of video feeds into a centralized control room and reporting and picking up events for customers that pay you for that service, we can dramatically increase the amount of cameras that each operator can monitor. That's a clear return on investment opportunity and opportunity to grow their business without hiring additional staff and an opportunity to catch more events in real time. So it's a really interesting fit for us and there are some markets around the world, particularly South America and Japan, which I'll talk about later, that are very, very well suited to this type of opportunity.

Let's have a little look at our financial results since listing and we got listed about 17 months ago so just before Christmas in 2019.

We were very badly affected by Covid first up and this chart represents the first time we've reported our Annualised Recurring Revenue. And just as a refresher for those of you who are not necessarily updated with the software industry closely, Annualised Recurring Revenue is a representation of the forward-looking revenue of the business based upon your current recognised revenue in that particular month. So if you look at how much revenue we recognised in the month of June, you multiply it by 12, you get to that number of about $1.35 million. We've jumped our Annualised Recurring Revenue by 64% since the March quarter, and you can see that wasn't just one client being signed up, that was a string of growth over the course of the three months.

This is really important because Annualised Recurring Revenue Presents a base line of revenue upon which we then grow further, okay? The reason why we were able to achieve this significant jump is because Covid which has been slowing our deployments capability has lessened, people are starting to treat it more as the new norm, vaccinations are getting out there and we've got a bit of a recovery from Covid story going on within icetana, where clients are now reopening their premises and saying, okay, we're ready for you to install this software and get it up and running, so those things that were sitting in my order book are now being deployed.

I'd also like to call out that we recognised very early on after the listing that Covid was going to affect our operations and rather than growing our expenditure and investing in sales and marketing where customers were going very, very cold on new expenditures such as icetana we actually cut our costs quite dramatically. We reduced our headcount, we reduced our spend in lumber in different areas, and we managed to support our cash position very strongly coming into the end of the financial year.

And you can see on a rolling basis that we have averaged just $75,000 in burn each month through the course of the financial year. And that bodes very well for the period ahead because we ended the year with about $1.75 million in the bank, that gives us a solid well in excess of 12 months of cashflow looking forward.

We also managed to continue to close sales orders, so since last listing we've continued to have some order growth that comes through in quite chunky amounts sometimes from our larger customers, but I've grouped some here for reporting purposes, and it gives you an idea of the range of different verticals that we deal with. Of course our greatest successes in the shopping malls and shopping centres surveillance areas but also we've started to crack into prisons and integrated resorts such as the deal we signed in Singapore.

Whenever we do a deal in excess of about a $100,000 we do announce that to the market at the time of receiving the order from the client. The time of the order is generally two to four months ahead of when we start recognising the revenue, that number has been drawn out by Covid further and we're playing a bit of catch up now in terms of our rollout.

I would also like to mention that our pipeline has been growing really nicely particularly in the fourth quarter. So our pipeline is kind of our recognition of customers who've got engaged with us where we have gone through a process of accessing their needs and requirements, understanding how many cameras they have and whether they have available budget and then putting a rough estimate on what that deal might be worth. It gets put into our customer relationship management process for our salespeople to work through the sales process. We've had a big leap in interest in our organisation over the last quarter and that bodes really well for future orders flying through for the business.

I'll just talk briefly about the team and our strategy going forward. So from a team perspective, Rafael Kimberley-Bowen has joined as the Chief Financial Officer, he's been with us since January now, he's doing an extraordinary job, he's a very data-driven and experienced software financial leader. Kevin Brown who joined pre-IPO has been driving our product development side of things and I'll be talking about that in a short while. But I'd particularly like to call out Kevin for his role in developing two of Western Australia's three major unicorns out of the state in the software industry, Nearmap and VGW, two very large and successful businesses, Kevin was intimately involved in turning those businesses into very profitable ventures. The third unicorn, for those of you who haven't heard about it is Canva, they are based in Sydney but that's an extraordinary story out of Perth as well.

And I've been with icetana since founding, so 11 years with the business. About eight of those years I've been sitting on the board, so the past three years in the CEO seat. All of us are paid a pretty average salary, however, we are very much motivated by the options that are allocated to us. And I'll just call out that our options are strike priced at 25 cents on the stock market and that continues to incent us because we really do believe that this business can easily exceed that share price in the period ahead. All three members of the executive team have invested our own cash into the business in the last six months as well.

From a growth strategy perspective, I did mention guarding services in South America and Japan, these are two really interesting markets for us, we've got resellers active there and a number of quite large opportunities. We also continue to grow our business in the Middle East which is a very actively surveilled market. And I'm going to talk a little bit more about this but we are starting to get some great progress on our v2 product, this is the second major release for icetana, where we are able to match our features much more closely with the requirements of the customers. A big portion of that will be reducing the time between getting a purchase order and deploying the solution. So I talked about that three to four month lead time between an order and us actually earning the revenues, the new product can be deployed a lot faster, a lot more quickly, and it doesn't take as long to learn what's going on in front of the cameras.

We believe that this product is going to provide some really big steps up in terms of the savings on active monitoring solutions and so that market for people who are doing security guarding services is really going to open up for us as we get this product out.

So talking a little bit more about the v2 product I'd just like to call out that this is something that we have seriously built from the ground up. So we took the 10 ideas of years of experience that icetana had had in building our base platform and we started with a clean sheet and we built it using contemporary technology. So we're utilising NVIDIA's deep stream platform, NVIDIA is the guy who build the graphics cards that do a lot of the heavy lifting and processing in the AI world, not just in gaming but also in autonomous vehicles and many other areas.

We've built a really nice new user interface experience that we're really keen to get in front of our customers and we filed a patent for that two weeks ago, now that the patent is filed we can start to unveil that a little bit more.

We're building the platform entirely from the ground up to work in the Cloud context, so we not only can do on-premise delivery, which many of our customers need because they like that level of security, but also have a Cloud capable solution which really opens up our ability to very quickly get customers testing out the product and that call to that client trial period dramatically shortened at the bottom right there. Everything is being built on a browser instead of being built in a custom interface so you can actually start to see icetana just by opening your browser anywhere you go.

And then perhaps most importantly, we're starting to add to our core algorithms for using convolutional and recurrent neural networks to improve the performance there. And we're starting to do things like object detection, action recognition, which lets us merge the best of two worlds, the world of icetana which finds anomalies and the world of rules-based analytics which finds specific events.

So we might go to a prison let's say next year when we've got this product available and we say, look, we're going to show you whenever there's something weird, like smoke coming out of a doorway or something like that but we will also specifically highlight to you whenever there is a fight breaking out because we've built a system to detect when there is violence as an example.

This is a quick snapshot of the user interface that we've developed a bit of a sample of how it might look with v2, it shows where the events are, it allows people to play them back very quickly, to select their own highlights and create a really interesting highlights really from each week that goes by. This is particularly valuable for guarding services companies because they can go back to their client every week and say, here are the 6, 7, 8, 9, 10 events that we've responded to in real time that we've picked up with icetana at your site and made sure that things didn't get worse for you, so it's a very, very powerful offering to the customers.

Just a quick mention of our competitors, so I included this slide in the update because it's important to know the market that we live in, BriefCam business out of Israel, they were bought by Canon in 2018, they still operate quite independently from Canada, although they are a 100% owned, they were bought for $120 million and have been very successful in the market since, they don't offer too much in terms of real time anomaly detection, which is our space, but they're very, very good at the forensics and the rule-based analysis and they have been quite successful. AnyVision is a facial recognition business which just did a capital raise in the last few weeks with SoftBank that valued them well in excess of a billion dollars. And Irisity is a company that's listed with the NASDAQ First North and that business has some really interesting multiples which I'm going to dive into in the next couple of slides, which by the way, we've not included in our quarterly update, they're not something that I've been filing with the ASX and it's public information so I'm just going to share it with you. viisights is a company out of Israel which also offers a similar type of offering and we know that those guys were recently primarily valued in excess of $50 million.

So a quick mention of Irisity, they're based out of Stockholm, they list icetana in their own documents as being a direct competitor for them, you can see they've made our logo as light and gray as humanly possible and these guys are valued currently at about 33 times sales or 65 times their ARR. So their revenue is between two and three times what we're turning over but their valuation is well in excess of $200 million when converted from Swedish krona. If you apply those types of multiples to icetana there's a lot of growth opportunities, so my job is to make sure that investors understand that we have the same type of opportunity to grow our business as what Irisity faces right now and we'll be working really hard to drive up those revenues and prove it to all of you.

Now I've got a few sample events because we are a video analytics company so I thought I'd just whip through a few example events, the types of things we find just to keep it a bit interesting.

So first up, this is a scene from a parking lot in the Middle East, you can see from the arrows which way that car should have been going, we pick up very well any movements that go on within car parks.

This is an example of a person accessing a secure area, they're actually getting through that fence line to go and do graffiti on rail carriages which is extremely expensive to remove and we did a great job of finding graffiti people doing this type of activity.

This is an example of a protest from one of our clients which is the University of California in San Diego, you can see the wind is blowing I mean the trees around quite a bit meanwhile, the system has still picked up this protest has a very different movement to what it's used to see in this environment.

This is an example of graffiti taking place at a university here in Australia, and we recently heard from this university that graffiti has pretty much ceased since icetana has started to be used within their campus, so that's an extraordinary good outcome for that particular client, they've been a client with us for about seven years now.

This is the same from another university side, universities do have major issues with the theft of bicycles and if you happen to own a bicycle and park it outside at all this might be a bit of a cause for concern about your locks and systems but you'll see in just a moment just how anomalous this type of movement is. Battery powered grinder can do a lot of work on a bicycle lock. Anyway, I'll jump forward, the next bike, of course that gets taken.

This is the same from a prison, this prisoner is seen at the bakery, the gentleman at the left is about to open up the oven and you'll see when he opens up the oven there's a burst of smoke or steam that comes out. That has caused the first anomaly as it flares with the lights, this burst of steam and smoke is quite interesting. But in addition to that when the steam gets the camera lens we get off the station which is happening here, that's always a point for concern within prisons when lenses are blocked in any way.

And this is another example from a prison, if you look at the gentleman at the top there, it's a minimum security prison, the windows are not locked and the other prisoners their colleague is actually breaking into their cells to steal things.

And that's the end of my presentation. I really appreciate you spending a bit of time with me today and I look forward to you joining us as an investor or sticking around as an investor and I look forward to the financial year ahead, I think we've got a lot of good stuff ahead of us. Thanks for your time.


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