Robots on the rise: BidEnergy

Alan Kohler here, with today’s CEO and it’s not just the CEO, it’s the CEO and the Chairman of BidEnergy, an ASX listed business.   The CEO is Guy Maine and the Chairman is James Baillieu.  The first thing to say about this business is I’ve invested a few pennies in it.   I haven’t mortgaged the house, but I’ve invested in it because I think it’s a very interesting prospect and it’s already been an interesting prospect because it’s already gone from the equivalent of 4 cents to $1.50, so a huge increase in the past 12 months (20 times or whatever that is).

It’s been a massive winner in 2018.   I think it’s in fact been the biggest rise on the whole stock market last year.   The point that James, who not only is Chairman, he owns 60 million shares in the thing, that he bought very, very cheaply, and Guy is saying that it’s just the beginning for them.   2018 was a turning point for the company and 2019 starts to bring home the bacon.

What it is is a robotic company.   They’ve got robots that go through people’s electricity bills – this is not just individuals, we’re talking enterprise companies, companies with tonnes of sites like big retailers and so on.   It goes through all of the bills for all of the sites and determines whether they’re accurate and says whether to pay them and also finds the lowest energy electricity price.

A couple of things to say about it.   Firstly, it’s going global.   They’ve launched in the UK and the US and they appear to be, according to them, ahead of the game.   No-one else is doing what they’re doing in those countries and they’re starting to get traction; huge growth globally.   But also they’re going to do much more than electricity.   They’ve already started to do council rates for one of their clients and they’re moving into other utilities, water and so on.   They’re moving down the business size spectrum, as at the moment they’re focussing on large enterprise, ASX listed businesses with lots of sites but they’ve also got an online version for small businesses.

Three forms of growth available.   One is to broaden into other utilities, another is globally and the other is to go into small business.   I think it’s a fascinating proposition, this business, and well worth a look.   Currently $1.50 and the market cap is $170 million, up from not very much a year ago and it could be a most interesting Australian global proposition.   So here’s Guy Maine, the CEO, and James Baillieu, the Chairman, of BidEnergy.

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Guy, obviously the core of the business is what you call the robotic process automation, RPA and there's a very interesting slide in your presentation this week comparing the cost of your robots with full-time equivalent human beings.  Your robot is 10 percent of the cost according to the slide, of an on-shore full-time equivalent and I think that's a third of the cost of off-shore full-time equivalent.  I suppose the first question that comes to my mind is, is this a valid comparison?  I mean, is it correct and valid to compare your robots with human beings?

GM:  Well yeah, Alan.  First of all it was a study conducted by Deloitte which looked at really, the last decades where enterprise companies in Australia were looking for cost efficiencies in managing those large, robust processes within their businesses that required a lot of manual intervention.  Two decades ago, every, the majority of enterprises were looking to off-shore a lot of their functionalities to countries like Malaysia and India, et cetera.  And a very large off-shoring program was put in place where you could save upwards of 30, 35% in terms of the comparison cost here in Australia. 

What we're seeing now is those same companies are re-shoring, and they're re-shoring through a robotic workforce, which takes over those large manual processes and utilises a robotic workforce to replace them.  And the reality is that the robotic workforce, in essence, as they aren't people, is substantially more cost effective to utilise for that exact process improvement. 

So that Deloitte thing, that's actually just a generalised thing, it’s not just about your robots?  Is that what you're saying?

GM:  I'm just proving that the study is real.  But that's what we see ourselves.  I mean we are going into organisations that have a workforce that are tight and dedicated to doing exactly what we provide through a robotic workforce.  So it is real, there are people performing these functions and not only are they taking a fair bit of manual workload within the business, they're not necessarily as accurate, as detailed, and as speedy as what a robotic workforce will deliver.  So, no it is real.

Obviously, I interviewed you last year.  Perhaps it'd be a good idea to remind the listeners what the background is because I think your robots were invented by your current Chief Technology Officer, Anthony Du Preez, right?

GM:  Yes, our Founder, Anthony, and a small crew of developers worked through this solution right about six years ago emerging in 2012 and took to market in 2014.  They focused on an area of the marketplace where, as we all know, there's a fair bit of confusion with regards energy spend and for large multi-sites, that just gets magnified.  We are dealing with organisations and companies that have upwards, receiving upwards of 6,000 to 10,000 bills a month.  If you think of the process of making sure those bills are always accurate and correct, and making sure that every one of those sites is on the best possible rate, it's a pretty difficult enterprise.  So that's what BidEnergy fundamentally brings to those partners.

James, if I could just turn to you, could you just take us through the process of listing BidEnergy and raising the money to turn it into a business?

JB:  Yeah, well listing BidEnergy actually occurred before my time as even a non-Executive Director, so I can't take you through that process.  I can describe it to you broadly, is that it was first listed as a reverse listing into a shell company, which was called Cove Resources and that was in July, two and a half years ago.  It listed at 10 cents a share, which is 68 cents in the current money.  And on the day that the company listed, it announced the signing of the contract with BP, by coincidence.  I'm sure they wanted to get that in before listing, but the contract didn't come through until the day of listing and it traded up as high as 15 or 16 cents on that first day, on the BP news.  But then it steadily traded down, consistently down from there in a steady trend and that was really because the technology was outstanding and it always has been, but the sales and marketing approach and the management of the business was poor. 

I became a non-Executive Director half way through that process after the listing and was highly alarmed by how the business was being run.  It was burning a lot of cash.  It wasn't getting much traction.  It had the wrong Managing Director, had the wrong sales and marketing strategy.  Everything was wrong in the sort of wider business process.  The technology was great.  The customers and clients were happy.  Then we had six months later, which was in the end of November 2013, we had what I call a night of the long nights, or more colourfully I describe it was just like The Godfather when all family business was settled at once.  We fired the Managing Director and paid him out.  Are you laughing Alan? 

Yeah, I'm laughing.  Yes. 

JB:  You can quote me on that one if you want a colourful quote.

You're being quoted, don't worry. 

JB:  It was like The Godfather and all family business was settled at once.  I'll tell you what it was, we fired the Managing Director and paid him out, we cancelled an acquisition contract in the US and paid a break fee on that cancellation.  We fired the entire sales force and three out of five of the board members went and simultaneously, Anthony Du Preez was re-recruited back into the business because he had left six months earlier in protest as to how the business was being run. 

James, had you at that point, bought your 60 million shares?

JB:  The sequence of buying my shares, to explain to you, is I made an investment in the IPO, the reverse listing and that was at 10 cents, when they did the further capital raising at two cents, I then put in another million.  I invested a million at two cents, at the same time as I became a non-Executive Director, one of five.

And that was on the back of the plan to this US acquisition.  The more I looked at the US acquisition, the less I liked it.  The more I got to know the US Managing Director, the less impressed I was and so I became highly alarmed about the business' performance.  Then that led up to the events that I described that occurred on the weekend before the AGM, which I just listed for you as to the changes that happened.  From the outside in, those changes looked like complete chaos.  From the inside, when I became the Chairman and made those changes, I felt confident about the business because now it was actually heading in the right direction. 

Shortly thereafter, we recruited, six weeks later we recruited Guy into the business who had come as an introduction from Tom Cregan, at EML, Guy and Tom had worked together in past lives.  Guy was very highly recommended.  I can add to that that I did due diligence on Guy by talking to people at Foxtel for the time that he worked there and Guy had rave reviews in his time at Foxtel.  Everybody loved him and thought he was great with people, very honest and honourable.  That he was very focused on business performance, had achieved great results in his time as Executive Director at Foxtel and I couldn't find anyone to find a fault with him. 

We recruited Guy to the business and people asked me why have you been so successful as Chairman of BidEnergy and I say because I made two great hires.  That was hiring Anthony Du Preez back into the business.  He's essential to the business as the technology brains and hiring Guy.  Those two hires really, those two people take 90% of the credit for the performance and I and other people claim 10 percent. 

I take it you're pretty happy with what's gone on since then, because the share price has gone from two cents to a $1.50?

JB:  Well just to get that right for your readers or your listeners, Alan.  We have had a share consolidation of 6.8 for 1.  The reason we did that…

Oh, I see, right.

JB: ...is from marketing optics.  The sales people said they were getting objections on the sales side, well, including even having a meeting because the share price was low, so it was seen as a risky business including our perception in our potential client base.   But, if you allow for the 6.8 for 1, the lowest point that it went was four cents in the money.  It's really gone from four cents to whatever it was yesterday, which I think was $1.50.

That's right, and I guess just to finish off with you, James.  I mean, is your sense that that's done now?  I mean, do you think would you be buying, are you buying at $1.50?  Do you think it's got more to go?

JB:  I'm personally, just as it so happens, and these things go through their different cycles, I'm quite fully invested at the moment.  What that means in practise is that even if I wanted to buy, I'd be restrained in what I bought.  But, if you want to ask me my opinion, has it got further to go?  I think it's got much further to go, and I think we're just getting started. 

Okay, back to Guy.  To elaborate on that, Guy, you've got this robotic process automation.  You've got two sources of revenue: You've got subscriptions and a rebate revenue.  Can you explain how those two sources of revenue work?

GM:  Yeah, sure.  Firstly, just to add to James comment, I look back at 2018 and I really see that in my view as the first year of our business, so irrespective of what the share price has done in the last 12 months, from my mind we've only just started and reiterate that comment that it's all ahead of us.  To support that as I get onto our two sides of business, the awareness of robotic process automation is really only hitting the boardrooms of today, just in the last six months.  It is a global phenomenon, and they do talk about it and I think I mentioned that in our last chat that they talk about robotic process automation as the fourth revolution; the third being the Internet.  There's been comments about what the RPA will do for enterprise globally but, yeah, for us I think we've only just started. 

To answer your question, in terms of our two revenue streams, our core focus is on multi-site enterprise or large business.  As I mentioned earlier, where you are receiving 6,000-10,000 bills a month.  You're going to be a large business, you've got a large footprint, you've got bills for energy, gas and water coming at you from all directions.  You want to get that under control.  You want to make sure that you're on the best possible rates, and obviously every one of those bills is accurate.  That's our core revenue stream.

For the likes of an Optus or a Toll or Flight Centre that we deal with, those bills are coming direct to our robotic workforce.  They go to work ensuring every part of that bill, or 26 datapoints, as being pulled out of that electronic PDF, goes through our platform and every week we're giving the payment file to those customers, saying, "That's the bill," or, "those bills that we've received in that week.  100% accurate.  You're good to pay."  Some customers we actually pay their bills for them.  We do that for British Petroleum here in the Australian market and New Zealand.  We also do that in the US, where we have some large customers.  That's our core revenue stream, that's one that's very important to us.

In our last presentation you could see that's our driving force behind growth both here, New Zealand, the UK, the US, and as we mentioned in the release this week, we're going to enter markets into South East Asia, as well, off a great win with Cushman & Wakefield, which we might talk about later.  The second revenue stream we have is a rebate revenue stream, and that comes from our US base.  We bought a business there two years ago that deals with a rebate business model.  What that is, is in the States with the rise of computers, and therefore the rise of air conditioning required to cool those computers, what the energy retailers are seeing there is a massive demand on their poles and wires infrastructure to the extent that they're struggling to keep up with providing that capability in terms of no resource to cope with the demands. 

They offer a rebate for large multi-site customers to go in and do energy efficiency programs within their store footprint.  I can't really talk names on the podcast, but think very large multi-site national brands that we would know here going through their 4,000-10,000-strong store footprint, and for instance, changing out all the old fluoro lights to LED lights.  Well, that will initiate a reduction in consumption in the order of probably 15-20%, and the retailer, the energy retailer, will reward you for doing that.  What our business does in the US is basically manages all that paperwork on behalf of the multi-site.  We go in and claim those monies from the happy energy retailer, we return a cheque to the happy multi-site company, and we happily keep a percentage on the way through, so that's our rebate program in the US.

Because in the presentation the other day, it shows that the rebate revenue is rising quite quickly and looks like it's going to overtake the subscription revenue.

GM:  I think the subscription revenue will still be the growth engine, Alan.  That's the one.  I mean, we saw a 35% growth in the December quarter off the subscription revenue, and that's the one that I think your listeners should be focused on.  It's the one that's probably going to surprise on the upside through the year.  Obviously, as you know, in the SaaS business model it's the reoccurring revenues that drives the valuation.  I think there's a lot of excitement when you look through what we do, and our model, we only have less than two percent of the Australia market place.  We're growing very, very quickly but when you multiply that by multiple countries in multiple jurisdictions, we have just on our platter this year, just in our emerging markets, there's more than 300 million electricity metres as our total available market in those countries.  The SaaS revenues will come off that enterprise or the subscription service.

The rebate revenues, we sized up a very large Fortune 50 company in the US in the last quarter.  We highlighted in our piece there that they're going to contribute around about US$350 per annum to that rebate revenue, so it will continue to grow.  It won't grow though at the pace that our subscription revenues will.

When you say you've got two percent of the Australian market, what does that mean?  It's two percent of what?

GM:  We look at from our mind here in the enterprise marketplace there's 4,000 brands that we want to deal with, and we've got around 67 that we're dealing with at the moment.  We've said to the market that this will be our breakthrough year in terms of going cashflow positive, so 67 out of 4,000, you know, we want to get to the stage where everyone's looking at our RPA platform for energy spend management as a necessary part of their portfolio, so huge opportunity in the market.  Low penetration of those big Australian brand names, you know, ASX 100 brand names got all ahead of us. 

I think when we get to talk about Cushman & Wakefield, if it's one of your questions, that's a real breakthrough moment for us because they represent very strong ASX listed companies that will be using our platform.

Yeah.  Tell us about Cushman & Wakefield; what's the deal with them?

GM:  Cushman's one of the big facility management companies around the world and we're dealing with their Australian headquarters at this stage.  They manage the facilities for ASX listed companies, so a large company will come to them and say, "Can you manage my building?  Can you manage anything that we need to purchase for that building?  Can you manage the water, the waste, the council rates?" And as part of that portfolio will tend to be obviously energy, gas, and as I mentioned water. 

They've been managing that solution internally themselves.  We've been talking to them over the last year, and they saw our RPA platform as a huge step forward for them in their managing something that they've found laborious in the past.  We have white-labelled our solution to Cushman & Wakefield, and they have 16 initial top brands that will be obviously utilising through them, our platform, but they're big Australian names in terms of the marketplace.  Unfortunately, I can't tell you who they are but we're talking the likes of names that everyone uses every day in Australia.  That's an exciting moment for us because as our platform permeates larger and larger enterprise customers, those CPOs and CFOs and finance people tend to mix across business.  It's just a great validation of our platform in a way that we can seed ourselves through new organisations as we get through this year.

Is it the case that the deal with Cushman is about more than energy?  In answering this can you talk to us about whether your solution can apply more broadly because it just seems to be obviously that it can be useful for more than simply energy bills, surely?

GM:  Yeah, that's right, Alan.  Look, wherever there's a structured bill...  So our robots feed off, at the moment, structured energy bills, gas bills and water bills.  We teach them to read a bill, they're taught to find and locate using alphanumeric in their logarithms to find where the kilowatt hour usage is or where the rate that's been applied to the bill is.  They then go to our platform and compare that historically as both together with, you know, we hold the contract records for each company.  We call it Cognitive RPA or Intelligent RPA.  It's just not scraping information off a bill, a structured bill, they're actually taught to digest that, compare, contrast, find out if it's an outlier, and also deal with the energy retailers direct via email, so they're smart little cookies.  But if you have a structured PDF bill, be that for gas, be that for water, with Cushman's we're going into managing their council rate bills.  We can extend this really as far as you like, as long as it's a standard structured bill format.  Yeah, you could extrapolate that as far as you could wish.

Clearly, at the moment, if we've got just under 2% market share on electricity, our platform does have the existing capability for water and gas, so we're very, very focused on those utility spends, but where a customer like Cushman's approaches us to do another series of bill data, and in their case it's council rates or council bills, then we'll bring those onto our platform, train our robots and manage them thereafter. 

Whenever you add a utility to the platform, do you charge more for it?

GM:  Yes, we do.  You could see our solution as being one that has multiple revenue layers.  Obviously, we don't try and sell the whole package up front.  We work with our clients to build a portfolio over time.  Usually we’ll start with energy and gas.  That's fairly standard.  Then, we'll move into the other services.  We'll charge an additional fee which we do by meters.  If we have an electricity meter or a gas meter or a water bill, then we'll charge a certain fee in addition to what we're already charging but we also charge additional services for functionality.  You might just want us to provide what we call, bill stream services, so the bill validation, the bill checking and issuing your accounts payable team a payment file every week; that's our standard platform capability.

But others, we go further.  We might do energy procurement for them, so buying of energy on the market and we do that for around about 71% of our customer base.  Further to that, you know, I mentioned earlier that we pay the bills so customers like BP, obviously for us, we like doing that because it means it's frictionless bill management end-to-end.  So, we get the bill direct from the energy retailer straight to the robot and then we're also making sure the robots are paying the bills on time and cash flow basis for our customers.  So, they actually never see or touch a bill again and we can obviously charge additional fees for that, that suits our clients.

Why are you confining yourself to 4,000 companies in Australia?  There's a million or more businesses here.  What's the cut-off?  Where are you drawing the line?

GM:  Well, yeah, it's a good question and we're not, is the simple answer.  We are focused very much on the enterprise multi-sites.  I think we may have discussed when we last spoke, Alan, that we were developing a robotic self-serve solution for every customer or potential consumer in Australia and that's through our little Billy robot, which will enable small business, single-site small business, franchise and eventually residential to just self, themselves have their own robotic concierge that will do really a mini version of what we do for enterprise.

We've piloted that service.  We've got some franchises benefiting from that service and we're looking forward to a roll-out mid-year of that residential solution for every consumer.

Just, finally before I move back to James, I hope you're still there, James.  Just finally, tell us about the global prospects.  You've obviously launched in the UK.  Are there competitors doing what you're doing elsewhere in the world?  And to what extent do you have a first mover advantage?

GM:  Yeah, well, we're pretty excited around the...  I mean, we're obviously working already in the US and we've just started to develop off the back of BP in the UK some further opportunities.  We're very excited about how we've been welcomed in the UK market.  But, just for your listeners to understand, well, what does it mean when we go to a new market?  It's fairly capital un-intensive, to use the correct language.  We simply need a bill series from every energy retailer and we build what's called a robotic parse of it, just to make that very simple.

If you are a certain energy retailer in the UK, we get all your bill series, every bill that you issue.  Then we teach our robots how to read it.  We don't have to be in the UK to do that, we do that locally with our own development team here.  It usually takes us around about two weeks to build a robotic parser for anyone, energy retailer.  We've been doing that behind the scenes for the UK market and building up our automation capability because once we are able to read a bill from any country in the world, then it can just flow through our back-end IP system and deliver the outcome that we currently do, here in Australia.

Fairly easy to enter into a market.  When I say ‘easy’, obviously in inverted commas, obviously there's a fair bit of work that goes behind that but then, fundamentally, we're open for business.  And what we're seeing in the UK, competitively, there’s no one of our type.  Not only in the UK, not in the US, we haven't seen anyone else like us in the world that is using our platform for utility spend or a robotic platform for utility spend, so we do have a first mover advantage. 

In the UK, there's different types of competitors.  We have a simple software solution from the UK.  A little bit different to here where they might sell a large company like BP, a software solution but you've got to feed it with information. Clearly with our robotic workforce, no one needs to touch it, they do all the heavy lifting.  Of course, there's brokers that will go out into companies and spend a couple of months to build a portfolio of information about the enterprise customer, maybe go and procure energy for them.  There’s a fair bit of workload involved.  They charge by the hour for their staff, obviously in terms of completing that solution. 

Again, we've got a very strong competitive advantage because whilst we have our own specialist team to look after tricky things like buying energy, most of the work is done by our robots.  We're super competitive, we're super simple, we're super-fast and that's what makes us gain traction fairly quickly in a new market.

Just finally, James, if I can return to you.  You've recently announced pay rises for Guy and Anthony and what I thought seemed to me fairly complicated KPIs and so on, would you mind just explaining what you were trying to achieve there in simple language?

JB:  We see the base pay rises as relatively modest and not really even worth discussing, they're so modest.  Both Guy and Anthony work very hard... 

Can I just interject there and say that I agree?  That Guy's now on 300,000 and Anthony's on 250,000 which isn't that much.

JB:  No, so I don't think that's worth talking about.  The KPIs, they look complicated because we've disclosed in full detail the whole deal and we thought it important to...  we like to have a policy to keep our ASX investors, fully and accurately informed and not fudge things, so we thought it was important to disclose all the details.  The details are a bit overwhelming, but the actual KPIs are quite simple and there's only two of KPIs.  One is on ASR growth and the other on retention of customers or churn and Guy is 70% incented on ASR growth and 30% on retention...

ASR being average... sorry.

JB:  Annual Service Revenue, which is our run rate, SaaS procuring revenues.

Yes.

JB:  Same thing and the targets are self-explanatory.  There's the base targets to achieve any bonus and then there's the maximum bonus target and as we state in our 4C that these targets are not any form of official guidance, but they are Guy's targets. 

I think if you simplify it down to those two and see, I think the figures are approximately to ASR, 11 million ASR at the end of this calendar year is his base, sorry his minimum to achieve a bonus and to achieve his full bonus, he has to get 18 ASR.  And on churn, he's got to keep it below 3% or if it goes above 5%, he loses 30% of his bonus.

Right.  There you go, Guy.  Presumably if you're making 18 million in ASR, then you're reasonably profitable.

JB:  Yeah, well definitely.  Look, as I mentioned in my eyes Alan, we've really only completed the first year of our business.  For me anything prior to 2018 was setting the stage and really now, what we've done through 2018 is build a great base case business that's got a great sales team functioning that we can grow off and add to. 

We've got you know, very low churn, we've got a really strong discipline around our finances and spend, which is very important to me and to the board.  And yes, there's always money for a good idea, right, so, we're not going to hold the reins back on the business.  We've got emerging markets that I think are going to grow quite rapidly and certainly in the UK, surprise all of us on the upside. 

Look, I'm a very positive person, those people that know me, I'm very much a challenger.  My whole history has either been starting businesses or rebuilding businesses or products, so I know what it's like when you've got a product starting from scratch and in my early days, I bought pre-paid mobile phones to Australia for Optus and I remember launching those when no one would buy them and now they're obviously a huge worldwide phenomenon.  I'm very confident and excited about the opportunity this year presents and I'm very much looking forward to it.

Thanks very Guy and James.  Thank you for joining us.

GM:  Thanks, Alan.

JB:  Thanks.

That was Guy Maine, the CEO and James Baillieu, the Chairman of BidEnergy.