Pinned straw:
Great set of results from Catapult once again. Continues to deliver.
Full results presentation:
https://drive.google.com/open?id=1HMthZNAt7oIM8v_Sra3JkzxLhEljRiMk&usp=drive_fs
Exec chairman Adir Shiffman reflects on the journey over the last few years: https://youtu.be/nJCr2mYJ_QQ?si=DQI9Sx7si-2nULJs
My thoughts on FY25 result : https://arichlife.com.au/catapult-group-international-asx-cat-fy25-results-analysis/
What a day on CAT! Adding my notes from the call this morning. I also knocked up a few charts which combine the key SAAS stats to get a better sense of the HoH movement.
Trend-wise, CAT has typically had stronger growth in 1H vs the previous year 2H and 2H growth tends to be mostly flatter vs 1H. I think this is due to the northern hemisphere customer bias where contracts are mostly done in the off season, leading into the northern sports summer season.
So, like @Longpar5 , while I was cheering the YoY results, the HoH position was no different this FY where the heavy lifting was mostly done in 1hFY25. 2H was more "sustain the 1H gains + grow a bit more" rather than full-on-rah-rah-more-HoH-growth.
Discl: Held IRL and in SM
Notes From Call
- Tariffs - very little impact
- I like the description that either Will or Bob used to describe the current CAT position: “Horizontal capability with vertical depth”
- “Discipline in how we scale and discipline on profitable growth”
- In response to an analyst question, Will said that depending on sport, most new teams typically start with 1 module, the “Mass Tracker” module for 1 season, then add 1-3 other modules in subsequent seasons:
- Will confirmed that most new teams are still on 1 module
- ACV for 1 module = $15-$20k
- ACV for 3 modules rises to $40k
- SEC Conferences - mostly had an impact in 1HFY25, no impact in 2HFY25, but overall growth was still maintained - see commentary on stronger 1H trend below
- Margin target of 30% - “a little bit ahead then the 3-5 year mid-term-when-we-get-to-$200m-revenue” target
Guidance for FY26
- ACV growth - reflective of what was achieved previously - “mid-to-high teens” was the response
- FY26 targets are completely the same as FY25 as the intent it to continue more of the same
- Growth levers
- Continued to see growth at end of Vector 7 product cycle
- Vector 8 opens up upsell opportunities for new algorithms, new device (which is a platform to connect other devices to the body)
- Opens up video-related workflows
- Pricing Power - Not intending to push hard on the pricing lever in the next 1-2 years but Will noted that the subscription-driven base is getting bigger
M&A
- Last 3 years was about maturing the CAT platform for multiple solutions
- Receiving 1-2 pitches from startups as CAT is in the position to accelerate at scale, and has the deepest tentacles into sport, but have set the bar high for M&A, with the following broad criteria:
- No preference in which vertical
- Must be accretive to the Rule of 40
- Expand the technology platform
HALF-ON HALF COMPARISON
No different this FY where the heavy revenue lifting was mostly done in 1HFY25, then sustained in 2HFY25.
Similar trend on Pro Teams and Multi-Vertical Customer growth
The acceleration in FCF is very evident HoH in this chart. But Rule of 30 was actually flat HoH
This chart shows the operating leverage quite nicely - rising revenue, flat/down COGS, Variable Costs and Fixed Costs ....
And the beautiful impact on Profitability ...
While not a huge concern, I do not like that the ACV Churn is trending up again. While the 4.3% churn is below the 5% CAT target, if feels higher than the XRO and SDR church rates which hover around 1-2% if I recall. One to keep a watch out for and to query Will when we meet him on 4 June as to what is driving that.
Agreed @BendigoInvesto -- a great set of numbers. I wont repeat the key metrics, but for me it was important to see:
- Results aligning with what management told us to expect
- Free cash flow growing strongly (almost double last year's figure) as they close in on their rule of 40 target and disciplined cost management
- good progress with cross-selling (53% of customers use multiple products)
- sustained top line and ACV growth
- spend per customer increasing (this is one of the clearest signs of a good product market fit imo)
- Margin on incremental revenue exceeding past aspirations (Will has repeatedly said they want to do at least 30%, but they did 65%)
- Churn remains low.
You love to see it. Will really has delivered on pretty much everything he said he would. Yes, it took time -- turning around a company is never a quick and easy task, and he's been on board for nearly 6 years now. It took 5 years before they transitioned to FCF +'ve.
Still, its important to note that Catapult is still making a statutory loss, largely due to a hefty D&A expense. If the depreciation schedule accurately reflects the ongoing capital investment needed to sustain operations, then the business still has a way to go before it can be considered truly profitable. That said, Catapult is still very much in a growth phase. And if you isolate just the depreciation tied to hardware and leased assets — arguably more reflective of steady-state operations — the business is not far off breakeven on a statutory basis. The heavier amortization tied to growth investments like Vector and Hub Pro can reasonably be discounted for now, assuming these initiatives underpin sufficient future revenue. If that revenue materialises, this dynamic should shift, especially as the business continues to flex its operating leverage and compound its already improving free cash flow profile.
I've lined up another meeting with the CEO on June 4.
oooh.. the intraday high is just 1c shy of a "spiffy pop" for me (when shares increase in one day by the total value of your cost base)
(my average price is higher, this was just the first ever parcel I bought -- ten long years ago)
What a journey! After buying i watched it go to $4, then back to 50c, then back to $2, then back to 63c... Hopefully such gut wrenching drawdowns are a thing of the past now the business has some real momentum behind it..
@BendigoInvesto and @Strawman I agree, these were really strong results. Without repeating the excellent points already made, I took a few further points away from the presentation and Q&A..
Video in T&C
The adoption of video modules seems to be the big driver of the increase in Multi Vertical Pro Teams (MVPT). In FY24 MVPT increased 32% to 483, which was +117. In FY25 this accelerated, with 258 MVPTs being added, an increase of 53% to 741, out of a total Pro Team count of 3,602
Given the mid-term target of 5,000 Pro Teams, it sounds like there is a lot of running room in the medium term for this to grow further.
FY25 saw a lot of Innovation Come Onstream
I've included the slide at the bottom of this post showing the key innovations onstream in FY25.
Just one of these, Vector 8, is the culmination of years of development and it sounds like a major step forward. @Wakem posted an interview with $CAT's VP Engineering a few weeks ago, and I thoroughly recommend watching it, as it gives some insight into what a major step forward Vector 8 is.
One of the analysts picked up on the breadth of innovations launched this year and asked whether we could see ACV growth accelerate, beyond the historical band 18%-22%. Will basically said "we hope so" but he then played it down by saying that they prefer to be cautious and that each year growth is coming on a higher base.
Investment into Pro Sports
Will made reference to the investment going into Pro Sports, and that Pro Sports Media in the last frontier for live entertainment. He called out the use of $CAT feeds into UEFA and the French Rugby League as firsts for this year, and the fact that the media segment had a strong year. Again, he was cautious on whether this will continue. But the investment in infrastructure, stadiums, staff and players absolutely dwarfs that required for a Pro Team using the full $CAT product suite, So, my view is that as long as $CAT maintains market leadership through strong innovation, their customers' willingness to pay for any edge, or the ability to enhance viewer experience is only going to increase,
Discipline on Pulling Value Levers
Will made it clear that their current focus is on adding new teams, and selling more modules into teams. He explicitly said in the Q&A that $CAT are not yet pulling the pricing lever. Clearly, if $CAT can dominate the Pro Sports market (e.g. getting to its 5,000 mid-term goal) all the while as customers willingness to pay increases, then over the longer term pricing can be used to further drive returns.
Incremental Profit Margin
Incremental Profit Margin according to $CAT's measure hit 65%, a big step up from the target of 30%. In the Q&A there was some discussion on this, and Will said a couple of things that stood out for me.
First, that the Management EBITDA Margin (essentially a full Cash Cost Margin, as it includes Capex ... but excludes share based compensation which is non cash and which must be included in valuations) target of 30% should be reached about when Revenue hits $200m. And secondly, that it looks like they are ahead of schedule.
I took "ahead of schedule" to mean that the 65% Incremental Product Margin, indicates that they could achieve the "Management EDBITDA Margin" of 30% BEFORE they get to $200m revenue.
So this has significant implications for my current valuation, as I had modelled it taking them a lot longer to get there. Just to be clear, if they can grow revenue at c. 20% p.a., then they'll hit $200m revenue in 3 years. Which means if they remain ahead of schedule on margin performance, than the 30% EBITDA Margin could be achieved in FY28.
And what this means is that $CAT is going to start generating some very strong free cash flow growth.
My Key Take Away
Excellent results and Will is doing exactly what he has consistently said he will do, and is executing flawlessly against a disciplined financial / economic framework.
I think we are likely to see a slew of PT upgrades. And I also think we are going to see more, larger institutions covering $CAT. For example, UBS initiated their coverage on 14-May with a $5 PT and a BUY.
$CAT is in a very good place at the moment. One to hold for sure!
Disc: Held in RL and SM
Innovations Introduced in FY25
