Pointerra have updated the market this morning after appointing a strategic reseller for the Middle East region -- specifically to 'resell and implement the Pointerra 3D Digital Twin Platform".

With an initial term of 2 years, the agreement does not contain any minimum sales or revenue targets. It currently isn't material and it is not possible to currently quantify any revenue impact for the company. The update is more noise and unnecessary of a release to the market.

My take: this is likely another classic 'must be seen to be doing something' announcement to the market before releasing another set of subpar results.

Disc: NOT HELD

As expected.... sigh. Another underwhelming quarter, referencing project delays and promises that additional contracts are coming.

Fundamentally, my investment here looks to have been a bad one. @mikebrisy's recent analysis paints the perfect picture -- this is not mission critical software as my investment thesis initially suggested. They are struggling to win contracts, are no longer growing sufficiently and perhaps most importantly I no longer believe management are competent enough to take the business forward.

Last year in general was a shocker -- cash receipts collected went backwards considerably, while costs widened. This is continued evidence of more of the same. Perhaps what grinds my gears the most is management suggesting they had the capital required to operate sustainably, before eventually succumbing to what was a much-needed raise at dilutive levels. Their strategy has not been effective to date and I wouldn't be surprised if we hear the dreaded 'strategic review' in a year or two.

Stepping backwards, I think they have spread themselves too thin. This is a good case that demonstrates you should target certain industries/thematics and not try and be a 'jack of all trades' across the board. This approach is difficult when you are cash flow negative, particularly in the current environment where funding is increasingly difficult to obtain. I also don't think we can make a case that Pointerra are genuine market leaders, and their balance sheet and growth (or lack of) supports this.

More than anything else, my decision to sell at these levels boils down to the fact that this just doesn't appear to be a high-quality business like I once thought, and there are much better opportunities elsewhere.

Disc: sold

Some much-needed good news for Pointerra.

Existing customer Entergy has selected Pointerra’s US EPC partners for its 10-year, US$15 billion grid resilience CAPEX Program. As a result, Pointerra’s analytics platform will be used to identify and prioritise grid assets requiring remediation or replacement across the term of the program, with Pointerra receiving material annual revenue over the 10-year period.

Despite Entergy being an existing Pointerra customer, the company partnered with EPC contractors to bid for grid resilience work packages to be issued by Entergy. So in layman terms, Pointerra3D will be used to process and analyse 3D LiDAR and 2D imagery to build a digital twin of Entergy’s electricity network. This will enable parties involved to assess and prioritise work to be completed.

Revenue wise, Pointerra will be paid a price per pole/structure inspected and analysed using Pointerra3D. They expect up to 4 million poles could be inspected and analysed using Pointerra3D during this time. Pointerra has previously been paid between US$20 and $40 per pole for similar processing, inspection, and analysis work and expect similar revenue during the program – noting the rate is yet to be finalised. Revenue is expected to commence during this FY.

At the low end of that price structure (US$20) and assuming 3 million poles are expected throughout the program, this is around US$60m, or around US$6m annually. At the juicy end of things, if we assume US$40 per pole/structure and assume 4 million poles inspected over the course of the program = US$160m, or around US$16m annually. These are big numbers for small little Pointerra, with a current market cap of 65m.

The contract builds on an existing relationship with Entergy that commenced in early 2022 when Pointerra was selected to assist in a GIS upgrade using Pointerra 3D. The announcement also suggests FPL (Florida) has been active in advocating the use of Pointerra3D within the US energy utility sector, which is collegiate in identifying and using best practice across energy utility operations. This demonstrates a land and expand tactic of sorts. Similar to my love for Aussie Broadband and my investment thesis there, you are onto a winner when your customers are doing your marketing for you. The doubling down by Entergy – selecting Pointerra having worked with them previously – and the significant contract length, provides some serious validation for Pointerra3D. So while the potential revenues are enormously attractive, we again have reference cases added to Pointerra’s quickly-expanding back catalogue, noting it was previous work done in the sector that enable Pointerra to have won this contract.

This could well be the most important contract Pointerra have landed to date.

Ian appeared on ausbiz last week after what many of us will agree was a subpar 4C. For those that missed it, you can watch it here.

Some good commentary on 3DP already. I remain a holder, but this is no longer a buy for me. I want to see the business start to execute. Like many others, there are some real question marks about their ability to do this. @slymeat, I hear that view mate, but conversely there are early signs that 3DP are struggling at a) effectively selling their offering, and b) collecting fu***ing cash! The pipeline is one thing, but on the other hand, there is also an opportunity slipping away from them here that wont be there forever.

I want to highlight @mikebrisy's cash flow analysis chart from yesterday:

This encapsulates the real concern around 3DP at the moment. Their so-called 80-90%+ super high margins become a myth when they cannot demonstrate cost control while slowly increasing their revenues over time. Costs have been increasing QoQ for 24 months now. This is not reflective of the business I initially found interesting when I invested in 3DP. The thing is, if I was to sit down and study 3DP today for the first time, noting their cash flow performances over the last 12-24 months, I wouldn’t invest. Costs over the last three quarters in particular are rising, while cash intake is lumpy and underwhelming. Re: the ACV issue, I am less critical of than others – I get that customer invoicing can be a nightmare, particularly with larger customers – but I wont die on my sword. They need to start producing material cash, but they also need to get their expenses in line; they are getting out of hand, with little gain.

They have presented ACV to the market – in conjunction with the quarterly report or very close to it – for as long as I can remember. This month, as @mikebrisy notes, they have delayed its release due to not liking the number. I am not interested in a spoon-fed figure when they think it looks more attractive. It defeats the purpose of the report. I am also not supportive of a management team that think this way and it is bloody short-sighted. Orange flag number 1.

Perhaps we are starting to see orange flags becoming more evident, or maybe for whatever reason I am only starting to notice them. In addition to above, the staffing side of things looks to be a real concern. Correct me if I am wrong, but they acquired Airovant in 2021 – primarily to acquire the SME of the Airovant staff – but before we knew it 3/4 of the Airovant staff churned and were effectively lost within 12 months. Not a great sign, even in a tight employment market. Orange flag number 2.

@nnyck777, I missed the loss of the defence recruit – where was this recorded? If this is the case, another orange flag! That is more SME that the business is struggling to keep.

Not only do Pointerra appear to be struggling to hire the right staff, they are also having issues keeping them. This potentially points to some internal culture issues at play.

I will be very interested in the next few quarters and how the cashflow analysis looks. If costs continue to rise while the business struggles to bring in cash, I am out.

Some great commentary already. Similar to others, I think this is a cracker of an update. In terms of my investment thesis -- consistent growth over a long period of time without investing huge sums of money to chase said growth -- everything appears in order here. And similar to you @mikebrisy, my confidence continues to grow, as Pointerra does the same. 

@PinchOfSalt touched on the currency conversion tailwinds at play here. We obviously saw yesterday's 4C update provided in AUD, but when you consider ACV being reported in USD -- totalling more than $US20m -- extrapolate these payments out over the next year or two and you have some serious cash being added to Pointerra's pockets. 

But there is another key bull case argument, which has already been touched on by @mikebrisy, that deserves further highlighting: net revenue retention (NRR). A NRR of 172% YoY is insane. The investment case becomes a different proposition when customers are not only using Pointerra's software, but slowly expanding their offering over a timeframe -- whatever this may be. Your target audience expands from not only new customers, but those already using Pointerra's platform. 

To digress slightly, from all accounts, Pointerra have really hit the ground running with their recent work with FPL during Hurricane Ian. I am going to go out on a limb here and say this is one of the deals we will look back on in five years time and remark how it was company changing. Not only is the market a significant one for 3DP to enter -- think about the countries, towns and municipalities that are impacted by serious weather events, the list is exhaustive and only continues to grow -- but they are starting to enter 'mission critical' status when you are helping agencies respond to natural disasters. The capability of Pointerra3D to ingest data in real time shouldn't be underestimated. Ian mentioned in the recent chat with us that other agencies, similar to FPL, are starting to reach out and ask how 3DP can assist them. I am not surprised. That is powerful 'word of mouth' marketing that doesn't cost Pointerra a cent. But you are also starting to interact with reputable clients that have extensive budgets and a duty of care to the societies they service. Anyone here that has worked in crisis environments -- whether they be emergency response or coordination of resources -- understands the importance of mission critical software. When it genuinely helps the response to life threatening events, it becomes worth its weight in gold.

The main risk here for Pointerra -- who are still relatively small and struggle to attract high-quality sales staff -- is that they spread themselves too thin across multiple verticals/industries. It isn't uncommon to see a strategy like this overwhelm a business and ultimately backfire. With that in mind, their growth since FY20 has been nothing short of remarkable.

All in all, I am really happy with their progress and remain a happy shareholder. I am still looking to add to my holding around the 20c level and they are high up my list to increase my exposure to.

@Chagsy, can I ask why? Have you got long term concerns, or does your selling more or less pertain to the current market environment, and this not being ideal for companies like Pointerra?

I ask because my thought process is currently the polar opposite. 3DP were second on my top up list prior to today’s announcement. I think a share price of around 15c is an attractive price, noting their widening moat and the high likelihood of future cash flows being much higher than they currently are. The price activity today doesn’t make this quite as appealing (24% in the green), but we will likely have the opportunity to buy at similar levels in the near future with current market volatility.  

While a minimum of US$500k added is good news in itself, today’s announcement is all about endorsement and validation. I think it speaks volumes that the completion of (both) proof of concepts resulted in the companies – FPL and NextEra Energy, noting their relation – entering into contract/agreement with 3DP. It also speaks to 3DP’s ability to scale. While we don’t have the luxury of looking at the financials, it won’t take many of these deals to cause 3DP’s bottom line to snowball in the right direction – with presumably minimal disruption to overheads. The company note that the new agreements have ‘the potential to be material for this company’. They reported total revenue of AUD3.9m in FY21. These contracts add what was effectively 20% of last year’s revenue – a material amount. This probably speaks more to management’s ambitions than anything else and how they view the company’s potential over the course of the next few years.

December 2021 Quarter Activities and Cash Flow Report

Highlights:

• Record quarterly cash receipts from customers A$2.85m, up from 0.98m.
• Cash flow positive quarter from operations A$0.80m.
• Material contracts (between A$4.33 million and A$6.60 million) in the US energy utilities sector, in addition to new customers added
• New customers added in the AEC, Survey and Mapping, Transport and Mining, Oil and Gas sectors.

Perhaps predictably, Q2 was a great quarter for 3DP. The biggest criticism in 3DP’s journey – in my opinion – has been the delay in which it receives cash receipts. Well, they have delivered a record quarter in terms of cash receipts received and announced material wins in the US energy utilities sector (as announced 14 Dec 2021). They are trending in the right direction and its clear there remains serious demand for their services – which is benefiting their cash flow.

We also received an update re: 3DP’s ongoing collaboration with the Defence and Intelligence sector:

‘Subsequent partnerships with these agencies to lodge joint applications for rapid funding rounds via the US Federal Government’s Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs also progressed during the quarter.’

Sounds promising. They are clearly looking to generate short-term funding to create a pathway to larger, more significant contracts/utilisation of 3DP’s platform. Government discussions are never easy – they are long, with various levels of red tape to overcome – but once an agency adopts a platform, subsequent contracts are sticky, valuable and worth their weight in gold. This won’t happen overnight, but I have no reason to doubt 3DP in executing. This sector in particular is where I think the magic will happen for 3DP - and is the reason I am invested in the company. That said, the positive inroads 3DP continues to make in other sectors provides additional substance and support to my investment thesis.

DISC: HELD

Link below:

https://www.google.com/amp/s/seekingalpha.com/amp/article/4472386-pointerra-growth-on-track

This is authored by the same pair that did the recent podcast with Managing Director Ian Olsen.

Thesis remains in tact, but I'd really like to see a reduction in the time it takes 3DP to collect cash from customers.

Disc: held