I'm not going to have a chance to look at the latest results from Catapult properly until tomorrow afternoon, but at a glance these results seem very encouraging.

Presentation is here

Top line growth remains very strong, and they have even reported positive free cash flow. Hopefully, that will be the case going forward. There's some good signs operating leverage is being realised too.

The market should like this.. (hopefully!)

Catapult has today given a trading update following the end of their first quarter (their financial year ends in March)

It looks like the company is (finally!) on the cusp of being free cash flow positive. And top line growth remains strong.

They don't usually do quarterly updates, and there's not a lot of detail, but you can read the full announcement here

A very solid result from Catapult. I wont repeat all the key figures (see here for the details), and @jcmleng and others have already provided a great overview. But some key highlights include:

ACV came in pretty much on my expectations at 20.2% YoY growth. H2 was the highest growth in ACV on record.

EBITDA was -US$11m, compared to my estimate of -US$15-20m.

Positive operating cash flow, and by a decent margin, showing a 40% improvement. They remain on track for +'ve FCF in FY24. Based on H2 cash outflows, the first half of FY23 would have been +'ve, as the business has reduced fixed costs by $US3.6m.

Churn at record low of 3.8%

Margins very much moving in the right direction -- variable costs now 56% of revenues compared with 68% in previous H2. Importantly, fixed costs were 47% of revenue (58% pcp) and CAT said "the absolute cost of G&A can now support the business at scale and is expected to rise modestly"

At an inflection point, with every incremental dollar of revenue expected to generate a 30% profit margin.

Video has just <3% penetration among the Pro segment. Lots of cross sell opportunity, and this product set has the highest gross margins (90%).

Existing Pro customers increased the spend by 6.8%

Of course, while companies love to focus on EBITDA, depreciation costs are very real (about $20m per year), and NPAT was -$US30m. Still this is a story of two halves -- NPAT for H2 was -US$8.9m thanks to a US$26m improvement in fixed costs and better gross margins.

Turnaround thesis is on track.

Held.

Some quick thoughts following today's meeting with Hayden.

Will & Hayden have been on board for 3 years now, and seem acutely aware of past issues with costs and poor capital allocation integration. They have since transitioned to subscription, have clear ROI hurdles for ongoing investment, and have managed to sustain ongoing strong growth in ACV. The business maintains a solid lead on competitors and has a lot of addressable market to capture.

I've long been bullish on the opportunity, but continually disappointed by the inability of the business to become self-funding. And that remains the elephant in the room -- can they finally transition to cash flow positive and deliver decent margins, all while sustaining good top-line growth.

On that front, Hayden referred a couple of times to a 40% EBITDA margin at scale, with an attainable net margin of 17%. We also spoke to the credit facility they have in place to help them cope with the seasonality of the business, and get them to cash flow positivity in FY24 -- and that they expected to avoid any future cap raise. We'll see i suppose.

If they can, 1.7x ACV seems extremely cheap. Then again, the market has good cause to be skeptical... We've heard all this before from the prior team.

Against better judgement, perhaps, i do cut them some slack. 3 years -- during which we were hit by a global pandemic -- isn't that a long a time to try and turn around a bloated business, while still sustaining customer and sales growth. And with shares again in the 70's it just strikes me as an asymmetric bet.

Still, a few well known Buffett'isms come to mind:

• It's better to own a wonderful business at a fair price, than a fair business at a wonderful price.
• Turn arounds rarely turn.

I feel Catapult has all the ingredients for a great business, but we've yet to see good evidence that it will become one. And I'm mindful of the rationalisation i often use in these situations -- "yeah, it's got a few hairs on it, but it's more than accounted for in the price!"

For my sins, I continue to hold. Even a broken clock is right eventually, right?

Well, there's your answer @jayjayjayjay -- looks like some in the market were able to anticipate Catapult's results. Must be nice to have psychic powers! (or somehow benefit from a bit of "leakage".. disgraceful stuff)

Aaaaanyway..

It was a strong result; a record A$59.6m in revenue for the first half, up 11%.

89% of total revenue is now on a subscription basis.

ACV was up 21% on a constant currency basis to US$70m. That's the 3rd consecutive half of 20%+ growth in ACV. Strong.

Great to see ACV also growing on a per customer basis; it was up 18% in the Pro Segment. And the cross-sell initiative is working well, up 33% since September last year.

I'm just repeating the key points made in the announcement at this point -- but it is worth highlighting the 'resizing' which should see them back at positive free cash flow in FY24 (that's within 16 months from now given the March end financial year). They expect to save US$12m per year on this initiative.

Combined with a new funding facility, the company stressed that another capital raise would be avoided. Although, to be honest, I was already hoping that would be the case, but looking at the cash flow statement it looks like it would've been a closer call than i was expecting. It seems the accelerated investment in growth initiatives was more 'accelerated' than I had expected.

At the end of the latest half they have US$15m in cash and although Operating cash flow was slightly positive, a lot of cash costs are marked as investing cash flows due to the capitalisation of equipment etc, so FCF was negative US$13m. And, as @AUROPAL rightly pointed out, that's a big deterioration on the -$US2.9m in FCF in the pcp.

You can watch a management briefing here (I haven't watched yet, but will catch up on it later tonight)

Doubling this half you have a business on a P/S of 1.7 or so. One with a high degree of recurring, high gross margin revenue, and that's been growing ACV at an aggressive rate -- a pace management think they can sustain.

If they can indeed deliver sustainable FCF as they suggest, i'd expect a significant rerate. Let's see...

[held]

Hi totally hear you @PeregrineCapital

Part of the problem here has been a lot of moving of the goal posts. First it was talk of EBITDA positive, then operating cash flow positive, and now Free cash flow positive.

I mean, great, all are worthy aspirations. And I do think FCF is a better metric to focus on, especially as operating cash flow can be made to look a lot better by marking some expenditure as investing cash flows. It's certainly much better than EBITDA.

But it's understandable that investors could look at this latest announcement with some cynicism.

To be fair, covid threw a bit of a spanner in the works. And I'll also allow for the fact that it would take some time to unwind previous management's largesse (although covid would have been the perfect cover). And it's not always a bad thing to spend heavily when there's a sound strategic rational.

But to my mind if there was any fat to trim -- especially that which wouldn't impact growth, which is what they are claiming -- then why wasn't this made a priority before!? Cost management is something that should always be in focus.

Moreover, they added costs in the recent year as part of an accelerated investment in sales, product and operations. Are we to surmise that these are the same costs that are now being unwound? Or was there just loads of additional expense elsewhere?

The announcement was also a little vague in exactly what expenses and in what areas would be cut, but I assume its prosumer mainly.

Also, reading between the lines, what is it they are seeing on the business' front lines that has prompted this focus on costs? Macro conditions were mentioned, but again that's pretty vague.

Anyway, the market has welcomed the news, and I'm not going to argue against the intent. If they can sustain 20% ACV growth and pivot to FCF +'ve I dare say we'll see a re-rate. But let's see how it goes.

I maintain my position because, despite some hairs, I just think shares are cheap. (they are on something like 2x ACV)

ASX announcement here

Catapult has launched GameTracker for Ice Hockey -- which integrates all the various datasets it captures (through wearables and video). This comes only a month or so after they released this functionality for BasketBall. Amercian football is the next area this will be applied to.

These upgrades all stem from the acquisition SBG, whose tech is being rapidly incorporated into the full product stack. The idea is that this should strengthen the offering (no one else is offering this functionality yet, from what i can tell) and make the cross/up-sell more compelling (and there's a lot of potential here in my opinion).

The Hockey business is up 7x over the last 5 years -- admittedly off a low base. Although ACV from their Vector product in Hockey has doubled in the last year. It shows the broad applicability of these solutions across different sports, and given the current penetration there's still a long growth run way.

The ASX announcement can be found here

Am increasingly impressed with the new CEO. We spoke with the Chairman last December (see meetings page), but I'll see if we can line up a chat with Will Lopes.

Shares now down 25% in the 4 trading sessions since FY22 results were released. As I said at the time, there was a few factors that weren't great, but c'mon -- that's pretty harsh! Talk about an unforgiving market.

If you want a little more "colour" on the released results preso, CEO Will Lopes and CFO Hayden Stockdale talk through them here:

https://www.youtube.com/watch?v=pSePDHiyyVE

Worth watching just to see how management are pitching the story.

While it's easy (OK, very easy) to be a little jaded, there is still a pretty good story here...i think.

It is worth remembering that Will has only been on board for 2 years -- he inherited a bloated company with a poorly coordinated product set, flailing strategy and was just about to bear the full brunt of a pandemic which shut down sporting events around the globe.

They just delivered 32% ACV growth and are expecting 20-25% growth in the current year. And with most revenue now subscription based (a key goal of Wills when he took over), that ACV growth should largely translate to revenue growth. They still have <10% market penetration and are the current industry leader with deals across the biggest teams and leagues in the world (and a big x-sell potential there too, especially with a fully fledged T&C offering that has demonstrated strong growth already in ANZ). The goal of US$400m in ACV was again reiterated, which is 6-7x greater than present.

OK, costs did blow out, and you don't want to ignore that, especially given the company's history of poor cost control, but there are some genuine one-offs and non-cash items there due to the SBG acquisition, the balance sheet is very strong (US$26m), they expect to be operating CF/EBITDA positive going forward, and all growth investment is conforming to the rule of 40.

The hint of weaker margins due to higher wages, COGS and supply chain issues is probably a factor for the market too, although this isn't an issue specific to Catapult. It was good to see gross profit and contribution profit grow faster than revenue. So at least on that front some scale advantages are emerging.

So, it's not like this has no hairs on it. Still, in AUD terms, the business is sitting at around $90m of confirmed revenue for the current year. Again, that's on track to grow 20-25% in FY23, and grow to over AUD$550m worth in the coming years. Importantly, and again you need to take management at their word here, the business is self funded to achieve these goals.

On a fully diluted basis, the market says this company is worth less than $210m.

For my sins, I think the market is wrong. I'm continuing to hold.

Have been busy for most of the day, but when I skimmed Catapult's results this morning my first instinct was "the market should like this".

But, with shares ending down 10%, it seems I was way off base!

So let's dig in and see why that might be.

Of course, the company was keen to put its best foot forward. And it did have some genuine positives to report.

• The transition to a subscription model is largely complete, with subscriptions now 92% of total revenues (and 98% for the Professional Performance & Health segment)
• ACV grew 32% (double FY20) and was 51% higher in the all important Americas market.
• Average Annualised Contract Value (ACV) per customer was up 4.2%
• Customers that contribute to ACV were up 16.3%
• P&H churn remained low at 3.5%
• MatchTracker and Vector integration ahead of schedule, with Tactics and Coaching growth of 29.7% in APC during the key selling season.
• Customers with more than one solution grew 27%, showing good success with cross selling, and they expect this to accelerate with the integration of MatchTracker and Vector
• Positive operating cash flow (just, and with some caveats)
• US$26m in cash on balance sheet and growth spend fully funded.
• Strong prosumer ACV growth (but off a very small base)

Aside: The transition to SaaS always has a bit of a drag on revenue, as revenue that was previous booked upfront is now recognised over a much longer period. The advantage is that it provides for smoother and more consistent cash flow and revenue, and (ideally) makes for an easier purchase decision by the customer as it's a smaller ongoing cost, rather than a large one off cost. It transitions expenditure from Capex to Opex. Now that this transition is behind them, growth in revenue should more closely match growth in ACV.

The best part of Catapult has (to my mind) always been the Pro P&H segment, and here we saw 32% ACV growth and they have still only captured <10% of the available market opportunity. I've said it before, but i wish they had remained focused purely on this instead of trying to expand into too many other areas, too quickly.

At any rate, they did what they did, and while that has seen higher costs and investment spend, they do have (finally, i hope) a market ready product in Tactics & Coaching (T&C) and a solid P&H customer base from which to cross-sell from.

Indeed, the T&C segment has a large addressable market for which they have only captured less than 2.5%. The customer spend here is higher than for P&H and enjoys 90% gross margins and even lower churn (1.5%). The APAC region was the only market in which the newly integrated product was able to be sold (due to the different sales cycles in different geographies), and here T&C ACV was almost 30% higher, compared to just 7.2% and 3% in the Americas and EMEA, respectively. It bodes well for future growth when they start to present this to the northern hemisphere markets.

The company is targeting long-term ACV of >US$400m, compared to US$63.9 at present.

If we just take expanded penetration of P&H, T&C and increased customer spend, that takes us to just shy of US$300m. The rest is inorganic (acquisitions) and prosumer -- and i'm not really keen to put much weight on that. Still, it's a decent uplift if it can be achieved.

Ok, so all of that seems pretty good. Catapult is now a more pure play subscription business with a fully fledged market ready product set and very strong ACV growth with a very large market opportunity still ahead -- and they remain the largest player in this space.

And you get exposure to all of this for 2.6x ACV or 2.2x revenue. That just doesn't seem demanding at all -- especially with the company guiding for FY23 ACV growth of 20-25%. AND, management said they were fully funded to achieve growth ambitions (ie. no more capital raises)

So, what's the market worried about?

Well, mainly, the company is still not profitable. When they hell are we going to see some scale advantages start to emerge? Surely not for a while if they keep increasing the expenses -- in fact, we saw cost increases across sales, product and operations. I'm all for spending money with a good ROI, but c'mon guys! I think we've been patient, but when are we going to see the results? Show me the money!!

The NPAT was negative US$32m

EBITDA negative US$5.8m, even on an underlying basis

Positive operating cash seems largely a result of shifting a lot of expense to the investing section (capitalised development COGS costs). Free Cash Flow was negative US$17.9m

I do think the new CEO is far more targeted in the investment spend, but I was hoping to see even more restraint. Especially in this new market environment which is far less tolerant of cash burning operations.

So i do get the market's reaction now that I've had a chance to dig into the details. But, call me an optimists, the potential here remains very attractive:

Catapult is a market leader in a large and resilient industry undergoing structural change (digitisation). There is genuine sales traction, and that's growing at very strong rates. The revenue is very sticky and with attractive gross margins. It is also, apparently, well funded and on track to achieve its ambitions without the further help of shareholders.

Sadly, until they achieve sustainable free cash flow, while still maintaining growth, the market is likely to remain sceptical. And fair enough.

If it wasn't for the very solid ACV growth, and expectations for that to continue, I'd be out of here. But, for better or worse, i'm prepared to stay put for now. I think it's called the endowment effect...

Heard a report on ABC AM this morning about the data collected from athletes, and the concerns over privacy of player data (eg how it could be used by betting agencies).

https://www.abc.net.au/radio/programs/am/first-time-voters-weigh-election-choice/13830338 (start at 16:07)

What caught my ear, however, was the claim that this data doesn't actually deliver on its claims to "reduce injury and improve performance"

I managed to track down the discussion paper referenced in the story, which can be found here. It's a long read, and the focus is really on the privacy angle. It doesn't elaborate too much on the effectiveness of this data -- and where it does it seems to be on specific metrics.

I don't see this as a thesis buster, and my thinking is that at the elite level clubs will go for anything even if there's a small chance of providing an edge. But I wanted to share in case others have a different perspective.

Catapult today announced it had signed the German Football Association (DFB-Akadamie) as a new customer, with a multi-year, multi-solution contract.

It covers all 15 teams across womens and mens national teams for the video solution, and for 10 teams with the wearable product.

No financials given, and the announcement wasn't marked as price sensitive, so likely not material in and of itself. But hopefully acts as a useful reference customer given the German FA is one of the more significant sports federations globally.

ASX announcement here

The market is hard to please.

You can see all the detail in the latest presentation, but at a high level ACV -- a leading indicator of subscription revenue -- grew 43%, or 30% if you strip out the SBG acquisition. Subscription revenue growth was 29% and churn dropped to just 4.1%. And, importantly, they seem to be having good success with cross selling their various solutions to existing customers; customers with more than one solution grew ~50%.

The business was free cash flow negative for the half, as it doubled its spend on R&D, and it didn't offer any FY guidance. Revenue grew only 13%, and remains below where it was in H120 (normalised for the change in accounting periods and SBG acquisition), and the statutory loss widened from 4m to 10m.

However, the ongoing switch to a subscription model (which is getting closer to complete), was always going to limit top line growth during the transition. Once complete, you'll have a business with better economics and a closer match between ACV growth and revenue growth. And given the market opportunity, the increased cost base (largely employees and marketing) is not unwarranted.

The business remains very well funded with essentially no debt and US$42m in cash, and has positive operating cash flows.

While there's a few hairs on this one (eg the ongoing statutory losses, poor historic cost discipline, and a past reliance on fresh capital from shareholders), you have a genuine market leader in a fast growing space whose underlying subscription sales are growing a solid double digit rates -- and all for ~3x sales.

Should the underlying trend in core metrics continue, it seems there will eventually be a re-rate from the market (eg a P/S of 5 isnt difficult to imagine given what many tech themed stocks trade at). Who knows when this will happen, and perhaps the business will fail to execute to plan, but the risk reward just seems attractive to me -- more so after today's fall!

I'm probably missing something, so would really welcome the bear case.

Catapult has announced its entry into the eSports market with a partnership with NASDAQ listed Motorsports games (NASDAQ:MSGM). (see here)

There's no doubt that eSports is an exciting space, and Catapult was keen to emphasise the size and growth of the sector. And given the data they collect, it makes perfect sense for them to move into this domain.

But..

There were no details on the nature of the multi-year subscription agreement (although we can assume it's not material in and of itself, as it wasn't marked as a market sensitive announcement).

Moreover, I'm not sure Motorsports Games is that impressive a customer. Their latest instalment of their Nascar series looks to have bombed:

Reading through the reviews, it's pretty brutal stuff.

That being said, NASCAR 4 & 5 have much better reviews, and it's also probably fair to say that these titles are more aimed at the very serious end of the market, and not casual gamers (you need a steering controller to play these games).

Looking at MSGM's track record, shares are down ~70% since listing and the latest quarterly result isn't great (although they claim this is due to the timing for some of their releases). In the last 9 months, they made US$120k from eSports segment, down from US$290 in the previous corresponding 9 month period. Again, there are timing factors at play in relation to when events were held, but they are clearly a very small player in this space.

I'll be keen to ask management more about this at our upcoming December meeting.

Anyway, like I said, this is a logical area to move into and a great way to gain extra value from the data they collect. I'd just like to better understand the nature of these deals, what development and operational costs are needed to support this foray, and whether or not they are partnering with organisations that have any strong presence in the eSports market.

Catapult has signed a multi-year deal with Roush Fenway Racing to use its recently acquired Racewatch solution.

No financials given, and in and of itself the deal is likely not likely material in the overall scheme of things -- but it's an encourage first step into a large and (hopefully lucrative) new vertical.

Roush Fenway Racing is a major player in NASCAR and should serve as a potent reference client for future sales.

Doesn't change the thesis for me, but good to see some movements on this front after their acquisition of SBG Sports a few months back.

Shake 'n Bake ;)

Catapult has seen a 43% jump in Annualised Contract Value (ACV) from a year ago, with churn dropping back to a near record low of 4.1%. That's a US$17.6m increase over the last 12m to US$58.8m (about $79m AUD).

Part of this was due to the recent SBG acquisition, but excluding this the business still saw a very healthy 30% boost in ACV, largely from its Performance & Health segment.

Importantly, multi-solution customers grew 49% year on year -- and i think there's a lot of opportunity remaining here. Also good to see the balance sheet in a strong position with the company having US$42m in cash at the bank (that's about 10% of the company's market cap).

We'll get the full first half results on November 17, and the company is holding an investor day on Nov 9 (you can pre-register here)

With shares on ~5.5x ACV, and given the accelerating pace of growth, i still see shares as good value. 

ASX announcement here

Catapult has signed a new multi-year deal with the NBL's Brisbane Bullets.

In and of itself it's not material, but noteworthy in that this is the first time the group's new Focus and Hub video products (derived from the SBG acquisition) have been provided to a Basketball team, the 5th sport the tech has now been applied to.

Also, it comes 3 months after the acquisition of SBG and a year ahead of management expectations.

Each new sporting verticle significantly broadens the market opportunity, and Basketball is a big market. The new offering also gives new entry points for Catapult to secure deals and then upsell additional solutions.

Good news, but will be good to see some bigger, more prominant customers take up the solution.

Just when you thought there'd be no more capital raisings...

Catapult is looking to raise about $40 million to fund the acquisition of SBG Sports Software -- a London based company that was originally focused on Formula 1 racing, but has since branched into other sports such as soccer and rugby. Their software aggregates multiple sources of video, audio, and telemetry data, and then displays that on a dashboard for analysis.

Catapult will spend $40-45m on the acquisition; $20m in cash, $20m in shares at a $2.15 issue price (granted in instalements over a 12 month period from the first anniversary of the acqusition), and there will also be a $5m earn out if various KPIs are met by FY23 & FY24.

The capital raise comprises a $35m underwritten institutional placement at $1.90 (a 13% discount to the last traded price), as well as a $5m non-undewrwritten share purchase plan for existing shareholders. Two of the directors will also subscribe for $1.35m worth of shares under the same terms.

It's a fairly sizeable transaction, representing about 10% of the current market cap of Catapult. The rationale is that it will bring forward their development of video capabilities by around 2 years, expands the total addressable market (most notably with motorsports), adds 20 new marquee clients from the top 100 soccer and rugby teams (including Manchester city and Tottenham Hotspur), and should boost Annualised Contract value by 28% in FY21.

Funds raised will also be used to accelerate R&D and sales capabilities. So the cost base will again rise further, potentially as much as $25m in the coming years.

There's a briefing at 10:30am Sydney time today, and you can register here if you want to attend.

My initial thoughts are that the company is again at risk of expanding beyond its highly profitable core -- something that hasnt (so far) delivered much value. Especially given the added costs.

Then again, the new CEO Will Lopes seems to be quite savvy and has managed to re-focus the business in recent times. The global market for elite sports analytics is massive and fast growing, and this acquisition has the potential to entrench Catapult as the clear global leader, with a significantly enhanced offering. It also gets rid of an up and coming competitor.

It all depends on how well the acquisition is integrated and what growth it manages to unlock. I'll see what they say in the briefing.

You can read more here

Catapult looks to have finally turned a corner, despite the disruption of covid.

Others have outlined the metrics, and you can dig into more detail in the company's presentation. But for me the standouts include:

- Strong ACV growth, with good potential in the US market

- 16.7% Increase in multi-solution customers (there's a good way to run here)

- Improved margins and ongoing cost discipline

- Second consecutive year of positive free cash flow

- Strong balance sheet

- Continuing success in transition to (higher margin) subscription model

- Prosumer holding up despite pullback in marketing

- Growth in the final quarter is a strong leading indicator post covid

As capital sales effects continue to tail off, I think the company can return to attractive top-line growth -- likely 15-20% in the medium term. For a business on the cusp of profitability, no longer burning cash, with the potential to reap attractive scale benefits, a market leading position and a long growth runway, the current price to sales of 4.6 seems cheap in the context to other SaaS oriented businesses.

It's been a wild ride, but continue to hold and see value.

The announcement of a new independent director isn't usually a factor for me, but Catapult's latest appointment seems noteworthy.

Tom Bogan (linkedIn profile here) will join Catapult's board from tomorrow. He's got an impressive CV, acting as the current vice-Chairman of Workday, former CEO of Adaptive Insights and former partner at Greylock. All of these are huge success stories in the US.

Given Catapult's North American focus and opportunity, it's great to be able to tap into that experience and no doubt a valuable network. In fact, he's heading up a new SaaS Scaling Committee specifically created for this purpose.

I don't want to oversell it -- i'm not changing my valuation or anything -- but I do think this is quite encouraging. Someone like that virtually has their pick of board spots, so to pick a relatively tiny Aussie company suggests he sees big potential (Workday does 40x CAT's revenues).

If Catapult can continue to show cost restraint and a rebound from the covid-induced slump, I suspect it will be due for a re-rate by the market.

FY21 will be a rather ordinary year given the weak first half and the lingering covid situation in the US, but i'll be pleased so long as there's some good indications the sales trajectory is returning to a 15-20% range. If not, it'll prompt a rethink.

ASX announcement here

Catapult's half year results for FY21 were hit pretty hard by the covid-induced slowdown in proffessional sports.

Revenue was off 8%, as teams slashed budgets, but also as the business continued to switch away from capital sales.

Net profit took a big hit dropping 39% due the operating leverage of the business and an increase in corporate overheads (it was flat on an "underlying" basis)

Catapult has really failed to deliver the kind of results the faithful (like me) have hoped for -- at least so far.

Inspite of this, there are still a few reasons to remain hopeful.

Covid was a genuine and massive hit to the industry, particularly in their largest segment (USA). Although that impacted the business, churn was reduced over the period (4.5%, a record level), and ACV grew 8%.

In fact, there was 14% subscription growth in the key 'Performance & Health' segment. 78% of revenue is now recurring in nature, and there was a 19% increase in the number of clients using 2 or more solutions. 

Importantly, the business delivered $8.8m in free cash flow, and has over $24m in cash. It remains very well funded.

I think the business showed itself to be rather resilient given the trading environment.

As sports return to normal, it seems likely that Catapult will remain sustainably cash generative, and soon start to post statutory profit. I remain convinced that the business will be bigger and better in 5 years.

Estimating growth is the hard part, but will update my thoughts in my valuation.

But if the business can return to top line growth of 10-15%pa in the next few years, and if it can transition to profitability, then i think it could get a meaningful re-rate by the market.

If it falls short, shares could easily drop lower in the coming years, but my view is that the downside is less than the upside, given the low multiple CAT currently trades at. ie. the market is not pricing in much growth anyway.

disc: held

Catapult announced two new partnerships today; one with PUSH (tech for gym training sessions) and Pro Quick Draw (an online playbook for American football coaches).

The exact nature of the partnerships wasn't disclosed, although it looks as though at the very least it should offer some new sales channels. It seems likely that Catapult would also earn a commission on any partner product sales.

More importantly, to my mind, it helps strengthen the customer value proposition, which should be useful for retention, sales and the network effect over time. Especially as these partnerships lead to better integration of these products.

This is not a material announcement in regard to near term financials, and my valuation remains unchanged.

Some of the legacy issues with Catapult seem still weigh on investor sentiment, but I feel the new team is making all the right moves.

Relative to other tech stocks, Catapult is trading on a very undemanding valuation at 3.6x sales. (eg NEA is also a business that has variable costs -- not near 100% gross margins like a pure-play software company -- and is also growing at similar rates, has a P/S of ~10x)

It's free cash flow positive, well capitalised and growing its ARR at 17%pa over recent years. It still has a long way to run and I think also some latent pricing power. It's the dominant player in a large and fast growing industry, where network effects play an important role.

disc: held

Catapult has been appointed the preferred tech supplier for the French National Rugby Leagure (LNR) team.

The extensive tender process began in 2019 and began with a view to optimise performance ahead of the 2023 World Cup.

No financials were provided, and the announcement was not marked as market sensitive, so this is not a material deal in and of itself.

However, it is encouraging to see Catapult win this deal after such a lengthy and detailed tender process, and that it involves the full suite of technology.

Announcement here. 

[Disc. held]

This was a really good result for Catapult. It gives me further encouragement that the business has indeed (finally) turned a corner, and that the new CEO is on the right path.

• Subscription revenue up 21%
• EBITDA up 225% (from $4.1m to $13.3m, and ahead of expectations for $11.5-12.5m)
• Free cash flow positive, $9 million
• 39% growth in multi-solution customer numbers
• Cash on hand of $39.8m (as of 14 August)

Capital sales were down 27% as the peak US sales season was impacted by covid, and as the grouop continues to shift customers to a subscription model. As a result, Revenue was only 6% higher. The company expects a good deal of sales that were deferred in Q4 to be recorded in the current first quarter.

Also, applying D&A, the company still reported a statutory loss of $7.7m.

Looking ahead, the company expects to increase R&D and also some cost reductions acheived in response to COVID will be wound back. The business still expects to generate free cash flow in the current year.

(note, they are moving to a March year end and will report future results in USD to reflect their geographic exposure and better align with sales cycles).

There's a bit of detail to explore, read the results presentation here.

Catapult has been awarded its largest ever capital deal, providing 16 sports acadamies and teams under Hungray's BKMS Sports with video and wearables services. 

The announcement was not marked as market sensitive, and no financial details were provided, so it's unlikely this deal will be material in and of itself. Though it is encouraging that the company has secured a record contract win in the current environment.

ASX announcement here

A small but noteworthy thing: Catapult is changing its financial year end to 31 March and results will be presented in USD.

The main reason is because the current June 30 year end conflicts with the peak Norther Hemisphere selling season, which runs May to August and accounts for 85% of sales. Also, 70% of earnings are in US dollars.

The FY21 will therefore run for only 9 months.

Makes sense to me.

ASX announcement here

Catapult is expecting the following for  FY2020:

Total revenue between $100-$101 million, up 5.3% from $95.4m in FY19.

EBITDA of $11.5-12.5m, up 192% from $4.1m last year.

$9m in free cash for FY2020; a big turnaround from the $24m loss last year and achieving a positive result a year earlier than expected.

Cash balance is $27.5m.

CEO Will Lopez said the professional sports landscape had improved since the last update on March 27, and that the business had continued to win new deals and retain customers during the lockdowns. However, this disruption has delayed things and many of the sales that would have been made in the last quarter are now expected to be delivered in the FY21 year.

With cost reductions already in focus, it seems covid allowed the business to cut costs faster and deeper than originally planned. There was always a nicely profitable business inside of catapult, so it's great to see that being unearthed (seemingly) without much of an impact on sales growth.

Speaking of which, 5%-odd top line growth would normally be a very disappointing result, but in the context of a raging pandemic -- one that had a direct and significant financial impact on its customers -- it could have been a lot worse.

As you can see in the chart below, sales are always much stronger on the second half (with sales typically dropping a bit from one year's second half, to the following year's first half). In this instance H2, sales were the same as H1 and down 5% from H2 2019. Normalising FY20 second half result using the H2 19's growth, sales would have come in 12% higher at $112m.

Given things will be tough for the foreseeable future, I'd be happy enough if they could score 10% sales growth for FY21, before returning to 15-20% odd growth (on average) over the coming 5-6 years.

Based on last close of $1.27, shares are trading at an EV/EBITDA ratio of 18. Assuming they can recover to near pre-covid sales growth in the coming years, and maintain cost discipline, that seems very undemanding.

Full results will be out late August.

Read ful announcement here

Catapult announced that it is unwinding its costs savings measures (reduced salaries and furlough leave) as the impact of the coronavirus has been less than expected.

This announcement was not marked as market sensitive, and no specifics were provided, but I take it as a positive that the company feels such mitigation is no longer necessary (especially with so much business in North America).

I'm not reading into this too much, but felt it was noteworthy.

See here

Catapult has provided an update relating to the impact Coronavirus is having on its business.

Catapult reiterated its strong cash position, which combined with a recent drawdown of $5m in debt from its existing facilities, gives it ~$30m in cash.

It is working to manage costs and manage working capital (although, no mangement or directors have taken a pay cut -- unlike other pre-profit companies. Seems like that would be the classy thing to do).

The company is "comfortable" its ability to reach cash flow positive has not been materially impacted, and has reiterated guidance for that milestone to be reached by FY21.

Customers continue to use and purchase their products, but purchasing decisions are likely to be deferred, and that Q4 new sales growth is likely to be negatively impacted.

75% of revenues are are based on long-term subscription payments.

The business will benefit from a weakening Aussie dollar. (looking seperately at the FY19 annual report, a 10% fall in the AUD would have boosted profit by ~$3.5m)

CEO Will Lopes said that the group is well placed to navigate the crisis and the strong cash position will strengthen their competive position long-term.

Full announcement here  

Catapult shares are down 65% since the start of the bear market -- around double that of the wider market. 

I think the business will struggle to make ANY sales for the rest of the year, and will be a slow pick up after that. The various leagues they service are all winding back, some entirely. In many cases, player pay is under review.

Catapult's customers are more sensitive to the impacts of this virus than I had first imagined. Initially, my expectation was that elite sports would continue, just without crowds and for broadcast only. But with entire seasons being suspended, this was a flawed assumption. 

The business was EBITDA and FCF positive in the latest half, and was on track for its first full year of positive cash flow, but they could linger in the red a while longer with this big halt to new sales.

That being said, the company has $25m in cash and no debt. That should keep them afloat until some form of normalcy returns for their customers. They also had $68m in recurring revenue, and though churn will almost certainly rise, it gives some comfort that there will be a base of operational cash flows coming in.

After Catapults first half results, i was assuming it could get $112m in revenues this year. That now looks unlikely.

If we assume that professional sport will be up and running again in another year or so, but allow for a big dip in sales and a slower growth rate from a lower base, we could say (for the sake of argument) that Catapult only reaches $112m in revenue and profitability in 3 years time. If we give the company a P/S of only 2, we get a target price of $1.14, which is 75c (the current market price) if we discount back at an aggressive 15% per annum.

In other words, assuming catapult can endure a large but ultimately temporary drop in new sales, you can sketch out a case for value using very low-ball assumptions. 

But maybe those assumptions, as unambitious as they may seem, are not reasonable?

I'll continue to watch closely

A good result for the 6 months ending Dec 31, 2019.

Revenue grew 18% to 50.7m, while the net loss essentially halved to -$4.8m.

Catapult recorded a positive EBITDA of $5.7m compared to a loss of -$1.4m in the prior first half. (They did get a bit of a boost from the adoption of AASB16. On a like for like basis, EBITDA came in at $4.7m)

Importantly, Catapult saw positive free cash flow of $13.6m, which has boosted cash to $24.7m. There's some seasonality here, but the company reaffirmed its expectations to sustainably generate positive FCF by FY21, and it seems unlikely it will need to raise cash again. 

Cross-sell initiatives seem to be doing well, with the number of customers with more than one Catapult product rising 66%. Overall customer numbers grew 19%.

The major North American segment saw growth of 21% in revenue -- it now represents 70% of the total. EMEA grew 15.5% and APAC grew 10%.

ARR grew 20% to $68.8m. 

Perhaps best of all, operating costs declined by 4%. (poor cost discipline in prior periods under previous mamangement was always a big concern).

Churn decreased from 5.2% in FY19 to 4.8% at the half.

Also encouraging to see the previously striggling Prosumer segment improve its loss from -$3.6m to just -$0.4m. Revenue growth was 9%, with reduced costs and marketing spend driving the bottom line improvement. 

Results presentation can be viewed here

Competitor StatSports steals contract for Brazil Football confederation, ahead of world cup.

Suggests that Catapult offering not as sticky as first thought, and not as superior to competition.

See here 

CFO has resigned just one year into the job. Supposedly to "pursue other opportunities". The previous CEO also only after one year, and for the same reason.

Not a good look. Market's reaction (down 10% at time of writing) is understandable.

Catapult has also created 2 new senior positions, further inflating the employee cost base at a time when they are striving for improved profitability.

Announcement here

Half year results released today pretty much in line with the preliminary results released a few weeks back. Although Elite Core EBITDA came in at $3.6m as opoosed to guidance of $3.5m.

Management were emphasising what they see as the competitive advantage of owning the full stack -- wearables, video and AMS (athlete management system). They also stress the large upsell opportunity, with 93% of clients having only one product.

The focus remains very much on the core elite business, which is already delivering positive free cash flow ($4m in the half).

Churn reduced significantly, from 8.4% a year ago to 3.5% in elite wearables.

Gross margins reduced from 78% to 75% due to changes in product mix (I assume increased contribution from Video). In fact, Video gaining traction, with ARR there up 18% and revenue growth of 22%.

I was hoping that Prosumer would be killed off entirely, but it looks like they are continuing, albeit with $3m in cash cost reductions in FY19, and further reductions in the following year.

Reaffirmed the expected skew of earnings to the second half and FY guidance of 20% growth in ARR, 37-63% growth in underlying core EBITDA and 17-20% growth in elite core revenue. 

Reiterated the expectation to be cash flow positive at the group level by 2021, and indeed management said they were examining the possibility of achieving this milestone sooner. Hopefully, they have gotten the message that they need to significantly improve their cost discipline.

Results presentation here

A decent result in line with guidance and no nasty surprises.

Revenue rose by 24% to $95.4 million, maintaining the solid pace of growth from last year. Further, annualised recurring revenue (ARR) saw the same percentage increase, growing to $66.1 million. Two thirds of all revenue growth came from an increase in recurring revenue.

Importantly, Catapult delivered on its promise to post a positive operating profit (EBITDA), which saw a $6 million improvement to come in at $4.1 million. Total operating costs continued to increase -- an area that has frustrated many investors in the past -- although the increase here seems more modest than in the past. All told, OPEX was 9% higher driven mostly by an investment in growth and product.

Catapult is, however, still a loss making entity on a statutory basis with post tax profit of $12.6 million, although that is down from the $17.4 million loss in FY18. Further, operating cash flows remain in the red with the business losing $2.2 million in cash over the last financial year.

All told, accounting for investment cash flows, the business has reduced it's cash balance by approximately $20 million over FY19 but has $21.5 million of cash in hand as of last week.

Catapult reiterated it's goal of achieving positive free cash flow by FY2021 saying it "is focused on bringing forward positive free cash flow with executives aligned with this goal".

More detail here

Catapult has announced a number of new wins in the North American Market.

The company won a league wide deal with Major League Rugby (MLR) in the US, which has 12 teams.

Additionally, it secured a number of high-profile clients including the Cleveland Indians and Los Angeles FC.

As this announcement wasn't marked as market sensitive, they likely don't materially change the outlook previously provided.

Announcement here

Catapult has announced a new league-wide deal with the premier Columbian footlball association, Dimayor.

All 36 teams will implement Catapult with both wearbale and video analytic products (it already provides some products to 10 teams).

Catapult CEO Will Lopes said the deal was one of the biggest in the company's history (in terms of the volume of wearbale devices). He was however most encouraged by the adoption of Catapult Vision (the video analysis product).

In itself, this isnt massively material (the announcement wasnt even marked as market sensitive). But certainly a good win and evidence of increasing traction in the Latin American market.

I remain cautiously optimistic that Catapult is past the worst of its earlier issues. They have a legitimate lead in this large and fast growing market, and hopefully the can continue to grow with better execution and cost management.

If the market can be convinced of this, there's still a lot of good upside for the long term investor.

ASX announcement is here 

June 5, 2019

AFR is reporting that Private Equity were taking a look at Catapult when it was under $1.

"Rewind a couple of months, and cashed up private equity firms were crawling all over the $250 million listed Catapult.

Excited investment bankers were running around town offering introductions to the company's founders - and suggesting their stake could be a strategic foothold for a bigger takeover play."

Not really a lot of substance, only that the business is likely to stay on PE's radar, and that it's all about price. Certainly encouraging that they all saw value in the business. 

I havent yet raised my valuation despite a very strong recovery -- waiting to see some hard numbers when they next report...

AFR article here

Catapult released its first half results through to the end of Dec 2018.

It was a bit of a mixed bag. 

First, the core Elite Wearables business (which exlcudes 'Prosumer') continues to post strong growth. Revenue here was up 23% in constant currency to over $40m, putting the business on track to meet previous guidance of 17-20% FY growth.

Operating profit (EBITDA, and excluding analytics investment) was $3.5m, compared to a flat result in the previous cirresponding period. The swing past the break-even inflection point should see strong growth in this metric for the second half, which is perhaps why management remain confident on delievring on FY guidance for $11-13m. Something to watch.

As for Annual recurring revenue (ARR), it was 22% higher and above the FY target of 20% growth.

PlayerTek and Elite Video also reported high growth, up 34% and 13% in constant currency terms, respectively.

Additionally, the churn rate dropped from 8.4% to 3.5%, and Catapult's average revenue per unit saw a modest improvement. 

Crucially, and core to my thesis, this core part of the business continues to post very encouraging results and is on track to deliver more of the same for the remainder of the year. 

This, however, is being masked at a group level by a big investment in Prosumer. Here, Catapult revealed a 114% lift in unit sales and a doubling of revenue to $2.7m. Although that's a big increase, the business was previously guiding for a 3.5-4x gain in unit sales for the full year -- and management now admit that target is unlikely.

Interestingly, the company said it was revising its investment in Prosumer, and expects to spend $3m less in FY19 than previously stated. Given shareholder pressure, I wouldnt be surprised if they very much back away from this foray -- and if so, that could be a really good thing.

Not only will it remove a costly distraction for management, but it will minimise the financial drag this segment represents to the core wearables segment. We'll get more details in late February.

Catapult remains in a strong financial position with over $27m in cash. 

Full announcement is here

Morgans has raised its taregt price for Catapult from $1.72 to $2.19.

It has cited the renewal of the Australian Rugby Union contract, and other recent contract wins and increased conviction that Catapult will be self-sustaining by the next financial year.

It is forecasting an ~18% lift in sales for FY20 to $112.5m and an EBITDA of $15m. It expects Catapult to record a net profit in FY21 of $4.17m

Shares in Catapult have been on a steady decline since they hit their all-time peak of $4.29 back in 2016. That price was always crazy. And you still have to have very strong growth expectations to justify a price above $2. But I think the market has now swung too far the other way.

A quick recap.

At its peak, wearable unit volumes were growing very quickly and the business was fast approaching an inflection point, where surging sales would multiple to even stronger profit growth as the company passed breakeven.

But the business then made some big acquisitions in XOS (video analytics) and PlayerTek ("prosumer" wearables), raising a bunch of cash at $2.70. (It then raised more at $2 in 2017, and then at $1.10 at the start of this year.)

These acquisitions, particularly XOS, gave a step change to company revenues, but XOS has not grown since and -- importantly -- Catapult has significantly increased costs as it ramped up new product development and sales resources. This has deferred breakeven longer than what the market was hoping for, and with no evidence that these investments will bear a decent return, the market seems to be losing patience.

And I really get that. I would have preferred the business remain focused on the core wearables offering. There’s a real risk it’s trying to do too much at once, and these new investments could indeed fail.

But to my mind it's still too early to describe the investments in Video, AMS and Prosumer as failed. Although things may not be developing as quickly as hoped, these new offerings still offer serious potential and the strategic rationale for pursuing them are sound. We'll only start to get a sense of how successful these initiatives are over the current year, but to me the potential remains as good as it ever did. 

Importantly, the core wearables division continues to surge ahead and there remains plenty of growth potential.

This emerging industry is growing extremely fast. Although Catapult may not end up owning this space, it's a hell of a long-term tailwind to have at your back.

In the short term, shares could easily fall lower. If Catapult doesn't post a positive underlying operating profit for FY18 when it reports next month, if second half growth is slower than expected, if Prosumer sales are underwhelming, or if cash burn increases, the market will likely be unforgiving.

But so long as the longer term growth potential remains on track, I'm a buyer at current levels.

Catapult has finally appointed a new CEO -- Mr Will Lopes -- who will commence on the 11th of November.

Mr Lopes was formerly the Chief Revenue Officer for Audible (An amazon subsidiary). His CV certainly seems impressive, and he appears well credentialed to run a US focused tech business.

With a base salary of US$430k (or ~AUD$640) and US$350k in short term incentives, he's not cheap (!) especially for an (as yet) unprofitable company. Of course, a good CEO can make all the difference, but time will tell wether Mr Lopes is worth the cost.

Read full announcement here 

EDIT: just found out why Mr Lopes departed Audible -- he resigned in the wake of an harrasment probe. According to the story, "it's unclear whether the resignations are related to that review". Story here

The company risks scaling poorly -- so far costs have risen as fast as revenues, so although the company's sales have been growing at a huge pace, there's been little to show for it from a shareholder perspective. There is a risk that that trend could continue as they focus on building out their producet offering (eg AMS, tactical analytics, Prosumer offerings).