Nearmap's board has endorsed the $2.10 all cash bid from US private equity firm Thoma Bravo.

That values the company at just over AUD$1 billion, which is over 7x FY22 sales.

Given the certainty of the all-cash nature of the bid, the relatively high multiple paid, and some of the uncertainty facing the business, it does seem like a compelling offer. A bird in the hand..etc

ASX announcement here

Others more experienced with takeovers could correct me here, but I don't think I've seen this before.

From Nearmap's announcement today:

In other words, A US Private Equity frim knocks on the door and says they're interested in buying the business. They get access to the books in a non-exclusive agreement on July 6 and spent a month pouring through all the detail. Eventually, they reach a point where they lob a $2.10 bid which, it's important to stress, is non-binding and indicative (i.e. they can walk at any stage).

They now have 7 days of exclusive access. I guess there are still things they want to look at before committing to the deal, and don't want others to come in during this period and gazump them -- which is fair enough i guess -- but why is it on Nearmap to compensate them to the tune of $3m if they decide not to go ahead with the deal?

Maybe I'm missing something, and I realise this is one of the least important aspects of today's announcement. It just strikes me as unusual, and very generous to the suitor.

Nearmap's preliminary results show a beat on their recently upgraded guidance. 

In early May they raised Annualised Contract Value guidance from $120-128m to $128-132m. Today they said ACV should come in at $133.8m (in constant currency terms) for FY21, a 26% increase on FY20 (or 20% accounting for FX movements). This is all about good sales momentum from new and existing clients.

The US was again the biggest contributor, with ACV up 54% and now representing about 46% of total ACV.

The balance sheet also remains strong (they did a capital raise not too long ago), with $123.4m in cash.

Development of the next generation capture system appears to be going well too, with the HyperCamera 3 tested in flight and patents filed. It remains on track for relase in FY22.

It also briefly touched on its pending legal challenge in regard to accusations of patent infringement from competitor EagleView, saying it had engaged "globally recognised patent litigators" and would defend itself vigorously.

FY21 results will be out on August 18

Disc. I no longer hold (either on Strawman or real life), having sold out just before the short seller report was released -- pure luck in terms of timing. Largely that was on some valuation concerns, and a lack of conviction on the competitive landscape. There's some accounting treatments that are less than ideal too, such as a lot of capitalisation of costs.

I'd be prepared to buy back if there's a positive resolution of the legal case, sales momentum continues and I get a better price

Claude Walker's take on Nearmap's results here

I tend to agree with most of this.

When looking at the bear arguments, the issue of outright accounting fraud isn't one i give a high probability to. So i'm going to assume the reported numbers are accurate.

Bear's say NEA is guilty of capitalising way too much capture and development costs to the balance sheet, and being pretty optimistic with amortisation rates. That was definitely true at one stage.

But after agitation from shareholders this policy has been greatly improved. Although, I admit that it could still be a lot better.

Practically, i think it just means that it's sensible to heavily discount the true value of intangibles on the balance sheet, and to increase the true operating costs of the business when making an assement. And given the reported growth and increasing margins, these costs are more comfortable.

Overall, I thought the response to the short attack was reasonable.

At a point, unless you have real first-hand experience with NEA's offering and that of its competitors, it's a bit of 'he said, she said' in terms of product strength and market fit.

But the very decent rate of ACV growth, especially in North America, certainly offers a lot of solace.

I tend to remain favourably disposed towards Nearmap, but as you'll see on my valuation I dont think it's any great bargain.

Nearmap is a leading player in a fast growing industry, with some meaningful competitive advantages in historic data sets, capture efficiency and analytics.

Revenue has been growing at ~27% in recent years, aided by a successful push into the US market. And there's a long way to run here.

That being said, the business is still loss making having ramped up costs to accelerate growth. Something that has taken another step change with a recent capital raise.

Personally, I think they capitalise too many costs (although have recently accelerated the amortisation of capture costs from 5 to 2 years), and think investors are better off focusing on NPAT as opposed to EBITDA.

Nevertheless, the business is now very well capitalised (will have >$100m post raise) and has an attractive model. Provided NEA can eventually stablisise costs and unlock some operating leverage, while maintaining strong top line growth, i think there's a good long term opportunity here -- although i'd hardly call shares cheap. 

Nearmap is raising $70m through an institutional raise, and up to a further $20m through a shareholder purchase plan (SPP).

This will involve the issue of at least 26m new shares, or 33m if the SPP is fully subscribed. That's a ~7% increase to the total share count.

The reason is to "accelerate growth opportunities" which basically means increased Sales & Marketing (especially in North America) and development costs. With a minimum of $105m in cash post-raise, NEA also said the raise will give them a lot of strategic "opportunities in a dynamic market", which I assume means potential acquisitions.

It's worth noting that Nearmap capitalises a lot of development and capture costs, and last year reported negative $37m in free cash flow. That's a deterioration from the previous year due to a 47% lift in operating expenses. So although it wasnt highlighted in the announcement, i dare say a good portion of the capital will be used for working capital.

To wit, Nearmap said the cash balance at the end of FY21 is expected to be between $32-35m. Put another way, the total value of the institutional raise will be spent in less than a year. 

As always, whether this is a good or bad move depends on the Return on Investment (ROI) they can get on this capital. The business has achieved 27% compound annual growth in Annualised Contract Value (ACV) in the past couple of years, and US subscription revenue is already twice what it was in Australia & New Zealand at the same stage of maturity. There's defeinitly very solid sales momentum, and the market opportunity is large and growing. Nearmap appears to be very well placed competitively.

I like the tech and the offering and think top line growth will remain strong for a good while yet. But although the scalability of the business model has been touted for many years, we're yet to really see that realised in the financials due to an ever growing cost base. Granted, these increased costs have helped underpin very solid top-line growth, but at some stage -- hopefully sooner rather than later -- we really need to see expenses stablise and the operational leverage of the business unlocked. At the very least, it'd be good to see them move much closer to a positive free cash flow position.

It's also worth noting that a good deal of growth is already assumed by the market. Based on the raise price of $2.69, the company is valued at $1.3 Billion -- over 12x the ACV.

Still a bit too rich for me.

[disc. I don't hold on Strawman, but have a small parcel in my real portfolio that was purchased in 2015 and mostly sold down in 2019] 

Details of the raise here.

Nearmap has achieved an Annualised Contract Value (ACV) of $106.4m for FY20, up 18% on the previous year.

This was a combination of a 7% lift in subscriptions growth and (encouragingly) an 11% lift in average revenue per subscription.

Statutory revenue was up 25% to $96.7m.

However, a big increase in capture costs and an increase in their rate of amortisation saw a drop in gross margins. Combined with a 47% lift in operating expenses, the after tax loss more than double to -$36.7m.

This added spend is (obviously) hoped to have laid the foundations for scalable growth into the future. It will be something to watch though; Nearmap's costs have always grown at a pace that offsets its strong revenue growth and has kept the business in a cash losing position. 

At present, Nearmap has $33.8m in cash. Due to cash management initiatives implemented in April, the business expects to be cash flow breakeven in the current year. Safe to assume the market will very much welcome this if achieved.

North America, which accounts for 17% of total subscriptions but has about double the average subscription per user (greater proportion of larger enterprises), saw 27% growth in ACV. The pace of revenue growth is much greater than where ANZ was at the equivalent point after launch.

Growth so far in FY21 is on pace with last year. Combined witha resilient second half, it appears Nearmap's sales have held up really well during COVID.

At present, shares are on a P/S of about >12, which is certainly up there. That being said, should the business pivot to cash flow positive, maintain strong growth and show improved cost discipline, it could well be at a price that appears cheap in the medium to long term.

I think they continue to hold a very favourable competitive position, are showing good traction in their key growth market, and continue to broaden the product offering.

Nevertheless, I still see shares as a bit overvalued (see valuation).

You can read the results presentation here

A great update from nearmap today.

Key points:

• Annualised Contract Value (ACV) now exceeds $102m. Passing the lower bound of earlier guidance from February. (that's at a FX rate of 0.7 AUD-USD, but at the current rate of 0.66 ACV is $104m)
• FY20 ACV now expected to be between $103-107m (prior range was $102-110)
• New AI functonality to be launched on June 1
• Company on track to be cash flow breakeven by June 30
• Cash balance expected to be $32-35m at and of year
• Despite the impact of COVID-19, Nearmap has continued to grow its portfolio month on month
• Churn has reduced to 10% from 11.5%

Glad i added it to my Strawman portfolio last month -- just wish i'd bought more! :)

You can read the ASX announcement here

Nearmap has provided another trading update. Key pionts:

• Claims it has seen no material impact on trading conditions
• It is however seeking to reduce operating and capital costs by up to 30% 
  • including a 25% pay cut for board and CEO and 20% cut for everyone else
  • Reducing heacount by 10%
• Expects to be cash flow breakeven by the end of FY20

You can see the full ASX announcement here

Nearmap has provided an update in light of the coronavirus pandemic.

No detail was provided in terms of the impact to sales experienced or expected, with the company only saying that it's offering helped facilitate remote working and that it was well placed to endure any impact due to its near $50m in cash.

You can read the full update here

A mixed bag for Nearmap. Growth continued, but it's slowing..

Group ACV rose 23% from the previous first half to $96.6m, but increased by just 7% in the 6 months to Dec 31.

It's normal to expect the percentage growth rate to slow over time as it grows each year from a larger base, but the half on half incremental add to ACV was just $6.4m in this latest half, compared to ~$12m for each of the previous 3 halves.

Revenue grew 31% over the previous 12 months, but here too you can see a slow down in incremental growth. In fact, the incremental increase in statutory revenue was less than the 2nd half of FY18.

The number of subscriptions rose 8% for the year, but just 2.9% compared to the preceeding half.

So certainly a slowdown in momentum.

There was a massive lift in operating costs, too, which increased 61% due to investments in growth and accelerated amortisation of capture costs.

As previously disclosed, the loss of a few large enterpise clients (see my previous Straw) saw the churn rate more than double; from 5.5% to 11.5%.

In terms of the good news, the Average revenue per client increased, and the US appears to going well outside of the large enterprise market.

The company has just shy of $50m in the bank, no debt.

So, what's the verdict?

The positive interpretation:  Nearmap has made a huge investment in sales & marketing and development, which isnt unreasonable given the market opportunity and decent traction in the large US market. Although that's blown out the loss, the business is well funded and should help reinvigorate growth.

The issues in North America may not indicate a structural shift in the competitive and economic environment -- such things just hapen in business. Treating the client loss as a one off, the underlying business appears to be growing well.

The negative interpretation: A significant slowdown in momentum, coupled with a massive rise in costs and reduced gross margins. The business could be facing increased competitive threats, and may not see a commensurate return on its growth investments.

Overall, there's a very decent business here, but the market's prior growth assumptions may have been too optimistic, and the business isnt scaling as well as initially hoped.

Would like to own, but at a price that better reflects a reasonable growth outlook and has a decent margin of safety. 

ASX Results presentation here 

Nearmap has downgraded its FY20 ACV guidance from $116-120m to $102-110m -- a 10% reduction at the midpoints. On these numbers, ACV will be ~35% higher than FY19.

Management said in the conference call that statutory revenue for the first half would be around $46.4m, up 30% on first half 2019.

Performance has been impacted by a small number of larger customers.

In the US, one large client cancelled their contract as they are under a permanent court injunction. There were also two major churn/downgrade events due to a slowdown in mapping from the autonomous vehicle industry.

Nearmap also said it failed to close a significant partnership deal, supposedly because of the prospect's budget constraints (perhaps they went with a cheaper offering?)

In North America, incremental ACV grew by US$2,3m in the half, compared with US$4.8m in H1 2019.

In total, North Amwerican churn increased significantly from 6.1% to 20.6%

In Australia & NZ, incremental ACV grew at a slower rate than the previous corresponding period, increasing $3.1m vs $4.5m.

Churn in this region also increased, rising from 5.3% to 7.2%. This was due to "consolidated subscriptions, reductions in customer funding and Nearmap internal execution issues"

Nearmap said that, excluding some of these issues from major customers, the business was well positioned and "extremely positive on the medium and long term outlook". It said it was confident of growing ACV by 20%-40% year on year and that churn would remain below 10%.

Cash balance remains at $50, with cash burn will be much lower in the second half.

The domestic segment was "outgrowing the compettion significantly". 

All in all, not great news and raises some concern over the stickiness of the offering, market demand and pricing power. Could well be a mere "bump in the road" but given the valuation it wont likely take much of a slowdown to materially impact the share price -- at least in the short term.

You can listen to the CEO's briefing here at 9:30am Sydney time (recording should be available afterwards).

ASX announcement here

Another fanatstic half, as telegraphed back in January.

Annualised contract value (ACV) jumped 44% (42% in constant currency) to $78.3m. This was bang in line with what Nearmap told the market toe expect in January.

There were more customers (up 13%) spending more (Average revenue per subscription was up 27%), with fewer client losses (churn dropped to just 6%). The gross margin increased 2% to 82%.

The US segment continues to accelerate growth, with new business ACV more than doubling. It rose by 108% from the previous corresponding period.

Australia & New Zealand (accounting for 2/3rds of ACV) grew its annualised contract value by 23%. Here, too, all the important metrics moved in the right direction.

Net operating cash flow was positive, the business remains debt free and has $80m of cash on hand. This will be used to fund ongoing product development and geographic expansion.

The business is scaling well, with revenue growth double that of expenses growth.

For the full year, Nearmap told shareholders to expect the business to be breakeven on a cash basis.

Full results can be found here

An aeriel imagary company operating in Australia, US and New Zealand. Think Google Maps, but on steriods.

Imagery is captured more frequently, at higher resolution and oblique angles, uploaded within days of capture and comes with a rich, industry specific tool set.

It's customers include Insurers, government, construction, solar, utilities and more. A key value proposition is that it saves its customers costly and time consuming site visits.

Sales have been growing at an accelerating rate, the business is debt free with $750m in cash, and the business delivered positive operating cash flow as of the most recent year (FY2019). The business enjoys a high level of recurring revenue, >90% customer retention, and has a high degree of operating leverage. The business is (so far) scaling very well.

A recent push in the US is going really well with ACV growing strongly (142% YoY). The business here is still loss making however, and is being funded by the ANZ segment. There are plans to move into further jurisdictions. 

Claim to have a large market opportunity, which the company estimates to be US$4.5b by 2025 (less than $2b now)

The most recent results presentation can be found here

Nearmap continues to impress with some very solid growth reported for FY2019.

Annualised Contract Vlaue (ACV) was up 36% to $90.2m. Australia & NZ continues to plow ahead with 19% growth in ACV, but the US is up by 76% (albeit off a lower base). The US now represents 36% of group ACV. 

Moreover, growth is accelerating, with the amount of incremental ACV added up 25% for the group.

Nearmap also passed an important milestone, recording a cash-flow positive result for the full year (excluding the capital raise). The company now has $75.9m in cash.

At current price ($3.69) shares are on a Price to ACV of ~19. If we assume revenue grows by the same as ACV the Price to sales ratio is 23.. (!)

We'll get the full results on August 21 

See ASX announcement here