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#EagleView IP claims
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Last edited 3 years ago

I have been considering the Eagleview situation over the last 36 hours and my gut feel so far is that there is unlikely to be merit behind Eagleview's claims. In fact, I suspect the action taken by Eagleview is likely a positive signal for Nearmap, indicating that Nearmap has been sufficiently successful in the North American market that Eagleview feels it needs to act beyond simple competition.

I set out yesterday morning to answer a few questions:

1. Is there likely merit to Eagleview's claims?

I believe the answer to this is "no". I am not a patent examiner nor IP lawyer so I am basing this on the following facts:


Knowing the above, I can only think of two reasons Nearmap has developed and continues to grow its roof geometry service. The first is that they did so in full knowledge that Eagleview would likely come after them at some point (this is confirmed in SA1588's post on HotCopper) and that they are comfortable they have implemented their roof geometry product in a way that does not infringe on Eagleview's IP.

An alternative, more cynical view, is that Nearmap went ahead with the roof geometry business either negligently, or with a cavalier attitude, or simply out of desperation to replace the Verisk business.

I'm discounting these 3 possibilities because prior to acquiring Nearmap, the Ipernica business specialised in IP assertion (more commonly referred to as patent trolling). Ross and Rob were both part of that business so they are well aware of how it works. I also feel that I know Rob well enough to know that he is not negligent, nor cavalier, nor a short-term thinker. He has been with Nearmap since its beginning in 2008, and the multi-year, multi-million dollar investment in Nearmap's ML/AI products which has been slow to generate revenues thus far is proof that this is not a short-term thinking business. Nearmap continues to expand that team today (as proven by the job ads Birdman frequently finds).

2. If there is not merit in Eagleview's claims, then what are Eagleview's motivations?

I think the filing is a sign that Nearmap is taking share from Eagleview. Eagleview is frustrated by this, and even if they fail with their patent claims, they can cause reputational damage to Nearmap in the meantime. This case could drag on for years (a reminder again that Eagleview vs Verisk played out over 4 years), and during that time you can bet that Eagleview's sales folks will be out in the market warning every customer that Nearmap may not be able to provide ongoing service if Eagleview wins its case. Furthermore, there is likely information that Eagleview can learn from Nearmap during the legal process (i.e. how Nearmap has implemented its roof geometry service).

From Eagleview's POV, even if they ultimately lose the case, there are benefits to running it, and presumably they have decided the benefits outweigh the legal costs. Slide 11 of Nearmap's most recent presentation indicates the roofing business is ~US$3m ACV. If Eagleview can cast sufficient doubt and potentially win some of that back or prevent further losses to Nearmap, and have the opportunity to look inside Nearmap, it seems a sensible move on their part.

3. What action should I take?

I come to the conclusion that the action by Eagleview is entirely rational on their part, despite it likely having no merit.

I think what this means in the short term is there will be cost incurred by Nearmap to defend itself, as well as potentially more difficult sales in the roof geometry related sectors which is clearly negative.

In the medium term, I think Eagleview's action actually tells us that Nearmap are onto something good and we simply need to wait for the case to play out, I believe in Nearmap's favour.

Therefore, as a long term investor, I will do nothing. I considered selling to avoid some of the paper losses that are very likely in the short term, however the issue with that is I like the business in the medium-long term. Suppose I sold at $1.85 today, what would be my signal to re-enter?

The market reaction is to perceived risk. When does that risk expire? There are a multitude of possible outcomes - Eagleview could simply drop the case 3 months, 6 months, 15 months from now. Or it could drag on for years.

My position on timing is simply don't. I only hold 3 high conviction shares so for me the appropriate strategy right now is simply do nothing, on the assumption that this will resolve positively in the medium term.

If one was to have a little faith in Rob and team, one might think that they would have anticipated this and considered how to deal with it when it happens.

#Capital Raise
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Added 4 years ago

Capital raising - 10 September 2020

https://www.asx.com.au/asxpdf/20200910/pdf/44mhjw9qfj0lnc.pdf

  1. Institutional placement of ~26m shares totaling $70-72.1m at $2.69 to $2.77/share, being 6.9% and 4.1% discount to prev close of $2.89. Bookbuild underwritten at $2.69/share. As I'm posting this a day late, this ended up completing at $2.77/share.
  2. SPP of up to $30k per shareholder for a target of $20m at the lower of the above and 2.5% discount to 5 day VWAP at close of SPP.
  3. Director sell down - Ross Norgard selling 4.2m shares (~15% of his holdings) at the insto price, also underwritten.

The stated purposes are the usual accelerating growth. Of particular note is the rollout of HyperCamera3 which allows higher & faster flying meaning increased coverage, in their words "geographical expansion". Unclear if they are teasing new geographies, or if they mean simply greater coverage around their existing territories.

Overall I'm comfortable with this raise, mostly based on my history with Rob.

In context, they raised $20m @ 70c in late 2016, $70m @ $1.60 in late 2018, and now $2.77.

They have been clear and consistent in their stated use of funds, ramping up sales & marketing each time and allowing STCR to get back to 100% before going some more. I think that's as prudent as you can get -- basically apply more capital for as long as you can keep accelerating growth.

The one blip in their track record was December 2019/January 2020 period when they had the 3 big churn events in the US, and also increased churn in AU. There wasn't a lot they could have done about the US and I believe they've addressed the AU (loss of focus) issue.

As with previous raises, some smaller shareholders are frustrated that no prior indication was given of an upcoming raise. In particular the business was on track to running to "proper" cashflow breakeven and many interpreted that as "no need to raise capital". But as explained above with the STCR, if you can apply capital to accelerate growth, and the TAM is huge, you should do it.

This same pattern occurred in the 2018 raise. The business had pretty much reached cashflow breakeven and they tried to point that out in the halves following the raise by splitting out costs pre-raise vs the increase in costs post-raise used to accelerate growth.

I understand the frustration of a lot of shareholders because new funds are always being applied so it's never been possible to compare like for like and see that the business has been or is clearly profitable. Superficially it looks like costs keep growing and therefore the business may never actually reach profitability, necessitating perpetual capital raises, when (at least in my mind) the reality is the other way.

#Bull Case
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Added 4 years ago

FY20 Full Year results - 19 August 2020

ACV came in at $106.4m, at the upper end of their $103-107m range provided on 28 May (when they were already >$102m ACV).

This seems decent enough given their churn issues in December/January and COVID-19.

Of note, the STCRs for US and AU which are historically around 100% were down to 34% and 58% (US) and 69%, 79% (AU) for H1 and H2 respectively. This reflects both the churn events, loss of focus in AU, and addition of new sales staff in US.

Also noteworthy is the Trade Receivables have grown significantly. Image attached. There's roughly $2.6m in receivables >30 days old, vs $550k at 30 June 2019.

Looking ahead, my best guess for 21H1 ACV is:

1. AU: $68.5m (+$4m)

2. US: US$33.4m (+US$4.7m)

This is based on the following assumptions:

1. Direct sales cost remain constant (as indicated by commentary today saying they expect costs to remain roughly stable)

2. STCR improvements: AU improves from 79% to 90% and US improves from 58% to 70%.

I believe these are reasonable assumptions as the AU STCR had been affected by sales leadership being stretched globally, and we now have Jeff Adams in the CRO position. And US improvement to come from the team gaining experience and operational improvements.

So I'm confident we'll be properly* cashflow breakeven by Dec 2020 assuming no external explosions.

*- Nearmap achieved cashflow breakeven at 30 June 202 through the cost cutting measures taken in April. Properly cashflow breakeven means reversing the April compensation cuts.

The provided outlook is for closing FY21 cash balance of $32-35m is where we are today. Which is to say that they expect to ramp up spending again early next year.

All in all I think it's quite a positive report other than the trade receivables which could dent ACV by ~$1-2m.

#Bull Case
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Added 5 years ago

Streaming 3D just launched.

AI enables an incredible number of new use cases. Very hard system to replicate at scale.

Recent mention by Rob Newman (CEO) of expansion into Asia and Europe in the next year or two suggests that US is doing well (won't be cashflow negative for much longer).