Company Overview: Nearmap Ltd is an online PhotoMap content provider. The Company provides geospatial map technology for business, enterprises and government customers. Its segments include Australia, which is responsible for all sales and marketing efforts in Australia; United States, which is responsible for all sales and marketing efforts in the United States, and Corporate, which holds the intellectual property (IP) and product know-how that allows the Company to deliver its product offering, being online aerial photomapping. It offers solutions for various industries, such as architecture and engineering, construction, government, insurance, rail, property, roofing and solar. It provides site information, delivered to users' desktop through high-resolution PhotoMaps technology. Nearmap Insurance provides a desktop-based risk assessment solution. Nearmap Rail delivers visual analytics to mining, port and rail infrastructure. Its property solutions include Nearmap ART and Nearmap Property Tool.


NEA Details

Two new products released to expand customer base: Nearmap Ltd (ASX: NEA) released Nearmap Panorama and Nearmap Oblique for US clients expanding their base to several verticals like telecommunications, insurance, solar and local government. The group extended its location content to new geospatial data services, all within an instantly accessible, cloud based environment. Nearmap Panorama enables its users to get a 45-degree perspective maps for large or small areas in all cardinal directions in an uninterrupted fashion. With this feature, users can make quicker decisions impacting commercial and government organizations. The other product, Nearmap Oblique further enables users to inspect and measure the height of features like buildings or terrain. Nearmap’s new MapBrowser interface launch in the United States, made these products available to US customers with early commercial sales underway in that market. Meanwhile, the group’s HyperCamera 2 continues to maintain its strength in United States (covering 50% of the US population) as well as Australia (covering the 6 major capital cities) and also available to customers online. The group is aiming to make a commercial launch of the new MapBrowser, Nearmap Panorama and Nearmap Oblique products to Australian customers by the first quarter of 2018.
 
Targeting 3D product and pricing roll out by 2018: The group’s 2D product has already disrupted a growing market. Accordingly, they are increasing their product set with oblique imagery while targeting to be a major player via their unique subscription platform. The group is currently generating 3D reconstructions at a rapid scale. It is also cost effective, as the whole-of-city 3D reconstructions are done within weeks of the images being captured at high quality delivered by a cloud based platform. The group made early commercial sales to trial customers of 3D models, with 3D product and pricing expected to be rolled out in 2018.
 

Progress till date and future initiatives (Source: Company reports)
 
US operations growing at a better pace than Australia: The group made their first commercial sales in the US over 2 years ago. They generated over USD$2.2 million of incremental annualized contract value (ACV) in the second half of the 2017 financial year, and USD$1.6M during the first half of the 2017. Their US revenue grew more than fourfold to $3.2 million during fiscal year of 2017 as compared to $0.7 million in 2016 driven by ACV portfolio. US ACV portfolio more than tripled from $1.5 million to $5.3 million in FY17 with new Business of $3.4M as the group’s strategic effort to target larger enterprise customers coupled with rising effectiveness of the sales and marketing effort paid off. Upsell was $0.7 million showing a major year of upsell as this accounted 50% of the value of the opening portfolio. But, the Customer churn rose to 20.2% in FY17 as compared to 18.5% in pcp (prior corresponding period) hurt by the acquisition of a partner signed by Nearmap in FY16 by a competitor during FY17 and the non-renewal of their subscription. Despite lower than expected adoption rate, the group is well positioned to leverage the oblique imagery and derivative 3D products’ opportunity during the 2018 financial year. As per their Australian business performance, the revenue and gross profit surged over 16% in 2017 fiscal year against the prior corresponding period. The group built high customer retention rates in Australia and continues to deliver a better value of their product to existing customers as well as new customers.


Better US adoption rate as compared to Australia (Source: Company reports)
 
Decent FY17 performance: The group’s revenues surged 31% year on year (yoy) to $41 million in FY17 as compared to $31.3 million in pcp driven by better subscription ACV portfolio in both Australia and the United States. Group EBITDA improved to $6 million in FY17 from $0.6 million in pcp driven by their capital raising efforts. They controlled their statutory loss after tax to $5.3 million as compared to $7.1 million in pcp. The Average Revenue per Subscription (ARPS) surged to $5,996 in FY17 against $5,064 in pcp driven by Australia as well as United States, with the majority of the growth coming in the United States from penetration of large enterprise customers. Group Portfolio LTV (Portfolio Lifetime Value) enhanced to $365.5 million in FY17 against $223.9 million in pcp. Overall subscriptions rose to 7,832 in FY17 from 7,190 in pcp while Group churn fell to 10.3% in FY17 from 13.2% in FY16 driven by rising value being derived from their product by customers. The Group’s Sales Team Contribution Ratio was cut to below 90% in FY17 from 128% in FY16, as increased effectiveness of the US sales and marketing efforts were offset by the non-recurrence of several large one-off customer upsell events in Australia in FY16. Overall, ACV surged 29% to $47 million in FY17 from $36.4 million in FY16. Australian ACV portfolio enhanced 16% from $34.4 million to $40 million in FY17. This included new Business of $4.5 million, upsell of $4.5 million. Australia’s Customer churn fell to 9.8% from 13.2% in FY16 with churn concentrated amongst customers in the SME category with lower value subscriptions. The Australia portfolio comprised Commercial Enterprises (33%) ACE – Architecture, Construction and Engineering (27%), Utilities (17%) and Government (13%).
 

ACV portfolio (Source: Company reports)
 
Capital position: The group reported for a cash balance of $28.3 million as of 2017 fiscal year and aims for a better financial result going forward driven by their strategy, and better international imagery and analytics business. Cash receipts from customers for the year were $48.0M compared to $37.3M for the previous year, an increase of $10.7M (29%). The group’s Australia segment generated a free cash flow of $21.8 million, with cash receipts of $41.9 million offset by payments of $20.1 million for sales and marketing expenses, allocation of corporate expense payments, capture costs and related net GST payments. The free cash flows for US is $14.5M, which includes cash receipts of $6.2 million but offset by payments of $20.7 million on sales and marketing expenses, allocations of corporate expense payments, capture costs and related sales tax remittances. Overall, the group made a payment for product and technology capital investment of $10.1 million.
 

Cash flow waterfall (Source: Company reports)
 
Stock performance: The shares of NEA slightly disappointed its shareholders in last one year, with the stock falling over 9.9% (as of January 8, 2018). Investors were expecting more rapid adoption of the group’s products in the US as their revolutionary HyperCamera 2 technology features accuracy more than 3 times the earlier generation systems. On the other hand, the group still has a huge potential opportunity for its products in the US which represents only 11% of their overall business as of FY17. Moreover, US business growth led to 33% of FY17 group revenue growth. US gross margins approach led to breakeven as revenue growth outpaced cost of revenue growth. NEA is targeting to maintain a group gross margin of more than 80%. Going forward, US ACV is expected to cover capture program costs with control over variable expenses. The group is positive over their performance in 2018 as they are aiming to extend their penetration by more products like digital surface models, textured 3D mesh and 3D point clouds. They are speeding up the roll-out of HyperCamera2 focused on capture in US for first half of FY18. NEA has a 10-year imagery history in both Australia, the United States and New Zealand, having over 8,000 customers globally. They intend to continue to grow AU subscription base with high quality recurring revenues. With the momentum gearing up for 2018, the stock surged about 5% in last five days. We give a “Buy” on the stock at the current price of $0.63


NEA Daily Chart (Source: Thomson Reuters)

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