Nearmap : NEA_FY17_Results Summary_CEOCFO_Transcript

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ASX release

23 August 2017

NEARMAP (ASX:NEA) FY17 RESULTS - CEO & CFO CONFERENCE CALL TRANSCRIPT

Dr Rob Newman, CEO & Managing Director

We have released our results, an investor presentation and an accompanying analyst pack to the ASX this morning. We will be referring to pages in the investor presentation on this call.

I'll begin the call with the highlights of our performance in FY17 and our achievements in the year. Andy Watt will then take you through the results for the full year in detail. I will then provide an overview of Nearmap's outlook and key priorities for the FY18 financial year. After our presentation, we will open the call to take questions.

I am pleased to report that FY17 has been a year of significant progress for Nearmap. We have designed proprietary market leading imaging technologies and are now deploying these to deliver an expanded product suite. Our US business is entering the growth phase of its development, with a solid operational base and an accelerating subscription portfolio.

Our Australian business continues to grow strongly under new leadership, which brings focus to both sales and marketing. Our cash generative business model continues fund our growth. All the while, we continued to deliver on the key metrics by which our business is measured, including delivering on our EBITDA guidance provided at the time of the capital raise.

I would now like to discuss some of these key achievements in further detail.

Perhaps the most significant achievement of Nearmap in FY17 has been the advances in our product and technology, which have taken us from a one product to a multiple product company. This is shown on page 4. Consistent with the capital raise, we have manufactured our next generation HyperCamera2 systems and are now capturing, and making available to our customers, oblique imagery from them.

We have already captured and published content from 12 major US cities from our target of 50% US population coverage. Over the next few months, we will also have captured the five major metropolitan cities in Australia.

We are excited about the opportunities and use cases which this oblique imagery brings to our customers, and even more excited about the 3D products which this imagery will enable. I will talk about these more later in this call.

Our HyperCamera2 capture in the US has also increased the frequency with which we are capturing areas of the United States from 2 to 3. In Australia, we increased the frequency of our capture in regional centres and expanded our capture footprint to areas of urban development on the fringes of major metropolitan cities, in response to clear demand from our customers.

In addition, we have enhanced our product delivery platforms to improve both the customer experience, but also to provide a scalable platform for growth. This is important as our customer portfolio expands and as we start to deliver higher value products from our oblique imagery.

These enhancements have been enabled by our investment in FY17 in building the skill set of our people to support this growth. Please turn to page 5.

We have restructured the Australian sales and marketing operation with the commencement of new Vice Presidents of Sales and Marketing, as we increase the sophistication and focus of our sales and marketing efforts. This is targeted at not just continuing the growth in the 2D market, but to rapidly capture the significant opportunity in the Australian market which oblique imagery and 3D content provides.

Our US sales and marketing team has continued to grow, as the efficiency of their effort scales and demonstrates return on our investment. Andy will talk more about this return shortly.

Pleasingly, we have also recruited several senior staff in the US from our competitors, as the disruptive nature of our business model really begins to impact the broader market there.

Just as our product and technology are core to Nearmap, so are the people who develop and maintain that competitive advantage for us. We have continued to add to our skill sets that area, but also to take advantage of the opportunities which our expanded product suite brings.

As these changes have been taking place, the value our customers place on our content has continued to grow, as shown on page 6. As a subscription business, the size of our portfolio is best measured by ACV (or Annualised Contract Value). At any point in time this represents the annualised value of all subscription contracts for Nearmap content.

As at 30 June, our Group ACV was $47.0M, up 29% on the prior comparative period. Growth in ACV is a good leading indicator to revenue growth.

This growth has come in part from 9% growth in the number of subscriptions relative to the prior comparative period. This represents not only our ability to retain customers, but also to add new customers in both Australia and the US.

The ACV growth has also come from increasing the Average Revenue Per Subscription by 18%. This reflects our customers increasing use of our product and our ability to close larger deals. It also reflects that we continue to succeed in our 'land and expand' sales strategy, with $5.5M of our portfolio growth coming from upsell to our existing customers in Australia and the US.

Our group churn as measured by ACV value fell from 13% to 10% in FY17 which reflects that our products are increasingly a key part of our customers workflow. This has resulted in our group portfolio lifetime value increasing to $365.5M, from $223.9M at 30 June 2016.

The US ACV portfolio now represents approximately 15% of the total group portfolio, and as the US business begins to generate positive gross margins, the US portfolio should show an increasing contribution to group portfolio lifetime value.

The diversity of the group ACV portfolio is demonstrated on page 7. The largest customer segment for the group is in the Architecture, Construction and Engineering sector, which accounts for just over one quarter of our group portfolio. Other significant industry segments include our focus sectors of utilities, government, insurance & property, and solar.

Importantly, 30% of our customers come from other industry sectors, demonstrating both the range of application of Nearmap's content and the lack of Nearmap's reliance on any one industry or economic sector.

I would now like to hand over to Andy who will take you through the financial results for FY17, as well as more detail on the ACV portfolio in each market.

Mr Andy Watt, Chief Financial Officer

Thanks Rob, and good morning everyone. Let me walk you through the financial results for FY17, starting at page 9.

Rob highlighted strong growth in our key customer metrics, and this is also reflected in strong performance in each of our key financial metrics. Group revenues in the year grew 31% to $41.1M reflecting the growth in our ACV portfolio. A focus on disciplined cost management means that this revenue growth was delivered with only a 13% increase in group expenses. Further evidence of the operating leverage of our business model is demonstrated by our gross margins and group sales team contribution ratio which remain above 80% and 90% respectively. As the summary P&L shows, we delivered EBITDA in the year of $6M which was within guidance, and following our capital raise during the year we closed with a cash balance of $28.3M.

Before turning in detail to our financial results, let me outline the growth in our ACV portfolio by territory. Page 10 shows that the US ACV portfolio more than tripled in size to US$5.3M, as the productivity of the sales and marketing efforts doubled during the year.

The majority of this growth was generated through new customer acquisitions, but we also saw the positive impact of our land and expand sales strategy, with a near 50% upsell on our opening ACV portfolio. Overall, our average revenue per subscription doubled to more than US$8,700 providing a key indicator to the considerable success that we've had in establishing growth and scale in our US operations.

Turning to the composition of the US ACV portfolio on page 11 - our portfolio is diversified among our focus industry sectors in the US, those being Architecture Construction & Engineering, Solar, Local Government and Insurance & Property.

I spoke before about the growth in our average revenue per subscription and you can see from the chart that this is reflected by the fact that of over half of our ACV is derived from large enterprise customers. This highlights the size and established nature of the US market which allows us to land further up the value chain, and also shows the success of our sales strategy to target large enterprise clients.

Turning to Australian ACV on page 12, FY17 saw our portfolio grow 16% to $40M, with growth in the second half of the year exceeding that in the first half. Pleasingly, our growth was generated through both an increase in the number of subscriptions and an increase in the average value of those subscriptions to over $5,500. Incremental ACV in the period comprised $9M of new business and net upsell, split evenly between the two,