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Edited Transcript of NEA.AX earnings conference call or presentation 14-Feb-21 10:30pm GMT

·47 min read

Half Year 2021 Nearmap Ltd Earnings Call Feb 15, 2021 (Thomson StreetEvents) -- Edited Transcript of Nearmap Ltd earnings conference call or presentation Sunday, February 14, 2021 at 10:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Andrew Watt Nearmap Ltd - CFO * Robert Melville Newman Nearmap Ltd - CEO, MD & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Ashwini Z. Chandra Goldman Sachs Group, Inc., Research Division - Equity Analyst * Callum Sinclair Macquarie Research - Analyst * Garry Sherriff RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps * James Bales Morgan Stanley, Research Division - Equity Analyst * John Campbell Jefferies LLC, Research Division - Equity Analyst * Owen Humphries Canaccord Genuity Corp., Research Division - Senior Industrials Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen, and welcome to the Nearmap Ltd First Half Fiscal Year '21 Results Briefing. My name is Carina, and I'll be your operator today. (Operator Instructions) Please also note, this call is being recorded. I would now like to turn the call over to Dr. Rob Newman, Chief Executive Officer and Managing Director of Nearmap Ltd. Dr. Newman, please go ahead. -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [2] -------------------------------------------------------------------------------- Thank you, and good morning and welcome to the Nearmap First Half FY '21 Results Conference Call. I have with me Andy Watt, our Chief Financial Officer. Andy and I will begin by speaking to the first half results, then I will address the J Capital report before opening for Q&A. Today, I am very pleased to report a strong performance from our company in the first half of FY '21. Nearmap delivered a record half of incremental ACV or annualized contract value growth in North America. To underline the strength of this result, our incremental ACV in North America in this first half surpassed what we added in incremental ACV in North America in the full prior fiscal year FY '20. This is a particularly strong result and good validation that our refined strategy in North America is working well. Our first half results also demonstrate the resilience and strong operating leverage we have in our business. Whether it be retention, sales efficiency or gross margins, the key metrics across almost every area of our business have improved and are trending in the right direction. There is no doubt that Nearmap has been a beneficiary of the shift to remote working. So when I look at the growth in our company that we have experienced in the first half of FY '21, this is primarily a reflection of our deeper, continued understanding of the North American market and the values that our vertical solutions are delivering. Our growth has continued because we are providing content, which allows businesses and government organizations to change the way they view the world so they can profoundly change the way they work. This means we will continue to deliver ACV growth in our business over the short, medium and long term. The decision to raise capital in September last year has placed Nearmap in a position of financial strength. We have the resources in place to enable us to invest into new growth initiatives and deliver accelerated ACV growth. Our industry is always evolving and remains dynamic, and it is important we continue to invest in new growth initiatives, reinforce our market leadership and take advantage of a large global opportunity that we are addressing. This leadership position is only possible because of our people. We have a world-class team of talent here at Nearmap, who have ensured that our company has been able to provide certainty for our customers in what remains a very uncertain time in our world. This certainty and reliability is why we have such a resilient business model and can continue to deliver market-leading and trusted service to our customers. Every day, I am inspired by our people and always appreciate the passion that everyone at Nearmap has for our company. This passion demonstrates why despite the challenging period, our business continues to achieve a number of significant milestones. Let me start. First of all, the successful integration of roof geometry content, our first significant acquisition, has seen Nearmap become a highly differentiated content provider in the roofing industry in North America. ACV associated with this acquisition has now surpassed the acquisition price itself, a fantastic milestone given the acquisition occurred a little over 12 months ago, and it capitalizes on our investment in delivering wide-scale 3D content. ACV associated with our artificial intelligence, or AI, content has continued to increase and is driving strong growth, particularly in our core insurance industry and local government verticals. We have continued to invest in our AI content as we expand the use cases and number of attributes available for our customers. I am pleased to report that customer demand is such that now we will run AI on all imagery going forward rather than just on an annual cycle. This demonstrates the value our customers are driving from this investment that we have made in our AI content. In recent days, our world-leading team of camera system designers has been testing critical component parts of our new camera system, HyperCamera3, in aerial flight. A significant amount of research and development has put us in this position, and I am very pleased with the progress the team has been making in turning research into reality and expanding our already world-leading position in aerial camera system technology. We remain on track to be in production with HyperCamera3 in FY '22. A strong balance sheet and accelerating growth gives our customers and shareholders confidence that we will continue to maintain this market-leading position and deliver new and even more valuable content. As I mentioned, the decision to raise capital in September was to ensure we could build on our market leadership position and accelerate our growth initiatives. But before I talk more about our outlook and these initiatives, I will now hand over to Andy to take you through the financial highlights of the first half of our fiscal year. Andy? -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [3] -------------------------------------------------------------------------------- Thanks, Rob, and good morning, everyone. As Rob has already mentioned, the first half of FY '21 was a period of strong growth for our business, not only through our top line but also through the key operating metrics that we guide our business to. It was the first full reporting period where the North American business operated fully under the vertical operating structure and the results, as I'll talk to in detail in just a moment, were very pleasing. And just as satisfying was the continuation of growth in both of our key markets at a time when the world continues to navigate the challenges presented by COVID-19, demonstrating the resilience of our business model and the critical role that Nearmap plays in helping our customers to continue operating during this period of disruption. I'll begin with an overview of our key operating and financial metrics, as shown on Page 6 of the accompanying investor presentation. And as always, I'll begin by talking about our primary metric, ACV, which grew to $112 million as reported, and on a constant currency basis, grew to -- by 21% to $117 million. This represents incremental growth in the half of $11.1 million in constant currency and was driven by that record performance in our North American business. As you've heard me talk about before, the quantity of our ACV growth is important, but the metrics which define the quality of that ACV and the scalability of the business overall are just as important. You'll see from Slide 6 that we saw positive momentum in each of these key operating metrics. Retention, the key indicator to the stickiness of our product and the lifetime value of our portfolio, returned to normal levels after the unforeseen events of the prior comparative period. Retention of nearly 94%, up from 88% 12 months ago and 90% in June, shows the strong progress that we're making with our customer success initiatives and further validates the deeply embedded nature of our content in customers' workflows, something that is only enhanced as we continue to roll out new content and features. We measure the productivity of our sales and marketing team through the sales team contribution ratio. It's the metric that gives an indication of how efficiently and effectively we can scale the top line of our organization. Following a 2-year period where we invested heavily into sales and marketing, the first half of FY '21 saw us run with a relatively stable cost base with a focus on improving performance from existing resources. The outcome was a near doubling of the contribution ratio from 44% in the first half of FY '20 to 86% in 1H '21. Indeed, the contribution ratio in North America exceeded 100%, giving us confidence in the capabilities of the existing team, confidence that we made the right decision to focus on core industry verticals and confidence that we're at the point where we can onboard additional resource to drive further growth in the future. The final ratio to call out from this slide is the pre-capitalization gross margin, which, as a reminder, reflects the efficiency of the capture program relative to the size of the revenue base. On the back of strong ACV growth, revenue grew 18% in the period to $55 million, whilst at the same time, we reduced the cost base of our capture program through a combination of scale efficiencies and a targeted coverage plan in support of our core industry verticals. The result was an increase in pre-capitalization gross margin from 68% to 77%, with margins in North America now exceeding 50% for the first time. Our capture program is the key step in the content creation engine and is an area that we'll continue to invest in, with further leverage to come in future years as we roll out HyperCamera3. As we just demonstrated, business performance in absolute dollar and scale efficiency terms was very strong in 1H '21. The operating metrics give us confidence in the growing strength of the scalable engine, particularly in North America, and we take further confidence in the strength of the balance sheet, which allow us to deploy capital resources into initiatives to accelerate growth opportunities. The September institutional capital raise and associated share purchase plan added a net $92 million to the balance sheet, and we closed 2020 with $129 million of cash in the bank. We have been and will continue to be disciplined in the deployment of these funds, ensuring strong capital governance as we invest in the specific initiatives outlined at the time of the raise. Note that during the period, the business continued to place a heavy focus on working capital management. Trade debtors have increased by $3.4 million in the 6 months since 30 June, consistent with the timing of renewals and new business contracts won. Debtor aging and bad debt provisioning also remained consistent with prior periods, and there hasn't been a material impact on the cash collection cycle as a result of COVID-19. Delving deeper into ACV performance. The main driver of growth was the record performance in North America. We saw incremental ACV grow by USD 6.3 million compared with $3.8 million in the second half of FY '20 and $2.3 million in the first half of FY '20. Pleasingly, all channels and segments made material contributions, with year-on-year growth in government accounts of 53%, 43% growth in insurance and roofing continuing its rapid rise to now comprise 10% of the total portfolio. The strength demonstrated across all key vertical markets further validates the strategic decision to narrow the sales focus and prioritize sectors where Nearmap has a differentiated offering and can monetize effectively through deep penetration into customer workflows. Net upsell of $5.5 million, 12-month retention rates of 93.5% and premium content uptake of nearly 60% show the success of this strategy with existing customers. The ANZ business further enhanced its market leadership position with portfolio growth of $2.1 million in 1H '20, led by strong growth in the SME space, which remains the most predictable part of our overall sales engine. Retention in ANZ also remained very strong at 94% as customers continue to rely on Nearmap as a critical tool in their workflows. Similar to North America, upgrades in ANZ were strong, but we did see a couple of enterprise downgrade events as a result of business restructuring and economic conditions. In these situations, Nearmap's primary focus is to ensure the impact to customers is minimized by enabling continued access to Nearmap content with a view to the long-term relationship. Enterprise sales were less strong in the period, and we will look to strengthen our sales leadership in this area over the course of 2021. Strong business performance translates to strong statutory results, as shown on Slide 10. Revenue growth of 21% on a constant currency basis was delivered on a near-flat cost base, reflecting stability in the operating cost base on the back of the cash management initiatives implemented in April 2020, an ongoing focus on driving returns from investments previously made and a disciplined deployment of proceeds from the 1H '21 capital raise. During the reporting period, employees agreed to a 20% salary reduction, 25% for the CEO and Board members for the period to 31 October. This was offset by an equity compensation scheme for non-KMPs in the form of restricted stock units to the equivalent value. This had minimal impact on the statutory cost base presented other than a reclassification of costs from salaries to share-based payments, and all salaries have now been returned to 100%. It should also be noted that Nearmap has not received any form of COVID-19-related government subsidy at any time. EBITDA grew from $3.2 million in 1H '20 to $13.9 million. And the net loss reduced significantly, halving from $18.6 million to $9.3 million. In closing, 1H '21 has seen strong performance across the metrics we benchmark our business against, reflecting the strength of our underlying business model and the rapid scaling of the North American business. We maintain a disciplined approach to managing costs and driving returns from investments, and the capital raise leaves us in a very strong position to accelerate growth opportunities, driving increased returns across our ACV portfolio. With that, I'll hand back to Rob to discuss what this means for the remainder of FY '21 and into FY '22. -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [4] -------------------------------------------------------------------------------- Thanks, Andy. As we move through the remainder of FY '21, we will continue to fine-tune our go-to-market strategy in North America, adding industry specialists and introducing targeted marketing campaigns into our core growth verticals. In recognition of the success we have seen in North America, we will refine our go-to-market strategy in Australia and New Zealand to be more aligned with the strategy in place in North America in order to drive renewed ACV growth in the enterprise segment of our domestic market. In the remainder of FY '21 and into FY '22, we will commence an initial rollout of tailored solutions targeted at our core growth verticals of insurance, local government and roofing. This means we will capitalize on the value-add of our premium content and increase the stickiness of our solutions. We'll also invest in operational systems and data to support this strategy. It goes without saying that we will continue the development and testing of HyperCamera3 component parts with the target of completing a successful full-system prototype in-flight by the end of June, aligning with our expectation of building and deploying these world-leading camera systems, HyperCamera3, in FY '22. As I mentioned earlier, we have been testing key component parts in aerial flight, and the early signs are very positive and reflect the significant research and development that has gone on into a new camera system from our world-leading team right here in Australia. We expect up to $15 million of proceeds generated by the capital raise to be deployed in the second half of this fiscal year to -- into these key growth initiatives and expect that the group ACV portfolio at the end of FY '21 to be at the upper end of the $120 million to $128 million guidance range based on the U.S. dollar exchange rate outlined at the time the guidance was given. Whilst we continue to evaluate geographic expansion, for now, our focus remains squarely on accelerating growth in the North American market and building on our market leadership position here in Australia and New Zealand. The market opportunity in North America remains significant for our core content. But beyond this, we see a significant TAM expansion as we focus on delivering solutions specific to our key industry verticals. We continue to invest in our business, enabling us to embed our content more deeply into customer workflows and positioning Nearmap for accelerated ACV growth into FY '22. The prior 12 months has not been without its challenges globally as every business has faced a significant amount of macroeconomic uncertainty. But the value customers generate from our content, derived from our clear technology leadership position and the resilience of our subscription business model puts us in a strong position to maintain and accelerate our ACV growth. I am pleased to say Nearmap remains uniquely positioned to be the global leader in the location intelligence market derived from aerial imagery content. I'd now like to take a few moments to address the recent report published by J Capital. Whilst poorly researched and written, they attempted to make 3 primary assertions: one, Nearmap's go-to-market strategy in North America has failed and we're losing market share; Nearmap is losing its technology leadership; Nearmap's accounting treatment is bringing forward revenue. All 3 assertions are blatantly false and demonstrate a deep misunderstanding of our industry, our solutions and our performance. Nearmap has been in the North American market for over 6 years. We have used this time in the market to continue to refine our go-to-market strategy in North America to the point where we announced 6 months ago that we were having strong success in 3 key verticals and plan to double down on those verticals, as can be seen from the record North American results over the past 6 months and the detail in the response that we released today, that strategy is working and delivering enviable results. Growth rates relative to PCP in excess of 40% need no further explanation. Nearmap's technology leadership has really been questioned by independent analysts and, more importantly, by our customers. It is a shame that the report needs to look back 7 years to try to find when Nearmap may be behind in camera technology, and even then, misunderstand how the technology works. Equally, we question the insight of such an opinion that fails to understand the difference between a picture and location analytics derived from artificial intelligence. With such little understanding in the report about the technology and how it is valued by our customers, we question the credibility of the whole piece. And to accounting treatment, I will let others speak for us. Nearmap is often complimented by institutional investors and investment analysts of global banks for the transparency and the quality of our financial reporting. That, combined with a long track record of very clean audits by KPMG, a Scottish CFO and an award for investor relations communications, demonstrates the insight and disclosure we provide in our financial reporting is of very high quality. The report presents blatantly fallacious conclusions, and I encourage everyone on this call to contrast that with the very strong result we have delivered today. With that, I will now hand back to the operator for any questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question will come from Garry Sherriff with RBC. -------------------------------------------------------------------------------- Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [2] -------------------------------------------------------------------------------- Rob and Andy, great result. Just a few questions. Firstly, the first half '21 ACV movement. Your back book growth looked really strong in terms of upsell on existing customers, up over 100% on pcp. But when I look at the new business ACV, it looks like it's down about 40%. I'm just trying to figure out what's happening there. Can you provide us with a bit more information? Or is that including some of the -- I'm sorry, I'll leave it to you. You let me know because I was just finding it a little puzzling as to what's going on, I guess, with new logo growth. -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [3] -------------------------------------------------------------------------------- Yes. Thanks, Garry. I'll take that question. So if you look at the 2 regions, you can see that in Australia, our new business subscription growth was improved half-on-half and, indeed, year-on-year. So we are still seeing strong success of bringing new customers to Nearmap, particularly through that SME and mid-market space, which is very encouraging for us. That predictable part of our engine that I referenced in the commentary is still growing, is still very strong for us as a business. Where we have seen a slowdown is in the enterprise space. And that's partly economically related to where the enterprise sales to new customers has slowed in the period. And that's a trend we've also seen repeated in North America as well, where there has been a slowdown in some of that enterprise sales. There's also -- if you look back over prior periods in North America, we have had a number of -- the timing of some of the larger deals that land with new customers, you can see that back in the previous periods. This half, we didn't have any material enterprise, new customer wins, although a number of new customers that come to us. And the fact that we are still bringing high volumes of new customers to our portfolio and with that land and expand strategy that we've been very successful with gives us the confidence that going forward, our ability to upsell and continue to grow our portfolio remains strong. -------------------------------------------------------------------------------- Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [4] -------------------------------------------------------------------------------- And in the 6 weeks since the end of December, have you seen -- has there been a bit of an uplift, I guess, in those enterprise sales? Are you seeing any change from an enterprise sales perspective in either North America or Australia? -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [5] -------------------------------------------------------------------------------- Yes, Garry, it's -- I guess we don't give detailed commentary on the performance early in the year. Business is trending as we'd expect. We're pleased with the momentum that we carried through from both parts of our business through to the second half of '21. And given the guidance range that we set and suggesting it will close at the upper end of that range, that gives -- should give you confidence that we're seeing good momentum in both of our key regions. -------------------------------------------------------------------------------- Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [6] -------------------------------------------------------------------------------- Thanks, Andy. Average revenue per subscriber was up a good 13%. Is that driven by premium content? Because that looks like it's lifted a fair bit based on the stats that you've released. And maybe just remind us what that premium content is. -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [7] -------------------------------------------------------------------------------- Yes. Thanks, Garry. It's Rob here. I'll grab that one. So yes, I mean, I think it's a combination of things. One is the vertical focus, so getting deeper penetrated into some of those larger accounts. But also the premium content, you see a significant step-up in premium content. The premium content is all of it, so that includes our Oblique imagery, 3D content, roof geometry and AI. So as you know, we've significantly invested over the past 2 to 3 -- sorry, 3 to 4 years, in developing that premium content. And the fact that it's such a significant part of our portfolio now shows, a, we're becoming much more important to our customers and the value they're deriving from it. -------------------------------------------------------------------------------- Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [8] -------------------------------------------------------------------------------- Last question, just on corporate costs. It looks like it's about $2.5 million better on pcp on a constant currency basis. How should we think about those corporate costs going forward, please? -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [9] -------------------------------------------------------------------------------- Yes. Look, we've stabilized the cost base, as I've mentioned again in the commentary, over the last 12 months or so. So those corporate costs are at a level now that we feel confident in. Clearly, as we've suggested as part of the capital raise, we will invest in the scaling of our operating engine in the systems and in the tools that allow us to support future growth. So we will continue to invest in that area, but it starts from a very stable base that we reported in the first half. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- We'll go ahead and hear next from James Bales with Morgan Stanley. -------------------------------------------------------------------------------- James Bales, Morgan Stanley, Research Division - Equity Analyst [11] -------------------------------------------------------------------------------- So firstly, I wanted to understand whether the wage reductions that are flowing through the P&L are taken into account with those reported sales efficiency metrics. And when everyone is back on full pay, should they be adjusted by the 20%? -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [12] -------------------------------------------------------------------------------- Yes. Thanks, Garry. As I said, as I alluded to, the salary reductions were factored into the cost base fully, and you can see them playing themselves through with the contribution ratios as well. So the increase in contribution ratio is due to the productivity of the sales and marketing team. -------------------------------------------------------------------------------- James Bales, Morgan Stanley, Research Division - Equity Analyst [13] -------------------------------------------------------------------------------- Yes. So what was the effective reduction during the period? Was it 20% or did they -- were they on full pay for some of that? -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [14] -------------------------------------------------------------------------------- Yes. That's -- James, they were on 20% reduction for 4 months of the 6 months in the half, offset by an equal but opposite amount through restricted stock units, through share-based payments. So from a cost base perspective, it was a nil sum game. But as I said, all salaries now back to 100%. -------------------------------------------------------------------------------- James Bales, Morgan Stanley, Research Division - Equity Analyst [15] -------------------------------------------------------------------------------- Okay. Got it. And then can you maybe talk to the softness in the ANZ sales efficiency and the resulting ACV? I know you have called out the change in enterprise behavior, but is that to say that if the demand profile changes, the cost base is relatively rigid in that sales and marketing bucket? -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [16] -------------------------------------------------------------------------------- Sorry, James, let me pick up on that one. So yes, let's break it down. If you look at our run rate part of our Australian business, which is our small and medium customer part of the business, that has got a stable investment base, and we're seeing very good performance through what would otherwise should have been a very challenging period for small and medium business. So demonstrates that our customers are requiring remote access to sites. So that is working well. In the enterprise segment, it -- there was some slowing there, as we mentioned, somewhat driven by 2 specific downgrade events. Those customers, as we said, going through restructure, et cetera. So as a cost base going forward, we're comfortable with in Australia. And as we see enterprise growth in Australia and as we deliver higher-value solutions to our customers in Australia, we may tweak the investment in sales and marketing in Australia. But at this stage, we're relatively comfortable with where it's at. -------------------------------------------------------------------------------- James Bales, Morgan Stanley, Research Division - Equity Analyst [17] -------------------------------------------------------------------------------- And is 100% still the target? -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [18] -------------------------------------------------------------------------------- Look, we always work towards the 100% target. So I believe that our team there is performing very well. And as we return growth in the enterprise segment of the Australian market, that is a reasonable expectation. -------------------------------------------------------------------------------- James Bales, Morgan Stanley, Research Division - Equity Analyst [19] -------------------------------------------------------------------------------- Right. And then I guess the flip side of that was the really strong performance in the U.S. and how fast that turned around. Is there any reason that you guys see in the second half that, that shouldn't be sustained? Or any sort of adjustments we should make to our thinking there? -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [20] -------------------------------------------------------------------------------- Look, I think we'll go back on what we know, which is the performance in this first half is driven by our understanding of the insurance, local government and roofing verticals. And we obviously had very strong performance in the first half. We always need to recognize, particularly in the insurance and the roofing segments, that those are larger customers and timing of enterprise dealers can affect performance in a particular half. But we're confident that -- and again, by our guidance range and guiding towards the upper end of that range, that we're confident we should see continued performance in those verticals in the second half. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- And we'll go ahead and take our next question from John Campbell with Jefferies. -------------------------------------------------------------------------------- John Campbell, Jefferies LLC, Research Division - Equity Analyst [22] -------------------------------------------------------------------------------- And yes, look, just focusing again on North America and your focus on the 3 verticals. Is there -- or how much risk, I guess, going forward with your focus on those 3 verticals that your existing revenue base in the other verticals that you're putting less emphasis on sort of dissipates over the next few years? I mean, is that going to be much of a drag on your performance? -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [23] -------------------------------------------------------------------------------- Yes. Thanks. That's a good question. Actually, if you look at what we're delivering to all the other industry verticals in North America, we're still seeing very good growth there, and that's really unchanged. And in fact, some of the developments that we will do for insurance and local government and roofing will carry across to the other verticals. Some of the things we're doing, for example, for roofing can carry across into solar and into construction. So we actually think of that other commercial group has really -- it has a good opportunity to continue to grow. We should see it continue to grow over time, and it will be the kind of breeding ground of other verticals, which we could then take and focus on. We've got at this time, focusing just on the 3 verticals was enough for us given the size of our company. But as we grow overall and see other verticals emerge from that commercial group, we'll look to invest in those as well. So no, we should not see that be a -- so the short answer is we should not see that be a drag on our business. It's a valuable contributor to our North American business and obviously being the heart of our Australian business. -------------------------------------------------------------------------------- John Campbell, Jefferies LLC, Research Division - Equity Analyst [24] -------------------------------------------------------------------------------- Okay. So you certainly wouldn't expect to see, let's say, negative growth rates out of that other category. -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [25] -------------------------------------------------------------------------------- No. No, it may not have the same growth rate as the other categories at this point in time, but it will continue to grow and with positive growth. -------------------------------------------------------------------------------- John Campbell, Jefferies LLC, Research Division - Equity Analyst [26] -------------------------------------------------------------------------------- Yes. Okay. And just sort of a forward-looking question a bit beyond FY '21. So the HyperCamera3 is going to be launched in '22 -- financial '22. And clearly, what you've said to date on the HyperCamera3 is that the productivity benefits are very substantial. You certainly haven't said anything in terms of what it means for capture costs, but you could infer that if you wanted to, you could reduce capture costs potentially quite considerably if you kept capturing essentially the same imagery with the same frequency. Can you just give us a bit of an indication on how you see the type of chemistry playing out as it impacts capture costs? -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [27] -------------------------------------------------------------------------------- Yes. Thanks, John. Good question. Look, theoretically, it is possible to do what you were suggesting, but that is not our intention. We will continue to operate HyperCamera1, HyperCamera2 in all of our markets, and we will add HyperCamera3. Now given the operating flexibility of HyperCamera3, that -- it will allow us to capture more content, for example, at the same quality or slightly improved quality from what we have today, or alternatively, we could fly at our current altitudes and actually capture much higher resolution imagery using HyperCamera3. So what -- the short answer to your question is you should expect to see higher value content, either through more coverage, more frequency or higher resolution delivered in FY '22 as a result of introducing HyperCamera3. -------------------------------------------------------------------------------- John Campbell, Jefferies LLC, Research Division - Equity Analyst [28] -------------------------------------------------------------------------------- Right. So given that and given either the richer content, either better resolution or just more content, I presume that you would say that your -- the differential between your service offering and competition, it will be a step change once you get the HyperCamera3 fully operational across a full year and beyond. -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [29] -------------------------------------------------------------------------------- Yes, that's right. I mean we're already a step change ahead of any other player in the market as demonstrated by the consistency with which we deliver high-resolution content and frequently update it, and nobody has been able to replicate that model. So then with HyperCamera3, just as you said, steps us ahead even further, and we've not seen any evidence of any other player being able to replicate that. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- We'll go ahead and take our next question from Ash Chandra with Goldman Sachs. -------------------------------------------------------------------------------- Ashwini Z. Chandra, Goldman Sachs Group, Inc., Research Division - Equity Analyst [31] -------------------------------------------------------------------------------- Just a couple of questions from me. In the context of the COVID environment in the U.S. being considerably different to what we're experiencing down under, is it cleared in the way that your business has been operating as to which parts of the U.S. have been open and which have been shut in terms of where you've had momentum or otherwise? And if it is, could you share some anecdotes as to geographically where you're noticing strength and weakness resulting in the aggregate numbers that you've reported? -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [32] -------------------------------------------------------------------------------- Maybe I'll pick up on that, Ash, and then -- thanks for the question, by the way, and then Andy might be able to give a little more color. Listen, we're not seeing geographic difference per se. And remember that the verticals that we're focused on, they need to continue to operate independent of the COVID environment. And in fact, in many respects, having our solutions available for the insurance industry, local government and roofing allows them to work remotely. And you've still got to underwrite a property, you still have to do claims adjustment, for example, in the insurance vertical. So local government has to provide services independent of the environment. So in many respects, and I kind of mentioned this a little bit in my opening remarks, having a solution that enables remote working has really helped those verticals that we're selling to. So I don't believe I've seen -- noticed any geographic difference. -------------------------------------------------------------------------------- Ashwini Z. Chandra, Goldman Sachs Group, Inc., Research Division - Equity Analyst [33] -------------------------------------------------------------------------------- So would that mean that the softness, I guess, that you've had in terms of new sales, is that just a broad uncertainty, just perhaps weighing on enterprise demand or enterprise signing of contracts? -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [34] -------------------------------------------------------------------------------- Yes. Look, I think there's 2 factors there. One is our typical approach is to go into an account. These large accounts, typically, when we're selling to insurance or larger local governments, they might start with a small subscription first and then upgrade later. And if you look back over our history half-on-half, sometimes upsell is larger, sometimes new business is larger. So it just reflects the fact that our accounts are larger now. And there may have been a COVID impact in slowing new enterprise sales, but I don't think that's the primary factor. I think it's just how our business works, which is sometimes we have more land, sometimes we have more expand. -------------------------------------------------------------------------------- Ashwini Z. Chandra, Goldman Sachs Group, Inc., Research Division - Equity Analyst [35] -------------------------------------------------------------------------------- Got it. And could I ask just in the context of some of the topics touched on in that short report? Could you elaborate on the competitive landscape as you're seeing it in terms of the wins that you had, the upsells that you had? Yes, is there much you could sort of share in terms of where you're seeing the competition come from? Is pricing pressure starting to manifest itself in any way, shape or form for retention or upselling activities? -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [36] -------------------------------------------------------------------------------- No. Thanks, Ash. Look, really good question. I actually think if you look at our results, particularly in North America, it's demonstrating that we're taking share. And that only happens because you have a leadership product, a really good business model and something that the customers want. And I think the fact that each of the 3 verticals we're focusing on, we saw very strong growth in those verticals over the past 6 months and over the past year, in fact, as well, right? So have we seen competition respond to that in a way? No, I think we've got, as I said, differentiated solution from a technology and product point of view as well as a differentiated solution from a business offering point of view and we're well positioned in the fact that we're taking share, I think demonstrates that we're actually leading in that market. -------------------------------------------------------------------------------- Ashwini Z. Chandra, Goldman Sachs Group, Inc., Research Division - Equity Analyst [37] -------------------------------------------------------------------------------- Got it. And if I could just sneak in one last question before I jump in the queue. The $15 million in second half investment that you're flagging, is that a -- sorry, if I misunderstood the release, but is that a CapEx or an OpEx or a mix of the 2? And if it is, could you just perhaps elaborate or clarify how that splits up? -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [38] -------------------------------------------------------------------------------- I'll take that one, Ash. Yes, so the $15 million is a combination of OpEx and CapEx in support of those 3 initiatives that we outlined at the time of the capital raise. So there will be some CapEx in terms of some of our systems and the continuing sort out of the HyperCamera3 systems. There'll also be the capital elements of development for our deeper vertical solutions. But there will also be an operating aspect to that investment through sales and marketing and through additional headcount and other areas of the business. It's a combination of the 2, Ash. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- We'll go ahead and take our next question from Owen Humphries with Canaccord. -------------------------------------------------------------------------------- Owen Humphries, Canaccord Genuity Corp., Research Division - Senior Industrials Analyst [40] -------------------------------------------------------------------------------- Just a quick one on the $15 million -- up to $15 million investment into growth initiatives in the second half. Can you talk me through how much of that's basically cost going back in that was adjusted in the middle of last year? -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [41] -------------------------------------------------------------------------------- Yes, Owen, it's a pretty simple answer to that question. It's -- the majority of that cost is new cost in support of those initiatives. So very little is that cost back in. When we made the cash management initiatives, we made that decision to run the business on the resources that we had. And you can see through the first half performance the success we've had. The investment we're looking to make through the second half of this financial year is in support of those growth initiatives specifically around the scalability of our systems, the new camera system and deeper vertical solutions with sales and marketing as well. So it's very much new investment into the business in support of growth. -------------------------------------------------------------------------------- Owen Humphries, Canaccord Genuity Corp., Research Division - Senior Industrials Analyst [42] -------------------------------------------------------------------------------- Right. Okay. I'm just thinking about the time you're talking about just deferring some of the CapEx programs, reducing the capture program and then the wage reductions through the period. Is that saying that the $15 million in the second half is not included in those, in what you're talking about last year? -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [43] -------------------------------------------------------------------------------- So again, the wage reduction is -- just remember, the cost base through that first half was a nil sum game because we offset the salary reduction with the RSU. So it's a classification aspect through the P&L. So the cost base was fully loaded, if you will, with all those costs. The capture program, there was an element -- we did reduce that slightly, so we will grow that back up. But that's always been part of the path forward. As we've just spoken about as ACV comes to market, that allows us to capture more high-value content for our customers. -------------------------------------------------------------------------------- Owen Humphries, Canaccord Genuity Corp., Research Division - Senior Industrials Analyst [44] -------------------------------------------------------------------------------- Good one. And just moving on, just in Australia as to enterprise clients have downgraded or had a restructure, they're not restructuring to an alternative solution, they're basically just restructuring down the usage of your platform. Is that correct? -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [45] -------------------------------------------------------------------------------- That's right. So one was going through a restructure of their business, one going through -- I guess, as part of the economic slowdown, they were just -- their business case or their business model is slowing down. As we alluded to, our intent there is to work with those customers, continue giving them access to Nearmap, continue supporting them through this period. And obviously, that offers us opportunity going forward with higher-value content that we can support their growth as that comes back to their business. -------------------------------------------------------------------------------- Owen Humphries, Canaccord Genuity Corp., Research Division - Senior Industrials Analyst [46] -------------------------------------------------------------------------------- Good one. And then just lastly on HyperCamera3, if you guys, as you say, extend your technology leadership, which is your core competitive advantage. Just how many are you planning to roll out throughout FY '22 if the prototype goes ahead as planned? And if you fast forward maybe 12 months from that period, what percentage of your capture will be undertaken by the HyperCamera3 solution? And maybe, obviously, J Cap was targeting your -- a bit about your camera technology. Can you maybe, for the group in the call, talk about your cost effectiveness maybe on a per square kilometer covered versus what your peers would be? -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [47] -------------------------------------------------------------------------------- Yes. Thanks, Owen. So there's a few parts to that question there. So look, as we get to the point where we're getting to the development stage of that system, as we've spoken about, we will begin to roll those systems out through the course of FY '22. As Rob said, we continue to fly our HC1 systems and our HC2 systems. We'll complement that with HC3. So there'll be a number of new systems that come to market. And we'll determine the absolute number based on, obviously, the demand profile and our coverage requirements at that point in time. So we're still working through how many. But given where we are in the development cycle, you can expect those to come to market in FY '22. In terms of that percentage, I mean, the reality will be that we will not build any more HC1 and HC2s, but we will add HC3s to the fleet as it were. And over a period of time, that will become the dominant camera system that we fly. So that's our plan and our expectation. Just in terms of cost effectiveness, we've spoken previously about being able to fly -- the HC3 allows us to have operational flexibility. We can fly twice as high and capture the same resolution or image or we can fly the same altitude and capture higher-resolution imagery. So it gives us a whole bunch of options depending on the use cases and the customer demand that we're seeing in front of us. Our capture efficiency due to gross margin, again, we've spoken about many times in the efficiency of that, the fact that our $4 million cost base in Australia can support our $66 million portfolio. And you can see the leverage that we're beginning to see through the North American business as well. So the efficiency and effectiveness of our camera system versus the competition is significant. Obviously, it's more appropriate and bigger than our system. But as we roll out HC3, that gap, that technology leadership position and that efficiency will only improve ever further. -------------------------------------------------------------------------------- Operator [48] -------------------------------------------------------------------------------- We'll go ahead and take our next question from Callum Sinclair with Macquarie. -------------------------------------------------------------------------------- Callum Sinclair, Macquarie Research - Analyst [49] -------------------------------------------------------------------------------- A lot of questions have been asked, but maybe if we can just go back to North America, the result was solid, but some of it's from cost reduction. I'm just trying to understand how much of these savings stay in the remainder for the second half in FY '22. And as an extension to that, just with the sales team contribution ratio back above 100%, is that, achieved for more sales staff to accelerate ACV growth in that market? -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [50] -------------------------------------------------------------------------------- Yes. Thanks, Callum. So look, I think as we've spoken about previously, when we made the cash -- went through the cash management initiatives back in April, we brought the cost base down to a level we thought was sustainable for us going forward. And the results in that first half really demonstrate the returns that we've been driving through investments, through sales and marketing and through our new content types. And so the cost base, and again, the answer to one previously, we offset the seller reductions with share-based payments, so the cost base was pretty much fully loaded. So you can expect based on success that we will invest back into the business in support of those deeper vertical solutions, in support of going deeper into sales and marketing, in support of those vertical markets as well. So the increase that you can expect to see through the second half and into FY '22 is on the back of the strong performance that we've delivered through the first half on the back of the efficiency and the contribution that we're seeing through our sales and marketing teams and the success that we can see in front of us. -------------------------------------------------------------------------------- Callum Sinclair, Macquarie Research - Analyst [51] -------------------------------------------------------------------------------- Great. And maybe as an extension to that, just do you feel that you need to get North America to cash breakeven or positive before entering new markets? And I guess, the timing of HyperCamera3 release and the economics on that, does that change how you think about growing in new markets, whether it be Canada or capturing more regional coverage? And just in terms of the timing and economics, both of those factors. -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [52] -------------------------------------------------------------------------------- Yes. Thanks, Callum. Look, I think as I mentioned in my opening remarks, our focus is very much on North America, Australia and New Zealand. And the opportunity that we have in North America and our rate of growth in North America demonstrates that -- and the size of the opportunity they demonstrate, that's really where our focus should be at this point in time. Now we've always said that we would look at geographic expansion. And there are triggers for that, either customers -- existing customers wanting us to go there. Obviously, having HyperCamera3 makes flying globally more efficient as well. But again, our focus at this point in time is very much on North America, Australia and New Zealand, and we'll continue that focus throughout the rest of this fiscal year and into FY '22. -------------------------------------------------------------------------------- Callum Sinclair, Macquarie Research - Analyst [53] -------------------------------------------------------------------------------- And maybe just last question for me before I jump in the queue. Obviously, there's a bit of focus on HyperCamera3 and you've made some comments already. But you touched on what it can do around flexibility and the altitude, but are there any logistical challenges we should think about in terms of launching that? Obviously, flying at a high altitude operationally, what that means and if there's anything we should think about that impacts the timing or how that scales. -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [54] -------------------------------------------------------------------------------- Look, obviously, flying at a higher altitude and higher speed will mean different aircraft. So I wouldn't call them logistical challenges, it's just part of what we do. We've got a fantastic survey operations team that has been running highly reliable programs globally through COVID, through bushfires and all of these events that have happened over the past 12, 24 months. So no, there's no -- I wouldn't call them challenges, it's just part of -- our team is phenomenal and we're already prepared for the operational flexibility that HyperCamera3 will give us. So no, I don't see any particular issues there. -------------------------------------------------------------------------------- Operator [55] -------------------------------------------------------------------------------- We'll go ahead and hear from John Campbell with Jefferies. -------------------------------------------------------------------------------- John Campbell, Jefferies LLC, Research Division - Equity Analyst [56] -------------------------------------------------------------------------------- Just one more question for me. I know that multiyear deals have remained at around the 42% mark. And I think over the past, you've explained why that share -- why it's sort of sub-50% or not higher as some SaaS companies. Could you just give us a bit of color on whether you -- with your new focus on 3 verticals and presumably going deeper and harder with those customers, whether you think that, that can grow over time? -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [57] -------------------------------------------------------------------------------- Yes. Thanks, John. Good question. Yes, look, I think as we -- particularly in those verticals, insurance and local government in North America, they tend to have -- prefer longer contract cycles. So they'll maybe start with a shorter contract cycle, but as they get comfortable with Nearmap, they always do look for longer contract cycles. So we may see a mix change over time, but I'm not suggesting that in the short period, it will change significantly. But over time, as North America grows as a larger percentage of our overall portfolio and those verticals become a larger percentage of our portfolio, we may see that change. Andy, did you want to add something? -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [58] -------------------------------------------------------------------------------- Yes, I think that's great, Rob. I think you've answered the question well. I'd just add as well that given that we saw in the first half the majority of the growth in new business from the SME businesses, they tend to have shorter contracts. So Rob, as you've alluded to, as we delve deeper or go deeper into the penetration with our vertical customers in those key segments, we can expect that degree of multiyear deals to increase. -------------------------------------------------------------------------------- Operator [59] -------------------------------------------------------------------------------- And we'll go ahead and take a follow-up question from Ash Chandra with Goldman Sachs. -------------------------------------------------------------------------------- Ashwini Z. Chandra, Goldman Sachs Group, Inc., Research Division - Equity Analyst [60] -------------------------------------------------------------------------------- Just one last question for me. The -- and apologies if it's already been asked. The cash costs of capture were down quite dramatically, particularly in the U.S. but also a little bit in Oz. Should we just assume this was a kind of onetime sort of crunching of this spend to reflect the environment and this bounces back to where you were at previously? -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [61] -------------------------------------------------------------------------------- Yes, that's right, Ash. We did build scale efficiencies into our program. We constantly do that, as you're aware. So there were some efficiencies of flying. There was a reduction as part of the initiatives we set out in the second half of '20 just to bring that back. Clearly, our capture program is core to our business, and we'll continue to invest in that in support of the vertical solutions and the vertical markets that we serve. So that will start to increase again over the second half of this year. The first half of the year tends to be a slightly quiet flying period. It's the spring period where we really see the ramp-up in those costs just in terms of the capture program. So you can expect that number to come back, that's right, Ash. -------------------------------------------------------------------------------- Ashwini Z. Chandra, Goldman Sachs Group, Inc., Research Division - Equity Analyst [62] -------------------------------------------------------------------------------- And so -- yes, so there's no change to the commitment that, broadly speaking, you want to be a market leader in terms of frequency of capture. -------------------------------------------------------------------------------- Andrew Watt, Nearmap Ltd - CFO [63] -------------------------------------------------------------------------------- That's right, Ash. Absolutely not. I mean, I think the economics and the position that we have is very strong in the market, and we'll continue to fly and capture as we have in the past, and that will be a core part of our content creation as it has been previously. So that's absolutely right. -------------------------------------------------------------------------------- Operator [64] -------------------------------------------------------------------------------- As there are no further questions, I will now hand back to Dr. Newman for some closing remarks. Thank you. -------------------------------------------------------------------------------- Robert Melville Newman, Nearmap Ltd - CEO, MD & Executive Director [65] -------------------------------------------------------------------------------- Thank you. Appreciate the good questions today, and obviously, a good understanding of where we are as a company. And again, I would like to say I'm very proud of Nearmap. We have through what has been a challenging period macroeconomically and globally. We have delivered an incredible performance, and we've done that with a passionate team supporting us. So thank you again, and look forward to catching up with everybody over the next week. -------------------------------------------------------------------------------- Operator [66] -------------------------------------------------------------------------------- Once again, that does conclude today's conference. We do appreciate your participation. You may now disconnect your phone lines.