Aerial imaging company Nearmap revealed the worst possible news as it approaches a key takeover vote – it is looking down the barrel of a multimillion dollar revenue hit from two clients who are about to drop or cut back on the use of the company as a services supplier.
Nearmap told the ASX on Monday that two customers would either stop using its software or lower their usage materially, resulting in a possible $6 million hit to its annual contract value (ACV) in the first half of 2023.
Normally that news would have seen Nearmap shares fall out of bed and then some more but they are being underpinned by the agreed-to bid of $2.10 per share from software services company and investor Thoma Bravo.
All the same, the shares slid more than 5% to $1.95, with a lot of that fall in the last hour as some investors wondered if the update might change the bid terms or see the bidder walk.
Nearmap shareholders are due to note on the scheme of arrangement bid on November 25 (next week). News of the impending revenue (and earnings) fall) will help get the ‘yes’ vote across the line, if the deal remains in place after the update.
In its statement on Monday, Nearmap updated the market on continuing legal challenges from rivals in the US and on trading conditions. Those legal challenges will be around past if the takeover does or doesn’t occur.
The company is seeing tougher trading conditions for itself and its clients and has taken steps to retain as much cash as possible up to the end of December.
“Nearmap and its customers continue to navigate the highly volatile global macroeconomic challenges, including the impact of higher inflation and interest rates,” Nearmap started its statement.
“These conditions are presenting challenges to some customers and Nearmap has become aware of the possible churn or downgrade of two customers during the first half of FY23, of potentially ~$6 million.
“In light of these events, Nearmap expects to add net incremental ACV of between $12.8 million and $17.4 million during 1H FY23 (i.e. from 30 June 2022 closing ACV portfolio of $167.6 million, to 31 December 2022) on a constant currency basis. This range is reflective of the likely upper and lower end impact from a churn or downgrade of the two clients noted above.
“Based on our trading performance in 1H of FY23 in both our core markets and reflecting on our expected 1H FY23 ACV range, Nearmap expects that FY23 closing ACV portfolio to be between $195 million and $208 million (on a constant currency basis), depending on market conditions in 2H FY23 and noting a likely positive skew to the second half. This implies an annual growth rate of 16.3% to 24.1% from FY22 to FY23 (on a constant currency basis).
“In light of the broader economic uncertainties impacting customers and noted by other technology companies globally, Nearmap has further prioritised cash preservation through cost management, primarily through the deferral of previously planned hiring activity during 1H FY23, as well as a focus on cash collections (which are expected to be one-off in nature).
“Given these measures, Nearmap currently anticipates an FY23 closing cash balance of between $71 million and $76 million (previously $66 million to $71 million), excluding litigation and Scheme transaction costs.
“Litigation related costs are currently expected to be between $9 million and $11 million for FY23, excluding any claims recently received. As noted in the Scheme Booklet, if the Scheme is not implemented, transaction related costs of approximately $2.78 million are expected to be payable by Nearmap.”
