DALLAS, TX -- December 12th, 2023 -- ProStar Holdings Inc. (OTCQX: MAPP.F): Stonegate Capital Partners updates coverage on ProStar Holdings Inc. (OTCQX: MAPP.F).
OVERVIEW
ProStar is a leading Precision Mapping Solution provider leveraging the power of advanced GPS, Cloud, and Mobile technologies. The Company uses patented cloud and mobile precision mapping solutions to create software solutions for the critical infrastructure industry. PointMan, the Company’s flagship product, enables the lifecycle management of critical infrastructure assets.
ProStar’s precision mapping technology improves workflow processes and business practices entailed in managing critical infrastructure assets. The Company’s solutions are used by some of the leading Fortune 500 firms from numerous industries, such as construction firms, Subsurface Utilities Engineering (SUE) firms, utility providers, government entities, and municipalities.
The Company’s mobile underground utility mapping services enable capturing, recording, and visualization of critical infrastructure and utility data from a mobile phone. The software offers essential metadata with 1 cm accuracy of underground infrastructure that has the potential to prevent accidental damage to sub-surface infrastructure due to construction activities. Damage to underground utilities can cause electrical and communication outages. Worst-case scenarios can end up costing human lives due to the leaking of poisonous or harmful substances into water resources or even result in deadly explosions. PointMan is designed to prevent these occurrences and improve the safety of employees, the public and the environment.
Company Update
- Material Progress with Hardware Providers: ProStar continues to make meaningful progress among hardware providers, with Radiodetection, an SPX Technologies company, being the most recent example as the PointMan software is now featured in Radiodetection’s RD8200SG manual. This partnership gives ProStar a clear pathway to grow within the Radiodetection ecosystem. Given these current partnership wins we see a clear path for ProStar to add more hardware providers to the partnership list, with TopCon being the largest remaining hardware manufacturer. We believe this continued growth among hardware providers gives ProStar an outsized chance to become the provider of choice among hardware providers.
- New CTO Louis Suchy brings in a new era of technical expertise: Mr. Suchy brings 20+ years of experience in the tech sector in diverse industries including Education, Information Security, and Life Sciences. Prior to joining ProStar, Mr. Suchy held key leadership positions at Kaplan, Prolexic, and Akamai, where he spearheaded product development that disrupted markets and materially increased revenue. Mr. Suchy has been quoted saying “ProStar is uniquely positioned to play a central role in each of our customers unique hardware and software ecosystems. We are a neutral integration point that provides our customers the opportunity to build processes that exactly fit their needs and workflows without having to compromise.” when asked about the role ProStar can play in the market. Mr. Suchy’s contribution is already being felt as the Company is expected to launch its online store before year end. This would allow for increased margins, leading to better pricing and a reduced sales cycle.
- Expansion Leads to Revenue Growth: This expansion in customer base and partnerships is turning into significant growth on the income statement, with YTD revenue increasing 13.4% Y/Y. This is in addition to deferred revenue growth of 28% year over year. We view this as an early sign that the groundwork ProStar has laid will continue to translate into tangible financial results. As ProStar transitions its focus towards sales metrics we expect the cash burn rate to meaningfully decrease due to cost associated with employing sales professionals being lower than tech professionals. The company reiterated its 2024 cash inflow guidance of US$4.5M and a commitment to get to break even on a run rate basis in 2024.
- What’s next: We think it is reasonable to expect significant expansion of the customer base, including further penetration into its existing customer base and increased visibility of the product as PointMan becomes more widely adopted. We think it is reasonable for ProStar to double its customer base over the next 12-18 months given its strong focus on streamlining the sales process. Starting in 2023 the Company began disclosing sales force productivity numbers, which are very encouraging. We note that outreach has more than trippled since 1Q23 with the expectation that outreach will continue to grow sequntualy as sales professionals are added. We anticipate that this will lead to strong growth in top line revenues.
- Valuation: We use a comparative analysis to frame valuation. Using an EV/Sales range of 8.0x to 10.0x with a midpoint of 9.0x, we arrive at our valuation range of US$0.29 to US$0.36 with a mid-point of US$0.32.
